Toro can you do me a favor?

[Paulie]

You're a money manager who manages billions of dollars. You don't get a job like that without knowing Federal Reserve policy.

Can you explain to the nincompoop neubarth what is meant in regards to "printing money" when people talk about the Fed?

I've done it ad nauseum, and the guy just doesn't get it. He doesn't understand how the Fed creates new money and what they do with it, so maybe someone who's career depends on such knowledge can get through to the moron.

 

[Toro]

When the Federal Reserve Bank of New York buys bonds, it credits the account of the seller the amount of the purchase, increasing the amount of money in circulation.

 

[FireFly]

Are you enjoying this fresh powder here in Davos, Switzerland?

Your Illuminati friends are crowding the resort this week.

Old Soros is at it again. He is lobbying for more stimulus in Europe. Loving the move in gold.

Got to go. Meeting is about to start.

 

[DSGE]

I'm guessing the confusing part is that the Fed just credits the account with electronic reserves. It just changes a number on a computer without physically using currency in the exchange.

So the first thing is that "money" isn't just currency. "Money" is more broadly stuff which can be used as a medium of exchange. If Bank A owes Bank B some money, it doesn't physically transport currency to Bank B's vault at the end of the day; Bank A has the Fed debit $X dollars from their account and deposit it in Bank B's account. So these electronic reserves are a type of money.

Second, these electronic reserves are actually a Fed liability. This means that if Bank A told the Fed it wanted to cash in $Y of its electronic reserves, the Fed would have to give the bank $Y in physical currency.

 

[FireFly]

FIAT currency debt is all good as long as the interest rate is zero. Once interest rates start to climb we will feel the pain.

 

[Toro]

Are you enjoying this fresh powder here in Davos, Switzerland?

Your Illuminati friends are crowding the resort this week.

Old Soros is at it again. He is lobbying for more stimulus in Europe. Loving the move in gold.

Got to go. Meeting is about to start.

I couldn't get away this year.

I'm busy helping our boy, Mitt Romney, get elected here in Florida.