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Re: [pshenk] why not just print more money?
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This is all very interesting... I never knew how the federal reserve came about, or what precisely it's purpose was. So, the fed is a federal institution yes? You say that the banks control the money (and they control the interest rate also, yes?), has it ever NOT created more currency when congress asks? How often does this happen, if ever?
It's purpose is to fleece the American people by having private bankers create the money instead of the government doing it. It's what they call a "quasi-governmental" agency, although it is owned by the member banks(e.g. Citibank, Chase, Bank of America, etc). The actual interest rate we pay is set by supply and demand, basically from the Treasury auctions and the bond market, although the Fed tries to influence it by setting the various rates it controls. Congress simply spends more than it gets in taxes and the money is created by the Fed buying T bills, so no. Congress does set a limit on how much debt it can create, but they frequently raise it. Right now it's $9 trillion. 
Congress raises its own credit limit
But the real money creation happens at the commercial banks. From the New York Fed's website:
Reserve requirements affect the potential of the banking system to create transaction deposits. If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000). In contrast, with a 20% reserve requirement, the banking system would be able to expand the initial $100 deposit into a maximum of $500 ($100+$80+$64+$51.20+...=$500). Thus, higher reserve requirements should result in reduced money creation and, in turn, in reduced economic activity. In practice, the connection between reserve requirements and money creation is not nearly as strong as the exercise above would suggest. Reserve requirements apply only to transaction accounts, which are components of M1, a narrowly defined measure of money. Deposits that are components of M2 and M3 (but not M1), such as savings accounts and time deposits, have no reserve requirements and therefore can expand without regard to reserve levels. New York Federal Reserve Bank
So really, money is created every time a loan is made and destroyed whenever a loan is paid back. 95% of money works this way, the government and the Fed have only a little influence on it.
Of course, we the people of the United States could petition our Congress to return to a system where the money is created by government permanently and without interest, but we the people don't have enough money to buy our Congress back from the banks. 
It's really quite a racket, creating money out of thin air then charging interest on it.
There's a cute little video on the whole process here: Money As Debt
(This post was edited by joewp on May 9, 2007, 3:44 PM)
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joewp
Teller
May 9, 2007, 12:28 PM
Post #12 of 15
(4308 views)
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Re: [pshenk] why not just print more money?
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