"The Federal Reserve prints money out of air" questions galore...

[robert4rp08]

I've been curious about the phrase, "The Federal Reserve prints money out of air." Specifically, I want to know if this is literally true. Does the Fed actually print money (FRNs)? Here are the results of my research with some questions:

My first stop was the website of the Department of Treasury, which lead me to the website of The Bureau of Engraving and Printing (BEP). The URL to the BEP is http://www.moneyfactory.gov Haha!

Anyway, the BEP's 'about' page (http://www.moneyfactory.gov/section.cfm/2), states "The BEP prints billions of Federal Reserve Notes for delivery to the Federal Reserve System each year." Does this mean that the BEP actually prints the money and the Fed decides when and how much to distribute (by direct injection or by manipulating lending rates?). This webpage (http://www.moneyfactory.gov/section.cfm/2/431) shows exactly how many FRNs are printed by the BEP. In September, the BEP printed $4,028,800,000 worth of FRNs.

I've come to the conclusion that the phrase "The Federal Reserve prints money out of air" is inaccurate if money refers to FRNs. The Fed injects money into the economy that was printed out of thin air by the BEP. Correct? Incorrect?

Who determines how much money gets printed at the BEP? The Fed? The secretary of the department of treasury? Congress?

What exactly does a Federal Reserve Note mean? A note means:
1. A paper acknowledging a debt and promising payment
2. A certificate issued by a government or a bank and sometimes negotiable as money.
So this means that the FRN is "a certificate of debt owed to the Fed by the BEP." Correct?

By the way, the Fed webpage has a document describing The purpose and function of the Federal Reserve System (http://federalreserve.gov/pf/pf.htm) that I haven't read through yet, but looks like an interesting read.

Any information is greatly appreciated!

[FindLiberty]

Read G Edward Griffin's book: Creature From Jekyll Island - A Second Look at the Federal Reserve

and/or... watch this 42 minute video: http://video.google.com/videoplay?docid=6507136891691870450

[forsmant]

I've been curious about the phrase, "The Federal Reserve prints money out of air." Specifically, I want to know if this is literally true. Does the Fed actually print money (FRNs)? Here are the results of my research with some questions:

My first stop was the website of the Department of Treasury, which lead me to the website of The Bureau of Engraving and Printing (BEP). The URL to the BEP is http://www.moneyfactory.gov Haha!

Anyway, the BEP's 'about' page (http://www.moneyfactory.gov/section.cfm/2), states "The BEP prints billions of Federal Reserve Notes for delivery to the Federal Reserve System each year." Does this means that the BEP actually prints the money and the Fed decides when and how much to distribute (by direct injection or by manipulating lending rates?). This webpage (http://www.moneyfactory.gov/section.cfm/2/431) shows exactly how many FRNs are printed by the BEP. In September, the BEP printed $4,028,800,000 worth of FRNs.

I've come to the conclusion that the phrase "The Federal Reserve prints money out of air" is inaccurate if money refers to FRNs. The Fed injects money into the economy that was printed out of thin air by the BEP. Correct? Incorrect?

Who determines how much money gets printed at the BEP? The Fed? The secretary of the department of treasury? Congress?

What exactly does a Federal Reserve Note mean? A note means:
1. A paper acknowledging a debt and promising payment
2. A certificate issued by a government or a bank and sometimes negotiable as money.
So this means that the FRN is "a certificate of debt owed to the Fed by the BEP." Correct?

By the way, the Fed webpage has a document describing The purpose and function of the Federal Reserve System (http://federalreserve.gov/pf/pf.htm) that I haven't read through yet, but looks like an interesting read.

Any information is greatly appreciated!

There is a wealth of information on this topic in the Econ forum. The Fed orders the dollar bills, aka federal reserve notes, from the BEP.

The FED does not inject money into the system by using FRN's. The Fed buys treasuries and inflates bank reserves held at the federal reserve. The banks are then allowed to loan out 10 times the amount held in reserve using the money multiplier effect. Use the search tool on this forum and many threads will come up about this very subject.

[robert4rp08]

Right, right, right... my questions were mostly for language clarification purposes. Although, the entire cycle is still somewhat confusing. Maybe I'm just nitpicking, but here goes again:

The BEP prints FRNs (physical money, i.e., cash for circulation) and treasury bonds (promissory notes to the Fed). I believe the face value of FRNs must equal the face value of treasury bonds. The Fed does not print anything. What the Fed does is intangible-- it creates money/credit (bookkeeping bits in a computer) out of thin air in the amount equal to the FRNs/treasury bonds that it receives. The Fed sends this money/credit to the gov whom sends it to employers/employees whom send it to the banks that create even more money/credit out of thin air via fractional reserve lending. The 'printed' money (FRNs) that the Fed receives from the BEP are sent to banks whom make this 'cash' available to depositors upon demand. Because of fractional reserve lending, more money/credit is in 'circulation' than FRNs, which is a reason why 'bank runs' are so dangerous.

