Tag Archives: money supply

The Truth About Economics: Part 4 Money Supply Growth

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(See Comic) Text from comic: Fractional Reserve Banking Most people don’t realize that when they put say $1000 in their bank account, the bank is then allowed to lend out 90% of that money ($900) at interest. When that $900 that was lent out inevitably gets re-deposited into the banking system, it is lent out again ($810). And this process just keeps on going. This is called fractional reserve banking and it is where most of the creation of money comes from--not from physically printing it. Money is anything that can be used to settle debt. And only a tiny percentage of money exists as physical currency. Money Supply Measurements: M0, M1, M2, M3 M0: The total of all physical currency, and accounts at the central bank (FED) that can be exchanged for physical currency. M1: M0 minus the portions of M0 held as reserves or vault cash plus the amount in "checking" or "current" accounts. M2: M1 plus most savings accounts, money market accounts, and certificates of deposit of under $100,000. M3: M2 plus all other CDs, deposits of eurodollars and repurchase agreements. Note: The FED stopped reporting M3 in 2006. It was increasing too much to continue to let anyone know about it. FDIC: In US banks you will see a sign saying FDIC Insured. The Federal Deposit Insurance Corporation is a government corporation that guarantees deposits held in banks up to $100,000 per depositor. This is necessary because if there was ever a run on the banks and people demanded withdrawal of their money they’d quickly find out their money doesn’t really exist. If there is big demand for money (borrowing) and the supply grows faster than the economy (real GDP), inflation follows. That is what has been happening lately. Just Remember, the more money out there chasing goods and services, the more its purchasing power is eroded. Coming Next: Part 5, Protecting Yourself from Inflation

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The Truth About Economics: Part 2 Perpetual Debt

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(See The Comic) Perpetual Debt Machine Federal Reserve Inflation The Federal Reserve (FED) is the unconstitutional, quasi-governmental private organization that is responsible for managing the supply of money and credit in the United States. The FED is theoretically supposed to keep prices and the economy steady by setting interest rates, and by buying and selling bonds. Consequently, if there is inflation, the Federal Reserve isn't doing its job. Because, after all, if there is inflation, the FED is actually causing it, since they manage money supply. Why doesn’t the FED do its job? The simple answer is that, inflation is a hidden tax. Instead of directly raising taxes to spend copious amounts of money on things like, big government, pointless wars, corporate bailouts, and government goodies, the government instead goes into debt. And by going into debt, that increases the money supply. in the Federal Reserve System, money is made from debt. And since money is no longer backed by a hard asset like gold, there is no limit to money supply growth. The more debt, the more money. As debt increases, more money is needed to pay off that debt, and so interest rates are lowered and the money supply is increased by making more debt. It is an explosive feedback loop. In a real, free-market economy, excesses (malinvestments) would be wiped out automatically. But in a managed economy, excesses are able to be maintained by making more excesses, which leads to a perpetual growth, perpetual debt economy. The growth feeds the debt and the debt feeds the growth. The Real Environmental Problem Since the current economy is dependent on perpetual debt and perpetual growth, it must perpetually consume resources to stay alive. In other words, it is unsustainable. Environmentalism is a losing battle until there are fundamental changes into the nature of the economy. Debt begets debt. Growth begets growth. Thus, the economy is like an ouroboros: a serpent consuming its own tail. bankruptcy law Unsustainable Consumption Coming Next: Part 3 Seeing Through Government Deception

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