Thanks for your clarity. Suppose the market price for your assets was falling– maybe you would have only realized $1.8 trillion if you sold to anyone else. And I’ve talked about that in some, you know, in giving some conceptual examples. Think of all the good we could do with that money. The bank can lend out 90% of the money it has on deposit. "When the Federal Reserve writes a check for a government bond it does exactly what any bank does, it creates money, it created money purely and simply by writing a check." If QE is really just a crediting of bank’s reserves and loans are made independently of reserves (like you said recently, when do loan officers check reserve balances? I tell him, don’t worry – we can always print more. They lend money to the banks. Reserve Bank of New Zealand: Bulletin, Vol. That doesn’t matter to the private sector, but that’s still another $200 billion subsidy to the private sector. Pull some cash out of your wallet and you’ll see that the bill says it’s a “Federal Reserve Note.” Source(s): Circuitism: A macroeconomic explanation of how banks create money for production activities, how firms direct production, how workers contribute to production and consumption and how money … The Federal Reserve does not “make” money exactly, in that it doesn’t print money—that’s the Treasury Department’s job. The cat is already out of the bag. Joe The process by which it does so is very simple – RBS simply exchanges £10,000 of its central bank reserves for £10,000 cash with the central bank. Observe the conflict of interest and criminality. Seems they’ve overlooked the connection and understand the monetary system without understanding money. This is labelled ‘outside’ money in the balance sheet, reflecting that this form of Where Did the Federal Reserve Get All that Money? The Fed had over $4.5 trillion in assets, as of March 12, 2015. Don’t we deserve the same financial support per annum that the average prisoner in the the U.S. gets? The traditional method. Should have left the link. James Boswell: Life of Samuel Johnson book 3. Dedicated to modern money theory (MMT) and policies to promote financial stability and the attainment of full employment. Thus following QE and QE2 we got all sorts of hysterical articles about how the Fed might go “bankrupt” because of its skyrocketing liabilities, and how the Treasury might have to bail the Fed out. From your perspective, I’ve sent you $50 billion on $1 trillion (even better than the 4.5% on Treasuries!) The deflationary side of QE comes from the loss of (interest) income. By decreasing the reserve requirements, more money is available for the bank to lend out, and the money supply increases. Isn’t the real problem the increase in demand for cash? 1945–1968. The operating expenses of the twelve Reserve Banks totaled $2.193 billion in 2005, including the System's net pension credit. But there’s a $125 billion loss at the Fed that also would have gone to you. Kicking the can down the road. Say it’s 50-50, but you’re levered 20:1– owing $1.9 trillion in debt. Under the Board's policy, each Reserve Bank's net income after the statutory dividends of $781 million to member banks and the $1.286 billion necessary to equate surplus to paid-in … Also, since most of us are currency users managing our own finite accounts with the financial constraints that come with being a currency user, it’s hard for us to “think like a government”. You’re more liquid than before, with far less risk. MARCELLO Buried in the lecture, beginning at about 19:18 in the video, Bernanke explained where the Fed got the money to “pay for” the assets it purchased as part of its Quantitative Easing (QE) policies. Open your eyes. Think about that “sucker”. The Bank conducts the nation's monetary policy and issues its currency. But it does serve as a bank for other banks and government agencies, allowing them to open accounts to hold their reserves, take out loans, issue government securities, and take other actions. Other sources of income are the interest on foreign currency investments held by the System; fees received for services provided to depository institutions, such as check clearing, funds transfers, and automated clearinghouse operations; and interest on loans to depository institutions (the rate on which is the so-called discount rate). The FOMC can also change the reserve requirements for the banks. What you’ve just said is that I’ve got a very conservative Facebook friend who is always freaking out about where the country is going to get the money to pay for stuff. When reason is critically applied, the theory is exposed as fraudulent. As we mentioned in the previous section, the amount available to lend also depends upon the reserve requirement the Federal Reserve Board has set. In addition, the cost of earnings credits granted to depository institutions amounted to $212 million. They basically just sit there. So he decided that as an official with major responsibility for public expectations and confidence, he had to go ahead with it. I observed, that though we are satisfied his doctrine is not true, it is impossible to refute it. At the same time, it may also be affected by the funds rate, which is the interest rate that banks charge each other for sh… Most of us don’t understand the monetary system. The thing is, when the Fed pays banks for their Treasury bonds, it increases their excess reserves. So households are once again being forced to take on debt to meet their ordinary needs. © 2020 Federal Reserve Bank of San Francisco, H.4.1, Factors Affecting Reserve Balances. