As long as the U.S. military controls the situation then the dollar will remain a currency of demand. Currently the policy of Bush and company is to devalue the dollar so that those countries that are holding on to them will start spending them. The big "if" is if the U.S. military can retain control of the oil in the Middle East. If they do, then the dollar will remain, if they don't then the dollar will loss all value. Sure we are experiencing inflation now, but this may be part of a plan to make the dollar even more prevelent on the world scene. The problem is that in order to maintain the dollars dominence we have to maintain U.S. military might. The big if is "IF" the U.S. is removed as the world's police then the dollar will fall, however, "IF" the U.S. becomes even more powerful, then the dollar will replace even more currencies, backed by the military, backed by oil and any other commodities the U.S. military is capable of dominating. The reality is that eventhough many countries in the Middle East complain about the U.S. military, Saudi Arabia really wants the U.S. there to protect their dominance. They benefit from high revenues from oil sales in addition to little costs to protect their oil fields, American taxpayers do that for them. They are making a fortune from oil revenues, and are currently able to invest in infrastructure for their nation. Osama Bin Laden incredibly intelligent, with very little spent, he has managed to increase the cost of oil and gotten free military protection for his nation's oil. The question is "If" this is what American's want, this is what we are voting for in November. Personally I prefer to spend my money on American infratructure, allow for private investors to build mass transit systems, like in Europe, and screw the oil.
Which is an overview of the money system, with historical references(including Americas), describes the basics of money, and describes the Fed's role in it.
alright dudes never posted here before, have enjoyed reading, but heres my best shot, just recently completed intermediate macroeconomics, economics minor and poli sci major graduate in dec., the IS/LM model explains this situation very easily, IS stands for interest savings, LM liquidity money, this is basically an economic model then expalins how the FED has to increase the money supply in order to lower its interest rate, thats why dr paul is always talkin about m3 and how the fed has decided to no longer make it available, in fact, i was doing homework and was completely stumped just googling around when finally running into the good dr himself. look up the IS/LM and its short run and long run functions and the criminal abuse of the money supply and devalued dollar become way less fuzzy, in the economics classes they dont even try to deny these facts, and its even in the textbooks, and yup belive it or not even Bernanke himself co wrote a textbook "Targeting Inflation" where he clearly matches the fed with the dollar unlike what he said on tv the other day
When the Fed. "lowers rates", what is really happening is they are lowering the target for what is called the Federal Funds rate. This is the desired rate at which the big commercial banks are able to borrow federal funds from one another.
However, this is not an actual "rate" that the Fed. just changes. (That is what the "Discount Rate" is. The Discount Rate is actually the interest rate banks can borrow at directly from the Fed. printing new money.)
The Federal Funds Rate is changed by the Fed. buying or selling securities (bonds, stocks, whatever) on the open market. If the Fed. "lowers" the rate it actually buys securities from the markets with money it prints out of thin air, which means that it is effectively increasing the amount of money in the economy. When they "raise" interest rates, they are actually selling securities and decreasing the amount of money in the economy. (This is what Paul Volker's Fed. did to get us out of stagflation in the 80's.)
Let's use a real life example here. I have an online savings account at a certain bank (and I do, so this has happened to me). When I opened this account, I got 5.15% return on my money, so I was pretty happy. However, every time the Fed. lowered rates, I got a letter from my bank saying that they were also lowering the rate of interest they would pay me for my saving account. Why? Because the Fed. is really increasing the money supply, and this makes my money less valuable to banks, so they don't pay me as much interest on my savings.
This is why Dr. Paul constantly mentions the fact that our "central economic planners" - the Fed. - encourage people to spend, instead of encouraging people to save and generate the capital that our economy needs to grow.
Does that make sense?
If not, I'll check back later to see if anyone has any questions (or corrections, if I made a mistake).
When rates are lowered, it "stimulates" the economy because more people borrow.
When the fed drops its overnight rate to let's say 3%, the banks borrow from the fed at 3% and charge at let's say 6%. If the rate had been 4% and 7%, now with a lower rate, people borrow more. If they borrow more from the bank, the bank must borrow more from the fed. Where does the fed get its money. By printing it.
