The Fed's independence is a double edged sword. Sure, they get the best customer in the world as a borrower, but being a creditor, they can be screwed like any other creditor.

I'm not sure what the big deal is? A lot of complexity and tit for tat bull**** has evolved over the years surrounding a simple function. The right to create money from nothing has to be counterbalanced by the responsibility to create money against valid assets and enterprises, i.e. those that have the ability to pay back the money with interest.

You guys are mesmerized by bull****. The financial industry is largely fraud, smoke and mirrors.

Everyone here knows that function has been corrupted and not only can the Fed, as an independent creditor be shafted, it should be done in a public trial where all the sordid details and back door deals are revealed. When one side of a party violates a contract, the other party is free to do so also.

I can't believe you people think that dealing honestly with a dishonest and corrupt entity is the way to go. At this point only force will work. The law (The Federal Reserve act which has no penalties in it) has quite obviously failed.

Khuber wrote..

2. The ideal is to disperse the money power so it is in the hands of the people- all 300 million plus - and not in the hands of any one group. Not in the hands of the politicians. Not in the hands of the banksters.

Read that outloud when sober?

Publius, not sure if you understand interest, fractional reserve lending, and compound functions.

If you did you'd eat your words.

The end result is a cash flow problem because you can no longer pay your creditors.

The national debate ought to be how much money we will print this year. The national debate for a sovereign ought not be how much we will borrow AT INTEREST.

Lemonaid,

Now, what brought that on? What did I say that possibly warranted that kind of snide response? I mean, really.

Actually, I'm not too shabby at math. Not shabby at all.

I hate to be a di -- uh "Athony Weiner", but I can't help this:

ds^2 = (1 - R/r) (c dt)^2 - [dr^2/(1 - R/r) + (r dO)^2 + (r sin O dPhi)^2]
where R = 2GM/c^2

That's the Schwarzschild metric in spherical coordinates from General Relativity, describing the space-time metric of a spherically symetric gravitating body of gravitional mass 'M'

So, yes I know a wee bit about fancy high powered 'rithmetic.

And I apologize to all for being such an Anthony Weiner.

"No he's not, your're just too busy thinking like a two-dimensional lizard."

I like to think of myself as a three-dimensional lizard.

Finally someone comes along with the balls to say "Screw the Fed".

I can't believe folks here are taking the non-federal no-reserves side.

Quote:

The national debate ought to be how much money we will print this year. The national debate for a sovereign ought not be how much we will borrow AT INTEREST.

You're wrong Lemon.

Printing and taxing are exactly identical; if you print then the standard of living is devalued exactly the same as if you tax from the people. That which you take in purchasing power, whether by taking the money or making it less valuable, is that which the public no longer has.

The correct answer to this is always the same: Zero.

The debate must always be over what services the public wishes government to provide and how to pay for them - that which the public cannot agree on a mechanism to fund is not provided.

Period.

"Here's the way it works. Yes, Treasury pays interest on the bonds the Fed holds, but that interest is immediately returned to Treasury, thus cancelling it out. The result is no interest is paid on the bonds monetized by the Fed. And indeed, now that the Fed bought up all the MBS junk, all that interest goes to Treasury as well, effectively cancelling out even more interest payments."

_______________________
I don't understand this.

Why the need for a middleman?

Somewhere along the way, there's got to be slippage.

So why not cut out the middleman?

I don't think people that advocate printing understand how fast I can move my money out of the dollar.

I have to admit to this one catching me totally by surprise. You would think that with all of Ron's spouting over sound money etc over the years it would be the last thing he would propose. Excuse me while I put on my cape... I am now Alex Jones and I declare this a False Flag Operation!

Ha, but seriously, I am still kind of stunned.

I am wondering if Ron Paul was picked to float this trial balloon? Here is my reasoning. The people who would scream about this the most are the gold bugs. But the gold bugs are most strongly allied with Ron Paul... If Ron Paul was to float the trial balloon, most of the opposition would have been squashed due to the Ron Paul/Gold bug affiliation..

Foil hat returned to Bozonian...

The Fed is several district banks, each with a balance sheet. Each district bank is owned by the member banks in each district. The Fed chairman is nominated as an insider, and is basically rubber stamped by the President/Senate.