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. And, more importantly, is that money ever repaid? The Federal Reserve does not “make” money exactly, in that it doesn’t print money—that’s the Treasury Department’s job. Isn’t this more orderly than throwing cash from a helicopter? and here http://www.creditwritedowns.com/2012/01/chart-of-the-day-permanent-zero-and-personal-interest-income.html. | MTR, http://moslereconomics.com/2011/01/10/fed-turns-over-record-78-4-billion-profit-to-treasury/, http://www.creditwritedowns.com/2012/01/chart-of-the-day-permanent-zero-and-personal-interest-income.html, Where Did the Federal Reserve Get All that Money? They just make it up. The bank can lend out 90% of the money it has on deposit. Here’s a chart to give you a visual representation of the information in the press release: For additional information on the balance sheet of the Federal Reserve System and the Federal Reserve Banks, be sure to visit the website for the weekly Federal Reserve Statistical Release H.4.1, Factors Affecting Reserve Balances. Yes, it’s very hard to get over this for a lot of people. The Federal Reserve makes money—lots of it. The answer is simple. YOU ARE LOSING MONEY PUTTING IT INTO THE BANK. John Carney just wrote a very nice piece, showing that not only was the Fed able to find buyers for its assets but that markets actually bought them back at a premium. Thanks very much for your response. I’M THINKING THE SAME….THIS IS ONE OF THE MAIN PROBLEM FOR PEOPLE IN UNDERSTANDING HOW GOVERNMENT SPENDS! Now, can you get Bernanke to go “manufacturers direct” and keystroke into one bank account of each adult citizen $20,000.00 in “reserves”–so that We the People have a little cushion for a rainy day? Government austerity is to blame. Careful screening of loan applications was common. And the answer is that we paid for those securities by crediting the bank accounts of the people who sold them to us, and those accounts, at the banks, showed up as reserves that the banks would hold with the Fed. Well the short answer is he could, or some such sum, as the tax free dollar part of every body’s wage and as part of a Job Guarantee scheme for those who wanted to work. Proof platinum coin. Taxation, if it existed, would exist solely as a draconian means of laying waste to political enemies and a disruptive population. When the Fed purchases these Treasuries, it doesn't have to print money to do so; it issues a credit to its member banks that hold the Treasuries by adding funds to reserve deposits. Of course, if the parties could create wealth from nothing, than the parties and their financial handlers, in the interests of securing their “fat government wages” and power, would have long ago eliminated all federal taxes and greatly expanded the federal government subsidies far beyond their current existence. While at the same time deceiving the mob into believing that either party is trying to liberate the mob from crushing taxes with the promise of a better life. No one gets to spend anything, there is no additional liquidity.   That doesn't mean the Fed has a printing press that cranks out dollars. Article 1, Section 8 of the Constitution states that Congress shall have the power to coin (create) money and regulate the value thereof. Also, why does Bernanke think that by reducing the available supply of Treasuries in the market, he can direct more investment into things like corporate bonds or non-agency RMBS? The Federal Reserve makes money—lots of it. My point is that the profits don’t necessarily exist at all. The Federal Reserve pours money into banks to support the economy, but where does that cash come from? | Financial News 24. Bernanke addresses the second objection in his remarks below – idle balances don’t chase any goods – but it’s the financing of the asset purchases that I want readers to understand, because this is fundamental to understanding Modern Monetary Theory (MMT). What has been affected is the purple area. He follows the Peterson Institute on Twitter. Assessments against Reserve Banks for Board expenditures totaled $266 million and the cost of currency amounted to $477 million. Prof. Wolff explains how it all works and what effect it has for everyone. | MTR. But, aren’t these reserves available for conversion to “cash” in the form of a new bank loan? Which is not to say I could care less. Most medium- and large-sized banks maintain reserve accounts at one of the 12 regional Federal Reserve Banks, and they pay for the cash they get from the Fed by having those accounts debited. For that reason, many people say the Fed prints money. People naturally apply their own experience. 