Magic Money

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I’ll try to make this quick…

Did you know that the government creates money out of thin air?

They do.  That’s right.  Inflation isn’t just created by the government telling the Federal Reserve to print more money.  Here’s how they do it:

  1. The Federal Reserve Purchases Stuff. The last I looked, the Fed had somewhere around $2.5 trillion in assets.
  2. To make the purchase, the Federal Reserve writes a check.
  3. The guy selling–land, let’s say–for $1,000,000 takes his nice new check to his Bank.
  4. The Bank gets excited about a Federal Reserve check and, naturally deposits it in their own account which is held…AT THE FEDERAL RESERVE.
  5. The hypothetical teller at the Federal Reserve goes “clickety click” on the keyboard, and–Presto Change-o–$1,000,000 is added to the account, and, therefore into the money supply.

Then…this one guy does this:Image

 

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2 thoughts on “Magic Money

  1. Well, most of the assets the Fed actually buys are similar in form to (or are) bonds and debt. The assets are used as a way to support the paper money passed around and printed out, but only in a very stretched-out kind of way. One of the biggest purchases recently was the bank bailout–in which the Fed purchased illiquid assets–assets that can never be sold. All suffered here because of the devaluation of the dollar.

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