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Money... doesn't grow on trees. Ever wonder where it really comes from? The Mint, DUH! Yeah but not really.

In school, you might have been lucky enough to take a class trip to the mint, and smeared the d-jon mustard from your lunchable on that kid in your class that always smelled like cat urine when your teacher wasn't looking. But watching money get printed on paper doesn't exactly explain how the monetary system truly works. Unless you've read "Modern Money Mechanics", a document created by the United States Federal Reserve to describe the basic process of money creation using various banking terminology, then you probably (for reasons beyond your control, until now...) have no idea how it works.

In essence, it goes something like this:

The US Government decides it needs some money, so it calls up the Federal Reserve, and asks for, say, 10 billion dollars. The fed replies, saying "sure… we'll buy 10 billion in government bonds from you."

So, the government then takes some piece of paper, paints some official looking designs on them, and calls them "Treasury Bonds". Then, it puts a value on these Bonds to the sum of 10 billion dollars, and sends them over to the Fed. In turn, the people at the Fed draw up a bunch of impressive pieces of paper themselves, only this time calling them "Federal Reserve Notes"…also designating a value of 10 billion dollars to them.
The Fed then takes these notes and trades them for the Bonds. Once this exchange is complete, the government then takes the 10 billion in Federal Reserve Notes and deposits it into a bank account and upon this deposit, the paper notes officially become "legal tender" money, adding 10 billion to the US money supply. And Pow! 10 billion in new money has been created. Of course, this is a generalization, in reality, this transaction would occur electronically, with no paper used at all. In fact only 3% of the US money supply exists in physical currency. The other 97% essentially exists as a number on a computer screen.

Wondering how this all started?
Pissed off about the current state of the economy?
Like cartoons?

Me too! Watch this, it's educationally delicious:



or... you can just roll your eyes and continue on with your day .