DJIA, NASDAQ, and S&P 500 down big today
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Trafik Jamz;261332 wrote:
Money is created by selling treasury bonds and the like. These bonds are sold on the open market as a commodity (much like gold, copper, wheat, etc...) So it doesn't just appear out of thin air, but it's certainly not perfect by any means.Lol....n00b. I guarantee most of our money is not backed by anything...
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SmitEvo;261552 wrote:
:icon_scratch: WTF?Our money isnt back by such and such dollars equals such and such gold, etc. Like you had said... Its basically backed by our ppl believing that a dollar (some fancy piece of paper) is actually worth something... Sorry i'm totally spacing out what the term is for the system we use
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"fiat money"
money that has value (that is larger than the paper and ink used to print it ) only because someone says it does.
TJ: what you suggest might be accurate if you limit it to M1 money supply, but M1 is almost irrelevant. When you put $500 into savings at a bank and the bank turns around and re-lends it, but tells you you've still got $500, that is how money gets created out of thin air, and it is inflationary, and it's the core problem with fractional reserve banking. Private banks have the power to inflate the currency, just the same way that actually printing more cash inflates the money supply.
The entire nation collectively deciding that homes should be worth 2-3x as much, and then everyone making borrowing, lending, and re-investment decisions based on that also inflates the money supply. Note that mortgage backed securities and other instruments are only counted in what is called the "M3" money supply, which the federal government stopped publishing several years back, and which bright folks like Ron paul were of course livid about.
You might want to read "What has Government Done to our Money", by Murray Rothbard, if you haven't already.
When Ron Paul says fractional reserve banking is a problem, it's not just the Fed he's talking about. The laws in this country say that bankers get to make their money by keeping part of yours and inflating the rest, so that you and your neighbors both have less actual purchasing power than before. All fractional reserve banks are, by any honest accounting, legally insolvent. This only plays out when bank runs happen.
Of course, last time we had lots of bank runs, the Feds (that would be FDR, our 1st great socialist) declared a bank holidy and intimidated people out of trying to get their money out of insolvent banks they didn't trust. The Federal government and the member bank system both profit egregiously from their mutual inflationary practices. People attepmting to use the dollar as a store of value are the ones who get raped by inflation.
Inflation is reasonably systematic in our economy at this point. Fractional reserve banking is the core of the inflationary cycle. Uncle Sam could shut off the printing press and inflation would continue to happen. Infact, M1 was controlled at a relatively fixed level via the Fed for some time now. Obviously inflation has continued and will continue, almost irrespective of what the Fed does or does not do.
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