Should the US give more than 50 billions to Egypt when Egypt can't create economy?

ReadyToGo, I have a few questions I'd like to ask, because this is one area where I'm not up to speed on. Usually I can only sit and watch while others twist good economic news into the worst thing since hell on a biscuit.

1) Reports indicate that the dollar continues to devalue against other currencies. Is this a cyclic process? In other words, over a period of years, this is not uncommon, or is it fairly common?

2) Following up to question 1, how (if any) will this affect the US economy? Is this the pre-cursor to an inflationary period?

3) This is the third (maybe fourth) year in a row that the US deficit has been reduced due to high tax revenues indicating a strong economy. How does the US Deficit play into the amount of debt we owe others? Are these separate entities?

4) In your opinion, is the economy doing pretty well right now? I continue to see "alarmists" paint the most dismal of pictures, yet real indicators seem to suggest a different picture. I generally tend to believe this is more partisan politics on "their" part, but would appreciate your input.

Thanks.

 

It is rather uncommon to see a rapid decline. However, it is still a cyclic process. It is not the first time the the CAD has been equal to the USD, for example. You just haven't seen it in your lifetime.

A lot of speculators will move out of the USD which will cause the USD to decline further. Importing goods become more expensive for us, and since we are primarily an importing country, inflation is the predictable result.

Budget deficit is simply the amount the government spends in excess to what it revenues. Debt is a means of paying for the difference. Therefore, the two are directly related.

The sky is not falling. We are facing a recession, but we always are. It's called a business cycle.
America faced and overcame greater economic threats, such as the Great Depression, Stagflation, the Tech Bubble, etc., and we remain to be the world's most powerful economy.

 

i think Egypt is a big boy now and should be able to do it itself. They have had enough time to get a good economy

 

Nice commentary RTG. For the last 1/4 century (say since 1980 or so) the Fed has primarily fought inflation. Since that time, even with the cyclical recessions the economy has boomed over the long term.


Greenspan referenced the huge international growth in people working in the world economy. That primarily references China. He has referenced that as a significant inflation fighting factor. It has clearly caused a downward pressure on prices.

Devaluation of the dollar and the significance of foreign products to the American economy puts a new twist on these circumstances.

 

RTG, thanks for your input.

 

americas economy is beginning to fail due mainly to the war in iraq..the weak american dollar is perhaps the strongest indicator of this..america should stop their foreign aid and put the money towards helping themselves

 

Yes, the Fed is privately owned. It is owned by the member banks, which are in turn owned by private corporations, not the US People, or the US government. You might have a case if you could prove the member banks were not owned privately, but they are.

Don't get ahead of yourself.

The dividend is flat, the volume it is based on is not.

Here is a process for the Fed creating money, specifically to purchase Government Bonds.

1. The Fed Open Market Committee approves the purchase of U.S. Bonds on the open market.
2. The bonds are purchased by the Member Bank from whomever is offering them for sale on the open market.
3. The Fed pays for the bonds with electronic credits to the seller’s bank, which in turn credits the seller’s bank account.
4. The banks use these deposits as reserves.

Where does the money come from to pay for the seller's bonds?

 

It is not owned by the member banks since the shares that they own only give them voting rights to elect 6 of their regional Federal Reserve board members. That represents membership and not ownership.

Only up to 3% of their capital.

How many times do I have to repeat myself? This is a fact that I already told you.
The Fed credits the primary dealer's account and that's where the money comes from (read step 3 of your own post. Obviously, you don't understand what you copy and paste). I keep telling you this, and you turn around and repeat the same things I say back to me.

 

So you are saying that no one owns the Fed, correct? Neither the government, the American people, or the banking community via proxy of the Member Banks. It's an entity no one controls and no one owns. And it is totally responsible for our economy. Correct?

You didn't answer my question. Where does the Fed get the money to credit the account? And how much (what factor of) money can be created via that credit as loans?

 

"Controlling" something and "owning" something are different. The Fed is essentially controlled by the Board of Governors.

Obviously from nowhere. That's why it's called the creation of money.

 

You didn't answer the loans question, but generally a bank can make loans equal to 10x it's reserves.

So if the Fed buys Bonds for $100 million, the member banks will receive the opportunity to loan $1 billion, and earn interest upon that.

Those Treasury Bonds are used to finance the government.

We've now come full circle, and answered your original challenge to my posts on the first page of this thread,
http://forums.digitalpoint.com/showthread.php?t=498057

1. The Fed does create money from thin air
2. There is no end to the amount of money the government can spend
3. The creation of money (10% Fed, 90% Banks) via loans against reserves does indeed create profit, as the member banks charge interest on their new found loan capacity.
4. On demand, and without oversight, the Fed can create an open market condition, which allows for the purchase of Bonds, which in turn allows member banks to create more money for the purpose of loaning for profit. This encourages the purchase of Bonds to increase the reserves held by the Fed. The Fed doesn't issue Bonds, but it does enable their sale by allowing banks to multiply the value of the bonds by a factor of 10.

Have a nice day.

 

Your original argument was that the government can spend as much as it wants because they can "inflate M3 through the Federal Reserve." This is false.
The Fed only owns about 8% of the debt. Even if the Fed wasn't around, the government could keep borrowing from other sources since the Fed isn't their primary funding source.

 

The Fed owns 8% of the debt, which can create 80% of the debt in new money. Which in turn, provides the alternate sources for funding.

Yes the Fed is not the primary funding source, however it is the primary enabler, and does create more M3 money, which the US government can use to meet it's budget overruns in the absence of external credit.

And that is all based upon the conservative 10x factor for reserves, which many of us know can be circumvented through more fiscal chicanery, at times producing new loan money for 2% or less in reserves.

I was being figurative when I wrote that the Fed "printed" money, however I am being literal when I point out the the Federal Reserve can inflate M3 by conducting open market operations. This is the truth. It's fact.

The Fed itself creates only 2% of all new money, however it enables the banking system to create the other 98% (releasing it into the economy at a profit from interest), a duty which is reserved for the Congress under the Constitution, and without oversight and while shrouded in the secrecy of 5 year delays of disclosures, is the main cog in the credit machine that allows us to go to our most expensive war without special taxes approved by the Congress, and is destroying the value of the currency American citizens hold in their pockets and savings accounts through inflation of the money supply as a hidden and indirect tax.

It's immoral, and it's illegal. If the people had to pay a direct tax for the war, or were aware of the REAL inflation, and the consequences of devaluing their dollars in a global economy, this war might never have happened. Because the war on terror (sic) by this method is the fast track to bankruptcy.

I'm happy you've helped make my point along a circuitous route. +Rep for you!

 

Getting somewhat back on topic:

http://news.yahoo.com/s/ap/20071003/ap_on_re_us/explosives_arrest_1