2) The bank is required to keep that credit in the Fed as excess reserves (which for the last few years have also earned interest). Now suppose I buy $1 trillion of such securities. In comparison, banknotes and coins only make up 3%. The feds are not magicians, they cannot create real wealth via a keystroke. Its main source of income is an interest earned on bond holdings through open market operations or purchase and sale of government securities. Relationship With The Government. In other words, the bank pays by creating money. The amount of currency in circulation has not been affected by these activities. Why don’t we do something about our $2.2 trillion infrastructure deficit, 25 million underemployed and unemployed Americans, 100 million Americans in or very near poverty, and so on? They’re not in circulation. Theoretically, the thesis discussed above makes for great classroom discussions. Total net income for the Federal Reserve Banks in 2005 amounted to $23.521 billion. I think he would have been better off not attending. Explain Greenspan please. ... Each reserve bank is … | Financial News 24, Randy Wray on Krugman and the Frustration of the Heterodox, Fred Lee Talks About his Contributions to Heterodox Economics, Political Theatre and the Government Shutdown, Randy Wray: The Taper, the Debt Ceiling and the Prospects for Growth, Stephanie Kelton Talks with Warren Mosler, Counterpunch: Tells the Facts, Names the Names. But arguments can be made that it does matter to the public purposes for the sake of which the Fed purchased the assets in the first place. ), then is there an irrational hope that by increasing banking reserves, the Fed can induce more lending? It’s like letting the serfs know that they actually own the deed to the estate, which is locked up in safe in the treasure house. The money gets repaid to the feds and the money supply tightens. The reserve is intended to cover the occasions when people with deposits want to take the money back out of the bank. Suppose the value of the $2 trillion in assets dropped to $0. Now, can you get Bernanke to go “manufacturers direct” and keystroke into one bank account of each adult citizen $20,000.00 in “reserves”. As shown in the table below, the life of a note varies according to its … After one year, cash out the winners, sending you the $50 billion “profit” and reinvest the rest. What is being described is called LEVERAGING. The light blue line at the bottom is currency – Federal Reserve notes in circulation. Now the Fed buys the stuff off you for $2 trillion and you pay off your debt. Money is no object. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. This income amounted to $28.959 billion in 2005. The banks lend it to us. Note, for example that a mere $1.5-$2 trillion at 4.5% (the 30-year rate in mid-2008) would yield $300-400 billion in interest over four years. The reserve is intended to cover the occasions when people with deposits want to take the money back out of the bank. Hopefully Bernanke will write his memoirs some day so that we can all find out what he really thought he was up to. – it had purchased) because banks would refuse to swap their nice safe cash for riskier instruments when the economy recovered. The same people that espouse such a policy, when it comes to action, seem to pull back. While the Feds may be able t manipulate the system with a variety of tactics, at most what they’ve done is time shift the current economic impacts so that the market (the real market) won’t get knocked out of it’s feet too quickly. Finally, most banks have accounts with us at the Bank of England, allowing them to transfer money back and forth. Suppose not a single one of those assets paid a dime. Buying time. So the Fed is a bank for the banks. The interest rate a bank charges its borrowers depends on both the number of people who want to borrow and the amount of money the bank has available to lend. And, more importantly, is that money ever repaid? Federal Reserve Chairman Ben Bernanke gave his fourth lecture at George Washington University yesterday. Take a security which yields 10% half the time, and loses 10% the other half of the time. It seeks to foster financial system stability and promotes the safety and efficiency of the payments system. Of course, assets and liabilities (including capital) have to be equal. The Bank of England’s liabilities change from £10,000 in RBS’s central reserve account, to £10,000 of ‘cash outstanding’. As long as you ignore the fact that the Fed would probably wind up running tighter policy elsewhere. Say you paid $2 trillion in risky assets with a face value of $2.5 trillion, which may pay 10% interest or may pay nothing and lose 50% of its value. 