On 1/5/2013 7:50 AM, flipper wrote:
First let's change to the more accurate euphemism "create money"
rather than limiting ourselves to a printing press since the vast
majority of 'money' is not in actual printed or coin form.

So, how is money 'created'. Money is created by debt. Say you put
$1,000 (never mind, for the moment, where that came from) into a bank.
The bank can then loan 90% of it (10% is, by banking laws, required to
be held in reserve). You, of course, say you have $1,000 "in the bank"
and the person who borrowed $900 has, well, $900 so the 'money supply'
is now $1900. The same thing goes for business borrowing and, indeed,
all borrowing.

And therein lies how the government, in the original euphemism,
'prints money'. Actually, the government doesn't; the Federal Reserve
System (Fed) does. The Fed was expressly created by Congress to
'manage the money', including the money 'supply', but is considered an
independent entity, albeit supposedly under Congressional 'oversight'.
So, as far as 'creating money', the 'government', per see, is not
doing it. The government issues bonds on the 'open market' and if the
FED decides the money supply should be increased then it purchases
some and the government owes interest on those just like if anyone
else had purchased them (which answers your question).

So where did the FED get the money to 'buy' the bonds? No where. It
comes from 'thin air', poof. The FED simply writes in it's books that
it 'has' X dollars and then uses them to buy bonds (or any other
financial instrument).

As for the *actual* 'printing', the Treasury prints them but those are
'purchased' by the FED for 2 cents per note, regardless of
denomination, and then 'circulated' only to the extent the FED
determines there's is a need for 'physical dollars'. But the
'printing' of physical notes is merely a convenience for 'small
transactions' and irrelevant to money creation. They're just a
'physical representation' of a 'thin air' entry in the Fed records and
have nothing 'backing' them, such as gold or silver, other than, as
the saying goes "the full faith and credit of the U.S. Government."

The organization of the Fed is rather complex combination of
government appointees and officers elected by private (member) banks
with the 'primary' power arguably on the government appointee side.
They operate under the laws and regulations as set forth by Congress
but exercise 'their judgment' in fulfilling statutory goals. Their
'independence' comes from an idea similar to how the Judiciary is
allegedly 'independent'. I.E. the government appointee terms are
staggered and for 14 years, allegedly isolating them from the whims of
a particular administration.

The 'problem' we find ourselves in, then, comes from two sources.
First is massive borrowing by the Federal government and the second is
how the Fed is 'managing' the money supply. And while allegedly
'independent' (debatable) the Fed obviously has a 'stake' in seeing
it's 'creator', I.E. the government, survive so irresponsibility in
one can induce wacky decisions in the other, even if the latter were
sane to begin with.

That's the 'sales brochure' picture so now let me give you some scary
but real examples. The Federal government 'fabricates' most of the
'economic indicators' everyone uses to make decisions with. Yes,
really. Everyone probably knows, by now, they underestimate
unemployment by not counting people so discouraged that they've given
up active job seeking (or even simpler, fell off the unemployment
insurance rolls). See? The unemployment problem would be 'solved' if
those persistent *******s would just give up looking for work, which
was why they changed that calculation back in the Kennedy
Administration. They wanted 'full employment' and, as governments love
to so, the simple solution was to just stop counting the 'problem'
and, voile, 'problem' solved.

But that's just the beginning. The government also misrepresents
inflation by not counting, believe it or not, food and energy costs.
Really now, you don't 'need' to eat, do you? On top of that, they
'deflate' the cost of things they think have 'gotten better'. Like,
they'll see a $300 TV but note it has a 'better display' than last
years $300 TV and decide it's really only $200 in 'equivalent' value
to the previous year, so the price 'went down' despite you having to
pay $300 for one. A new telephone, with fancy features, will be
discounted but the fact it's life might be only 4 years, as opposed to
an old time rotary that lasted, say, 30 years 'doesn't matter'. Only
calculations that make things 'look good' are used because, well,
that's the 'purpose' of it. After all, that's what people vote for,
'imaginary good feelings' like "yes we can."

That's just the tip of it and if those haven't made your eye bug out
yet this one will. When prices on a thing go 'up' the government has
decided that people will then 'substitute' something cheaper, so they
don't count the thing that went up but the cheaper 'substitute'. So,
you see, if you used to eat steak but, with prices the way they were,
moved down to rump roast, then hamburger, and are now on baloney
sandwiches then, congratulations, there has been no inflation of food
prices. And whether you did or not the government 'decided' you did,
so there.

Along the same bizarre logic, if prices go up on a category of things,
like healthcare, the government has divined that people will use less
of it so they 'discount' how much of that 'increase' goes into the
inflation calculation. For example, healthcare is around 17% of the
economy but when used for calculating inflation it is weighted at only
6%, so the 'impact' of rising healthcare costs is cut to 1/3 of
actual. You do that too, right? Like, decide to not get sick this flu
season because health costs have increased. You'll just use less, so
says Uncle Sam.

