dirtpoorchris

USATODAY.com - What's the real federal deficit?

Im all for actual representation.

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Leave it to US. To make the sun rise in the West. And fall on the East.

TacticalEvilDan

I really hate to tell you this, but they've been doing this for years. This is definitely a topic that deserves discussion, but it's not news, or new in any way.

Hell, if you want to get into the really disgusting parts of how our government handles simple accounting tasks, we could start a whole other forum for that.

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dirtpoorchris

It is news to a 23 year old
I never knew about this.
It's really sad.

TacticalEvilDan

Okay, fair enough. Our sense of history does tend to begin with our own birth.

Okay, here's a brief summary of a few key frauds being perpetrated today:

1) The government calculates deficits by adding up every dollar it takes in, even dollars which are not intended for inclusion in the general fund, and then figuring out how much it wants to spend, and taking the difference between the two.

2) The government finances deficits through the sale of treasury bonds, which is not Constitutional. The Federal Reserve often buys a portion of these (the size of the portion varies each time) with a check. That check is drawn against a bank account with no money in it. The money is invented at the time the check is deposited in the Federal government's bank account.

3) The Federal reserve is not the only entity to do this. Any time a bank loans money here in the United States, it does so by creating it out of thin air. If any of us did that, it would be called counterfeiting.

4) The bank tells you, when you deposit your money in a savings account, that you can have it back whenever you want. This is not true. If everybody went and yanked their money out of the bank, it would destroy the banking system. You are told this lie because bankers are operating on the principle that if you think you can get your money whenever you want it, most people will leave it in the bank.

They're right -- most of the time.

5) The government used to clearly define the criteria for measuring inflation and recession. The criteria for both of those important terms has been redefined to be as vague as possible so that it can be argued exactly how much inflation there is or whether or nor we're in a recession -- because ambiguity is the only way you can pretend everything's ducky when, in reality, it sucks.

I could keep going, but you get the idea.

Iriemon

Not quite that simple. What the government often calls a "deficit" is really the formula you use, but includes surplus SS taxes, and does not include "off budget" items like the cost of the Iraq war. With such gimmicks, the Bush administration bragged that the deficit was "only" about $160 billion last year when in reality the govt had to borrow $1/2 trillion to keep afloat.

I'll skip the debate as to whether it is constitutional; whether it is or not it happens. The Fed owns about 1/10 of outstanding debt. It does use the process of buying Govt securities such as T-Bills and bonds to expand the money supply.

Yes, it is the Fed's function to control the money supply, and buying T-Bills (as well as lending thru the discount window to member banks and other means) is one way the Fed injects more money into the system.

Conversely, when the Fed wants to contract the money supply it sells Govt securities.

It is true that banks take their deposits and lend it out. That is they way they operate and stay in business.

If there was a run on a bank that broke its reserve (10% of deposits) it might not be able to pay you your money right away. However, if your deposit is with and FDIC insured bank, it is backed by the Govt and you will get your money.

Please explain.

Few are saying that thing's are ducky now, because we can see from Govt statistics that real GDP growth is just barely positive and inflation is increasing.

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Matthew 5:9

TacticalEvilDan

Wow, it's even more fraudulent than I thought. Thanks for pointing that out.

I really hate terms like that. They're a really fancy way of saying invent money out of thin air.

Um, no. They operate and stay in business by loaning previously non-existant funds out to people and collecting interest on the repayment on those previously non-existant funds.

Seeing as how the bank is limited to loaning out I believe 9X what their current holdings or assets, they wouldn't loan out their depositors funds. They'd loan out "new" money, using the deposits as a "reserve" to back the "loans."

Also, fees are a huge portion of how banks make money. That's why they calculate withdrawals (like checks paid out) before adding deposits (like checks and cash coming in) -- it allows them to maximize the number of people whose accounts are overdrawn on a daily basis.

Really? Could you point me the fund of money that the FDIC has set aside for bailing out depositors? As far as I'm aware, the fees banks pay to the FDIC, which are presumably to put money into that fund, are used to purchase bonds. So where, exactly, would the money come from?

Simple enough.

It used to be that a recession was clearly defined as 2 consecutive quarters of decline in the GDP. These days, the official definition used is far more vague, and includes words like "significant decline" and "a period of time."

As far as it goes with inflation, it used to be that an increase in the cost of certain staples was used as a yardstick for measuring inflation. These days, if you're forced to purchase a cheaper alternative to a staple you were buying previously, it's said there's no net change in the buying power of the average American, since you're still eating, so inflation, what inflation?

dirtpoorchris

Also not to forget that they can skirt how much they can lend out by selling all deliqeint accounts to 3rd party collection agencies and just rerack them up taking more peoples cash in the longrun. (I think they can sell off all there loans actually even non deliqeint ones and rack up more loans)

Im glad im more stable now but when living financially was hard for me I racked in alot in bank fees. I've never borrowed money via a loan but Ive seen the bank purposely stack my charges that where 3 days apart so that four 2 dollar transactions cost me 108 dollars. I demanded records of every single one of my transactions and I paid the bank over 2,000 dollars in fees. If only a small percent of the populus had to overdraw and suffer ill stacked transactions like me then the bank is getting RICH just off that.

Iriemon

Yes, there is definitely an attempt by the administration to try to paint the deficit as not being significant.

Yes, the Fed has that power. Every Central Bank does, or most every one does.

That only happens when the money is borrowed from the Fed, for which the banks pay interest. They do make money on the spread; that is their function.

If you wanted to take a esoteric view, you could say that all dollars are "previously non-existent funds" and that is true for all currencies.

A bank is limited to loaning 90% of its deposits, with the current 10% reserve requirement.

No doubt.

I'm not sure if the FDIC is backed by the Fed or the Govt. But as you have acknowledge, if necessary the Fed can create money out of thin air.


So what?

Inflation for the last quarter was 3.5% I believe, which has a lot of people concerned.