1, March 2008 27 In this case, Bank A has enough cash, at all times, to meet all possible withdrawals. The Fed never gets richer or poorer in monetary terms, since it is the source of all the money in the first place. Traditionally the fraction required for reserves is 10%. Conversely, if it costs more for the funds than they are paid by the fed, why do they put any funds there at all? Just wanted to say I enjoyed yours and Bills interview on KCUR. The money finds its way from your bank to the other bank through the Reserve Bank. The Fed is enabling something we don’t really need. The larger banks get currency from the Fe… Only the U.S. Department of the Treasury does that. He wasn’t one before he went to SAIS. Plus, the Fed gets to pick and choose how to realize gains and losses. So ask yourself this question: If the Federal Reserve can create trillions of dollars with a single keystroke, and the Fed is the government’s bank, then why does President Obama claim we’ve “run out” of money? Those are reserve balances. And this holds all of us back. Like the law of conversation of energy in physics, any monetary policy that does not result in the creation of real wealth will always result in zero sum gain in terms of total wealth. So the liabilities side had also to rise near 3 trillion dollars, as you can see. And it begins with an understanding of the monetary system. In this case, the Reserve Bank is using central bank money, which is money they are creating. Its role is set out in the Reserve Bank Act 1959. But those were risky assets, and I’m saying that this is not a full accounting. Then products and services expand as a result of the increased supply of money. The Federal Reserve Is Changing What It Means to Be a Central Bank By lending widely to businesses, states and cities, the Fed is breaking taboos about who gets money to prop up a frozen U.S. economy I don’t see how QE mitigates that “demand for cash” problem. The Reserve Bank will create as much money as it believes is necessary to stabilise the monetary system and to ensure the government, households and businesses can borrow with relative ease. If the tribe is asking for a rain dance, the shaman has to do a rain dance. Which allows people to make payments 24 hours a day, 7 days a week using just a mobile phone number or an email address. Simple enough, works for the present and better times may be ahead. It also offers banking services to government. So I think it’s good if we can get people to see that the liability of a central bank is nothing like the IOUs of a firm or household with a regular balance sheet and a finite stock of monetary wealth. A typical incorrect answer is - the FED profits are returned to the U.S. Treasury. Today however, the FED, which is a privately owned company, controls and profits by printing money through the Treasury, and regulating its value. What has the Fed lost? The remaining income of $386 million includes earnings on foreign currencies, earnings from loans, and other income. The Federal Reserve Bank doesn't get their money from anyone; they're the central bank for the United States of America. Think of all the good we could do by just hiring people at a minimum wage through a JG. To meet the demands of their customers, banks get cash from Federal Reserve Banks. For a short description of the Federal Reserve System’s annual revenues and expenditures, you should check out the Board’s annual press release, usually released in January. It all stems from the central bank/federal reserve. I still think that the Bernanke explanation, as simple and straightforward as it is, is misleading in a way. NEP have beaten me to it and its now on the main page. It has had this role since 14 January 1960, when the Reserve Bank Act 1959 removed the central banking functions from the Commonwealth Bank.. The Reserve Bank of New Zealand (RBNZ, Māori: Te Pūtea Matua) is the central bank of New Zealand.It was established in 1934 and is constituted under the Reserve Bank of New Zealand Act 1989. YEP… GREAT ! Federal Reserve Chairman Ben Bernanke gave his fourth lecture at George Washington University yesterday. And excess reserves are kind of a waste, because the money is just sitting there, not earning interest for the bank. It doesn’t matter to the Fed one way or another. Right. THE FEDERAL RESERVE BANK IS A PRIVATE COMPANY. The money gets repaid to the feds and the money supply tightens. BY.. In the end, real wealth is created by people making useful products, and with luck doing it more efficiently than in the past. Ordinarily, an increase in reserve balances in the banking system would push down current and expected future levels of short-term interest rates; such an action would serve to boost the economy and variables like bank lending and the money supply. Or I could put this another way — a high level of government spending is not needed for economic success with low unemployment. Why would they have allowed the circumstances to degenerate and threaten their power base? You both came across really well as did the presenter A cultish dogma. Some smaller banks maintain their required reserves at larger, \"correspondent,\" banks. By Stephanie Kelton (h/t Matthew Berg). If the debtors all default, each and every one, that means they all kept their money and sent nothing to the Fed. A private bank leverages deposits to create approximately 10x what they received as a deposit. Hi Dan; It only matters to the debtors in the private sector. Chairman Bernanke confirms it. 1) The Fed created money (electronic credit) in the account of the bank that sold them