abolish the Federal Reserve?

[Hydroblunt]

Quote from BJL:


You suffer from the popular misconception that banks can create money out of thin air, which they cannot.

No, but they can do pretty damn close. And if you did your research on the beginning of banking, you would see that they can print money, at least until the farce is caught on. Hence bank runs.

A central bank protects all that. Now if you go and check just exactly how the system between the Fed and US debt works, you might come to the conclusion that the banks can print money.

 

[Hydroblunt]

Quote from ShoeshineBoy:

Always, always remember that if there a range of possible solutions to a major problem, the federal government will choose the worst possible solution that will plague our country for generations to come.

That's an illusion. Someone else is pulling the strings.

If there is one thing you don't want in this life it's the Uncle Sam running the money supply. The Fed isn't perfect to say the least - I personally believe they cause some of the economic ills we experience - but they're largely working for the banks and the banks have a vested interest in a reasonably healthy economy.

No person who really owns a bank and understands why & how banks work has any real interest in support the pieces of paper floating around. That's not how fortunes are made, or better put, transfered.

Also, keep in mind that the rest of the world runs their economies the same way, i.e. with a reserve system, and many are highly successful. The fact we have failed of late does not mean that reserve systems cannot work but rather that we have some underlying lessons that we have ignored...

Until you truly understand the history & roots of banking, you will NEVER truly understand how the world runs and why most of the world has a central bank.

It's just basic math at the end of the day. All the money under the Fed system is debt. So how is it ever possible to repay the interest?

 

[hulkgogan]

Quote from bluud:

bank of (A) has $450,000

bank of (A) loans out 450K to ten home purchasers who have put down 50K

after a few months, the home owners are incapable of paying the mortgage

bank of (A) sells all ten houses at 450K

buyers loose their 50K

bank of (A) earns 4.5Million through all sells (net profit $4 Million)

bank of (A) now loans out $45 Million (10 x 4.5 Million) to 100 people who want to purchase a home

am I missing something?

Quote from bluud:

can anyone provide an answer for this

Well for one your math is wrong. Following your example and assuming no transaction costs:

Bank lends ($450K*10) = $4.5 mil
Bank receives collateral of $50K * 10 = $.5 mil
Bank then assumes ownership after owners default and immediately sells:
$450K *10 = $4.5 mil
profit: $4.5 mil - 4.5 mil + .5 mil = $.5 mil

In this case profit is strictly the owners' collective forfeit deposit. I'm not sure how you figured the bank's outlay was $50K * 10; the bank has to pay the house builders $450,000 each, not $50,000.

Also, as bank only has $450,000 of collateral and needs to lend $4.5 million it will have to borrow the $4.5 mil from other banks. In our system that other bank is often the Federal Reserve. The Fed would only lend to the bank if it had the required reserve ratio which in this case it does. In your example the retail bank is printing money which it doesn't have the legal authority to do.

Now the above is missing one important principle of fractional-reserve banking. Assume your bank A is the only bank that exists and for simplicity there is only one house involved. In which case the flow would be more like Bank A loans $450K to consumer and consumer deposits $50K. Consumer then pays builder $450K. Builder A deposit the $450K in bank A and withdraws only $100K. Now assuming the consumer didn't default, bank A now holds a mortgage of $450K and has a reserve of $50K (consumer) + 350K (builder) which it can use to make more loans. So it lends $450,000 and immediately get's back $400,000. That's fractional-reserve banking. Now keep going. Imagine the builder takes his $100,000 to pay his men. Where are they going to put their money?

 

[BJL]

Quote from Hydroblunt:

Hey genius, a central bank is actually a communist concept.

Wow. King William was a communist?

 

[buzzy2]

Quote from BJL:
Wow. King William was a communist?

If you define communism as a system where the government systematically expropriates its citizens private wealth...YES!!

“It is significant that the Bank of England was launched to help the English government finance a large deficit. Governments everywhere and at all times are short of money…The reason is simple: unlike private persons or firms, who obtain money by selling needed goods and services to others…Governments can only obtain money by grabbing it from others, and therefore they are always on the lookout to find new and ingenious ways of doing the grabbing. Taxation is the standard method; but, at least until the twentieth century, the people were very edgy about taxes, and any increase in a tax or imposition of a new tax was likely to land the government in revolutionary hot water.” –

Murray Rothbard – The Case Against the Fed.

King William was broke after the war with France and needed a new scam to get the money he needed, as King Charles II had already used all known schemes. So the bankers came up with the central bank idea, where the King got the money he wanted, the bankers profited handsomely and everyone else got screwed.