What is twice as bad though is that when the rate drop so drastically that the banks now get the money so cheap that they are not willing to pay much on savings and on CDs. So if they can borrow from teh fed at 3%, why shoudl they give you any more than that? Usually a lot lower that that. So when people can't earn much on theri savings, they go out and invest it, many times in "mal investment." They feel they ghave to invest it elsewhere otherwise they are not making enough money to even offset cost of living expenses.
Of course that is what happens big time when there is inflation. when dollars sturate the world market, it takes more of them to pay for a barrel of oil, or an ounce of gold, etc. So then there is even more pressure to stop saving and start investing in whatever you can find, ie the housing market.
This is a fairly complicated topic but I'll try to explain it briefly.
The first thing to understand is how a dollar is created. When the Federal government gets a loan from the Federal Reserve, they make a fancy looking bond promising to repay the amount borrowed at a certain interest rate at a certain time. The Fed takes the bond and writes the Federal government a check. The money to back the check is literally created out of nothing. A similar process happens when you or I borrow money from a bank. The important thing to understand is that when money is borrowed from a commercial bank, the money given in the loan is created from nothing.
Raising or lowering the interest rate decreases or increases the rate of borrowing by decreasing or increasing the incentive to take out a loan. Increasing or decreasing the rate of borrowing increases or decreases the rate of money creation because money is created whenever someone takes out a loan.
When Helicopter Ben drops the interest rate repeatedly like he has, there is more incentive to borrow money, meaning that more people will take out loans, creating more money. Since the system of money creation exists (and few aside from Paul supporters will seriously consider a 100% gold standard) the debate really is about the rate of money creation.
I hope this helps, though I understand that I'm not very articulate.
Seems like your take on rate cuts are to entice borrowers, but isn't it more to increase value (through decreased costs) of our products in the global markets (prices more attractive, higher exports, etc...)? The borrowing part is a bi-product of cut interest rates?
You're confusing cause and effect. When the interest rates are cut dollars are created at a faster rate. When dollars are created the relative value of each dollar decreases. This decrease in the dollar's value does make American made goods (what's left of them) more competitive in the global market but that's only an effect, not a cause. The root cause is the creation of dollars, which is caused by people (or the government) taking out loans, which is increased by an interest rate cut. Yes, the borrowing is a byproduct of the interest rate cuts but its the intended byproduct and the reason rates are cut. The rest flows from there.
As a side note, don't expect the drop in the dollar to dramatically increase US exports of manufactured goods. The truth is that we have relatively few goods left to export. If you really want to increase exports you need to rebuild the industrial base first. A drop in the dollar will help with that but it takes a massive swing in the dollar to overcome the VAT system of taxes used by most other countries (in short, the VAT system charges taxes on goods made and sold within a country but not on exports). If we want to rebuild our industrial base its going to require Hamiltonian economics, mainly protective tariffs to at least compensate for the VAT system, perhaps more when dealing with countries like China or India where labor costs are so low.
I'd also like to add that the best source I've found for this kind of information is "The Creature From Jekyll Island" by G. Edward Griffin. The video "Money As Debt" is fairly good and worth watching but it explains things at a child's level (and proposes a poor solution).
goto google.com, click 'more' on top left, click 'video' from the drop down list.
Now this is where it is critical to STAY FOCUSED! Do NOT click on the racy links, the links with cute puppy-dogs, or the sports clips. TAKE CONTROL of what you view.
Anyways, now you are in the video area, and you can enter 'Money as Debt' in the search bar. Watch the vid, then go back to google video. Play with the options a bit. See if you can figure out what the most viewed video on x-mas day was. Watch that two hour video, and see just what a gift it is. You then might enjoy the #2 most-viewed video, also 2 hours long. For more practice, try finding "The Secret Government: The Constitution in Crisis, by Bill Moyers". This experiment will demonstrate the ability to find things made twenty years ago that are just as relevant today as then.
Billy... It's worse than just printing money. The FED 'prints money' by just making computer entries on a ledger. It's sick man. It's like you filling out an application for a loan and just adding three zeros behing your annual income. Get it?
The also have been pumping billions into the economy over the last few months by doing 'repos'. Repo means they are refinancing debt. When they do that its sort of like increasing your home equity loan over and over - adding to the principle and interest. They call it pumping 'liquidity' into the market. Indirectly it helps the bond speculators and the subprime lenders by making more money available to mask their negative balances. But it's just more negative.