the mortgage backed security. OK, fine. The methods central banks use to control the quantity of money vary depending on the economic situation and power of the central bank. Now we face the prospect of the Ryan budget which will become fact if and when Romney is elected. In a stress scenario, is it really that meaningful? Those who don’t understand Fed operations – think most mainstream economists – went nuts. The same people who have eliminated federalism and globalized their power. There are some excellent answers here and some wild speculations as well. It can pay trillions of dollars with a single keystroke. Where does the Fed get the money to do this QE? “Borrowing for that purpose doesn’t mean the bank is insolvent,” Todd says. But I also strongly suspect the show of “profits” is nothing more than a PR move, and has no actual deflationary impact whatsoever. It’s not my point, it’s Carney’s. Refutation of Bishop Berkeley – And so as the purchases of securities occurred, the way we paid for them was basically by increasing the amount of reserves that banks had in their accounts with the Fed. So if there is a reserve requirement, how is money created in the first place? Yes the Federal Reserve has an infinite capacity to change the balance sheets of banks or governments on paper, which can help at the margins for a time, dampening shocks and so on. Does the government really pay interest on our paper money, Federal Reserve Notes? And so, the banking system has a large quantity of these reserves, but they are electronic entries at the Fed. Another question; if the federal reserve really has an unlimited ability to spend in US dollars as stated by Alan Greenspan, what restrains it from spending enough to acquire all of the assets in the US, or even the entire world? You’re either going to make $200 billion or lose $200 billion… on your $100 billion gamble. 71, No. When a Federal Reserve Bank receives a cash deposit from a bank, it checks the individual notes to determine whether they are fit for future circulation. Whether it is currency in circulation or fiscal assets added to some account, they are both debt – backed only by the good faith of the government – not gold or anything tangible. Thanks Stephanie The Federal Reserve is America's central bank. Unfortunately, my friend has become a Hayekian. The balance sheet of the Reserve Bank is largely a reflection of its activities undertaken in pursuance of its currency issue function as well as monetary and reserve management policy objectives, according to the central bank. What is being described is called LEVERAGING. Then it cashes out $200 billion in profits, but doesn’t realize its losses. This increases the money supply. The Federal Reserve said Monday it sent a record $97.7 billion in profits to the U.S. Treasury as the central bank’s vast holdings of mortgage … This theory is completely wrong. The same people who use the tax code and international law to eliminate any real taxation and liability by suit on their wealth. Where does all the FED debt of 86 billion per month GO? People naturally apply their own experience. Suppose the Fed creates $2 trillion in cash and swaps it for $2 trillion in “illiquid” (read: overpriced) assets. Think critically, if the current power players could increase the nation’s wealth by manipulating the quantitative nature of our currency, and extinguish liabilities with a keystroke, than why haven’t they? So, it's a really central part of Australia's payment system. Where does the Fed get its money? He stated that the Fed adds money to the commercial bank’s reserves but that they are not part of the money supply. Since they’re justifiably worried about household debt burdens, pointing them toward understanding the sectoral balances sometimes helps. What’s not mentioned is the $125 billion loss on the rest. Ben Bernanke just created $2 trillion in US debt with a few keystrokes! There is a hole the size of a bus in this theory. The nearly $80B that was removed from private sector incomes and turned over to the Treasury last year. The reason why the Fed doesn’t deposit $20,000 in each American’s bank account isn’t because they are slothfully resting on their meager governmental wages. If the assets pay off $10 trillion, that means some group of people in the private sector for whom the assets were liabilities just shipped $10 trillion to the Fed. Or maybe public purpose is better served by letting the debtors all keep their money and having the Fed extinguish the debts. Its job is to manage the U.S. money supply. Maybe people don’t understand their own monetary system because a lot of people in power don’t want them to understand it? After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury. About one-third of the notes that the Fed receives are not fit, and the Fed destroys them. Its assets are all in the form of fiat money issued by the central bank. But the two main items, you can see, are the notes in circulation and the reserves held by the banks.”