Sorry Stephen, I left something out, which makes the thing rather confusing.
The multiplier, that is the amount of money commercial banks can lend out
versus the deposits in them is in fact 10 just now. It varies. However, that
doesn't mean that they create the money out of thin air. They borrow the money
from the Federal Reserve at the discount rate, and then lend the money at
whatever the market will bear. I hate to tell you this, but the money they
borrow from the Federal Reserve is created from thin air. Many assume that if
you assert this, you must be some sort of right-wing conspiracy nut, and
although I haven't seen the video you refer to, I'll bet there are all sorts of
nutty assertions in it. But the fact remains that what I have said here is how
the banking system operates in the U.S. and most of the rest of the world.
Virtually all the money in the world is fiat money and mostly created as debt.
Franklin Roosevelt ended the gold standard in
the U.S. and established the gold reserve standard. Richard Nixon ended the
gold reserve standard (closed the gold window where foreign governments could
redeem dollars for gold) and made U.S. currency as unstable as the rest of the
world's fiat money.
You are right that the power to create money has been delegated to the Federal
Reserve, not by legislation, but by default. Members of the Congress haven't
the remotest idea how the banking system works, and so just accept the system
as it is. The chairman of the Federal Reserve Board is appointed by the
President, but usually the President hasn't a clue whom to appoint, and so just
takes the board's recommendation.
If you ever have the patience and forbearance to listen the the chairman of the
Federal Reserve testifying before Congress, you will hear that he's dictating
terms, not explaining what the Federal Reserve has done. This might be a bit
easier now that Alan Greenspan is no longer chairman with his endless
mind-numbing speeches. Instructive to hear that he recently admitted to having
no idea what was going on with the sub-prime mortgages, hedge funds and debt
swaps, no?
--- On Fri, 11/28/08, Stephen A. Lawrence <[EMAIL PROTECTED]> wrote:
> From: Stephen A. Lawrence <[EMAIL PROTECTED]>
> Subject: Re: [Vo]:[OT] Federal Reserve Notes
> To: vortex-l@eskimo.com
> Date: Friday, November 28, 2008, 7:34 PM
> Michael Foster wrote:
>
> >
> > The vast majority of the money supply is not currency,
> but bank
> > issued debt. The present multiplier allowed to
> commercial banks is
> > 10. That is, they can lend out ten dollars for every
> dollar deposited
> > in them.
>
> I believe that is incorrect.
>
> What you said, which I've also seen quoted on the
> Internet in various
> places, would make no sense -- the money lent out would be
> coming from
> noplace, and banks, unlike every other sort of company,
> would have the
> ability to lend out stuff they don't have to start
> with. They can't do
> that; only the federal government has the power to create
> money, and
> it's been delegated to the Federal Reserve Board.
