EXACTLY! So the Fed Central Bank, and through extension, the US Treasury/US Government, is making profit at the expense of the US taxpayer. Why does it have to be this way? There should be taxes, or there should be interest payments. There should not be both. This is, effectively, double-taxation.
you have it backwards. By definition, the government can't legally make a profit at the expense of the U.S. taxpayer. Are you trolling me now?
No, not trolling at all! Why does the Fed charge interest on the money it "lends"? What is the point of it?
Why do you have to pay a fee to get a passport? Why does the Interior Dept charge for grazing rights on federal land? Why do we pay taxes to the federal government? I suppose the reasoning is similar in all these cases. Certainly one very obvious reason for the fed charging interest on the money they lend to private, for-profit banks is that if they didn't charge anything it would be impossible to control the wholesale cost of money at anything above a zero rate.
This whole thread and your responses have been very illuminating. It seems like a flow chart would solve this confusion, but why doesn't one exist already...
It is not terribly wrong to refer to QE as printing, as the Fed hopes it will have the effect of making credit more attractive resulting in a temporary expansion of the money supply. Actual creation, "printing", of new semi-permanent, fiat money is not, however, what's really happening in QE. So I regard the use of the term "printing" to describe QE as somewhat of a misnomer, and a misleading one because it is so easy to confuse expansion of the money supply via credit with the actual creation of new semi-permanent fiat money. What is really taking place in QE is the Fed is exchanging bank reserves for Treasuries. Treasuries and Bank reserves are interchangeable. They are both liabilities of the federal government; just two different forms of money, one is non-circulating and interest paying; the other is circulating and non-interest paying. (Currently money as bank reserves does pay a small interest but much less than money in the form of non-circulating Treasuries.) Think of Treasuries as money that is semi-permanently sidetracked. The Fed makes the exchange of a Treasury for bank reserves, often directly with a bank, but it can occur indirectly via any purchase by the Fed of a Treasury security on the secondary market, even if they bought a bond from you. The seller's, bank's reserve account is increased by the amount of the Fed's purchase, typically resulting in "excess reserves". The bank has an incentive to loan out their excess reserves at higher interest and make some money for their shareholders. The market forces created tend to push rates down, and the Fed hopes that therefore demand for credit will increase and speed up the economy. The Fed doesn't want the economy to be on crack, but maybe just a couple cups of espresso, however this mechanism is rather imprecise and ineffective in a recession when it is commonly used to counter households' and businesses' desire to de-leverage. In a deep recession the Fed may have to push wholesale money rates almost to zero to get borrowers interested in correspondingly low bank rates that result. In Fed tightening the opposite is occurring. The Fed may have decreased its Treasury purchases to the point of being a net seller. Now they are reducing bank reserves, raising the wholesale price of money, forcing bank lending rate up, making credit less attractive and hence reducing the money supply as retired loans begin to exceed new loans. The hope is to slow the economy and decrease demand for goods and services. The Fed now has a similar problem to their QE problem, but in reverse. The economy will typically be slow to respond and may not respond much until rates get quite high and unhappy side effects occur, e.g., unemployment. Although the Fed, about four years ago, altered its method of controlling the wholesale price of money to bring it more in line with what other Central banks do, the basic principles are unchanged. The Fed does "print", i.e., create new, semi-permanent money, but it is not by QE. And the Fed has no control whatsoever over the amount of this new fiat money created. Congress controls that! The fed only has a say, indirectly of course, over the amount of credit, which does affect the money supply. But the increase in the money supply due to an expansion of credit is impermanent. The supply increases when a loan is made and decreases by the same amount when the loan is paid off. People very often confuse this kind of temporary "printing" with the actual creation of new semi-permanent fiat money which depends on deficit spending. It is this latter type of money creation that can not be allowed to get too far ahead of productivity increases or a damaging type of long-term, fiat money devaluation can result. This takes us into economic considerations that are totally apart from those that credit tightening and loosening are designed to address. In prior posts I have used the terms "outside" and "inside" money. This is an artifice that may be due to Hyman Minsky -- other terms have been used by other money theorists to mean the same . Regardless it is a critical artifice that allows one to correctly get the differences straight between new money, figuratively printed and money that is temporarily created via fractional reserve banking. The latter I prefer not to refer to as "printed", but rather as credit, because the term "printed" implies permanence. It is very important to understand this difference if you want to understand how governments control and use money in their economies. The semi-permanent, fiat money created, i.e., "printed", by deficit spending is "outside" money. The money temporarily created by fractional reserve banking is "inside" money.
Isn't credit just another term for DEBT? It is something that will be owed, once money is taken out on "credit".
That's good, but not good at the same time. The FUCK England knows about the problems the USA faces. Rumpelstiltskin. heh