. Others insisted that QE was “stuffing the market full” of too many dollars and that this, inevitably, would result in hyperinflation. Why are we throwing away the equivalent of $9.8 billion in lost output every single day? I’ve tried to explain this stuff to my MBA-having friend, to no avail. In fact, this strategy would have been implemented by nations long ago. Even then, how is that deflationary? The Federal Reserve, also known as the Fed, is the central bank of the United States, and it monetizes U.S. debt when it buys U.S. Treasury bills, bonds, and notes. Buried in the lecture, beginning at about 19:18 in the video, Bernanke explained where the Fed got the money to “pay for” the assets it purchased as part of its Quantitative Easing (QE) policies.. Which allows people to make payments 24 hours a day, 7 days a week using just a mobile phone number or an email address. Unused resources abound, human needs go unmet, and the vast majority of Americans believe that ‘There Is No Alternative’ (TINA). Suppose every one of them paid handsomely? Modern Monetary Theory on Central Standard, 25 million underemployed and unemployed Americans, 100 million Americans in or very near poverty, http://my.firedoglake.com/wigwam/2011/08/09/greenspan-the-united-states-can-pay-any-debt-it-has-because-we-can-always-print-money-to-do-that/, Where Did the Federal Reserve Get All that Money? Now that’s a $30 billion dollar question, at least for the year 2005! After we came out of the church, we stood talking for some time together of Bishop Berkeley’s ingenious sophistry to prove the nonexistence of matter, and that every thing in the universe is merely ideal. You realize no gain, but you weren’t expecting to, anyway. The Fed hands its profits over to the Treasury anyhow. Maybe the Fed wants all those debtors to pay up, because otherwise the money the Fed paid for the assets plus the money the debtors keep results in inflation. None of what you describe is deflation. But it seems we can’t convince the people who matter to do the right thing. A bank might not then have enough in cash to make the loan and meet its reserve requirements. The problem is neither the Democrat or Republican politicians can really be bothered to ensure full employment because they’re sitting pretty with their government wages and need to pay lip service to hallowed anti-government rhetoric. He’s a madman!”. A great tool for massaging the ego of the sophists and pacifying their initiated disciples. Mike Norman had a post today in which he pointed out that increased household spending is not being matched by increased household income. When the Reserve Bank buys those bonds it’s called ‘quantitative easing’. I never shall forget the alacrity with which Johnson answered, striking his foot with mighty force against a large stone, till he rebounded from it — “I refute it thus.” The banks lend it to us. In this way, the Fed is considered to be “independent within government.”. Do we know what kind of losses the Fed has yet to realize? Traditionally the fraction required for reserves is 10%. The cash you put in the bank and get .2% apr for, they create more money with (10x) through fractional reserve lending and inflate the currency ~2% per year. It all stems from the central bank/federal reserve. With the Fed, one has to consider the opportunity cost. So, it's a really central part of Australia's payment system. As Alan Greenspan explained, the Fed has an unlimited capacity to spend in US dollars. Banks create around 80% of money in the economy as electronic deposits in this way. Interest Rates The control that a central bank … In essence, I’ve lost $45 billion I should have made in 30-year bonds. But governments are really only good at creating distortions (and then shortages). Are the reserve accounts like savings or checking accounts at a commercial bank that can be withdrawn rather quickly, or are they more like a CD that has some sort of term before they can be withdrawn? From a purely monetary standpoint, I would rather see forgiveness and risk subsequently tighter policy. I’d like a link to that interview, if you please! From the start until 1967 the bank did not lend as much money as it does now. http://my.firedoglake.com/wigwam/2011/08/09/greenspan-the-united-states-can-pay-any-debt-it-has-because-we-can-always-print-money-to-do-that/. They’re not part of any broad measure of the money supply. Under the Board's policy, each Reserve Bank's net income after the statutory dividends of $781 million to member banks and the $1.286 billion necessary to equate surplus to paid-in capital is transferred to the U.S. Treasury. Sure, the $125 billion would have gone to the you, and is now at Treasury. The Reserve Bank has also developed with the banks, the New Payments Platform. Its main source of income is an interest earned on bond holdings through open market operations or purchase and sale of government securities. So, rather than the investors buying the government bonds, the Reserve Bank buys them, and this provides a huge pot of new money for the market to use. Pingback: Where Did the Federal Reserve Get All that Money? Actually, the profits don’t matter at all. There are some excellent answers here and some wild speculations as well. The Federal Reserve