Why is the Interest on debt a concern when Fed gives it back to govt. ??

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cipher's picture
cipher
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Why is the Interest on debt a concern when Fed gives it back to govt. ??

I am confused about this concept, if the FED gives back the interest to the govt. at the end of the year then why would the govt. give it to the FED in the first place, why bother throwing the money back and forth.............

I am sure I am missing something here.......... probably FED doesn't give back all the interest it received, even then why not just ask govt for only the difference in the first place ............

I am sure that members on the forum would have insights ......... I would be very thankful for the help.

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Re: Why is the Interest on debt a concern when Fed gives it ...

IMHO The biggest concerns with interest rates are these: 

  1. The deficit is financed. Even what they "print" using Quantitative Easing is generated with bonds. Higher interest means more deficits more debt
  2. The 10 year bond is pretty tied to Mortgage rates. Than moves north the housing market will really be in the tank.
  3. Borrowing goes up in the business sector, bond yields move north and bonds prices move opposite and banks charge more, business will really be in the tank.

On the hows and whys of who charges who interest rate I'll defer to Thomas, sure he want to get a plug in on Minnesota.

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Johnny Oxygen
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Re: Why is the Interest on debt a concern when Fed gives it ...

I am confused about this concept, if the FED gives back the interest to the govt. at the end of the year then why would the govt. give it to the FED in the first place, why bother throwing the money back and forth.............

Good question.

The answer lies in this question: Why is interest ever attached to money that is created out of thin air?

This is in reference to our fractional reserve system (See Chris's explanation in the Crash Course)

The answer? Because money is made on the interest from the time it is concieved to the time it is paid back. So who makes the money off the interest? The bankers.

This should tell you who is really in control of things.

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Farmer Brown
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Re: Why is the Interest on debt a concern when Fed gives it ...

It is not the profit the Fed makes (which as you correctly point out goes back to the Treasury) which matters IMO.  It is the profit member banks make off of credit-money they create out of thin air that matters.  The profits gained off the interest on that money goes right into the the pockets of each member bank.  

To be fair, each member bank has to invest 6% of its capital (measured periodically to adjust for an increase or decrease in the bank) in the Fed.  Therefore, although 6% of their profits go to the Fed, and, after the Fed's expenses, make their way to the Treasury, a full 94% of their profits stay in the house.  

Consider the 6%, "protection" money, just like a Mafia.  That's the fee for being part of the cartel.  While much higher than the 2% fee for being a McDonalds franchisee, McDonalds franchisee's actually have to make hamburgers and sell them at a profit, whereas a McFed franchisee is granted the magical power of creating credit out of thin air and charging interest upon it.  

I can't even get my mind around creating hamburgers out of thin air, never mind doing the same thing with money.  

 

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Re: Why is the Interest on debt a concern when Fed gives it ...
Quote:

I am confused about this concept, if the FED gives back the interest to the govt. at the end of the year then why would the govt. give it to the FED in the first place, why bother throwing the money back and forth.............

In addition to what's already been said, this is about 1) control, 2) creation of a cartel, 3) creation of mega "reserves."

1) It's not just "going back and forth" but rather it's forcing the US govt to be in debt to a group of banks.  That is control.  Debt provides control over the borrower. 

2) The cartel of member banks is probably the most powerful/profitable operation in the world.  Farmer mentions the idea of the cartel above.  We all know how powerful/profitable OPEC is.  They are child's play compared to the Wall Street cartel.

3) All the Treasury debt sits on bank balance sheets as assets.  That then serves as the basis for massive profit because the banks fractionally lend off those "reserves."  If the Treasury just issued money directly, these mega banks would have no basis to gain the power/profit they have. 

You ask in the subject line why it's a concern?  The "going back and forth" is the basis of debt-based monetary system, which brings exponential growth, increasing velocity, increasing scale...the 3 E problem. 

cipher's picture
cipher
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Re: Why is the Interest on debt a concern when Fed gives it ...

Thanks guys for taking time to answer my question. I agree that to those who are not ok with handing out the power to print money to a private entity, should have problem with this arrangement.

But what I am still wondering is that to those who (for some reason!) see FED as the one that is keeping economy together and doing a "fine job"; who pretend that they aren't aware of the whole scheme......... to them, the FED gives back the interest and so is not earning the interest. why should it be a concern if they were to give any amount of interest. To them, the FED anyways is going to give it back.

