$15 Trillion in 5 Days

InfleXion, I just have to say, I very clearly do not want digital notes. To me they are not real unless I can touch them and use them. When the (oops!) computer with the digital notes crashes, well, no more digital notes. Greenbacks, in hand. Tangible. Yep, I keep trying to build my own physical cache. And yes, I'll keep reading so that I might change my mind by the time I'm done here.

Just commenting along the way.

Lucy

 

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No worries Chris, and I appreciate the replies being the info sponge that I am. Unfortunately I still have a question.. ;] We know that the Fed has bought much more than $600 bn worth of treasuries, and that one can't buy treasuries with paper FRNs. We've established that both FRNs, coinage, and treasuries can be dollars, but what we haven't established is what are these dollars called in cyberspace that the Fed creates which are not in paper form that they use to purchase treasuries such as with QE? Sure we can call them 'dollars', and that's accurate, but what do we call them to distinguish them from these other types of dollars? They are still debt notes from the Fed, just not paper notes. 'Digital currency' works for identification purposes, but I'm curious what the official label is.

Lucy, I also don't want digital notes if I can help it, but automatic bill pay is convenient. Aside from keeping enough in the bank to pay bills I keep my cash with my stack.

 

Well, you answered one of my questions here..

 

The Fed can print money. They print a bunch of $100's and sell them to banks. The banks transfer electronically dollars in return, and the Fed uses that money to buy Treasuries. No real US Dollars were created, simply changed from US Treasuries outstanding to FRN outstanding. This is quantitative easing, or "monetizing the debt". At other times they do the reverse, selling Treasuries to buy back FRN's. This is a major function of the Fed, to regulate quantity of currency in circulation.

 

Double post. Time to step away for a while.

 

I thought that the Treasury printed the FRNs though, after the Fed wires over the amount to be printed. QE as I understand it is when the Fed creates new electronic dollars to purchase treasuries. So it would seem this is a double expansion of the money supply since the Treasury is also creating treasuries which are also new dollars. As you stated before, you can't use FRNs to buy treasuries, so then what do we call these dollars they are using to do so? Either the digital dollars that are not treasuries or money market accounts or credit must also be called FRNs even though they are not paper, or they need a name of their own.

 

I've finished thus far. Interesting concepts here.. I've been worrying a good bit about this topic, wondering of course what IS the best thing to do, what IS the best vehicle to store one's FRN's )) As I see it, there really isn't anything behind my bank statement. Only numbers on a piece of paper. Same for cd's; bonds; money market; 401k.. If we all needed 'cash on hand', well we'd be in a world of trouble I think. On the other hand, and this is bothering me, what says I or anyone else even NEED these 'real money' pieces? Is this just all worthless?? I really do not like depending on all of those computers being able to control my destiny. A click of a button by an angry person could cause terrible problems (and has for people, I just bet.)

'Gonna think on it..

Thank you all for discussing all sides.

Lucy

 

The BEP prints the notes, and gets paid a fee for doing so. If they print a $100, they might be paid $.12 for it, they do not get $100 for the note. Only the Fed has the right to circulate FRN's, the US has the right to circulate US Notes, and the mint has the right to coin money. This is why the Fed pays face value for coins, since the profit from coinage belongs to the mint, not the Fed, just like the profit from FRN's belong to the Fed, not the BEP.

A FRN is only the physical notes. That is the only FRN in existence. I have called US dollars transfered electronically "electronic dollars" just for sake of clarity. All are dollars, FRN's are just specific notes printed by the Fed, denominated in dollars, for use in day to day transactions.

If it helps, think of FRN's like company scrip issued during the depression. The US stopped most of this since THEY wanted the interest free money, and didn't want others to horn in on their action. The creation of money has been a mainstay source of financing of governments almost since money was invented. Even silver and gold money had a built in profit for the government.

 

I am of the opinion - which I am sure is in the minority here that a collaspe of the US Financial system will actually increase the buying power of FRNs (hard currency). So-called digital dollars due to the risk of failure of the financial institution holding them could become worthless and all but disappear. Shrinking the money supply by 90%. People always bring up Zimbabwe when speaking about hyper-inflation but people fail to realize that Zimbabwe was virtually a hard currency economy to begin with. They inflated their money supply by adding multiple 0's to their printed hard currency money supply. That is the only way they could inflate it as their citizens didn't have access to the banking system.

 

Good observation. :thumb: While I'm not as pessimistic as you about collapse, it is true that problems with excessive debt are as likely to be resolved by default and crashing markets as by hyperinflation. And default will lead to a scramble for liquid currency to pay debt which would actually increse the value of the dollar. This is a possibility that few here seem to include in their list of possible outcomes.

 

Funny world where FRN's are considered "hard currency" huh? I understand your point sir, I simply think its funny that we have come so far to the point that printed pieces of cotton are our main source of "hard money". Not so long ago the hard money was PM and the little pieces of cotton were the "soft money".

