Which of the following statements about the governments borrowing a large amount of money is correct?

Question

A. It makes it harder for people to borrow money.

B. It reduces the demand for money.

C. It cause interest rates to go down.

D. It makes savings bonds lose their value.

Answer 1

The answer is D. It makes savings bonde lose thir value. Here is the reason why. The way the government borrows money works like this. The government issues bonds. Those bonds and bought by the Federal Reserve, The Federal Reserve issues a check to the government for the spending (thus creating money out of nothing). The government deposits the chect into the treasury. From there the government issues more checks to pay for the spending. (now here is where the problem really begins.) The checks issued by the government then gointo the banking system. Because of fractional reserve banking, the banks create more money based on the deposits they recieve. Because the banks only keep 10% of their deposits in reserve the loan out  (create) additional new money equal to 90% of the deposit they recieved. The total amount of new money collectively creadted by just $1 of government borrowing from the Federal Reserve is $10 for every dollar borrowed once it makes its way through the banking system. The effect is the lowering of the value of the money supply. This is called inflation. The effect of the inflation is rising prices. The way the government pays for the borrowing is by the hidden tax called inflation. This is what the full effect of the $168 billion stimulis package will have. That $168 billion will become $1.68 trillion unless 2 things happen. (1) people pay off debt and (2) refuse to take on more debt. If both those things occure then the banks cant issue new money. The only time when fractional reserve banking would not cause a tenfold increase in new money issue is when the government issues bonds, is paying a high enough interest rate and the public buys those bonds with their savings. Then there is no new money created. This is the scam of the Federal Reserve and why we have the economic problems we have tody. Prices are going up and the value of savings is going down because of the Fed and fractional reserve banking. Therefore option D is the correct answer to your question.

The people who dont agree have their heads in the sand. These are usually people who work for the system that is stealing your savings through inflation. DONT LISTEN TO THEM. Read The Creature From Jekyll Island - A Second Look at the Federal Reserve by G. Edward Griffin and you will truly understand this process.