Dirk:

thanks for your cogent explanations.  it's a difficult subject for some folks
to get their head around, that there is far more *virtual* wealth than there
is *real* wealth.

joe b.....

In a message dated 12/27/2000 12:21:35 PM Eastern Standard Time,
[log in to unmask] writes:

<<
 When the Fed buys a government security (i.e., lends money to the government
 -- public debt) or lends to a member bank (for the purpose of increasing
 that bank's fractional reserve so that bank can make loans) throught the
 discount window (private debt), money is created.  This money is not even
 printed until it becomes a currency demand (you go to an ATM).  It simply
 exists as computer entries.

 When the Fed sells government securities (redeems public debt) or is paid
 back by a member bank, money is destroyed (i.e., the computer entries are
 "balanced" -- deleted).

 All money (a concept that includes "all currency" but which exceeds "all
 currency") in circulation results from the Fed buying securities (lending to
 the government) and lending to banks (to individuals and corporations).  The
 "reserve" of "fractional reserve" is really simply an obligation to pay the
 Fed.  That is what I meant by debt.  The money does not exist until someone
 owes it (either the taxpayers or a borrower).  The money cannot be redeemed
 by the issuer in gold or silver or platinum or even oil or toothpaste.  It
 only exists as somebody's promise to pay.

 Look at a dollar bill.  Notice that it's called a "Federal Reserve Note".  A
 "Note" is by definition a redeemable instrument, but if you send a dollar to
 the Fed and ask them to redeem it, you'll be lucky if they send you four
 quarters (lucky because a quarter at least has SOME value), but they'll more
 likely just tell you to get lost, because there IS nothing with which to
 redeem it, except someone else's debt, which will be paid in Federal Reserve
 Notes of equal value to the one you possess - someone else's promise to pay.

 Of course, banks make profits on ALL of these transactions.  And when the
 banks go belly-up, we the people give them even more money.  Jim X knew the
 score.

 Dirk Johnson >>