 

I agree with you to a point. I think the dollar will gain in strength, but not for the same reasons, rather because it will be seen as safe haven from the European situation. It's not like Japan is any safer with the worst debt/GDP in the world, and the Swiss franc is tied to the Euro now too. Also, as soon as QE3 happens any dollar strength will get hit hard. That's not to say QE3 has to happen, but it does have to happen if the Fed doesn't want deflation which would most likely lead to the money supply shrinking as you've described. Were this to be the case then the financial giants would not survive, and I think they would take the dollar with it. The thing is, they are all leveraged something like 50 to 1 against their assets. That means it only takes a 2% deflation for them to get wiped out. I highly doubt the Fed will let that happen to their primary dealers.

 

Does you include yourself in this condemnation or are you just stating it, like your claims that certain people have no finance background in order to elevate yourself?

You insist that Treasuries are USD currency which clearly they are not. You then simply ignore every point, including what both the Treasury and the Fed have to say about it and simply keep repeating that Treasuries = USD. (and you have not provided any independent proof) I agree that these topics get side tracked, but I'm one to say that those who live in glass houses ought not start throwing stones.

If you really want to prove the statement false, then address the points made. I know you can do it as I've seen good posts from you.

 

As of the end of October, the Federal Reserve lists $9.6 Trillion dollars in FRNs. not $600B. It's on their website. This sum does not include amounts having to do with secret monetary operations with other central banks and the TBTF banks. There are some estimates the real number is closer to $70T. Hence it is not USD.

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I have a $5000 paper I-bond that is sitting in my safety deposit box since 2001. I keep it because it pays ~ 5.75% and isn't subject to state taxation. It's a Treasury security that is part of the $15T treasury debt. Yet I can't spend it without first redeeming it into Federal Reserve dollars. There are millions of these type bonds out there which cover a non-trivial portion of the $15T debt. Howver they are not USD as I can't pay my taxes with the paper bond.

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One final point. The US Treasury still has the right to print currency in the form of US bank notes. It simply chooses not to because this would interfere with the operations of the Federal Reserve.

 

http://www.federalreserve.gov/releases/h6/Current/ As shown in the link, the $9.6Trillion is the M2 number which includes much more than FRNs [see note at bottom of web page].

 

It's all money in the Federal Reserve System, hence Federal Reserve dollars.

 

On the point of not being able to pay yoru taxes with Treasury securities, that is due to the registration feature. You can pay your taxes with a check, wire transfers and credit cards in some jurisdictions, and theoretically with dollar coins. Any of these other payment methods do not involve one single FRN. Every form of the dollar has its use, just like FRN's do you no good on Ebay and in many other transactions. There are even restaurants opening now that refuse to accept FRN's and coins, only allowing you to dine there if you pay electronically. Every day the use of FRN's go down, being replaced by electronic payments.

Another illustration of this is a very typical US citizen today. Most people get paid direct deposit, pay bills online or via check, pay for gas and groceries with credit or debit card. Where is a FRN ever involved? We work, live, pay bills, all without having to touch Mr. Franklin's face. If it were not for buying lunch, I would have absolutely no use for FRN's at all. Every day more and more Americans are the same way. We use Dollars, every one of us, but fewer and fewer are using FRN's. I personally have gone weeks between taking out $100 if I am in the mood of bringing lunches to work. Some day I will simply start charging lunches as well, and live a FRN free life, except for some in my collection as antiques.

 

Checks, wire transfers and credit cards are all methods for accessing an account at a Federal Reserve bank. They are not currency. They are nothing more than your authorizations for the federal reserve banking system to make a ledger adjustment to directly move money from your account to that of the US Treasury's account at the Federal Reserve. The payment in all cases is in Federal Reserve dollars. i.e. USD. (mechanically it's more complicated than this)

One more time, FRN is simply a nickname to refer to dollars created by the Federal Reserve. It's not limited to the printed form. You are spending USD and since 1971, the only USD in circulation are federal reserve dollars. It doesn't matter if you are talking about cash or a demand deposit that you have at a federal reserve bank, or credit extended to you which will be paid in the future from the same accounts.

The difference of printed dollars vs ledge dollars is irrelevant to this topic. They are all dollars created by the Federal Reserve.

 

Wrong. It includes other items like travellers checks and money market funds that are totally outside the system.

 

You are wrong again.

Money Market Funds were not included in the figures I gave above. The Federal Reserve does not count them in M1 & M2. May you got confused and thought that Money Market Account at a bank was a Money Market Fund. It isn't. It's nothing more than an account at a Federal Reserve institution and it's Federal Reserve dollars.

In the United States, a traveler's check can only be created from Federal Reserve dollars and they are redeemed as Federal Reserve dollars. The party taking them as payment assumes the risk until they are accepted by a Federal Reserve institution. Hence, they are nothing more than a convenience item to move money from one federal reserve account to another.