The Federal Reserve and ‘magic’ money

The dollar that was worth a dollar when the Fed was created is now worth less than 5 cents in real terms.

The Ceature From Jekyll Island A Second Look at the Federal Reserve

 

When Mr. Bush created a new prescription drug benefit, there was no national debate on the cost. People who have met with him on the matter report that he dismisses any talk of such things. In fact, there is no national debate of any substance on any part of the budget. The numbers are too large, and the financing seems to be a matter of magic. Therefore all talk of deficits and debt amount to little more than political rhetoric.

Let us ask why. How is it that the federal government seems so uniquely immune from the limits imposed by economic scarcity? The American people from time to time wonder: where the heck does all this money come from, and why does there seem to be no limit to it?

The answer is found in the powers that belong to that marble palace on Constitution Avenue called the Federal Reserve. Here is an institution that possesses the legal power to create as many dollars as it pleases, any time it pleases, and for any reason it pleases. I stipulate that it is the "legal" power because we all know what would happen if you or I tried this at home.

This power to create money is what makes it possible to run debts that soar to the stratosphere. It is what makes it possible for US government debt to trade without a default premium. It is what gives the president the chutzpah to go to war without seeking full financing or even much in the way of permission from Congress. It is the money machine, and with it you can run the world — at least until you run the economy into the ground.