The media is hyping and harping on the issue that the Federal Reserve will resort to PRINTING more money to feed another round of “quantitative easing.” This is a wholly incorrect fact. The Department of Treasury prints our “paper currency” NOT the Federal Reserve. “Quantitative easing” is the Federal Reserve increasing bank reserves- thereby creating new money electronically- but, for a stated purpose of “stimulating” the economy and NOT for paying government debt. This is a salient point that the media mixes up, assuming and misinforming the public that QE is paying for increased government debts. QE serves a fundamental reason the Federal Reserve exists- LENDER OF LAST RESORT. There is no mystery or secret function in quantitative easing- it is an “envisioned” power of the Federal Reserve to shore up financial institutions or companies which hold debt during times of crisis in liquidity. In Quantitative Easing, government securities as well as commercial paper are NOT purchased directly, but rather on secondary markets- meaning, liquidity is being pumped into the private market and not by directly “monetizing government debt” nor with the intent to directly finance government debt.In the 2007-2009 QE policies, the Federal Reserve did not purchase direct government debt- but rather purchased mortgage backed securities and other asset-based securities, NOT government bonds.
These are SIGNIFICANT details to know and remember when caustically screaming about the Federal Reserve “printing money” to restore our financial soundness. Those making paranoid attacks on the QE policy of the Federal Reserve are obviously not reading the details of how and what was being purchased by the Federal Reserve in order to stabilize the banking system and restore credit and liquidity in credit markets. The 2007-2009 Quantitative Easing actions by the Federal Reserve DID NOT “monetize” government debt.
Second, let’s be informed that the Federal Reserve hardly “demands” the Treasury Department to “print” money on demand. This is a very rare occurrence as a cursory glance at the operations of the Federal Reserve would easily illustrate to the public that the Fed’s function in liquidity in our economy is NOT based on “printing” fiat currency. Liquidity- in the narrowest form- paper money and money supply overall (M1,M2,M3) is mainly controlled by the Fed via selling and buying notes, setting bank reserve requirements and interest rates. Therefore, increasing or decreasing the money ‘supply’ by intervening in private financial markets and NOT by demanding the Treasury to PRINT dollars is what QE policy is all about. Printing money can only be conducted by the Treasury Department which comes under the direction of the President of the United States, NOT the Federal Reserve.
Third, it’s actually irrelevant to discuss printed paper money, since it represents a tiny portion of our money supply. The vast majority of our money supply is electronic- not paper money.
Fourth- our money is not worthless, it represents value- either assets or labor, so it’s not worthless- it’s intrinsic value as a piece of paper is of course worthless- but for thousands of years we used shells, rocks, leafs, etc as money- so the negative hype, conspiracy rants, misinformed economic theories which attack the concept of “paper currency” is grossly misplaced. Thinking that “money” needs to have an intrinsic value- such as gold or silver is to create even greater problems than based currencies would solve . Why don’t we use diamonds or rare gems as money since they have “intrinsic” value?
Fifth- Based currency (money based on gold) has already been tried, and proven to be very unsuccessful. The United States experienced more depressions and recessions and banking crisis in our history under the gold standard than with fiat currency. Since going to a fiat currency- no major industrial country has experienced a depression (ala 1929).  Gold based currencies introduce several major problems, such as an inability to have an elastic money supply (in order to put in or take out money from the economy), gold hoarding, not enough gold to base a growing American or global economy, limits of total gold supply, foreign countries depleting America’s gold supply with trade deficits, a soaring price in gold based on almost limitless demand by today’s global economy.
Sixth- inflation- a dynamic and growing economy needs “some” inflation. Inflation provides an outer elasticity to know whether we need to push growth or slow growth down. Push it- to provide more jobs and economic development- or slow it down in order to avoid bubbles, over-employment (which triggers very high inflation) etc… So, having ‘some” inflation is a general indicator and insulator for the economy- perfectly normal- and absolutely necessary for a dynamic economic system. Deflation would be a MAJOR risk under a gold standard and is much harder to recover from- i.e. Japan has still not recovered from its deflation 10-15 years ago.
The Federal Reserve and fiat currency system has produced the highest standard of living for the highest percentage of Americans in its history- as well as reducing the percentage of people living under the poverty rate in America. That is “proof” in the pudding.Tweet
Latest posts by James Luko (see all)
- The “Obama Doctrine” Creates A Global Power Vacuum - May 30, 2014
- The IRON TRIAD; A Regional Plan for the Containment of China on the heels of Obama’s Asian tour - April 30, 2014
- If Putin takes ALASKA back will Obama finally REACT? - March 17, 2014
- RUSSIA INVADES: Military THRUST to the WEST - March 2, 2014
- AMERICA the BEAUTIFUL: Real Patriots Don’t Bash America - February 16, 2014
- CARTER REVISITED - February 4, 2014
- America’s Asian Pivot:Full Spectrum Dominance in Asia - January 4, 2014
- Bad Tidings and No Joy, Sarah Palin Defrauding the Heart of Christmas A review of Ms. Palin’s latest book. - January 1, 2014
- WHITE SWAN: United States of America 2014 and Beyond - December 26, 2013
- Quantitative Easing:Act III Maintaining Geopolitical Hegemony - November 23, 2013
- FIAT currency Trounces Gold - November 17, 2013
- Saudi Refuses Security Council Seat..thats GOOD! - October 20, 2013
- Obama DUPED TWICE! - September 28, 2013
- Global Warming Predictions Face Another Failed Year - September 7, 2013
- SYRIA and American Success in Iraq and Afghanistan - September 1, 2013
- China's Crossing the Line - August 16, 2013
- Paul Ryan - August 15, 2012
- Syrian Conflict: The Minority Elite Alawi vs The Majority - July 14, 2012
- Nuclear Deterrence- USE IT - February 21, 2012
- Keep The Nukes - November 7, 2011
- Fractional Reserve Banking and America's Standard of Living - August 21, 2011
- Gold Standard Would Ruin Us - August 14, 2011
- Clean Up Your Own Act Before You Throw Stones ! - August 7, 2011
- The Gold Standard, Printing Money and the Federal Reserve - July 23, 2011
- China and Russia Angry at USA - July 15, 2011
- 4th of July, Americas Waterloo? - July 4, 2011
- China's Moves on Cuba Need to Be Stopped - June 29, 2011
- The Dollar as the World Reserve Currency: Voice of a Contrarian - June 29, 2011
- America's attack on Libya is Geopolitically and Strategically counterproductive - March 29, 2011
- US to participate in Libyan No-Fly Zone ? - March 10, 2011
- Man-made Global Warming TheoryAGW - March 3, 2011
- Natural Climate Change Deniers - January 10, 2011
- North Korea Attacks: World War Three ? - November 24, 2010
- CONTAIN CHINA; The LUKO DOCTRINE - November 19, 2010
- What is really behind Obama's BIG trip to India ? - November 16, 2010
- Global Warming or Global Farce? - September 28, 2010
- GERMANY: Our Unreliable Partner in Defense - May 21, 2010
- Made in the USA: Still Number One ! - May 16, 2010
- Is China’s GNP Number Accurate - December 19, 2009
- China Eclipses U.S. Auto Sales – Oh Really? - December 2, 2009
- SARAH PALINMissing the Point - November 23, 2009
- KARADZICNo Show - October 27, 2009
- BULLISH on the Dollar - October 16, 2009
- Dump the Dollar ? - October 9, 2009
- Afghanistan: Conquer and Garrison - September 27, 2009
- KARADZIC: JUSTICE DENIED - September 24, 2009