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Subject:  Re: My friend the jeweler called me Date:  7/10/2013  10:23 PM
Author:  warrl Number:  428428 of 538971

I would be happy if all the money the Fed is buying assets with was at least backed by debt.

No money the Fed uses is backed by debt.

As soon as it leaves the Fed's hands, it is backed by debt - that is owed to the Fed. (Possible exception: Fed profits handed over to Treasury.)

In fact one can argue that, in effect, the Fed has no money - that money comes into existence when the Fed loans it out, and ceases to exist when it is repaid to the Fed.

(Other banks also do the same thing, but unless they are also central banks they are obligated to have SOME reserves, i.e. a certain fraction of loans they have made. No such requirement has effect on central banks in fiat-currency systems.)
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