pours money into banks to support the economy, but where does that cash come from? Certainly not to the national debt of 17 trillion or the yearly deficit – Tooth Fairy account? The truth is, the FED is a private bank in business for profit. $9.8 Billion lost per day, and as I recall, Bill said that was conservative. Post was not sent - check your email addresses! Pingback: Where Did the Federal Reserve Get All that Money? What has the Fed gained? He thinks I’m ribbing him. They’re part of what’s called the monetary base, but again, they’re not, they certainly aren’t cash. It matters not a whit to the Fed. Banks can hold deposit accounts with the Fed, essentially, and those are called reserve accounts. Also, since most of us are currency users managing our own finite accounts with the financial constraints that come with being a currency user, it’s hard for us to “think like a government”. This is called electronic central bank money… The Fed had over $4.5 trillion in assets, as of March 12, 2015. Thomas Schauf of FED-UP, Inc. circulates an information letter in which he writes: Why pay interest on our currency? The largest single liability category is Federal Reserve notes (currency) ($762.0 billion). But it does serve as a bank for other banks and government agencies, allowing them to open accounts to hold their reserves, take out loans, issue government securities, and take other actions. This allows banks to increase or decrease the loans it makes. There’s a big difference between Treasury showing a profit on the deal than the Fed showing a profit on the deal. from Italy. Net deductions to income amounted to $3.577 billion, primarily representing unrealized losses on assets denominated in foreign currencies that are revalued to reflect current market exchange rates. Here is Chairman Bernanke (Readers can follow is presentation beginning on page 17): “Now, you might ask the question, well, the Fed is going out and buying 2 trillion dollars of securities – how did we pay for that? This reserve requirement can be held in the bank vaults as cash, or on deposit with the Federal Reserve Bank. Carney’s piece shows us why there’s been a giant sucking sound (as Ross Perot used to say) as a result of QE and why there is a strong DEflationary aspect to the policy. divest itself of the assets – MBS, Treasuries, etc. Instead of deciding how the government should wield its power over the dollar, we live in fear of the ratings agencies, the Chinese, the bond market vigilantes and other imaginary evils. The 7 Deadly Innocent Frauds of Economic Policy by Warren Mosler, The Trap – Parts 1, 2 & 3, by Adam Curtis (via Internet Archive), NBER Information on Recessions and Recoveries. In that worst-case scenario, the Fed transforms $2 trillion in junk into $2 trillion cash. I remember when the Fed announced the first round of QE. But I’ve actually only broken even. So how is that stimulating the economy? Because money in circulation is officially counted as a “liability” of the Fed, some people will watch his explanation and say, “Oh my God! Unless, you are naive enough to believe that we are living in a time of supreme intellectual enlightenment. I know this is an extreme example, but as a thought experiment your explanation would be enlightening. Like most banks, Interest income is obviously key to RBI’s finances and accounts for close to 95%–99% of the total income of the RBI. If the commercial banks can always earn more at the fed than it costs for the funds they put there, why don’t they just put all of their assets at the fed and not make any loans at all? Many worried that the Fed would be unable to “unwind” its positions (i.e. Those are that accounts that banks, commercial banks, hold with the Fed, and they are assets of the banking system and they are liabilities of the Fed, and that’s basically how we paid for those securities. The banking system must hold the quantity of reserve balances that the Federal Reserve creates. This increases the money supply. One thing that sometimes works with folks like that is if you point out how public sector deficits are needed to help the private sector dig out and deleverage. The Federal Reserve, like any bank, can acquire an asset simply by crediting a bank account. Now, take a look first, as you look at this, take a look first at the light blue line at the bottom. The balance sheet of the Reserve Bank is largely a reflection of its activities undertaken in pursuance of its currency issue function as well as monetary and reserve management policy objectives, according to the central bank. It is merely another method for transferring the wealth of a nation to its aristocracy while simultaneously oppressing the masses. I’m surprised you’re not linking to it. Unless, of course, your position is that they are ignorant. And that assumes the Fed pays you fair value for those assets, which is pretty unlikely. The smaller banks get cash through the correspondent banks, which charge a fee for the service. The Reserve Bank of Australia (RBA) is Australia's central bank and banknote issuing authority. Is the US Likely to Experience a Double-Dip Recession?