To: Wharf Rat who wrote (144445 ) 7/15/2014 8:25:54 PM From: RetiredNow Read Replies (1) | Respond to In the US, we have fiat currency. On top of that we have a fractional reserve currency, because banks are only required to hold around 10% reserves, and in point of fact, many of the largest WS banks are levered 30 to 1 when you include all their derivatives and trading businesses. What this means is that debt is money and money is debt. So when the Fed engages in QE, they quite literally create money out of thin air in the form of deposits at the various Federal Reserve banks, who then use those funds to carry out asset purchases, typically Treasuries and MBS assets. Those banks are charge 0% interest and make 2-3% or more yield on their asset purchases. That delta is pocketed as profits to recapitalize these banks. That delta also represents a very real tax on every American citizen. In this way, the Fed inflates our currency in lieu of taxing us, because as you pointed out, Congress is not doing anything constructive right now and the Fed has taken it upon itself to be the only game in town.