 

[telozo]

Quote from joemiami:

Like was said in an earlier response to this thread..many other countries have a central bank to control the "speed limits" of our economic health. Some of you believe that we are supposed to live in a utopia type economic setting where interest rates, moneyflows, and other variables are always in perfect rhythm. Thats just not realistic. Stop dreaming ppl..and use the FED to ur advantage when you trade. If you dont know how to do that..look for something else to do. The Fed is here to stay, so just deal with it......

Actually there aren't that many countries that have an independant central bank. It all started with England, moved to USA, and, after the war, transplanted into Germany and Japan.
Not a lot of people know that the current Federal Reserve is the third american central bank, and that the other two caused so much trouble that Congress didn't renew their charter, but that was long ago, when Congress was still working for the people.

 

[telozo]

Quote from bluud:

bank of (A) has $450,000

bank of (A) loans out 450K to ten home purchasers who have put down 50K

after a few months, the home owners are incapable of paying the mortgage

bank of (A) sells all ten houses at 450K

buyers loose their 50K

bank of (A) earns 4.5Million through all sells (net profit $4 Million)

bank of (A) now loans out $45 Million (10 x 4.5 Million) to 100 people who want to purchase a home

am I missing something?

Actually a bank cannot create 10 times the money in reserve in one shot, and that is because they have to make good for the promise of paying back to whomever presents the check they issued back to them.
The guy who gets the credit actually uses that bank note - a check - to pay someone else, and that someone else will take the check, deposit it into his own bank, and that bank will demand the first bank to redeem the check. If banks will just issue checks like that, in short term they will go bankrupt, but they do stretch it a lot, and sometimes they do go bankrupt, and if the bank is big enough the government will bail them out at the taxpayers expense.

 

[buzzy2]

Quote from telozo:

Actually a bank cannot create 10 times the money in reserve in one shot, and that is because they have to make good for the promise of paying back to whomever presents the check they issued back to them.

This is soooo wrong. Check back your macroeconomics 101 textbooks, or just look it up on wikipedia:

Deposit Multiplier Example

It is sometimes said that banks make tremendous profits through the deposit multiplier effect. One should however keep in mind that for every additional fraction of deposit banks not only have additional income from extra advances but also extra expenses as extra deposits are their liabilities. For example, a reserve of $1,000,000 will allow banks to make almost $9,000,000 of advances. They will receive income on 9x the reserves, but also pay interest on 10x the same reserves as well.

Assuming a 10% reserve ratio requirement, 4% on deposits and 6% from advances (loans), net interest income is ultimately tending towards 14% of the reserves, which is 9x the 2% spread between interest received minus interest paid, minus the 4% interest paid on the deposits which make up the reserves itself.

An example of the creation of new money in the USA

The following steps describe one way that new money can be created in the USA.
(...)
In the example above, federal government runs a deficit of $1,000,000 in order to increase money supply by $10,000,000. This is not necessary. In principle, Federal Reserve may buy Treasury securities directly from any one of primary dealers.


http://en.wikipedia.org/wiki/Money_multiplier

 

[bid83]

JFK passed executive order 11110 in June of 63. He tried to put the Fed. out of business. He was gone six months later.

http://64.233.167.104/search?q=cach...xecutive+order+11110&hl=en&ct=clnk&cd=1&gl=us

 

[telozo]

Quote from buzzy2:

This is soooo wrong. Check back your macroeconomics 101 textbooks, or just look it up on wikipedia:

Deposit Multiplier Example

It is sometimes said that banks make tremendous profits through the deposit multiplier effect. One should however keep in mind that for every additional fraction of deposit banks not only have additional income from extra advances but also extra expenses as extra deposits are their liabilities. For example, a reserve of $1,000,000 will allow banks to make almost $9,000,000 of advances. They will receive income on 9x the reserves, but also pay interest on 10x the same reserves as well.

Assuming a 10% reserve ratio requirement, 4% on deposits and 6% from advances (loans), net interest income is ultimately tending towards 14% of the reserves, which is 9x the 2% spread between interest received minus interest paid, minus the 4% interest paid on the deposits which make up the reserves itself.

An example of the creation of new money in the USA

The following steps describe one way that new money can be created in the USA.
(...)
In the example above, federal government runs a deficit of $1,000,000 in order to increase money supply by $10,000,000. This is not necessary. In principle, Federal Reserve may buy Treasury securities directly from any one of primary dealers.


http://en.wikipedia.org/wiki/Money_multiplier

That is my point too, that banks cannot just like that multiply the reserve by 10, but they do create money out of nothing and earn a RISK FREE profit on it, and then do it all over again. Tell me of another legal business that can do that.