In need of info for advancing Dr. Paul's message. When the Fed 'prints money' how does it do it?

The treasury doesn't actually "print" more money, it's easy to create money out of nothing since it's mostly digital contracts these days (even non-digital contracts can be used to make money).

If he doesn't believe that it doesn't actually get created from nothing, have him look at this chart:

http://en.wikipedia.org/w...

Essentially, the only reason why inflation exists is because the money supply is completely manipulated. If we had a base metal system (gold, silver, platinum, palladium, whatever) then inflation would only occur if the rate of money metal mining exceeds the rate of economic growth. If we had commodity-backed currency, then when the economy booms, then everyone benefits, because the money is deflated net value of the dollar increases. It's truly progressive/compassionate capitalist! You can help other people simply by being good capitalists.

This is not to say deflation is necessarily good. Artificial deflation, if too rapid, is bad too (because all of a sudden nobody has the $$ to hire new employees and revenue streams suddenly look low, paying off interest suddenly becomes a huge burden), but NATURAL deflation is beneficial, especially if it occurs at a slow rate.

It is conceivable that a federal reserve system could work, if it was transparent, actually chartered constitutionally, and bound by law to not benefit its cronies and to restrict the monetary supply to some fixed amount plus or minus some percentage, with a requirement return to that fixed amount within some time limit. That way you would have the beneficial effects of smoothening sharp changes in the value of the dollar.

However, it is very difficult to trust a few people to these sorts of things, even if they are completely honest, a small mistake in judgement could have dire consequences for a lot of people. While the market is not the solution to everything (a common conservative error), it is the absolute best way to set prices.

The ability to create and control money should have never been given to a private entity. All, I said all, the stock for the Fed is "privately" owned. No one even knows who owns that stock.

There is wonderful book by Murray Rothbard called "The Case Against the Fed". Short and to the point. I highly recommend it.

http://www.dailypaul.com/...

Keep in mind that Alan Greenspan used "FED Speak" for 20 years or so to confuse and confound legislators, the general public etc.

But it is REALLY SIMPLE.

Here it is in a nutshell:

http://www.youtube.com/wa...

Fed Scam Explained

and the Interest / _Hour_ on the national debt was $39,494,260

2008: The governments current budget deficit is growing the national debt at a rate of 1.66 billion dollars per day. That’s about 1 million dollars a minute.

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How can the money ever be repaid? Since all (Fed) money originates with debt (to them), how are the people ever to pay it back? It can't be done.

Tell him to watch "Money Masters" (on Google video) and all will become clear. Long but very enlightening.

He said when the Fed needs money, it borrows what it needs (from wherever, be it overseas or domestic) and that it doesn't actually create from nothing.

That is not right. The Fed does NOT borrow money. In fact, almost NO Central Bank in the world today needs to borrow money. They don't need to because they can create their own money without anything backing it up. Most everyone is using fiat paper these days. Governments and people borrow money (from the Central Banks). Our government borrows money by issuing Treasury securities, which are debt instruments. People borrow money by going to a bank within the loop of banks on the Central Bank system and taking out a loan. In fact, one argument in favor of having a Federal Reserve, or Central Bank, is that there can never be a "run on the bank". In the olden days when money was actually backed by something like gold, some banks would lend out more paper money than they had representing gold. When people got nervous about their financial situation for whatever reason they would go to the bank and demand their gold instead of the paper money. If many people did this at the same time it was called a "run" on the bank. This could bankrupt the bank if there was not actually enough gold. Today this is not possible, because the Central Bank/Fed can create any paper money amount it wants. For example, look at the cash auctions the Fed is currently giving out to banks. The Fed is not borrowing this money from anywhere at all.

The key to this discussion is the fractional reserve system that is used.

There is a reserve amount required for these banks of somewhere around 1:10($1 collateral for $10 in loans). That's what they need to hold in their "collateral coffers" to back their loans.
Where it gets interestng is that they are allowed to loan out 10 times the amount that they hold in reserves. That's why they call it "fractional reserve banking" because only a fraction of what is loaned is actually held in reserve.

