reply to post by Anomen
I agree with your assertion that American's need to learn how to be fiscally responsible. However, the current crisis is the responsibility of the
bankers who, instead of turning people who obviously should not have been given credit and loans away, gave it to them and then were in such trouble
they demanded the tax payers pay for their mistakes.
It was a double whammy. The tax payers, being irresponsible as they are, couldn't pay their bills, then the banks went under (all this is assuming
this was the real reason for the collapse, which it wasn't), and wanted the taxpayers, who were already in their own personal debt, to bail them out
of a jam, putting the entire nation into a crap soot.
Where do you think the money came from that bailed the banks out? Absolutely nowhere! It didn't exist. but the Fed printed it, and charged the
government interest on money it requested!
We should have let them fail. We should have let the people who don't even know how to be fiscally responsible fail, and we shouldn't have let the
FED have a blank check without knowing where all that money went.
So, yeah, the FED is responsible because they are the reason the country has been in debt since it's very existence in 1913.
This site explains the process pretty well:
Here is how fractional reserve banking works in the United States, using the current approximate 10% fractional reserve ratio requirement:
1) A depositor deposits $100 with a bank. (This depositor could be a citizen, or another bank, even a receiver of the FED's open market operations
which is described later.)
Total Reserves: $100, Total Loans: $0, Total Money Supply: $100
2) The bank holds $10 for its reserves and loans out the other $90 to other banks or citizens. If it is a citizen, this money is temporarily held
outside the banking system until he/she decides to deposit the money into a bank.
Total Reserves: $10, Total Loans: $90, Total Money Supply: $100
3) Next, the second bank takes the $90 in deposits, holds $9 for its reserves, and loans out the other $81.
Total Reserves: $19,
Total Loans: $171, Total Money Supply: $190
4) Step 3 repeats. The third bank takes the $81 as a deposit, holds $8.10 for its reserves, and then loans out $72.90.
Total Reserves: $27.10,
Total Loans: $243.90,
Total Money Supply: $271
5) Step 3 repeats again. The fourth bank takes the $72.90 as a deposit, holds $7.29 for its reserves, and then loans out $65.61.
Total Reserves: $34.39,
Total Loans: $309.51,
Total Money Supply: $343.90
6) And so on. The bulk of the money creation is done after 15 repeats, but what is eventually left after 40 or 50 repeats is pretty much:
Total Reserves: $100,
Total Loans: $900,
Total Money Supply: $1000
So you can see that within a very short period of time, banks transferring to other banks within the system can CREATE $900 from the initial $100
deposit.
Here's how it works, step-by-step, when the FED buys Treasuries, although it is the same process for whatever asset they wish to purchase.
1) The FED's Open Market Committee (FOMC) decides expand the nation's money supply and purchases, for example, $10 billion in Treasury bonds.
Monetary Supply Expansion: $0
2) The FED writes a check on itself for $10 billion. [Where did it get the money? The answer is FROM NOWHERE!]
Monetary Supply Expansion: $10 billion
3) This $10 billion FED check then goes to one of the select government bond dealers (such as Secretary Paulson's Goldman Sachs) in exchange for the
$10 billion in Treasuries.
Monetary Supply Expansion: $10 billion
4) Then the bond dealer deposits its $10 billion FED check at a commercial bank.
Monetary Supply Expansion: $10 billion
5) Go to the fractional reserve loop above. We just learned how this deposit will very quickly be "pyramided" and lead to $10 billion in deposits
and $90 billion in loans within the banking system.
Monetary Supply Expansion: $100 billion
