Sunday, November 13, 2011

So where does money come from?

During the November 9th debate, Ron Paul mentioned the Federal Reserve, it prinitng money, and interest rates going up. He has also mentioned in the past that he has wanted to abolish it.

He questioned what it is. Why should the U.S payback money to the Federal Reserve? What is it anyway? Where does it get money? He asks.

And aggree with him? How does the Federal Rerserve just produce money?

A while back a heard a program on This American Life about where money comes from, what it is, and who owns the Federal Reserve. It brought up the very questions that me and Ron Paul ask.

No one knows from where the Federal Reserve produces money from. The more the FD prints money, the less value existing money has. It then brings interest rates up and by that the government attempts to attract investors.

The program went into an interesting story about how Brazil solved it's financial crisis. Before it had many problems. Inflation rates kept going up and the economy was getting worse and worse. So what did they do? They replaced the currency and gave their currency a fixed value so it could not go up and down.

People bought into it and it solved a big problem. The message of the story to me, at least, is that the value or the worth of money is determined by people's belief in it.

That example proves it along with how the stock go up and down. Three major companies that have recently suffered are Bank of America, Netflix, and Apple.

Bank of America suffered by introducing its five dollar fee which has been taken back, after costumers were outraged and began to leave. Netflix lost worth when it introduced Quickster people were horrified and left Netflix. Apple suffered when people publicly did not believe that the company would be the same without Jobs.

Investors were watching the entire time and I'm sure they felt uneasy which brought down the companies worth.

Another example of how bizarre money's worth is the radio shows section on an indigenous culture that uses stones for currency. The stones don't move, they do no even physically have to be traded but people know who those stones belong to.

If it falls in the water or it cannot be moved, it does not matter. People believe in its worth.

How is having a credit card any different? Or trading money digitally? Or the Federal Reserve just producing money? The only thing it takes for that to work is people believing that it works.

To conclude, I agree with Ron Paul's statement. Why should we pay back the Federal Reserve? In fact the last time this country had no debt was during Andrew Jackson's presidency when there was no Federal Bank.

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