[hope_full]

Today's headlines say that the US government is considering a massive bailout of Freddie and Fannie.

http://biz.yahoo.com/nytimes/080711/119 ... .html?.v=4

And the FDIC will have to bail out IndyMac. And they've already thrown billions at Bear-Stearns. And then there's the problem with Lehman's. And the war, which is hugely expensive. And maybe another war with Iran. And then there's the entitlements.

I'm really puzzled as to where all this money is coming from. I've owned small businesses for most of the last 20 years and we lived by a little something called a "BUDGET."

Can someone please explain how the US can keep pulling trillion-dollar bills out of its hat to finance all these wars and these mega-financial collapses??

[yesplease]

If they print it out, beyond inflation as usual of course, everyone who holds dollas playa.

[Denny]

For a few years now, I have had the impression it works like this:

1 - Government spends.

2 - As the bills come in, the secretary of the treasury puts everything on his magic "debt" charge card.

3 - Roughly every nine months, the treasury realizes its getting near the legal debt limit.

4 - The Secretary of the Treasury calls on his friends in Congress to raise the debt limit. Sort of like calling the bank to raise your credit card limit. Just they deal in trillions, you deal in thousands.

5 - The Congress passes a bill to raise the debt limit, sometimes mixed with a whole lot of special clauses to help specific friends and influence the voters to return them next time around.

6 - The debt limit is raised and life goes on.

Sweet!

[Olle]

Today's headlines say that the US government is considering a massive bailout of Freddie and Fannie.

http://biz.yahoo.com/nytimes/080711/119 ... .html?.v=4

And the FDIC will have to bail out IndyMac. And they've already thrown billions at Bear-Stearns. And then there's the problem with Lehman's. And the war, which is hugely expensive. And maybe another war with Iran. And then there's the entitlements.

I'm really puzzled as to where all this money is coming from. I've owned small businesses for most of the last 20 years and we lived by a little something called a "BUDGET."

Can someone please explain how the US can keep pulling trillion-dollar bills out of its hat to finance all these wars and these mega-financial collapses??

They can print how much money they want, but then you have more money and the same "total value of the whole society" = Dollar loses value and you get inflation

This is the so called "Zimbabvean model"

[aahala2]

Can someone please explain how the US can keep pulling trillion-dollar bills out of its hat to finance all these wars and these mega-financial collapses??

I can see you're not "up" on old news. The Treasury Department
hired the Enron accountants, which is only fitting, since the latter
cut their teeth by studying past bookkeeping methods of the
government.

[Heineken]

Nobody has quite answered the question.

The answer is that the US government has negative money. Less than zero. About $10 trillion less than zero.

There are assets it could sell, like the Pentagon and the national parks, but then it wouldn't be the United States anymore, since only foreign govts. could afford these.

Foreigners own us anyway, increasingly.

The new money for projects like bailing out Fannie Mae comes from borrowing even more money. Banks, including the Fed, make money by loaning it into existence.

There can be only one end this strategy, and that is financial ruin for the country and its citizens.

[jbrovont]

You beat me to it Heineken. Yes the USG has negative money. I've been struggling with this idea for a while as well - where does the paper money in my wallet come from and what does it mean?

The best analogy I've come up with, is that it's an IOU representation of a relative amount of work/time for which I am owed, and the USG has placed a value on, backing it with the (future?) GDP of the US. Like I said, I'm still trying to get my mind around it myself, so I apologize if this description is a little fuzzy.

What's so frustrating about this current situation, is that when they "print money," they're destroying the value of the work/time I already performed. Whereas before this $5 bill I have would buy me 12" sub sandwch last week, if they "bail out" FNM and FDM, it will only be worth a 6" Putting or keeping money "in the bank" seems ludicris at this hour.

On the other hand, if everyone pulls all their cash out, they'll just print more and give it back to the bank, ripping the value out from under you.

[Kingcoal]

All dollars are borrowed into existence and the economy expands, justifying the increased money supply and the resulting equity appreciation helps pay down the debt. At least that's how it's supposed to work.

The Fed is the biggest customer for the T-bills and it lends out that money to banks, which then lend it out to people and invest it in equities. As long as the economy expands, all is well. Cheap oil has allowed us to vastly abuse the system, however. Money supply + cheap oil = easy economic expansion. Money supply + expensive oil = little or even negative growth.

The money borrowed into existence is borrowed against the potential GDP in the future. It's really simple, actually. Nations are like companies and the stock they issue is their currency. If a nation with such a system can't keep growing their economy in tandem with the expansion in money supply they will experience a large amount of inflation. Pretty much our situation today.

[TreeFarmer]

Its all in the hands.

On one hand the U.S. Government is broke and hopelessly in debt.

On the other hand, the U.S. Government is the one that prints the money, or better yet creates it electronically, so it has an infinite supply.

