Where does money come from?

March 17, 2009 at 11:54 am | Posted in Uncategorized | Leave a comment

Here is a simple philosophical question: where does money come from?

Let me summarize it in a few easy steps:
1) The government wakes up on day and decides they want to spend a lot of money (war in Iraq, bailouts, etc)
2) They make a fancy piece of paper with the words “US Treasury” on it.
3) They take this piece of paper to an entity called “The Federal Reserve”. The Federal Reserve then “buys” these treasuries. And when I say “buy”, I use this term very loosely. They basically increase a number in their computer account, call it “money”, then give it to the government.
4) The government takes this money and begins to spend it. It later falls in the hands of companies like AIG, Halliburton, Lockheed Martin, etc
5) The money in these bank accounts are now considered “reserves” which gives banks even MORE ability to lend even MORE money, often at the ratio of 9:1. So if a conglomerate deposits $1,000,000 in the bank account, the bank can now lend out $9,000,000

Now, any rational person would read this and think “the US monetary system can’t POSSIBLY work this way!!!”.

Congratulations. . . you’ve just attained enlightenment.

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