The Stock Market and U.S. Funny Money
Snipped from slate.com.
If you have been watching the stock market roller coaster the last couple of weeks, then you may have caught the fact that the Feds are injecting billions of dollars into the market. When I heard about the latest infusion of $62 billion over two days last week, not really knowing that much about economics, I was curious as to how this happens. Where does the money come from, why is it necessary, and what does it mean? What is going on right now is what I would classify as the “funny money” game.
The really scary thing about our economy is that things aren’t always as they seem. In reading about the massive unregulated hedge funds, I found out that they can sell stock without really owning it and can get caught when things don’t go right without the liquidity to cover them. Well, something similar seems to be happening with banks–they’re coming up short.
Banks are required by law to maintain 10 percent of all their deposits in cash (only 10%–that’s a scary thought in itself). So, in order to make sure they are complying with the law, they have to have the right amount of money at the end of each day to make that 10 percent. When they don’t and come up short, they borrow from one another using what’s called the “overnight lending rate”.
Here comes the problem with what is going on today…if too many banks come up short and start borrowing money to cover their cash reserves, then lenders can start charging higher interest rates. And, if the rates get too high then banks start cutting back on lending money to businesses and individuals which slows down the whole economy.
So, in order to counter this, the Federal Reserve Bank of New York, which handles the central bank’s transactions, posts a message on its electronic auction system…”we have money”. What this does is infuse cash into the system so that banks don’t have to borrow as much from each other–which causes the rate to drop. All this sounds like funny money to me. But, hey, what do I know…I don’t have a degree in economics. One thing for sure is that it really sounds like a balancing act or juggling act whichever you prefer.
Here is a portion of the article that reveals what can happen if too much money is infused.
The recent infusions were especially big, but the government pours money into the market all the time. Doesn’t all this extra cash lead to inflation? Only if the Fed starts handing out more help than the banks need—if the supply of money exceeds the demand from banks. If banks were so flush with cash that they could use the government’s loan for something else besides covering their reserves—like buying new technology or lending the money to their customers—then the cash would enter the general market, wind up in somebody’s wallet, and push up the price of goods.
If you would like to read the full article click the image below.
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New Scientist
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Funny money? More like worthless paper funny money and worthless paperless funny money. It wasn’t that long ago that the dollar bill was backed by a dollar’s worth of gold. No longer. Now the paper dollar is backed by what? -more funny money, I guess. Federal Reserve funny money! Duh! I don’t understand and I might be afraid if I did understand.
You’re right Stan. I don’t know if I want to understand either. Sometimes ignorance really is bliss.
Paperless Funny Money. Cash advances are there via your credit card at any bank’s ATM for an outrageous fee. There’s new, more banking shat coming down in the long run. But first some background: On 9-27-2007 there was a photo-illustrated news story called “Free-ATM Banks Hit By Hikes.” No more no-fee ATM’s is my guess, a.s.a.p. There has been a national trend toward rising ATM fees. Moreover, pay-back of other bank ATM fees will soon be a no-no. What’s going on?
More background: I recall the first ATM’s in Philadelphia, Penna. in the mid-70’s which were called “George” and, I think, the George ATM’s were installed by Girard Bank. //the hue and cry at that time was that George would replace live bank tellers. They were right//
So what’s going on? Why would banks raise ATM fees? Certainly, it’s not to replace tellers these days. One would think it would entice more customers inside a bank to a live teller to save the higher ATM fee money.
Soooo, what’s really going on? New high stakes shenanigans are being hatched by the banking industry — I think so. Banks want to goad their customers into using online banking. Electronic no-money funds. Funny no-money, no-paper-bills money. Paperless money. Trust me on this. The clue that tipped me off as to what’s really going on follows:
I phoned Bank of A. to check about pay-pal for my checking account. No problem and a live U.S.A. lady person answered my query. Sounded friendly enough to want to ask for a date. At the end of our phone conversation came her pitch to use on-line banking. I received a hard-on sales job. Really. I cited my age and my ineptitude with computers. “Online banking is not for me,” I said, still unable to get off the line for minutes without rudely hanging up.
