Money from thin air

I believe John Yates is a Republican because most Republicans don’t understand where money comes from. They think that when the government provides food to poor people, “That money comes from my tax dollars! Money doesn’t just materialize out of thin air!”

Actually, it does. Suppose you borrow $10,000 from a bank. The bank debits your checking account by $10,000. Where does that money come from? If the bank had already loaned out the maximum permitted by the Fed’s reserve requirement (10 percent currently), it has just created $10,000 out of thin air. That is real money. The bank can now loan out 90 percent ($9,000) of the money it just created. Not only that, these new loans will be deposited in other banks, giving rise to more loans as it ripples through the economy.

Ronald Reagan cut taxes and tripled our debt to $2.9 trillion due to deficit spending. The Federal Reserve, by cashing those checks, enabled him to create money out of thin air.

Actual cash, in the form of coins and printed currency, is about 3 percent of the total money supply. In 2008-2009, the Fed loaned the big banks hundreds of billions of dollars with computer deposits to their accounts in order to prevent a worldwide financial collapse and another Great Depression. The big banks paid it all back with interest.

Everyone needs to study Money and Banking 101 to be a good citizen. The size of the debt does not matter as long as we are making the investments necessary to grow our economy (GDP) faster than the debt. It is the debt-to-GDP ratio that matters. The Fed can control the money supply with the reserve requirement, the buying and selling of bonds, and interest rates, among others, to maintain stability of the dollar and promote high employment. RUUD DuVALL Fayetteville