There are three basic ways I know of for the Fed. to print money.
1.) They can do it by buying securities on the open market when they lower the Fed. Funds Rate.
2.) They can do it by lowering the discount window, from which the banks borrow directly from the Fed.
3.) The United States Treasury, when it has no money to pay for things, prints phony bonds that the Fed. buys with printed paper money. So, essentially, Congress has the Fed. print money to pay for things we can't afford. This causes inflation. Milton Friedman talks about this in his book "Free to Choose".
So basically, the first two are completely communist and unnecessary in a free market, where you have free banking with sound money, or at least where the monetary base is constant and you remove the banking regulations. George Selgin has written extensively about free banking. You could Google search it or find it at Cato.org.
The third is downright criminal, and if people actually understood how this happens, there would be mass outcry...but they don't, and some people don't care.
I think it sounds confusing to say the Fed "prints" money, like Dr. Paul says: "They create it out of thin air".
They don't actually print any paper bills, the Treasury Bureau of Printing & Engraving takes care of that, just so we can have some spending cash. The Fed as someone above said, justs adds zeros to the books and distributes it electronically, no printing required. I don't think the presses could keep up anyway!
If,if,if...
As long as the U.S. military controls the situation then the dollar will remain a currency of demand. Currently the policy of Bush and company is to devalue the dollar so that those countries that are holding on to them will start spending them. The big "if" is if the U.S. military can retain control of the oil in the Middle East. If they do, then the dollar will remain, if they don't then the dollar will loss all value. Sure we are experiencing inflation now, but this may be part of a plan to make the dollar even more prevelent on the world scene. The problem is that in order to maintain the dollars dominence we have to maintain U.S. military might. The big if is "IF" the U.S. is removed as the world's police then the dollar will fall, however, "IF" the U.S. becomes even more powerful, then the dollar will replace even more currencies, backed by the military, backed by oil and any other commodities the U.S. military is capable of dominating. The reality is that eventhough many countries in the Middle East complain about the U.S. military, Saudi Arabia really wants the U.S. there to protect their dominance. They benefit from high revenues from oil sales in addition to little costs to protect their oil fields, American taxpayers do that for them. They are making a fortune from oil revenues, and are currently able to invest in infrastructure for their nation. Osama Bin Laden incredibly intelligent, with very little spent, he has managed to increase the cost of oil and gotten free military protection for his nation's oil. The question is "If" this is what American's want, this is what we are voting for in November. Personally I prefer to spend my money on American infratructure, allow for private investors to build mass transit systems, like in Europe, and screw the oil.
A few people have
A few people have illustrated the situation well. I have nothing to add but this video:
http://www.youtube.com/wa...
Which is an overview of the money system, with historical references(including Americas), describes the basics of money, and describes the Fed's role in it.
Cheers :)
alright dudes never posted
alright dudes never posted here before, have enjoyed reading, but heres my best shot, just recently completed intermediate macroeconomics, economics minor and poli sci major graduate in dec., the IS/LM model explains this situation very easily, IS stands for interest savings, LM liquidity money, this is basically an economic model then expalins how the FED has to increase the money supply in order to lower its interest rate, thats why dr paul is always talkin about m3 and how the fed has decided to no longer make it available, in fact, i was doing homework and was completely stumped just googling around when finally running into the good dr himself. look up the IS/LM and its short run and long run functions and the criminal abuse of the money supply and devalued dollar become way less fuzzy, in the economics classes they dont even try to deny these facts, and its even in the textbooks, and yup belive it or not even Bernanke himself co wrote a textbook "Targeting Inflation" where he clearly matches the fed with the dollar unlike what he said on tv the other day
When the Fed lowers rates...
...it encourages banks to borrow money that doesn't exist from the federal reserve banks so that they can loan out 10 times that amount.
Read this:
http://www.investopedia.c...
Sure thing...
When the Fed. "lowers rates", what is really happening is they are lowering the target for what is called the Federal Funds rate. This is the desired rate at which the big commercial banks are able to borrow federal funds from one another.
However, this is not an actual "rate" that the Fed. just changes. (That is what the "Discount Rate" is. The Discount Rate is actually the interest rate banks can borrow at directly from the Fed. printing new money.)
