posted on Aug, 4 2011 @ 01:24 PM
Next, you might wonder in these times, whats with the fuss over the role of the Federal Reserve Bank?
If I were to show you its history, it will be another convoluted piece of political and economic shennigins that will only leave you none the wiser,
thus, in the tradition and purpose of ATS, I will use a more simpler explanation, a basic comprehension for you to start the quest onto what's FED
is all about.
Imagine a country called Amerigo-a democratic republic with a constitution similar to US, and landmass with its capital and mineral resource the same
as the real USA.
Amerigo has a small tax revenue base in its early years as an agarian society. Its social expenditure is little, for each man is left to take care of
himself and his family. The small govt does not intrude in anyway, and everyone lived peacefully. But as time went on, the population boomed, and so
did social expenditure in eduction, infrastructure, health, defense,etc inorder to meet the needs of the growing population.
It raised its taxes so to meet those needs, and tapped onto the young educated generation to leap from agarian to technology advanced industrialized
society. But it was not enough, as the population grew, for there was still very much room to grow with its land and mineral resources, with the
potential to be a rich nation.
Thus, the legislative got together a few super rich bankers and investors whom saw the potential of better returns with their hoarded up money by
loaning it to the gov to reach its potential. Together, the form a bank purely to offer such loans and called it the Federal Reserve bank of Amerigo.
The loan was in the form of pieces of paper called treasury notes, guaranteed by the govt to pay back at a certain time with interest.
With such loans, Amerigo gov used the funds to enlarge the govt for oversight duties, expanded education, created infrastructure for businesses to
thrive and grew its defense to protect the nation. For decades it worked as the tax revenue earned by the gov could pay back the loan + interest on
yearly basis. Besideds those original investors that offer the loans through 'buying' the treasury notes, other nations and investors saw the
potential of Amerigo, decided to want in on a piece of the action and bought it, in effect, offering much more than the gov actually needed.
Unfortunately, gov changed every 5 years. Some were financially responsible not to overspend, but some did such as military adventure or ambitious
underthoughtout economic policies and as a result, had difficulty servicing the loan when the annual payments were due.
The original holders of the treasury notes got worried and decided not to 'buy'/loan anymore, but demanded the gov to cut social expenditure to pay
the loan which will be suicidal for the nation.
WIth the backers hoarding up their wealth, the Fed Reserve had no choice but to print more treasury notes and seek for OTHER buyers of such notes whom
can see the potential of Amerigo's human capital and total resources, which had not dried up unlike other smaller nations.