As a bank, the Fed can employ leverage. Its now insanely levered.

From Hussman:
http://www.hussmanfunds.com/wmc/wmc11060....
"As of June 1, according to the Fed's consolidated balance sheet, the Fed is now leveraged 53-to-1 ($2.79 trillion in assets / $52.6 billion in total capital)."


What happens in 2 months when there are massive rollovers of debt that MUST take place? I betcha that interest rates go up, bond values go down, and the Fed goes underwater.

Fortunately for the central bank, if it does indeed have losses on its securities, it can put the losses back to the Treasury.

Boy are we f*&^%d.

Lemonaid wrote..

Why does a sovereign sell bonds and pay interest on them? that's not the definition of a sovereign, that's the definition of a subjugate !

Good on ya Lemonaid

Quote:

A sovereign can get money 3 ways: 1) Tax: he puts a gun to your head and makes you give him your money; 2) Borrow: he sells bonds to the market; 3) Print/create new money.

1) and 2) are money supply neutral. Too much of 3) and it's Weimar.

The idea of a central bank is to take option 3) completely out of the hands of the government and the politicians who run it, and let the money supply be controlled independently, supposedly by someone who has stable prices/"sound money" in mind, and not his own interests.

Too much of 3 is indeed Weimar, but so is too much of 2. Extremism in anything, and I mean ANYTHING will not bring good results. I think countries like The fact is we used colonial script in the colonies and it worked quite well (some areas better than others). Pennsylvania was a fine example of how debt free money can indeed work well for an economy. Ben Franklin wrote about it quite extensively.

Lemonaid said it the best, a subject borrows money, a sovereign has the power to create their own money. Obviously this comes with responsibility but whether you have a central bank or not if you spend a lot of money you dont have you will have massive inflation.

I don't disagree with anything you just said Gen.

I understand that. If .gov wants to vote to spend more than it takes in with tax revenues it ought to just print up the cash... interest free.

Cut. The. Bankers. Out.

Quote:

You're wrong Lemon.

Printing and taxing are exactly identical; if you print then the standard of living is devalued exactly the same as if you tax from the people. That which you take in purchasing power, whether by taking the money or making it less valuable, is that which the public no longer has.

The correct answer to this is always the same: Zero.

The debate must always be over what services the public wishes government to provide and how to pay for them - that which the public cannot agree on a mechanism to fund is not provided.

Period.

You and and Lemon are both right. We need to debate and talk about what the roll of government is to be.

But whatever roles that is we shouldnt have to borrow money at interest to accommodate those roles.

Printing is never the correct answer.

Borrowing can be in certain limited circumstances (e.g. actual war.) In short, if you borrow for a capital need that is both temporary and is known to be able to be retired, that can be (isn't necessarily, but can be) ok.

There's a whole other thread devoted to this post:

http://www.dailypaul.com/169592/from-kar....

I bring this up again solely in the interest of discerning the truth.

Apparently, the article misrepresented Paul's views.

Apparently you didn't read the rules about spamming threads.

You already posted this link and you made your claim that Ron Paul didn't say what I cited despite the actual quote in the sourced article.

I also RESPONDED to your previous post.

Repetitively posting the same thing over and over may be permitted in some places, but it's not permitted here.

Moshe, I see your team starts off with insults before even addressing the content. In my book you have lost the argument before it has even started when you stoop to low behaviour such as that because you lack the tools for a real debate. I got one for ya. I am sure Karl Denninger would be more than happy to invite Presidential candidate Ron Paul on for a half hour blog talk to discuss the matter...

Quote:

Borrowing can be in certain limited circumstances (e.g. actual war.) In short, if you borrow for a capital need that is both temporary and is known to be able to be retired, that can be (isn't necessarily, but can be) ok.

I think either you or I are missing the forest for the trees.

I am a new government and I have to to build an interstate system for my new country I just formed. The interstate is going to cost $1 billion dollars. I have two options on what to do,

I can either print the $1 billion and spend the money into existence via the interstate project and let the money weed through the economy accordingly.

The other option is I can borrow the $1 billion at %10 interest and then tax the people to pay the $100 million in interest for borrowing that money. But then the question has to be asked, if there is $1 billion of currency in the economy and I owe $1.1 billion dollars, then where do I get the money for the extra $100 million?

