need dummies guide: money is debt

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1440 minutes's picture
1440 minutes
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Joined: Dec 29 2008
Posts: 51
need dummies guide: money is debt

Need Dummies Guide on Money is Debt.

It's been a long time since I watched the videos, but is this the bottom line:

  1. Treasury Dept. sells bonds every time that the Fed expands the money supply?  Or is it that they sell bonds every time they print any money at all?
  2. Banks lend far more money than they have in deposits due to wrongheaded government rules called the fractional reserve system, thinking that FDIC will bail them out if the SHTF (which is impossible to do on a large scale)? 

Is that basically it?  I am more confident that I understand #2 than #1.  Please respond without jargon. I think that someone needs to find a way to explain #1 in clearer plain language. 

Jim H's picture
Jim H
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Joined: Jun 8 2009
Posts: 2391
Re: need dummies guide: money is debt

Our Fiat Money is created through debt... whether it's you taking out a car loan, or some entity (often lately including the FED) buying Treasury debt.  There is no fundamental reason why the Treasury would need to, or want to issue debt other than to finance deficits, be it the rolling of deficits past, or current deficit spending needs.... 

Said another way;  It is not usually the FED that increases the money supply... it is you and me!  Since we have come to our senses of late and slowed down our borrowing (some pundits say this is more due to force than choice), the FED has taken over the cause. 

So, I think your point 1) is wrong... the system does not inherently need there to be Treasury debt issued..... but it does need growing amounts of debt, period (car loans, mortgage loans, credit card balances) to function correctly (ie more dollars next year to pay off the debts + interest).     

Once you understand that our monetary system needs growth... you better understand why the Ben Bernanke will use every tool in his toolset (including his big bad printing press) to ward off debt deflation.  Deflation (less and less money in the system) kills the system... it's gangrene for the banking system.

Merry Christmas to all.        

William01's picture
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Joined: Jun 15 2011
Posts: 1
I agree with Jim Hannah

I agree with Jim Hannah though I was unclear on few concepts but on few researches, Im an confident now and will favor what Jim Hannah says.

SingleSpeak's picture
Status: Platinum Member (Offline)
Joined: Nov 30 2008
Posts: 507
Daddy always said,


"Wait until you have the money before you buy it." Of course that was when we had market driven interest rates. Still good advice though.


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