They anyways look at FED as the benevolent big brother who takes care of the hard stuff and gives back any extra cash he took from govt. then why do they talk about govt. would have to increase taxes to just recover the interest when the govt. will get it back and so should not have to ask for taxes to pay off interest:

Change in GOVT reserve = Taxes collected - interest on debt + interest given back by FED - any other expenditure

so the only increase that should result in tax hike should be "any other expenditure" and not interest, no matter how much the debt is.

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Re: Why is the Interest on debt a concern when Fed gives it ...

cipher, the big private banks/investors and foreign central banks hold most of our debt...they do not give back their interest! 

revisit your equation.

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Re: Why is the Interest on debt a concern when Fed gives it ...

 ... and foreign central banks hold most of our debt...they do not give back their interest!

now combine that with the central bank circle-jerk idea... and currency swaps..  see: http://www.peakprosperity.com/blog/shell-game-how-federal-reserve-monetizing-debt/25806

 I buy your governments T-bills,, you buy my governments Gilts..

 we monetise each other's sovereign debt, and collect risk free interest on digits we "print"..  we're happy, the pwned politicians are happy, everyone's happy ! 

-  Except the peasants and working stiffs of course..  but hell they'll never figure it out..

cipher's picture
cipher
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Re: Why is the Interest on debt a concern when Fed gives it ...

Ok I get it     so the part of the interest that is given out on the debt held by anyone else other then FED (private banks, and foreign central banks that the FED sells the debt to, in exchange for their debt) would not give the interest back which has to be raised through taxes...........

thanks guys, I stand corrected on my naive equation :) strabes .....

 

 

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Thomas Hedin
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Re: Why is the Interest on debt a concern when Fed gives it ...

I am confused about this concept, if the FED gives back the interest to the govt. at the end of the year then why would the govt. give it to the FED in the first place, why bother throwing the money back and forth

This is an excellent question.

The simple truth is this is only done to help continue the mental deception that all money must be borrowed into existance, instead of having the government create the money and spend it into circulation for the benifit of the people instead of what we have now where all money is created for the benifit of the banking system.

The last thing the bankers want is for the people to realize that their govnernment has the power, ability, and right to create money for the benifit of the people.  Currently the government creates no money and either borrows from private banks or taxes away exsisting money in circulation from people/businesses that have already borrowed it.

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Re: Why is the Interest on debt a concern when Fed gives it ...

2.5 trillion just in debt service "if" interest rates go to 10%

It appears that Congressman Wilson was right on so many levels. Obama and his band of merry socialists presented their budget and their figures are only too optimistic by $1.2 trillion according to the CBO. A rounding error in Washington. This same CBO projected a $2.6 trillion surplus from 2000 through 2010. The actual result was a $3.2 trillion deficit. They missed by only $5.8 trillion. They will miss this time too. If Obama rams through his healthcare takeover, it will add $2 trillion to the CBO number. Their estimate of $900 billion in interest is a joke. That assumes a 4.4% interest rate on our $20 trillion debt. Not bloody likely. Try 10% and $2.5 trillion in interest per year. This story tells a tale of imminent collapse. Is anyone paying attention?

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Re: Why is the Interest on debt a concern when Fed gives it ...

 

So when the Fed buys T bonds from commercial banks it removes those bonds from circulation.    Wouldn't that process also reduce the outstanding debt by the same amount?  

cipher's picture
cipher
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Re: Why is the Interest on debt a concern when Fed gives it ...
Carl Veritas wrote:

 

So when the Fed buys T bonds from commercial banks it removes those bonds from circulation.    Wouldn't that process also reduce the outstanding debt by the same amount?  

It might just reduce the interest burden on those T-bonds (I am not sure by what percentage of the actual interest) since FED is supposed to return the interest it earns back to the govt. after it deducts whatever fee it deems fit to do its job.

But the govt. still owes the FED the value of the T-bonds.

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goes211
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Re: Why is the Interest on debt a concern when Fed gives it ...

I did not think that the FED returns the interest to the Treasury.  I thought what was returned was its profit.  Of course if they don't have to open up their books, I guess their profit would be whatever they say it is.

The whole system is so insane and clearly not in the tax payers inteterest, it truly boggles my mind that they have gotten away with it for so long.  It is hard to even imagine a world where private corporations(banks) are in complete control of our money supply, and that the leading corporation (the FED) is not even audited,  and yet that is the world we live in.  In a way you have to admire their ability to steal from everyone in broad daylight, without causing a stir from the masses.

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