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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 2, 2008 - 12:14pm PT
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Here's another simple explanation that include the Feds initial role in multiplying the money. Sorry to bombard people here but we have all these mental assumptions about how things work. It's false but our first mental inclination is to gloss over it, ignore it. I'm hoping if I beat you with a bit, it will sink in
"On every $1 billion that the Federal Reserve receives in bonds from the government, the Federal Reserve Bank is legally allowed to create another $15 billion in new credit to lend to states, municipalities, businesses, and individuals or to give away overseas, to charity or the Iraq War. Added to the original $1 billion in bonds issued in debt, the Federal Reserve Bank has the ability to legally create $16 billion of created credit for interest-bearing loans. The only cost to the Federal Reserve Bank is approximately $1000 spent for printing the $1 billion that was loaned to the Government.
The Society of Bankers create money out of nothing by writing numbers in their ledger books, and then giving loans to the American people with this money. This allows the people to write checks or take cash (Federal Reserve Notes) on the numbers written in their accounts, and then requiring payment with interest. Money is simply numbers. These numbers are posted in a ledger book, on checks, or on dollar bills. Using this process, most banks are legally allowed to lend out up to 50 times of what they have on deposit, creating the money out of nothing and then charging interest on it."
Don't forget, the Fed is a private institution and so are the banks. This country is owned by the money and financial people. It's not terrorist we need fear. We've been kidnapped and don't even know it.
Peace
Karl
Peace
Karl
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WBraun
climber
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Awesome Karl, .... thanks a mil
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JEleazarian
Trad climber
Fresno CA
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Karl,
I need to generate some billable hours, so that I can generate money out of nothing. I'm afraid I'll just have to agree to disagree with you on this.
John
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 2, 2008 - 12:31pm PT
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Again from lower in this link
http://www.freerepublic.com/focus/f-news/888963/posts
(read that whole link, it will blow your mind with it's clear explanation of this crap)
"the mandrake mechanism: an overview
The entire function of this machine is to convert debt into money. It's just that simple. First, the Fed takes all the government bonds which the public does not buy and writes a check to Congress in exchange for them. (It acquires other debt obligations as well, but government bonds comprise most of its inventory.) There is no money to back up this check. These fiat dollars are created on the spot for that purpose. By calling those bonds "reserves," the Fed then uses them as the base for creating 9 additional dollars for every dollar created for the bonds themselves. The money created for the bonds is spent by the government, whereas the money created on top of those bonds is the source of all the bank loans made to the nation's businesses and individuals. The result of this process is the same as creating money on a printing press, but the illusion is based on an accounting trick rather than a printing trick. The bottom line is that Congress and the banking cartel have entered into a partnership in which the cartel has the privilege of collecting interest on money which it creates out of nothing, a perpetual override on every American dollar that exists in the world. Congress, on the other hand, has access to unlimited funding without having to tell the voters their taxes are being raised through the process of inflation. If you understand this paragraph, you understand the Federal Reserve System.
Now for a more detailed view. There are three general ways in which the Federal Reserve creates fiat money out of debt. One is by making loans to the member banks through what is called the Discount Window. The second is by purchasing Treasury bonds and other certificates of debt through what is called the Open Market Committee. The third is by changing the so-called reserve ratio that member banks are required to hold. Each method is merely a different path to the same objective: taking IOUs and converting them into spendable money."
So just think about it. A PRIVATE institution is allowed to create VAST sums of money and profit from the interest. WHY? Should the government (the people) benefit from this huge windfall.
We are so PWNED!
Peace
karl
Edit:
So let's take a look at just one of these ways the fed creates money because it applies to some of the credit stuff going on here and gives some math for TIG to chew on.
