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The fact that every dollar that is printed MUST be paid back to the Federal Reserve Bank with interest means that every dollar printed is worth less than it's f

The fact that every dollar that is printed MUST be paid back to the Federal Reserve Bank with interest means that every dollar printed is worth less than it's face value. This is the original and primary source of inflation. All debt biassed currencies have this, not as a defect, but as a feature. If you own the bank you can do some money magic and get filthy rich. The Federal reserve Over the last 100 years the dollar has lost something like 96% of it's value. It's old and quite corny but this video gives the cliff notes on how the FED works https://youtu.be/mII9NZ8MMVM https://youtu.be/mII9NZ8MMVM

somewhereoutth 2y ago
Modern banking systems allow the banks themselves to 'print' dollars - by originating loans. The Fed (and central banks elsewhere) steer this money creation process through various mechanisms. However it is NOT the case that 'every dollar must be paid back to the Fed'. The reason for this expanding money supply is to facilitate an expanding economy.
- normalaccess 2y ago
  You are right, part of every dollar must be paid back. If there is any interest on a loan then you need to pay back more than 100% the original cost. Our FED operates the same way, the government must pay back the FED's loans, and these loans have interest. When the US was printing greenbacks without the FED there was no one to "pay them back to". This is how the USA operated before 1913.
  - wahern 2y ago
    Inflation existed before 1913. What was different was that inflationary periods were counterbalanced by periods of deflation. There's a reason why the Federal Reserve has two primary missions--stable prices and maximum employment. Deflationary periods cause massive unemployment and declines in investment, so they really want to avoid deflationary periods. Ask any economically literate historian about the devastation deflation causes at the individual level; it's far, far worse than inflation at nominally comparable levels. This is why the Fed is biased toward inflation. 20th (post-Bretton Woods) and 21st century inflationary periods haven't been any worse than the 19th century or early, but we have avoided severe deflationary periods, and that's absolutely worth the small long-term inflation. It's also arguably kept prices more stable, but confounders (technology, etc) make comparisons with the 19th century industrial revolution complicated--the emergence and rapid evolution (to this day) of the commodification of goods and services.
    - WalterBright 2y ago
      > it's far, far worse than inflation at nominally comparable levels. I haven't seen any evidence for that. > This is why the Fed is biased toward inflation. The Fed is biased toward inflation because that way the government can spend more without raising taxes.
      - wahern 2y ago
        Try reading, Lords of Finance: The Bankers Who Broke the World. It won the 2010 Pulitzer Prize for History, among other accolades. I certainly enjoyed it, though I read it on the heels of the 2008 financial crisis, which may have made it feel especially salient.
        WalterBright 2y ago
        I don't know about the merits of that book, but the Pulitzer Prize means nothing at all. They've given out that prize for hoaxes and other nonsense.
throw0101d 2y ago
> It's old and quite corny but this video gives the cliff notes on how the FED works This is nothing like how the Fed, or banks, work: depositor's money is not given out to people who get loans. Tobin called this the "Old View" in 1963: * https://elischolar.library.yale.edu/cowles-discussion-paper-series/388/ https://elischolar.library.yale.edu/cowles-discussion-paper-... It's beyond old now: * https://www.bankofengland.co.uk/explainers/how-is-money-created https://www.bankofengland.co.uk/explainers/how-is-money-crea... * https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 * https://rationalreminder.ca/podcast/132 https://rationalreminder.ca/podcast/132

somewhereoutth 2y ago

Modern banking systems allow the banks themselves to 'print' dollars - by originating loans. The Fed (and central banks elsewhere) steer this money creation process through various mechanisms. However it is NOT the case that 'every dollar must be paid back to the Fed'. The reason for this expanding money supply is to facilitate an expanding economy.

normalaccess 2y ago
You are right, part of every dollar must be paid back. If there is any interest on a loan then you need to pay back more than 100% the original cost. Our FED operates the same way, the government must pay back the FED's loans, and these loans have interest. When the US was printing greenbacks without the FED there was no one to "pay them back to". This is how the USA operated before 1913.
- wahern 2y ago
  Inflation existed before 1913. What was different was that inflationary periods were counterbalanced by periods of deflation. There's a reason why the Federal Reserve has two primary missions--stable prices and maximum employment. Deflationary periods cause massive unemployment and declines in investment, so they really want to avoid deflationary periods. Ask any economically literate historian about the devastation deflation causes at the individual level; it's far, far worse than inflation at nominally comparable levels. This is why the Fed is biased toward inflation. 20th (post-Bretton Woods) and 21st century inflationary periods haven't been any worse than the 19th century or early, but we have avoided severe deflationary periods, and that's absolutely worth the small long-term inflation. It's also arguably kept prices more stable, but confounders (technology, etc) make comparisons with the 19th century industrial revolution complicated--the emergence and rapid evolution (to this day) of the commodification of goods and services.
  - WalterBright 2y ago
    > it's far, far worse than inflation at nominally comparable levels. I haven't seen any evidence for that. > This is why the Fed is biased toward inflation. The Fed is biased toward inflation because that way the government can spend more without raising taxes.
    - wahern 2y ago
      Try reading, Lords of Finance: The Bankers Who Broke the World. It won the 2010 Pulitzer Prize for History, among other accolades. I certainly enjoyed it, though I read it on the heels of the 2008 financial crisis, which may have made it feel especially salient.
      - WalterBright 2y ago
        I don't know about the merits of that book, but the Pulitzer Prize means nothing at all. They've given out that prize for hoaxes and other nonsense.

throw0101d 2y ago

> It's old and quite corny but this video gives the cliff notes on how the FED works This is nothing like how the Fed, or banks, work: depositor's money is not given out to people who get loans. Tobin called this the "Old View" in 1963: * https://elischolar.library.yale.edu/cowles-discussion-paper-series/388/ https://elischolar.library.yale.edu/cowles-discussion-paper-... It's beyond old now: * https://www.bankofengland.co.uk/explainers/how-is-money-created https://www.bankofengland.co.uk/explainers/how-is-money-crea... * https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 * https://rationalreminder.ca/podcast/132 https://rationalreminder.ca/podcast/132