So, the Fed does not print money out of thin air-- the Fed creates money out of thin air. The BEP prints money out of thin air and gives it to the Fed for distribution into the economy. The printing press is at the BEP and the credit creator is at the Fed.

Also, I don't think the Fed orders the FRNs. I think the BEP sends an amount of FRNs to the Fed equal to the value borrowed from the Fed. The amount the BEP needs to borrow is equivalent to the amount of money appropriated through Congress. Banks also borrow 'money/credit' directly from the Fed, but this is done without 'printing' money, it is based on 'creating' money at a rate based on the 'cash' reserves held by the bank.

Definitions from dictionary.com:
printing - verb - the art, process, or business of producing books, newspapers, etc., by impression from movable types, plates, etc.

money - noun - any circulating medium of exchange, including coins, paper money, and demand deposits.

credit - noun - a sum of money due to a person; anything valuable standing on the credit side of an account

cash - noun - money in the form of coins or banknotes, esp. that issued by a government

demand deposit - noun - a deposit subject to withdrawal at the demand of the depositor without prior notice.

[constitutional]

Correct me if I'm wrong on this:

BEP simply prints money when Fed orders it to. With out Fed's approval, BEP can't print money. So it's the federal reserve printing/creating the money. You are trying to define "printing" and "creating" but it does not matter. It's essentially the same thing.

[linusPAULing]

The movie "Money As Debt" gives a great overview, but you'll likely have to watch it multiple times for the scheme to start to make sense....

http://video.google.com/videoplay?docid=-9050474362583451279

[Knightskye]

Lawl - "moneyfactory.gov" :D

[AJ Antimony]

No, the Fed does not literally print dollar bills. In an interview I believe Ron Paul clarified and said something to the effect of, "it's all digital now. Instead of creating paper bills, now they just punch a number into a computer and there it's created."

[robert4rp08]

Correct me if I'm wrong on this:

BEP simply prints money when Fed orders it to. With out Fed's approval, BEP can't print money. So it's the federal reserve printing/creating the money. You are trying to define "printing" and "creating" but it does not matter. It's essentially the same thing.


"BEP simply prints money when Fed orders it to. With out Fed's approval, BEP can't print money."
Do you have a source for this statement?

"You are trying to define "printing" and "creating" but it does not matter. It's essentially the same thing."
I'm not defining those words. I'm just trying to place them in their proper context, so that I can explain it with more clarity.

[constitutional]

"BEP simply prints money when Fed orders it to. With out Fed's approval, BEP can't print money."
Do you have a source for this statement?

"You are trying to define "printing" and "creating" but it does not matter. It's essentially the same thing."
I'm not defining those words. I'm just trying to place them in their proper context, so that I can explain it with more clarity.

Let's say you are Walmart. You have your own 'Walmart' brand of televisions that get produced by a company in China.

When does the company in China know how many 'Walmart' brand televisions to produce?

Of course, Walmart will tell the company in China how many TV sets to produce. If the company in China decides to overproduce, they just have sitting surplus. If Walmart decides to stop selling for a month or sell more through promotion for a month, then the company in China must adjust its production accordingly.

Similarly, Walmart here is Federal Reserve and BEP is a company in China.

It would be pointless for BEP to print billions of money if the Federal Reserve won't put it into circulation. Isn't this simply called outsourcing? Federal Reserve still decides how many notes to print.

[fr33domfightr]

Go to this link for the proof:

h ttp://www.federalreserveeducation.org/fed101_html/services/dollar.htm

"Each year, Federal Reserve Banks instruct the BEP on how many bills of each denomination to print. Each Federal Reserve Bank then orders the amount of new currency that meets the demands of financial institutions and replaces worn currency."

"Currency arrives at Federal Reserve banks in two ways. Armored carriers contracted by financial institutions deliver currency on a daily basis. The Bureau of Engraving and Printing deposits new currency at Federal Reserve Banks, while the U.S. Mint deposits new coins."

You touched on this briefly. The amount of paper money in circulation is only about 3% of the total amount in transactions. All the rest is on computers. Even with big printing machines, there is no way the BEP can print trillions of dollars. It's not physically possible, nor is it necessary. So, the Fed just uses computers to generate the money they need, "out of thin air," because there isn't anything tangible to back up the currency (see fiat currency). Will they state this? Probably not because they don't really want people to know this. They will say that the FRNs are backed by U.S. Treasury Securities (Bonds), but what really are those backed with? Nothing but air. (Edit: I should clarify, they're backed with the full faith and credit of the United States. I assume this means the U.S. Federal Government will take your private property, if necessary, to pay its debts).

Some definitions from the FED glossary:

"Fiat paper money (or Fiat currency) — Paper currency that has value because the government has decreed that it is a "legal tender" for making tax payments and often for discharging other debts and payments as well. Fiat money does not represent a claim on some other form of money or commodity such as gold and silver."