"THE DISCOUNT WINDOW
The Discount Window is merely bankers' language for the loan window. When banks run short of money, the Federal Reserve stands ready as the "bankers' bank" to lend it. There are many reasons for them to need loans. Since they hold "reserves" of only about one or two per cent of their deposits in vault cash and eight or nine per cent in securities, their operating margin is extremely thin. It is common for them to experience temporary negative balances caused by unusual customer demand for cash or unusually large clusters of checks all clearing through other banks at the same time. Sometimes they make bad loans and, when these former "assets" are removed from their books, their "reserves" are also decreased and may, in fact, become negative. Finally, there is the profit motive. When banks borrow from the Federal Reserve at one interest rate and lend it out at a higher rate, there is an obvious advantage. But that is merely the beginning. When a bank borrows a dollar from the Fed, it becomes a one-dollar reserve. Since the banks are required to keep reserves of only about ten per cent, they actually can loan up to nine dollars for each dollar borrowed.11
Let's take a look at the math. Assume the bank receives $1 million from the Fed at a rate of 8%. The total annual cost, therefore, is $80,000 (.08 X $1,000,000). The bank treats the loan as a cash deposit, which means it becomes the basis for manufacturing an additional $9 million to be lent to its customers. If we assume that it lends that money at 11% interest, its gross return would be $990,000 (.11 X $9,000,000). Subtract from this the bank's cost of $80,000 plus an appropriate share of its overhead, and we have a net return of about $900,000. In other words, the bank borrows a million and can almost double it in one year.12 That's leverage! But don't forget the source of that leverage: the manufacture of another $9 million which is added to the nation's money supply."
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TradIsGood
Chalkless climber
the Gunks end of the country
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OK, Karl you are starting to Leb/Matt-ify. You started out with how much in deposits at a bank was required to make a loan (commercial banking). Then instead of addressing the answer that pointed out that you were obviously wrong you woohooed into the Central Banking.
So who do you think should run the Fed? Or any or all Central Banks?
No cutting and pasting from web pages.
Who should run a (or all, if you prefer) Central Bank(s)?
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TradIsGood
Chalkless climber
the Gunks end of the country
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Further, Karl.
When did the Fed last lend money at 8%. When could a lender get 11% for one year. What is the maximum term on a loan from the discount window (hint, it ain't a year.)?
What happens if between the time the bank lends for a year and the end of the year, the discount rate is raised to 14% (say for example at the end of month one)?
Is the loan from the Fed secured or unsecured?
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 2, 2008 - 01:13pm PT
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Dude, I was not wrong. You simply fail to see that there are two venues for money creation out of nothing. It starts with the fed, which can turn 1000 into 10,000 and continues with the banks, that can turn 10,000 into 100,000. (total approximates here)
You fail to see that the alleged reserves in the banks are simply the same borrowed money repeatedly deposited from different sources. If it had to be done with paper currency instead of Bank Check IOUs the system would be totally impossible. I concede nothing to you and what you've written.
I cant decide if you are really this thick. It would seem conspiratorial to think you are deliberately obfuscating the entire points of this thread because some don't think people should know the truth.
1. All money is created from Debt
2. The fed and the banks are private institutions that create the money
3. the banks are loaning money that they only 'appear' to have
4. if al the debt money in the country were repaid, there would be no money
5. only constant growth keeps the scam going
The problem with the solution is like many ideal solutions. It's hard to impossible to fight the status quo power with all the money! It might happen in a severe crisis, and we might get there, but they would probably just clamp down.
If everybody really knew what was going on, perhaps we could abolish the fed. Why should a private institution profit lavishly from being the source of money in our system. Why aren't they transparent?
Peace
Karl
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John Moosie
climber
Beautiful California
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Lois, your opinion of Karl is way off base. Certainly we should pay attention to John, but Karl has been citing case after case and so far John has only said he is wrong, he has cited nothing to back up his opinion except that he does this for a living.
Lots of people know how to play the system, this does not mean that they understand what the system is really doing. They make money, so that is all they care about, never bothering to look behind the curtain at who is pulling the strings.
Watch the first video that Juan posted. Its short enough.
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 2, 2008 - 01:19pm PT
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LEB
" If JE.. does this for a living, should not his opinion count for something?"
