demoman_chaos said:
Viptorian said:
You have no idea how the Federal Reserve works, do you?
Yes I acutally do. The FR loans money to the government in exchange for bonds which gather interest (not sure what the going rate is so we shall say 15% for arguments sake). Every dollar in circulation cost the government $1.15. Were does that 15 cents to pay the loan back come from? From the Federal Reserve of course since they have a monopoly on the dollar making business. Which means another dollar taken out raising it to $2.30 and so on. The government had to arrange a way to pay it back, and they did. Income tax was born to pay their debt. Part of your paycheck is literally going into the pockets of these bankers, all because the politicians had no honor and let themselves be bribed.
Note that the US Constitution says congress has the right to coin money. Coins have real value since they are made of something of value. Before the gold siezure in the 1930's (I am fairly certain it happened in the 30's, I know it was sometime during the Great Depression), the dollars were backed by gold so they had value. You could trade dollars in on gold. Nowadays they are as worthless as monopoly money. They have value beause we say it does. You can print as much stamped paper as you want, but you can't make more gold.
Incorrect.
First off, the ending of Gold Standard was in the 1970s, under President Nixon. To boot, you can not print as much money as you want, because this lowers the value of the existing dollars (called inflation). Ask post-war Germany or present day Tanzania (edit: I meant Zimbabwe) how hyper-inflation works out. It's a damn disaster.
Technically, dollars are not worth nothing; they are backed by the full faith and credit of the United States. If something has "explicit backing," such as treasury bonds (those are the bonds you were thinking about) or GNMA bonds (Ginnie Mae is the only US Agency with explicit backing, Fannie Mae and Freddie Mac currently have 'implicit' backing, as the US now owns them, for the time being), it is backed by "full faith and credit." This means that the US government will use its taxing and money-printing capabilities to ensure that the owner will have money when they call for payment of the bond.
Now then. The basic function Fed is to set and change monetary policy by increasing or decreasing the money supply by either raising or lowering the interest rate, or by changing the amount of cash that banks are required to have on hand. The affects the rate at which banks lend money to each other. The Fed also lends money to the banks if they need it. All of this has the effect of changing how money is loaned out the the consumer. If interest rates are low, consumers get loans at lower rates, typically. The current problem is that with basement-level rates (federal funds is .25%, discount is .75%, and the prime rate is 3.25%), banks still aren't lending as much because of political uncertainty (amongst other things), this the Federal Reserve has taken unusual steps to try to stabilize the economy, such has buying a crapload of bonds. Some say that the steps they are taking are not really allowed, but that remains to be determined - they did it, so...
Anyway, it is entirely different from what you were thinking, but I don't even remember why I brought it up. Oh well.