That’s my slim anecdotal evidence for what’s really going on. Bank of A. is always buying out smaller banks and eighty-sixing hundreds of their employees. Just three days ago, on the 26th, for example, Bank of America bought out Chicago’s LaSalle Bank and fired 2,500 live bodies. Is B. of A. replacing live tellers with ATM’s? Back in the mid-70’s, yes. Now, services are being replaced by online banking. AND paper money is certain to be replaced by online banking policy. Soon, I predict, there will be no bank branches anywhere but instead there’ll be one B. of A. computer center, in Charlotte, N.C. And, get this, no more ATM’s either. What does one of those monsters cost a bank? What a cost-savings to be rid of ATM’s. //Hey, for Gawk’s sake, you should sell any stock you may own in armored car/truck companies//
Unum talks in her above article about how banks are required by law to end the day with ten per cent of their deposits in cash. That law is certain to be adapted to their new electronic banking standards. Somehow, like 10 per cent of paperless cash? A percentage of nothing!
Magic! Slight of hand! Sidewalk three-shells game! Paperless money! You will spend “money” with the bank’s credit card with yet higher fees. A paperless society. Bank robbers will rob banks with their laptops. The getaway is online to an hidden account in Timbuktu. Get ready for Invisible, Insider Bank Robbers doing in-house robberies. Who is going to overwatch the big banks with their elusive paperless ones/and/zeros computer “money” bags? It’s funny money! Sing it, Bob! “…some people will rob you with a fountain pen…” And, by gawk, some people will rob you with “grab-and-run” software.
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A Penny Saved Is a Penny Earned. For a long while, no one wanted pennies. When people who bought something received pennies among their change, they would throw away their pennies onto the sidewalk in front of the store. Whoa! The way the economy is predicted to slow down, I’ll take your pennies. Every 100 pennies equals a dollar! From now on, you can call me the Penny Man.
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I just picked up my noon mail and to illustrate a point made in a comment earlier about bank mergers, guess what? You got it! Another merger, gobble, gobble, gobble….
I quote from RBS’s letter:
“We’re pleased to let you know that effective September 1, 2007, RBS National Bank, Charter One Bank, N.A., Citizens Bank of Connecticut. Citizens Bank (Delaware), Citizens Bank New Hampshire, Citizens Bank of Massachusetts, Citizens Bank of Rhode Island and Citizens Bank N.A. ARE NOW ONE BANK. The name of the new bank is RBS Citizens, N.A….
You people gotta be kiddin’ because I just ordered four refill boxes of personal checks. Good Gawk! O checkered is me!
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A Joke — Federal budget deficit fell to its lowest US-owes-you amount in 5 years. Bush strutted about and crowed how it was all due to lowering income tax for rich fat cats with big bucks. That made the economy sing! The federal budget deficit is at a US/owes/you amount of $162.8 billion in the budget year just ending. How figures lie and liars figure. Boy, was Bush throwing the numbers around. Whoa! There was a surplus with President Clinton. Bush never mentioned that. Run the presses, Bush, print that funny money.
Oh, what is the state of the Union? What is the state of the American dollar? Can Gawk be printed on a one-million dollar bill? Why not? Gawk, Gawk!
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The “surge” money is now starting to arrive. It is supposed to give the economy the boost or fix it needs. Whether it works or not depends on just who decides how to spend the money in your family. If the kids usually decide on what to buy, then I guess the surge will be successful. However, if the older members of your family are the deciders, then, most likely, the gift money from the Feds will go under the mattress and maybe stay there until….
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Biggie banks have already written off mega-billions in bad debts due to the subprime “magic interest money” affair. It was announced this week that many of these same biggie banks, including investment banks, need money, and need large amounts of imput money right now! So what to do? Why, issue more stock certificates, of course. Never-the-mind, they say, even though the original stockholders returns will be watered down. This is not a split! — just another run at the printing presses or, I guess, it’s done electronically these days, for beau coup certificates. And issue more stock is what they plan to do. 1000x owns XYZ Bank, then 1,000,000x now owns XYZ Bank. Get it?
But tell me this: if I owned one preferred or one common share of stock in XYZ Bank that paid 50¢ a quarter that became diluted to, say 2¢ and well, well, well…. That stock, all of it now, isn’t worth the paper it’s printed on, is it? Down goes XYZ Bank, I should think. I guess I don’t understand it at all, maybe I’m not supposed to, but is this another Wall Street scheme to follow the subprime scheme and another such scheme that’ll turn belly up?
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