Let's face it LEB, you don't have the slightest clue about the issues discussed by me in this thread, so why even comment unless you have a source of information?
JE is well meaning but the content of his posts indicate he hasn't dug deep enough and has provided exactly zero documentation to support his view (which acts as if the reserves of banks were limited amounts of paper money instead of overlapping credits of IOU money)
I've shown from numerous documented sources that banks create money in multiples and loan it. Fatty, whose family owns a bank has confirmed it. Somebody dispute it without simplistically contending the same IOU money deposited in the bank is somehow the same is gold or even paper money.
The most important thing I learned at UC Berkeley was to think critically and question apparent authority. I actually have a credential that allows me to teach high school economics but, from what the educational system knows of my economic education, this credential means nothing.
I'm not really being negative here. I'm just insisting that people should understand this most important yet misunderstood reality in our lives. Folks like to be in denial of it. I'm just stating the facts and the links to the facts often contain negative statements because we are in a nasty situation once we understand it.
peace
Karl
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 2, 2008 - 01:28pm PT
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TIG
"When did the Fed last lend money at 8%. When could a lender get 11% for one year. What is the maximum term on a loan from the discount window (hint, it ain't a year.)?
What happens if between the time the bank lends for a year and the end of the year, the discount rate is raised to 14% (say for example at the end of month one)? "
Look TIGGY, these example may come from the 80s but that's beside the point. The point is to understand the process which you have done nothing to refute except by mocking. It's taken me way too much time to present the case so far and I've got to do other work. I'd love to know if anyone has read this thread and learned something about our money system.
Perhaps you, TIG could just put up a bullet list of how the GOV and FED create money and how it pans out through the banking system. That would educate us and show the "Right clear" view of how things work.
Peace
karl
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stevep
Boulder climber
Salt Lake, UT
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This is all a somewhat interesting conversation around fractional reserve banking. But I'd say it's only a small part of the current issue.
Here's a good analysis of perhaps a bigger part of the current issue -- the mortgage backed derivatives that are going bad.
http://www.slate.com/id/2201428/
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yossarian
climber
WA
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Karl,
You stated:
“So just think about it. A PRIVATE institution is allowed to create VAST sums of money and profit from the interest. WHY? Should the government (the people) benefit from this huge windfall.”
Consider the following questions:
1) If the Fed is a private institution, who are the owners?
2) After paying for expenses, where the does the rest of its earnings go?
Mike
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John Moosie
climber
Beautiful California
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"Who owns the Federal Reserve?
://www.federalreserve.gov/generalinfo/faq/faqfrs.htm
The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.
As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.'
.................
Who owns it?
Private individuals who have enough money to buy in and then accept a 6 percent guaranteed interest on their investment. Plus they get to create money which they then loan out and make interest off that. These banks are charted by the US, but owned by private individuals.
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WBraun
climber
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Thanks again to Karl for opening the doors of perceptions.
Experts, blah! What an over rated term!
I work with all kinds of experts ( not talking about sar here ), and they don't know everything either.
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bobinc
Trad climber
Portland, Or
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Lois, just because you either don't understand or don't agree with Karl doesn't mean he is negative. Glad to see, though, you are being consistent with those who decry the "liberal media bias." That is a code for "uh oh, there's something here that actually refers to history or technical issues and I really can't be bothered to figure any of this out."
Take a look at a good little book called Money and Credit: Impact and Control by James Duesenberry of Harvard. Pretty much lays out what Karl has been talking about with actual charts and graphs.
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yossarian
climber
WA
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John,
My understanding is the Federal Reserve is not “owned" by the Federal Reserve Banks in the sense that they do not have complete control. While they do make up the Board of Governors, their influence is in the minority. Furthermore, their stock is also limited, as the only allows for a 6% return with no opportunity to sell. They are the mechanism through which the Fed takes action, but this does not imply ownership. I would think from the Feds perspective, this would be considered an expense, with the remaining profits being returned to the US Treasury.
