Message:

<p>[QUOTE=&quot;fatima, post: 1406012, member: 22143&quot;]There is &quot;money printing&quot; , but M2 is the money that is created by fractional reserve banking being performed by the member banks of the Federal Reserve system.&nbsp;&nbsp; M2 is supposed to be limited by the reserve amounts that each individual bank has on deposit at the Federal Reserve.&nbsp;&nbsp; In other words, a bank can&#039;t create infinite amounts of currency as it is limited as a multiple of it&#039;s reserve.&nbsp; Usually 9X.&nbsp;&nbsp; So in simple terms, if a bank has a $1000 reserve, it can create $9000 of currency.&nbsp;&nbsp; M2 = $9000.&nbsp; &nbsp; M2 /=$10,000 which I will explain in a minute.&nbsp; The $9000 is created by issuing loans to people.&nbsp; </p><p><br /></p><p>Banks can increase their reserves the old fashioned way by attracting depositors.&nbsp; They used to do this with decent interest rates, free toasters, and suckers for the kids.&nbsp;&nbsp; They can also do it by borrowing from each other and directly from the Federal Reserve.&nbsp; Of course in the real world it&#039;s hugely more complicated, but this is the basic operational premise.&nbsp;&nbsp; </p><p><br /></p><p>While the Federal Reserve doesn&#039;t directly create M2 is is directly responsible for the Monetary Base, or MB.&nbsp;&nbsp; MB includes all the reserve deposits from the member banks and this reflects the real economy. (or it once did)&nbsp; For every $ in the MB there has to be an underlying asset to balance it.&nbsp;&nbsp; On the Federal Reserve&#039;s real balance sheet you will notice this includes US Treasury debt and gold certificates backed by the gold siezed from the people by FDR in 1933.&nbsp; &nbsp; The point is the law requires the Fed to back all MB by real monetary assets, and the size of MB limits the total size of M2 (or M1, M3, whatever)&nbsp; The $1000 that I mentioned above is actually part of MB. </p><p><br /></p><p>The Federal Reserve is not supposed to directly create M2 money, but it&#039;s actions can directly create how big M2 grows.&nbsp; It&#039;s favorite tool for this adjustment is the interest rate.&nbsp; Until the last 2-3 years, for it&#039;s entire existence the Fed would raise interest rates, which then makes loans more expensive,&nbsp; and M2 shrinks.&nbsp;&nbsp; Likewise M2 can be increased by lowering interest rates.&nbsp;&nbsp; The Federal Reserve tries to stimulate the economy out of recession by lowering rates and hence money flows into the economy, and we have another economic boom.&nbsp;&nbsp; It will try to slow things down by removing money.&nbsp;&nbsp; It no longer works this way.&nbsp; Allan Greenspan broke it, and it&#039;s not coming back. </p><p><br /></p><p>The problem the Federal Reserve finds itself in now, is the economy isn&#039;t getting better and unfortunately, it&#039;s reduced the real interest rate ot 0%.&nbsp; It can&#039;t go lower lest they pay interest to people to take loans.&nbsp;&nbsp; Since it can&#039;t lower rates then it lost it&#039;s tool to control the real money supply, M2.&nbsp; This is where QE, a particularly insidious and dangerous technique invented by the Japanese central banksters in the 90s who faced the same problem, comes in.&nbsp;&nbsp; The problem however is that it&#039;s very difficult to examine QE in action, because it involves an underhanded method to first increase the MB with fake money.&nbsp; &nbsp; The monetary base is the key and this is what is missing from these QE arguments that only look at M2.&nbsp; &nbsp; I won&#039;t explain how QE works as this post is long enough but hopefully this helps some.[/QUOTE]</p><p><br /></p>

Your name or email address:

Do you already have an account?

• No, create an account now.
• Yes, my password is:
• Forgot your password?

Stay logged in