These 'rosy' (arguably falsified) calculation methods were 'invented'
by the Clinton Administration because, like those before, he wanted to
'look good' too.

Getting ****ed yet?

Well, they do the same thing with GDP. Basically, they fabricate a
number better than reality using bizarre logic like the inflation
numbers. For example, do you have a 'free' checking account? Well,
they decided that a checking account should actually 'cost' something
so that you get one for 'free' is counted in GDP despite there being
no transaction of any kind involved. And they do the 'reverse' of
inflation for equipment. Where they 'discounted', in inflation
calculations, what they deem to be 'better features' they inflate
their economic impact since those 'better features' are divined to
have 'more value' than what was paid for them. That's cool, eh? A
$1000 computer might be only $600 for inflation but $1400 for GDP.
Remember, it's all about 'looking good' and that keeps inflation low,
good stuff, and GDP high. What could be 'better'?

And people wonder why none of the numbers ever seem to make sense.
Well, they're not 'confused', they're right.

Btw, these 'fuzzy numbers' might make you wonder about one of the
'proposed solutions' to Social Security, which is to 'adjust' the CPI
(inflation) calculation to an allegedly 'more accurate' number
reflecting 'actual' inflation. No, what they mean is one that is in
line with the rosy 'fuzzy number' fabrication they now use.

Even the, so called, 'national debt' you hear tossed around ad
infinitum these days is a fabrication gratis the Johnson
Administration, which created the "unified budget": a 'nice sounding'
name for pretending that money borrowed from the Social Security trust
fund wasn't borrowed. That was to hide the cost of the Vietnam war and
works thusly. Social Security was running a surplus but since that is
a separate trust fund it showed up there and when the general fund
borrowed money from the trust fund it showed as general fund debt, as
it should. What he did with the 'unified' budget was include SS along
with the general fund so a SS surplus went into the debt calculation
as a surplus and, then, when we borrowed money from SS that surplus
simply went back to 0. I.E. we took X million into SS, the general
fund borrowed X million and the debt increase is 0 because we just
tossed it all into the same bucket, despite it being a separate
bucket. All the surplus is spent, but shows as 'nothing happened', and
there are a bunch of IOUs, in the form of government bonds (debt),
that shows up no where in the budget calculations (just in the trust
fund). See? That LOOKS GOOD. We get to spend X million more dollars
without showing one red cent of borrowing or of increasing the 'debt'.
So the money that has been 'saved' in the trust fund to pay for future
obligations, meaning NOW that the baby boomers are retiring, are to be
paid by government bonds they never reported as debt, but are there
anyway. This, btw, is how you get the seeming contradictory statements
about SS 'solvency' yet there is this mysterious 20 trillion of
unfunded liabilities. That's the money SS 'saved', so their books show
they have it (currently solvent), but it was 'never reported' by the
government as money borrowed (unfunded liability). Of course, ever
increasing payments 'to' Social Security, which can be nothing but
general fund deficit spending, will not 'look good' at all now that
the general fund has to pay off those bonds they never reported as
debt so it will be interesting to see what they fabricate for that
one.

In short, just about everything our government reports is fabricated
nonsense and then the Fed makes 'wise decisions' (sic) on how to
manage the money supply based on these economic fabrications, plus the
fabrications they come up with because, after all, they want to 'look
good' too.

So the people complaining that the federal budget is 'not like' a
family budget are correct, but just not in the way they meant. It's
'different' because they can lie their ass off, and get away with it,
with the only consequence being whoever comes up with the next 'good
sounding' lie gets elected because no one wants to hear 'bad news'.
"Yes we can." Yes we can, what? Don't ask.

Think I'm kidding? Okay, let's imagine we elected, today, someone who
'tells the truth'. The debt is 16 trillion and the next day he
truthfully 'corrects' it for SS debt to 36 trillion. Do you think he's
going to survive to the third day in office to correct for the
Medicare Trust Fund's unfunded liabilities? If he does the debt will
then be 76 trillion so give me odds on the 4'th day. If so and he
truthfully corrects for federal government employee pensions the debt
will be 100 trillion. Give me odds on the 5'th day.

Don't take those as 'actuals' because I may be off 10 trillion here
and there but, hey, we're not counting any of it anyway so no big
deal.

This post is a clasic! I better save it because I've never seen the
current situation explained as well as this.

My main beef is with the Fed that to my understanding was established
with the primary goal of maintaining the value of the Dollar. But look
what happened since they removed the gold backing of the $. The value of
today's $ is nowhere near what it was in years past except in the mind
of IRS when they compute capital gains and taxes owed on that.
Stimulating the economy with money supply is not and should not be the
job of the Fed. But maybe I'm wrong. What do you think.