"Federal Reserve note — Currency issued by the Federal Reserve. Nearly all of the nation's circulating paper currency consists of Federal Reserve notes printed by the Bureau of Engraving and Printing and issued to the Federal Reserve Banks which put them into circulation through commercial banks and other depository institutions. Federal Reserve notes are obligations of the U.S. government."


FF

[NYgs23]

The vast majority of money is electronic now and is divided into categories. According to Wikipedia (http://en.wikipedia.org/wiki/Money_supply#United_States), they are:

* M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency.
* M1: The total of all physical currency part of bank reserves + the amount in demand accounts ("checking" or "current" accounts).
* M2: M1 + most savings accounts, money market accounts, retail money market mutual funds,and small denomination time deposits (certificates of deposit of under $100,000).
* M3: M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.

So I guess only "currency" (M0) is physical paper money.

http://www.sott.net/image/image/13791/full/350px_Components_of_the_United_.png

[coyote_sprit]

Most money isn't printed, only like 3% of it is.

[specsaregood]

* M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency.
* M1: The total of all physical currency part of bank reserves + the amount in demand accounts ("checking" or "current" accounts).
* M2: M1 + most savings accounts, money market accounts, retail money market mutual funds,and small denomination time deposits (certificates of deposit of under $100,000).
* M3: M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.


And unless I am mistaken, they don't report the M3 money supply anymore.

[coyote_sprit]

And unless I am mistaken, they don't report the M3 money supply anymore.

M3 stops at 2006 on that graph.

[micahnelson]

There is a difference between checkbook money and paper money. When the government pays someone from their federal reserve account they are not paying cash. They transfer electronic money via check or direct deposit into a persons account. If the person does auto bill pay, buys things with credit cards, or uses debit - there is no need for that money to ever turn into physical printed dollars.

Physical dollars are a small fraction of a percent of the money floating around. That amount only increases when a bank borrows from the fed to cover reserves. Inflation of paper money, IE wheelbarrels for a loaf of bread, will only happen if A) The government starts handing out cash instead of checks or EBT styel cards, or B) there are bank runs and the FDIC is able to print out its liabilities to meet the demand people have.

Checkbook money will be worthless in a collapse. Printed dollars would not be unless there was a massive printing effort to cover the amount that everyone assumes is sitting in a bank vault.

Coins>FRNs>Checkbook Money>Credit

[coyote_sprit]

Coins>FRNs>Checkbook Money>Credit

More like...
Coins>Anything else people find valuable>FRNs>Checkbook Money>Credit

[Epic]

The money is keystroked into existence these days.

Which is very scary....

[Carson]

The way I have it figured is the Federal Reserve is a bank outside of our government and country for all intents and purposes.

They are to the government, like the banks holding our credit cards are to us.

The way I see it is that when the government wants to spend money it doesn't have, it borrows it from the Federal Reserve. They give the Federal Reserve an interest bearing note to hold in exchange for the right of the Treasury Department to print up the actual notes.

If all of our debt was held by the Federal Reserve we would be sending around 444,000,000,000 out of the country every year at a 4% interest rate.

That is a lot of interest on the right to print up our own fake money.

I figure a little of the interest comes back and goes to influencing our politicians to go along with some of the ludicrous spending we see happening.

It is sort of like your spouse has been dating the banker that holds your credit card and they have been getting your spouse to buy them things they want like a house, a boat, or a car. Then you get stiffed holding the bill...

and you've spent your lifetime raising their children because yours were aborted because there wasn't going to be enough room.

[Carson]

Maybe this will help make the danger of fiat money clear.

Imagine you and me are setting across from each other. We create enough money to represent all of the world’s wealth. Each one of us has a Zero Dollar in front of him.

http://photos.imageevent.com/stokeybob/newbegining/worthless_colorbrianRomero.jpg(click for picture source) (http://brian-romero.blogspot.com/2008/06/zero-dollar-bill.html)

You own half of everything and so do I.

I’m the government though. I get bribed into creating a Central Bank.

You’re not doing what I want you to be doing so I print up myself eight more Zero Dollars to manipulate you with.


All of a sudden your Zero Dollar only represents one tenth of the wealth of the world!


That isn’t the only thing though. You need to get busy and get to work because you’ve been stiffed with the bill for the money I printed up to get you to do what I wanted.


That to me represents what has been happening to the economy, and us, and why so many of our occupations just can’t keep up with the presses.

They have been beating us with our own stick!!!!1

http://photos.imageevent.com/stokeybob/newbegining/2508h-inflationgraph.jpg(click for picture source) (http://oregonstate.edu/cla/polisci/faculty/sahr-robert)

CPI showing the value and purchasing power of money falling as fiat money is printed up unrestrained.