Its like being in Paris and asking someone which bank is the left bank. Well if you face this way, that is the left bank, if you face that way, this is the left bank.

:0

TF

[catbox]

How much?
Only the unicorn knows!

[Rage]

The US has as much money as it "prints". The US has as much value stored in that money as other people give them.

[Twilight]

Can someone please explain how the US can keep pulling trillion-dollar bills out of its hat to finance all these wars and these mega-financial collapses??

Think of a credit card collectively issued by investors both private and institutional and foreign governments through the purchase of US sovereign debt. The US spends on the card, taxes the productive labour of its citizens, and after internal expenses uses the revenue to make minimum payments.

The balance is around $9.5 trillion and will probably hit $10 trillion next year. I do not remember how much it costs to service it. Around half a trillion annually?

The interest rate is low, but this can change depending on card issuers' perceptions of credit-worthiness.

You can actually fund a business this way provided debt service costs never exceed your ability to pay, and provided the principal is never called in. But as you will be aware, the little guy is never granted such favourable conditions.

Some people believe this does not matter so long as the debtor has bigger guns than the creditors. Others are waiting to see how that works out.

[Tyler_JC]

The US is able to borrow large amounts of money at extremely favorable rates.

I'd kill to have the ability to borrow money at under 4% fixed for 10 years!

When investors begin to believe the US will have trouble paying back its debt or that the US is borrowing too much money compared to global savings...people will want to buy fewer Treasury Bonds.

That means the price of those bonds will fall and the effective interest rate on those bonds will rise.

We will know that the US Government has powered too much money when treasury yields start increasing to dramatically higher levels.

[jupiters_release]

The Federal Reserve has had the sole authority, however unconstitutional, to create money from nothing in collusion with certain politicians to ensure the government and the public are both servant to the corporate central bank. The Fed operates its monetary supply with the interests of its private shareholders only, in that regard the Fed has the perfect business model and is doing a brilliant job unlike the typical claim of incompetency. How much of the national debt is owed to the Federal Reserve? Does the Fed care whether it can be payed back as long as it has taken everything it can from the public?

Essential peak oil viewing for the newbies and cornucopians:

http://video.google.com/videoplay?docid ... 0256183936

Documentary of the Fed and history of central banking.

[mmasters]

The US Government basically has an unlimited credit line with the Federal Reserve. When the US Government wants money it issues a Treasury bond. The Federal Reserve buys these bonds and does so with money that does not exist in any account. They simply write a check and the money enters the bank as real money. This is done in exchange for the Treasury Bond.

These bonds have interest payments associated with them as they are essentially loan contracts. There are two ways this interest is payed, one is by issuing more treasury bonds in exchange for money and using that money to pay the interest, the other is the federal income tax which entirely goes towards paying interest on the debt and nothing more.

The fed isn't the only buyer of these government bonds, many foreign governments, corporations and individuals buy them as well mostly with money that already exists in the banking system. The important thing to note with the fed is they are required to buy these bonds if nobody else will.

In any case the money that eminates from the federal reserve ultimately makes its way into our bank accounts through a process called fractional reserve banking which is another topic in itself which you can do some searching on to find out about.

Anyway when money is created out of thin air as is done with the fed it makes all the rest of the money floating around worth less. This is inflation. What happens when the government "bails out" somebody is essentially they take the bad debt (i.e. junk bonds) of the company and guarantee it which basically means their junk bonds are now equivelent to treasury bonds and backed by the government's ability to make payment on. What this does is transfers the problem to the currency in the form of inflation.

[jupiters_release]

The US Government basically has an unlimited credit line with the Federal Reserve. When the US Government wants money it issues a Treasury bond. The Federal Reserve buys these bonds and does so with money that does not exist in any account. They simply write a check and the money enters the bank as real money. This is done in exchange for the Treasury Bond.

What most people don't know is that if our constitution were honored, then the government would issue currency on its own absolutely debt-free, instead of borrowing it all into creation at interest from the Fed, then having to use all of our income taxes just to pay the interest on the principal loan. It's the biggest scam in history, these banking families' combined wealth is so stratospheric(Bill Gates and Warren Buffet don't even come close) they have no competition whatsoever, nations are their servants, forced into wars with one another to reduce population and extract whatever property the people have left.

It's silly to think they don't understand peak oil or that they won't dictate policy accordingly(to their interests of course).

[vilemerchant]

So basically, America is a house of cards and a disgusting country. A disgusting country following disgusting policies, electing distgusting leaders who are led around by disgusting bankers and will eventually bring the entire world disgustingly crashing down from its disgusting overpowering stupidity.

[Heineken]

The US government got into the habit of breaking its promises long ago (its lies to the Indians come particularly to mind). Once a liar, always a liar. But most other governments' records are surely as bad, or worse.