General Question

SquirrelEStuff's avatar

Did the Federal Reserve just print the $50 Billion they just pumped into the stock market?

Asked by SquirrelEStuff (9171points) August 17th, 2007

If so, then all of us just payed these rich bastards to not lose everything!!

Observing members: 0 Composing members: 0

20 Answers

extolsmith's avatar

No. The Central Bank invested the money, just as you and I might open an account at our local bank, so our local bank might loan out our money to others for a profit or lower interest rates on loans. I personally benefitted from this decision as I owned shared in a Bancorp and saw shares raise 22% yesterday alone.

SquirrelEStuff's avatar

What exactly do u mean by "invested" in it? What money are they investing it with?they could print it to invest right?

extolsmith's avatar

The money invested came from a Central Bank account, not the U.S. Treasury of U.S. Mint. The Fed as accounts set up for situations like this, which is whole point of The Fed to begin with.

bpeoples's avatar

IANAE,

1. The problem with printing money to cover government expenses is that it increases inflation due to devaluation of the currency. Basically, the more dollars there are in circulation, the less each is worth. It's faar more complicated that than, but you get the idea.

2. The idea was not to keep the "rich bastards" from losing everything, the idea was to keep the market on its feet to avoid a recession, which hurts everyone (the working poor the most, some would argue).

glial's avatar

I don't know about any of you other "rich bastards" but my retirement (401k) revolves around market performance. And this "rich bastard" aka "working stiff" appreciates the fact that all I have invested is not washed away by the mistakes of a few "sub-prime lenders".

SquirrelEStuff's avatar

ok makes sense. Inflation worries me alot. I've have read many places that the dollar is worth .04 now. How long can the fed do this? How come congress is not in charge of our money?

gooch's avatar

@glial my 357g ( government employee version of the 401) is also banking on the market like you and I appreciate it too.

Back to the question though printing money would water down the dollar which has been watered down so much already. So they cant just print money to fix problem because the end result is the economy would fail.

bpeoples's avatar

@chris:

Much better the Fed does this, than congress tries to legislate spending (with earmarks and such). The Federal Reserve exists because regulating the economy (so it does not spiral out of control up or down) is important to the strength of the dollar in particular.

What the Fed just didn't certainly didn't weaken the dollar, they may have strengthened it. And the dollar is worth 100 cents, as it always has been. It mainly comes down to purchasing power. Huge inflation in the 70's made it so that the 1960's dollar is worth quite a bit more than the 1980's dollar, and that inflation pressure (~2-3%/year, on average) is now kept much better in check (largely due to the Fed's, and especially Greenspan's work), but that also keeps overall economic growth in check-- largely this means that while growth and recession happen, they do not happen so severely as to cause great turmoil.

In other words, while the getting is good, the Fed saves money (and thus, pulls money out of the economy), as the economy enters a recession, the Fed puts money into the market, artificially smoothing the descent. This certainly won't stop a recession, but as long as they do it rationally, it will smooth the recession, and keep 1929 from happening again.

Also, please realize that I'm not an economist, and frankly should not be listened to on the matters of the economy. However, this is my layman's understanding of what the Fed does.

SquirrelEStuff's avatar

@gooch
I've read about the fed controlling the inflation rate but is that the "overall" inflation?
Isn't the reason a bag of chips cost .05 in the 80s but now the same amount or less costs $1 bc of inflation?
Is this catching up to us now and destroying the middle class?
What are the chances that the creators of the fed foresaw this happening including the absolute wealth and power of few?
google some woodrow Wilson quotes you'll see he regreted signing the fed into law

bob's avatar

The Fed is extremely worried about inflation and they generally do a pretty good job of keeping it under control. Inflation in the 90s and 2000s has been very low, especially when compared to the 70s.

I know that libertarians (maybe just radical libertarians?) consider the Fed to be unconstitutional and also bad for Americans. But they seem to be doing a pretty good job.

I don't know whether the Fed created money today or not. Didn't they simply lower the discount borrowing rate?

gooch's avatar

today wealth is more evenly spread then in the past. Research how many millionares we have today. Its no longer a handful of rockafellars. I compare the life we as Americans live today compared to the life of our grandparents or great grandparents. Yes inflation is happening but look at what we have today as compared to our forgathers.

gooch's avatar

opps...forefathers

segdeha's avatar

@gooch, OTOH, look at the value of $1 million today compared to when the Rockefellers reigned. According to this article, "[W]hat you could buy in 1944 for $10 cost $143.69 in 2006."

"The Fed" is arguably the most powerful organization in the world, with the power to directly manipulate the world economy. What most Americans don't know is that it is not a Federal agency (despite the name). It is a consortium of private banks that set fiscal policy for the United States.

Our currency is backed by nothing but the promise that the U.S. government will continue to honor it. Printing more money (increasing the "money supply") results in a lower value of the dollar over time (inflation).

I'm no Libertarian, but I do believe (as did many U.S. Presidents) that The Fed is bad for Americans. Here are some quotes on the subject.

gooch's avatar

@segdeha still compare your life to your great grandparents andrhwn answer who was better off?

SquirrelEStuff's avatar

its catching up to us now gooch. Remember the fed is less than 100 years old. I'm sure they new it was the greatest scam ever and they would one day rule the world.
Btw great response segdeha

segdeha's avatar

@gooch, I think it's fair to say a lot of the improvement in standard of living (sanitation, health care, etc.) is due to technological advances that would have happened whether The Fed controlled the economy or not. In fact, I would argue that we would be even more prosperous without The Fed skimming trillions of dollars off the U.S. economy for its members.

extolsmith's avatar

Greenspan, before he joined the fed, spoke out against it. I read the papers he wrote. Shocking.

segdeha's avatar

@extolsmith, can you provide a reference for that? I'd love to see it.

segdeha's avatar

Wow, very enlightening. Thanks, extolsmith!

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