So, if they are loaning out 10 times the amount that they have, every dollar that is loaned which they don't have, is created out of thin air.
For every dollar they have as collateral in reserve, they have people paying interest on 10 dollars back to them.
That's why they want deposits in their banks. If you have $10k in the bank, they can finance a home loan off that and make interest for 30 years off of a $100k compounded-interest loan.

Also, they don't need to hold these reserves forever. They only loan off of what they have at the time the loan is created. This is why they have short term repurchase agreements with other banks. They "buy" some collateral from other banks for a few days, or even overnight, make loans out based on that "collateral", and then sell the collateral back again.

The whole thing is a house of cards.

Try this and other milton freidmen videos.

http://www.youtube.com/wa...

To increase the number of "dollars", the fed simply makes an entry in a computerized ledger. Many years ago, they were limited in the amount they could make up by the availability of the gold in fort knox to redeem US currency. Once Nixon botched that by devaluing the dollar, the fed has been issuing these fictitious bank balances to its member banks on ever-flimsier premises.

Typically, a bank will "buy" a treasury note (that is, debt that the taxpayer is on the hook for), by transferring a balance from the bank's account, to the treasury's account. The "money" for this "purchase" is borrowed from the fed at the fed funds rate. Where does the fed get it? They just make it up out of thin air.

-jcr

The guy you were speaking to has it very wrong. Under his system, inflation could not occur. He seems to think there is a finite amount of monetary units in the world that are spent, saved, or borrowed. Inflation is money creation. The Fed doesn't create new value. It prints monetary units that represent value that already exists. The new bills either get their value from an increased GDP and/or from stealing the value of the bills already in circulation. If the latter is true (which it always is)... well, that's inflation. There is a darned good reason today's dollar is worth 4 cents compared to 1913's dollar. The value of the dollar has been destroyed by the Fed's printing presses.

1- The Fed sells treasury bills to those who want them
2- "Person" holds onto it for a set amount of time
3- When time is up, it returns the bill to collect the money he paid for it plus some interest
4- the fed hands out printed money from the treasury to pay for it

edit: so when the fed BUYS treasury bills, it INCREASES the money supply

For ever dollar the FED prints it is actually a dollar plus interest attached to that dollar. The taxes we pay can never cover the outstanding debt so we print more money to cover the loan in turn creating even more debt.

Imagine going to your local check cashing outlet and taking a payday loan at interest. But rather than paying the loan off you just went to another check cashing place and took out an even bigger loan to cover your previous loan plus interest on that loan. Now imagine doing this every time your loan was due. These establishments have some protections such as loan limits so you couldn't barrow enough to cover your interest perpetually and the local state government has another solution, it's called jail. The Feds have no such checks and balances they just print it and politicians have no stomach or political will to just say no.

"It is like a finger pointing away to the moon, don't concentrate on the finger or you will miss all the heavenly glory." - Bruce Lee

It is the process of printing treasury bills to countries or businesses that is like printing money. The Fed is now taking "collateral" and giving these companies bills. The collateral the Fed takes are the home loans or investments that are not certain to be paid. By giving these companies T Bills which are guaranteed by our money and interest is "printing money. I, by no means am an economist but it cam be broken dowm simply.
Because before these securities where uncertain loans they were madin into certain mony backed Bills. Now the Fed has this collateral and debt that it already turned into guaranteed future money.

It is hard to explain but I feel as though this is a small piece in the puzzle, trust Schiff and Paul, it is bad.

It can be tough to get someone to listen when they've already been stuffed full of B_S financial mumbo-jumbo. Maybe something to do with maintaining their altitude/status or whatever. And then there's the fact that you're asking them to listen to something that's "unbelievable".

One of the best resources I've ever found is Ed Griffin's talk on the Fed:
http://www.spielbauer.com...

This gives the pertinent history, who's who, underlying motives and strategies, including exactly what happens to the money. It brings it into the realm of the "believable". Ed gives sources for everything and the way he lays it all out makes it totally clear.