06-15-2012, 12:00 AM
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Confirmed User
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Join Date: Jan 2004
Location: oddfuturewolfgangkillthemall!!!!!!!
Posts: 5,656
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Who prints money and who owes who?
I thought the Federal Reserve printed money and we owed interest on every dollar but this explanation confused me.. is this guy correct?
Quote:
First, the Federal Reserve does NOT print money. The printing of the money is the responsibility of the Bureau of Engraving and Printing which is a part of the U.S. Treasury.
Second, the Fed does not loan money to the U.S. Government. In fact, it is prohibited by law from doing so. See 12 USC 355 http://www.law.cornell.edu/uscode/text/12/355
The Federal Government borrows money by issuing U.S. Treasury securities. These securities are sold at auction where anyone may buy them, even you. These securities are sold with a set maturity date and the money does not have to be paid back until the maturity date is reached. If a holder of these securities wants to get their money before the maturity date, the only way to do that is to find another investor willing to purchase the security from them. This buying and selling Treasury securities before maturity but after original issue is what creates the open market. It is only on the open market that the Federal Reserve may buy the securities that it holds.
The Federal Reserve doesn't hold 2/3 of the debt either. The total U.S. government debt is approximately $15 trillion. The Federal Reserve only holds about $1.6 trillion of the debt. However, it is actually beneficial for the Federal Reserve to hold this debt since the Federal Reserve is REQUIRED BY LAW to pay its net earnings to the U.S. Treasury every year. This is even reported in the news...
http://www.usatoday.com/money/econom...ent-record.htm
http://www.nytimes.com/2012/01/11/bu...-treasury.html
http://www.forbes.com/sites/beltway/...d-to-treasury/
http://money.cnn.com/2012/01/10/news...sury/index.htm
As for your question about how it is possible for loans to get repaid when anyone who takes out a loan has to repay it with interest is the simple fact that money CIRCULATES throughout an economy. Banks do loan money and do collect interest on that money. However, do you think they just stuff that collected interest in a jar and bury it? No, the banks spend their earnings on purchasing buildings, paying employees, etc. etc. You should take a class on Money and Banking and courses in Macroeconomics and Microeconomics.
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