Q: Has money supply historical not been stored in federal reserves but invested by the banks?

A: First of all, it depends upon which part of the world you're talking about, but in the US, the Federal Reserve is a privately owned company with shareholders who are also heavily invested in banks, such that people controlling the banks also control the federal reserve, but, the way it's supposed to works is, only the federal reserve is allowed to print currency, and banks are supposed to stick to things that just use the currency, which is a roundabout way of answering your question with a...

Yes.

Historically, each bank used to print and control the supply of their own trademarked currency.

Things got weird when they started printing more currency than they actually had as gold and silver on deposit, such that all kinds of problems would happen like:

1) Runs on a bank, wherein everyone holding paper came in to have it exchanged for gold and silver, but there wasn't enough gold and silver to cover it all because they'd overprinted...

... sorta like an airlines overbooking a flight. It's annoying as all get out if you happen to be one of the passengers bumped because everyone showed up.

2) Different banks would print different volumes of currency exceeding the gold and silver on deposit, but still stamp them all with the same numerical value on the face of it, creating confusion in currency exchange markets.

etc.

Creation of the Federal Reserve was a big compromise between bankers already in the business of printing currency versus "We the People want a Buck to be worth a Buck" constitutionalists who felt that currency supply should be a public service, so it's not perfect, but it's a damnsite better than what was there before.

Q: What is the historical patterns of money moving in and out of the federal reserves?

A: In a nutshell, the way it works is: You pay taxes to the government, and then the government buys paper currency from the Federal Reserve at a marked up rate, with profits going to the shareholders of the Federal Reserve.

If the government can't afford to buy the currency, it can still ask to borrow currency, by offering the labour of american taxpayers as colateral, and by convincing the directors of the reserve that the government will always be able to collect the taxes required to pay back the loan, with interest (plus the standard markup that is the profit margin the federal reserve charges the government for each dollar printed).

Permalink | Report