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To: GraceZ who wrote (17130)	2/11/2004 2:29:38 AM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

There's so many different ways for the Fed to create money it simply staggers the imagination. It involves either purchasing or lending, but the Fed would find your definition of these terms quite narrow and restrictive. I'm sure you know it starts with the Fed purchasing an I.O.U., or a thing, in return for a check or an electronic transfer. This is now money. But this description greatly under-estimates the power of the system. When dealing with their Prime Banks or the Federal Government the transaction doesn't have to be voluntary or be backed by proper collateral. It is in fact sometimes accompanied by an indemnification against loss. The Federal Reserve may also purchase securities directly on the open market. They have recently assured us that in the event of trouble they feel entitled under their charter to purchase just about anything. I feel so much better now. Perhaps the most profligate method of all and the most heavily used recently, the Reserve Bank may purchase the bank notes or units of other Reserve Banks, either directly of through the IMF. Currently this method is used the most. The Bank of Japan for example prints lots of Yen which are exchanged for dollars from the Fed. These dollars can be used by the Bank of Japan to purchase bonds, stocks, real estate, fur coats - anything you can imagine. This method comes closest the the preferred method of pushing money out of the back of airplanes. Dealing through the IMF and similar organizations the intent and even the size of these operations can become nearly opaque. Of course money is also created or destroyed by the boring old standby of fractional reserve banking operations. This has its free market aspects, but even these are under the direct control of the Fed by the issuance of standards, directives, and even the friendly not to be ignored phone call, potentially followed by auditors. Non-Prime Banks are expected to first borrow from other banks, but when this fails may call at the Discount Window. The Fed may at their option allow some obedient banks to borrow freely while citing any number of reasons for saying no to those they disapprove of. In theory the Fed is owned by the member banks, but like any small shareholder in a large corporation this operates on a conceptual level that has little to do with practice. It is important to understand the operations of the Fed and the language they use are designed to obscure rather than clarify. Poring through their published accounts with out an expert guide up to date in their constantly new language, and new abuses of old existing language, will invariably lead you to the wrong and intended conclusion. Even those who assume themselves to be astute in such arcana are frequently surprised and stumped. I understand the Fed and IMF only the broadest strokes and assume that, like an iceberg, at least 90% of it is hidden from view.