Simple, I borrow more money at interest and so the perpetual debt begins.

Money in an economy is not a bad thing. Without money an economy doesnt function. Too much money in an economy is a bad thing (Ill address this below). The question is will the money have interest attached or not. An economy with all of the money carrying interest is an economy in perpetual debt. Debt=Slavery. That is why a sovereign doesnt borrow money into existence they print it or use hard currency.

Now, with printing comes responsibility. As a stated printing worked just fine in PA in the colonial days. In other colonies it didnt work so well. That is where the discussion of the role of government comes into play. But the reality is when you have a government our size whether you print or borrow it the damage on the currency will be severe, the question is will we have the interest attached.

I just want to make a point on the "retirement" aspect upon borrowing the money. In theory you are correct, in reality it never works because we never retire the debt, we either roll it over or we borrow more money to cover old debt (the grand ponzi scheme).
Feel free to put your money supply image, I cant find yours....

Money and credit are fungible. I've gone over this to exhaustion more times than I can count, including recently. I'm not inclined to do it again.

Printing is just devaluation. Capital investment that returns more economic output than the debt costs is not bad, it's good. The problem comes when the debt provides no economic output increase as it is not investment, it's a handout or if you prefer "an entitlement."

Amen. There is good debt and bad debt, and I guess we could add a third, really evil, destructive debt. Good debt is that which allows production that wouldn't otherwise occur. Bad debt is consumption, basically pulling future demand into the present. Evil debt would basically be borrowing to go to Vegas and gamble. Financing speculative bubbles falls into this last category. The price of something is big up only because their are fools with borrowed money to bid it up.

If goverments need to borrow, it's no different from private sector borrowing. They must pay interest. The interest is the necessary cost, and covers the risk, and acts as a throttle to prevent too much borrowing, too much pulling demand foward.

The interstate highway system mentioned above would be a good example. Such a system, in the absence of existing roads, would spur economic activity by provides means of transport for that activity, etc, etc.

Whatever "tokens" are used to pay for the building, whether "money" or "pure credit" has to be *good*, that it is has to represent something real, some production. In this case, it's the all the economic activity that comes from the highway system.

You simply can't do that for free. You've got to have the interest to act as the check, the throttle to compensate for the risk of counting your chickens before they hatch so to speak.

Hey we can run budget surpluses this way. RP introduces quantum mechanics to the fed. The debt is there until you try to count it. Get it over with quickly.

Anyone who is arguing against printing has already lost the argument. The Fed purposely put money into circulation on assets it knew were not worth what it lent (MBS stealth printing of money), and the current Treasury yields do NOT reflect actual risk so that's stealth printing too. The U.S. has already stealth defaulted by collusion in this game.

If it looks like a duck, walks like a duck and quacks like a duck, it's a duck.

End of story. QED.

Isn't this just a selective default on the Fed's holding?

Oh, and this:

Quote:

The other option is I can borrow the $1 billion at %10 interest and then tax the people to pay the $100 million in interest for borrowing that money. But then the question has to be asked, if there is $1 billion of currency in the economy and I owe $1.1 billion dollars, then where do I get the money for the extra $100 million?

Simple, I borrow more money at interest and so the perpetual debt begins.

If the highway system was a "good investment" and did what it was intended to do, you'd get the extra $100M from taxes coming in from the increased economic activity that the highway system generated.

No different that the private sector. Farmer borrows $20K to put a crop in. The interest comes from the sale of his crop. And yes, this can work in a closed system. The bank or heck, private investors who loaned him the $20K out of their savings have to eat. They buy his crop out of the interest he paid them to put the crop in.

Money circulates.

As the economy grows, the money supply does have to increase, and that's supposed to be the job of a responsible hand on the monetary policy controls. [And that's why a gold standard is bad, those awful oscillations of inflation and deflation Karl points out that can be seen all through the 1800s]

And yes, there's been a poor hand on that control.

is and entitlement or is directed towards the defense industry where frequently no return on (or of) capital is recognized. Not saying we shouldn't have a strong military but as it stands now, we cannot afford the military levels we have now.