Money Out of Thin Air?

Actually, it is money and debt that are created together. The process is really easy. The fed prints notes, bills and sells them. Treasury Notes and Bills are debt. In practice, it is the fed borrowing money from the general public and repaying the loan with interest at some later time. Money is simply a common denominator form of exchange for goods and services. The fed could have used barter instead of currency to achieve the same end, goods and services used to trade for goods and services, with money in the middle acting as the transfer medium. The current financial crisis happened because of loans made to people who could not afford to repay the loans. The banks made money off the process. They KNEW the loans were never going to be repaid, but took the short view of some money NOW rather than much more later. They then then repackaged the debt and sold it as an asset, like stock in a company on the reasoning that mortgages always get repaid! These now are referred to as toxic assets. The banks sold the public a bill of goods. It all came apart when people started defaulting on loans. The mortgage lender takes out insurance for a default, to cover the loss. So, the insurance companies started losing a lot of money because of what they had to payout for each default. THAT is where the fed stepped in and deposited money into the insurance companies to keep them in business, in the lending banks that were "too big" to fail. The bailout money was LOANED, not given. The companies have to pay it ALL back with interest. The problem is that the process added dollars to the total amount of currency in circulation, so the dollar is being diluted, worth less in terms of goods and services. So, the money they pay back will be worth LESS than the money they received TODAY, and THAT is where the general public loses. All of the companies saved with dollars today, are being paid from a dollar that ends up worth less tomorrow, at the expense of the general public who uses dollars to pay for goods and services. I have simplified the process here. But this is basic economics 101. This is mostly the fault of greed on the part of lending institutions and insurance on loans that would not be repaid. The problem is there is no way to prosecute the individual person in a lending institution who made the first predatory loan, knowing it was likely not going to be repaid. Or the person who approved a mortgage for 120% of the value of a house. The 120% loan is where people got in "underwater" since 120% inflated the value of the house to more than it was really worth, which WORKS in a rising market so in a while the house increases to the inflated value. But what happens if you default? Easy, you owe more than the house is worth and you lose everything in foreclosure. But, it is THOSE banking people who took the money from those loans and ran, leaving the defaulting buyer to fall on someone else's doorstep, the insurance companies who insured the loans against default. Like I said, huge amounts of simplification here. I hope you get the big picture on what the collective errors in judgment of tens of thousands of people in mortgage lending did to all of us. THEY, get away completely free with the money that eventually comes out of our collective pockets via the federal government bailing out Wall Street, investment banks, mortgage companies and the insurance companies. What goes around, comes around... In the end, it is the general public that pays the price through diluted currency. Without the fed stepping in and propping up businesses that would have folded, it would have been MUCH worse. Instead of delaying the price to the public over years as it will, it would have hit our pocketbook like falling off a cliff. Instead of the cliff, we are taking the long way down to the bottom. THAT is how the fed saved the present economy and avoided a crash like 1929 and the Depression that followed in the 30's.