Economics for Dummies

Lesson One: How money is created

Alright, now I pulled all-nighters and got B's in Econ 201 and Econ 202 and don't remember shit from either class, so I feel like I'm well qualified to analyze the current economic situation here in the U.S. I'm going to explain how money is created by the Federal Reserve according to their guidelines book, Modern Money Mechanics. 

First Step: U.S. Government decides on an amount of money to request from the Federal Reserve. Let's just say, for example the number is $10,000,000,000. 

10 billion dollars worth of Treasury Bonds are printed up by our government and exchanged on loan for 10 billion Federal Reserve Notes (money). Our government then takes that $10 billion and deposits it into our money supply and $10 billion is essentially created. 

*NOTE: most of this is done electronically and only 3% of the money supply exists in physical form.

Ok, so now the $10,000,000,000 is sitting in a commercial bank account and becomes part of that bank's reserves. According to Modern Money Mechanics, "a bank must maintain a legally required amount (10%) of reserves equal to a prescribed percentage of its deposits." This means that the bank only has to keep 10% of the $10,000,000,000 and can loan out the other $9 billion, labeled its excess reserve.  

Now you would think the $9 billion comes from the original 10, but this is not the case. The $9 billion is created and loaned out of thin air and the money supply is expanded. Someone then borrows that $9 billion and deposits it into their bank account. Once again, it becomes part of that bank's reserve and the bank keeps the necessary 10% and loans out the other 90% ($8,100,000,000).  The Chart of which looks like this:

Newly Created Money Total Money Supply

10,000,000,000 10,000,000,000

9,000,000,000 19,000,000,000

8,100,000,000 27,100,000,000

7,290,000,000 34,390,000,000

6,561,000,000 40,951,000,000

5,904,900,000 46,856,000,000

5,314,410,000 52,170,000,000

4,782,969,000 56,953,000,000

4,304,672,100 61,258,000,000

etc. etc.

So essentially, 90 billion dollars can be created from an original 10 billion. For every deposit that occurs, 9 times that amount can be created. In addition, there is also accrued interest compounding on the loan paid back to the Federal Reserve adding to the debt of the American people. 

Lesson Two: We're Fucked.

More money = More debt. More debt = More money

Money value depends on the money supply; you can imagine the type of negative correlation between these two based on how fast and irresponsible the money supply is expanded (see picture above.)

$1 in 1913=$21.60 in 2007, thats a 96% devaluation since the Federal Reserve came into existence. The last time the U.S. was completely debt free was during Andrew Jackson's presidential term when he shut down the central bank that preceded the Federal Reserve. 

Now, Germany had this same type of hyperinflation in their country in the early 1920's and eventually it became so bad, they had to change their currency in 1924 to the Reichsmark. Why is this relevant? Because if the dollar continues to lose value to the point where no other countries want to trade with us, the dollar will collapse and we will have to change our currency. This has been happening to countries all over Europe since the introduction of the Euro in 1999. Countries like Iceland could not survive on an independent currency and are now in a mega crisis and will eventually have to give in to the Euro since their currency is worthless.

So now you're probably asking yourself, what could be the next possible currency here in the United States? Gentleman, introduce yourselves to the Amero. That's right the Amero.

Former Mexican President Vincente Fox confirmed the existence of a plan conceived by George Bush to create a new regional currency called the Amero that would exist between Mexico, U.S. and Canada. It could be coming soon if Americans don't realize this system is going to fail, which I doubt they will because they only listen to mainstream media and you won't see anything about this on there.

No one seems to be concerned with the amount of inflation that would ensue after this retarded $400 billion "Bailout Plan." Go ahead and do the equation from Lesson 1 by inserting 400 Billion instead of 10 and see what kind of fun numbers you come up with.  

Alright I'm done. Sorry it was so long, but I've wanted to write this down for a while. And please don't fill the comment section with any dumb shit about Democrats vs. Republicans, Obama vs. Bush because we all know that stuff is irrelevant and the banks are really the ones with power.