The Federal Funds Rate is changed by the Fed. buying or selling securities (bonds, stocks, whatever) on the open market. If the Fed. "lowers" the rate it actually buys securities from the markets with money it prints out of thin air, which means that it is effectively increasing the amount of money in the economy. When they "raise" interest rates, they are actually selling securities and decreasing the amount of money in the economy. (This is what Paul Volker's Fed. did to get us out of stagflation in the 80's.)
Let's use a real life example here. I have an online savings account at a certain bank (and I do, so this has happened to me). When I opened this account, I got 5.15% return on my money, so I was pretty happy. However, every time the Fed. lowered rates, I got a letter from my bank saying that they were also lowering the rate of interest they would pay me for my saving account. Why? Because the Fed. is really increasing the money supply, and this makes my money less valuable to banks, so they don't pay me as much interest on my savings.
This is why Dr. Paul constantly mentions the fact that our "central economic planners" - the Fed. - encourage people to spend, instead of encouraging people to save and generate the capital that our economy needs to grow.
Does that make sense?
If not, I'll check back later to see if anyone has any questions (or corrections, if I made a mistake).
- Caleb
Do you know if Aaron Russo
Do you know if Aaron Russo was working on part 2 of F2F when he died? Someone needs to finish it if he was.
If you aren't already
If you aren't already pursuing one, you should get a career in Education. I learned a lot reading that. Thanks
Glad to help...
...spread the word.
- Caleb
This is a very important
This is a very important point. I didn't include it in my posts above because I was trying to be brief but what you are saying is correct.
when rates are lowered
When rates are lowered, it "stimulates" the economy because more people borrow.
When the fed drops its overnight rate to let's say 3%, the banks borrow from the fed at 3% and charge at let's say 6%. If the rate had been 4% and 7%, now with a lower rate, people borrow more. If they borrow more from the bank, the bank must borrow more from the fed. Where does the fed get its money. By printing it.
What is twice as bad though is that when the rate drop so drastically that the banks now get the money so cheap that they are not willing to pay much on savings and on CDs. So if they can borrow from teh fed at 3%, why shoudl they give you any more than that? Usually a lot lower that that. So when people can't earn much on theri savings, they go out and invest it, many times in "mal investment." They feel they ghave to invest it elsewhere otherwise they are not making enough money to even offset cost of living expenses.
Of course that is what happens big time when there is inflation. when dollars sturate the world market, it takes more of them to pay for a barrel of oil, or an ounce of gold, etc. So then there is even more pressure to stop saving and start investing in whatever you can find, ie the housing market.
This is a fairly complicated
This is a fairly complicated topic but I'll try to explain it briefly.
The first thing to understand is how a dollar is created. When the Federal government gets a loan from the Federal Reserve, they make a fancy looking bond promising to repay the amount borrowed at a certain interest rate at a certain time. The Fed takes the bond and writes the Federal government a check. The money to back the check is literally created out of nothing. A similar process happens when you or I borrow money from a bank. The important thing to understand is that when money is borrowed from a commercial bank, the money given in the loan is created from nothing.
Raising or lowering the interest rate decreases or increases the rate of borrowing by decreasing or increasing the incentive to take out a loan. Increasing or decreasing the rate of borrowing increases or decreases the rate of money creation because money is created whenever someone takes out a loan.
When Helicopter Ben drops the interest rate repeatedly like he has, there is more incentive to borrow money, meaning that more people will take out loans, creating more money. Since the system of money creation exists (and few aside from Paul supporters will seriously consider a 100% gold standard) the debate really is about the rate of money creation.
I hope this helps, though I understand that I'm not very articulate.
You're articulate, just not sure I grasp it yet....
Seems like your take on rate cuts are to entice borrowers, but isn't it more to increase value (through decreased costs) of our products in the global markets (prices more attractive, higher exports, etc...)? The borrowing part is a bi-product of cut interest rates?
Thanks
You're confusing cause and
You're confusing cause and effect. When the interest rates are cut dollars are created at a faster rate. When dollars are created the relative value of each dollar decreases. This decrease in the dollar's value does make American made goods (what's left of them) more competitive in the global market but that's only an effect, not a cause. The root cause is the creation of dollars, which is caused by people (or the government) taking out loans, which is increased by an interest rate cut. Yes, the borrowing is a byproduct of the interest rate cuts but its the intended byproduct and the reason rates are cut. The rest flows from there.
