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Thread: Is Trump About to End the Federal Reserve?

  1. #11
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    Here's an interesting idea concerning the Fed I've been reading about lately:

    For most of human history money has represented real value, as in gold or silver coins, or paper money redeemable for gold. A farmer selling a cow would receive value for that cow in the form of money, never having to doubt the authenticity of the payment. The reason is governments would only produce the amount of money equivalent to their reserves, assets that were most often in the form of gold.

    Today we still use money for transactions and still believe it has real value, but there is no one-to-one connection to the government's reserves. It's not really tied to anything concrete you can put your hands on, and we can't verify it's underlying collateral in hard assets. In this sense it is funny money.

    But this is not new in history, from time to time governments have just printed more and more money until it reached the point it wasn't even worth the paper it was printed on. This has usually been followed by a government collapse with a new regime being installed.

    --------

    However, with the Fed there is a twist to the story. And that twist is that money in the U.S. is only created as debt. "Sure we'll print you up a trillion dollars but along with that you get an IOU. Take your time paying it back, just don't forget about the vig."

    If you open up your wallet and look at a dollar bill you're not looking at something with real value, you're looking at debt created by someone somewhere. Maybe someone got a personal loan from their bank, who pushed a few buttons and added some digital money into their account. The personal loan can then turn those digits into cash, a dollar of which ended up in your pocket.

    Where did the bank get the digits to transfer into your account? Ah, now we're into fractional banking.

    --------

    Say a bank has a million dollars in their vault, due to fractional banking they are allowed to loan out ten times that amount to their customers. The term means they only need a fraction of the money loaned out in real assets to back up those loans.

    It's a nice gig if you can get it, but things can get dicey if you create a bubble. We know what happens to bubbles.

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  3. #12
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    jirqoadai's Avatar
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    Quote Originally Posted by Foghorn View Post
    Here's an interesting idea concerning the Fed I've been reading about lately:

    For most of human history money has represented real value, as in gold or silver coins, or paper money redeemable for gold. A farmer selling a cow would receive value for that cow in the form of money, never having to doubt the authenticity of the payment. The reason is governments would only produce the amount of money equivalent to their reserves, assets that were most often in the form of gold.

    Today we still use money for transactions and still believe it has real value, but there is no one-to-one connection to the government's reserves. It's not really tied to anything concrete you can put your hands on, and we can't verify it's underlying collateral in hard assets. In this sense it is funny money.

    But this is not new in history, from time to time governments have just printed more and more money until it reached the point it wasn't even worth the paper it was printed on. This has usually been followed by a government collapse with a new regime being installed.

    --------

    However, with the Fed there is a twist to the story. And that twist is that money in the U.S. is only created as debt. "Sure we'll print you up a trillion dollars but along with that you get an IOU. Take your time paying it back, just don't forget about the vig."

    If you open up your wallet and look at a dollar bill you're not looking at something with real value, you're looking at debt created by someone somewhere. Maybe someone got a personal loan from their bank, who pushed a few buttons and added some digital money into their account. The personal loan can then turn those digits into cash, a dollar of which ended up in your pocket.

    Where did the bank get the digits to transfer into your account? Ah, now we're into fractional banking.

    --------

    Say a bank has a million dollars in their vault, due to fractional banking they are allowed to loan out ten times that amount to their customers. The term means they only need a fraction of the money loaned out in real assets to back up those loans.

    It's a nice gig if you can get it, but things can get dicey if you create a bubble. We know what happens to bubbles.
    we tossed the idea of " money " having real value when we never prosecuted people from taking our coinage overseas to be horded or for melt. started this shit show in 1792

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    Foghorn (05-21-2020)

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