Re: Cheney's Halliburton to Control Iraqi Oil?

Andreas Pour wrote:

> The main way the Fed generates money is on its "overnight loans" ("discount
> window") to banks.  

This a common misconception.  The way that the Fed regulates the money 
supply is through what are called 'open market operations" (as you 
state below).  They buy or sell US Treasury securities.

 > Now this is the critical part, b/c what do you suppose backs
> up these overnight loans to banks?  Well the Fed simply creates a book entry,
> and presto, the money exists.  

It doesn't matter if it is a book entry or if pieces of paper are 
exchanged, the transaction is the same.  The bank gives the Fed its 
notes and the Fed gives the Bank its notes (Federal Reserve notes) and 
  charges the bank interest on the transaction.

 > That is called creating money out of nothing, a
> nice art, but one which the Fed has a monopoly on, so don't try it at home,
> kids.  

You CAN try this at home.  You can make your own note but most people 
won't take it.  So you would probably be better off to go down to the 
bank and exchange it for Federal Reserve notes.  Note that the bank 
will make a charge for this transaction.

> Now when the loan is repaid, the book entry can be removed, but the
> interest is still there, and that goes to . . . the Fed.  It sorta violates the
> concept that someone is paid interest as a reward for delaying consumption (but
> then we are no longer in Economics 101, are we?).
> 
The Fed charges interest to the bank based on the presumption that the 
Fed's note is more valuable than the bank's.

> The Fed also of course has vast sums of Treasury securities, which generally
> fall under its various monetary policies and include "Open Market Operations". 
> How do you think it purchased these?  Where did the asset come from to purchase
> those?  Not with the $11 billion in gold certificates, I am pretty sure ;-). 
> Once the Fed has Treasury securities it can credit some of these securities to
> member banks' reserves, thereby enabling the member banks to lend additional
> money (using the multiple expansion which reserve banking permits).  How does it
> purchase them?  There are several options but the easiest to explain is, it buys
> $100 FRNs at $0.20 apiece and delivers these FRNs to the government in exchange
> for the securities.  As I demonstrated earlier, the Fed can create an infinite
> supply of FRNs for a mere $0.20.
> 
Complete nonsense.  What does it matter how much it costs to print 
Federal Reserve notes?  It is still the Fed's IOU.

> The only real assets the Fed holds is certificates for the gold which was robbed
> from the holders of currency in the 1930s when the US abandoned the gold reserve
> system (though for a time the value of the dollar was pegged to gold) - their
> ownership of gold, which money represented, was replaced with ownership of
> nothing, i.e., fiat money.  But those certificates are worth less than $50
> billion and in fact there is significant uncertainty as to whether in fact the
> gold which those certificates supposedly represent still exists.
> 
> Now if you want to claim for what I can redeem my Federal Reserve Notes at a
> Federal Reserve Bank, other than more of the same, then I will be most deeply
> grateful to you for that elucidation.  AFAICT, or anyone I have consulted can
> tell, you cannot convert your FRN into a debt asset or any other asset for that
> matter, and the Fed, if you read its website, will tell you so .
> 
No, but the US Treasury will exchange your Federal Reserve notes for 
US Treasury bills.

> But you have not mentioned in the first place how the Federal Reserve Bank can
> be constitutional when in Article I, section 1, clause 8 the US Constitution
> quite clearly assigns exclusively responsibility for that ("[t]o coin money
> [and] regulate the value thereof") to Congress, not the international or even
> domestic bankers.
> 
Well it is there that you are wrong, the Fed is not coining money. 
The US Treasury actually coins the money.

Actually as a practical matter, it is better to have an independent 
central bank to keep the government's hands off of the printing press.

--
JRT


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