Just as any bank, the member banks do make money off loans (subject to the same risks).
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Roger Breedlove
climber
Cleveland Heights, Ohio
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Karl, I think that you are overstating your case. It seems to me that you are making a simplified claim--but not incorrect--that cash in a cookie jar and cash from a loans are the same. I think that most economists would agree. Certainly the Federal Reserve has had to change its definitions of and its management of the money supply to account for the amount and kinds of loans being made. The amount of actual cash to run the US economy is much less than it used to be. But that does not in itself mean anything.
It seems to me that what you are arguing is that total amount of leverage is dangerously high relative to the uncertainly of the value of the assets that are supporting the debt. I don't think that many folks would disagree with that. But I don't quite see how making this relatively simple, if painful,(de-levering the economy will be painful), observation complicated by arguing that the Fed has the same ownership structure as a private bank and that private banks create money is very helpful.
Why not just keep it simple and argue your views on increasing the reserve requirements of commercial banks, or adding other financial institutions to the regulated list, or regulating the complexity of the derivatives securities, or increasing the requirements for home purchases or re-financing, or the type of price discovery that the Treasury should follow and the maximum price they should pay for mortgage backed securities that they will soon be buying for our account.
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John Moosie
climber
Beautiful California
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"-that cash in a cookie jar and cash from a loans are the same"
I would disagree with this. In the first, the work has already been done, in the second, the work has yet to be done. So in the first, one is borrowing off what one has, and the second is borrowing off what one hopes to have. This is the beginning of all financial problems and started when we went off the gold standard. Watch the first video that Juan linked.
The result of creating more money by borrowing/loaning off what one hopes to have is more money in the system, which drives up prices and creates inflation.
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 2, 2008 - 03:42pm PT
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Roger wrote
"It seems to me that you are making a simplified claim--but not incorrect--that cash in a cookie jar and cash from a loans are the same. I think that most economists would agree."
I am absolutely not saying that. Nothing like that.
The problem is that we understand neither what loans do or what cash is.
Folks seem to be misunderstanding this thread. This is NOT about the current crisis except that understanding the monetary system is important to try to wrap your mind around where we are financially as a nation.
This thread is meant to discuss and education people on the following issues
Dude, I was not wrong. You simply fail to see that there are two venues for money creation out of nothing. It starts with the fed, which can turn 1000 into 10,000 and continues with the banks, that can turn 10,000 into 100,000. (total approximates here)
You fail to see that the alleged reserves in the banks are simply the same borrowed money repeatedly deposited from different sources. If it had to be done with paper currency instead of Bank Check IOUs the system would be totally impossible. I concede nothing to you and what you've written.
I cant decide if you are really this thick. It would seem conspiratorial to think you are deliberately obfuscating the entire points of this thread because some don't think people should know the truth.
1. All money is created from Debt
2. The fed and the banks are private institutions that create the money (some wiggle room on the Fed but it is NOT a gov Institution and you won't find it in the government listings in the phone book)
3. the banks are loaning money that they only 'appear' to have
4. if al the debt money in the country were repaid, there would be no money
5. only constant growth keeps the scam going
Food for thought but the current crisis is certainly brought on by an additional level of greed, leverage, and securities/derivative abuse.
But it's enabled by this monetary system and if you don't get the system, it's a big mystery. Even I have fallen into the trap of thinking the federal debt should be drastically reduced without considering our entire system is predicated on having a national debt.
Peace
karl
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 2, 2008 - 03:45pm PT
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on the cash and cookie jar issue, the point is this.
Banks loan out money that gets redeposited in banks and used to make further loans. That means that the same money (on a ledger, in theory) is used over and over to make repeated loans. If this were done with cash dollars, it would be impossible because the bank is creating money from nothing with only the illusion that all the money in "reserves" is cash money. Its' the same money multiplied in a economic math environment.
The end result is the a bank can turn $1000 of money into 10,000 of loans and we don't see it or believe it. I hope i proved at least that.
peace
karl
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