As a side note, don't expect the drop in the dollar to dramatically increase US exports of manufactured goods. The truth is that we have relatively few goods left to export. If you really want to increase exports you need to rebuild the industrial base first. A drop in the dollar will help with that but it takes a massive swing in the dollar to overcome the VAT system of taxes used by most other countries (in short, the VAT system charges taxes on goods made and sold within a country but not on exports). If we want to rebuild our industrial base its going to require Hamiltonian economics, mainly protective tariffs to at least compensate for the VAT system, perhaps more when dealing with countries like China or India where labor costs are so low.
I'd also like to add that
I'd also like to add that the best source I've found for this kind of information is "The Creature From Jekyll Island" by G. Edward Griffin. The video "Money As Debt" is fairly good and worth watching but it explains things at a child's level (and proposes a poor solution).
Money as Debt link:
http://video.google.com/v...
google video
Money as Debt, 47 minutes
Can you post a link?
Thanks
goto google.com, click
goto google.com, click 'more' on top left, click 'video' from the drop down list.
Now this is where it is critical to STAY FOCUSED! Do NOT click on the racy links, the links with cute puppy-dogs, or the sports clips. TAKE CONTROL of what you view.
Anyways, now you are in the video area, and you can enter 'Money as Debt' in the search bar. Watch the vid, then go back to google video. Play with the options a bit. See if you can figure out what the most viewed video on x-mas day was. Watch that two hour video, and see just what a gift it is. You then might enjoy the #2 most-viewed video, also 2 hours long. For more practice, try finding "The Secret Government: The Constitution in Crisis, by Bill Moyers". This experiment will demonstrate the ability to find things made twenty years ago that are just as relevant today as then.
Hope this helps!
BillyBoy...It's just like
BillyBoy...It's just like any supply and demand environment. More dollar bills = greater supply.
More TV's vs. buyers for TV's = lower prices.
Add to that - there is no intrinsic value to dollar bills.
Too much sugar supply on the market=lower sugar prices BUT sugar will never go to zero value.
Too many dollars=lower value. Dollars can get real close to zero. About all they will be good for is fancy toilet paper.
There's more to it... like rising demand for commodities. And countries losing faith in our paper money that has no intrinsic value.
Hope it helped.
Interest rates
The supply and demand aspect is elementary.... How the interest rates cuts directly leads to printing money is fuzzy.
Billy... It's worse than
Billy... It's worse than just printing money. The FED 'prints money' by just making computer entries on a ledger. It's sick man. It's like you filling out an application for a loan and just adding three zeros behing your annual income. Get it?
The also have been pumping billions into the economy over the last few months by doing 'repos'. Repo means they are refinancing debt. When they do that its sort of like increasing your home equity loan over and over - adding to the principle and interest. They call it pumping 'liquidity' into the market. Indirectly it helps the bond speculators and the subprime lenders by making more money available to mask their negative balances. But it's just more negative.
Printing money...
There are three basic ways I know of for the Fed. to print money.
1.) They can do it by buying securities on the open market when they lower the Fed. Funds Rate.
2.) They can do it by lowering the discount window, from which the banks borrow directly from the Fed.
3.) The United States Treasury, when it has no money to pay for things, prints phony bonds that the Fed. buys with printed paper money. So, essentially, Congress has the Fed. print money to pay for things we can't afford. This causes inflation. Milton Friedman talks about this in his book "Free to Choose".
So basically, the first two are completely communist and unnecessary in a free market, where you have free banking with sound money, or at least where the monetary base is constant and you remove the banking regulations. George Selgin has written extensively about free banking. You could Google search it or find it at Cato.org.
The third is downright criminal, and if people actually understood how this happens, there would be mass outcry...but they don't, and some people don't care.
- Caleb
"Printing" money
I think it sounds confusing to say the Fed "prints" money, like Dr. Paul says: "They create it out of thin air".
They don't actually print any paper bills, the Treasury Bureau of Printing & Engraving takes care of that, just so we can have some spending cash. The Fed as someone above said, justs adds zeros to the books and distributes it electronically, no printing required. I don't think the presses could keep up anyway!
Yeah...
You're right.
It's all done electronically now. Oh, the digital tyranny :-)
- Caleb
Look up...
Look up.
I took a long time to post, but mine is at the top :-)