It might be a good idea, Dickybird, to do a little more research of the "Finance 101" variety, before posting again.

>>The Fed even declares its policy is to create credit as needed by printing $s and none of those $s will be backed by any assets.<<

The creation of "credit" automatically brings an asset into being, viz. the loan itself. It is not possible, in our enlightened age, to create a debit without a corresponding credit entry in the ledger, and vice versa.

For example, the toxic loans that precipitated much of the GFC were treated by the market as assets, and valued accordingly. Inappropriately, as it turned out, but assets nonetheless.

When a government releases more money into the economy, it quite often does so through the issuance of government bonds. These are debt instruments, carrying an interest rate and a maturity date, which are subsequently traded as assets.

"Printing money" is more an emotional, quasi-political slogan than a realistic description of what happens in the real world.

But I can tell that you are not actually listening, are you:

>>But at present we are in a terrible mess and to go back on a reliable Gold Standard of some sort is essential<<

It doesn't matter how many times you write this, it will never make a skerrick of sense. Go back and read earlier responses, then tell us where the "gold standard: impossible dream" argument fails.

Private sector credit normally arises when surplus wealth from productive businesses needs to find further profitable investments. If private credit was lacking it could be that too much was being removed in taxes and spent on unprofitable investments or just wasted. (Pink Batts !)

Pericles. “ The creation of "credit" automatically brings an asset into being, viz. the loan itself. It is not possible, in our enlightened age, to create a debit without a corresponding credit entry in the ledger, and vice versa.” Can we try to follow this through. When I was learning double entry book keeping it was sometimes difficult to decide on the other side of any transaction. Presumably this statement means that the Fed created credit and purchased the toxic loans etc from the banks and financial entities who would have gone bust if this exchange had not occurred. However how does this transaction change those toxic loans, now owned by the Fed, into interest paying assets/bonds like the ones in your next quote below. There is a well known axiom in the computer industry “Garbage in - Garbage out”. Do we now have a bankrupt Fed full of toxic loans ? If so eventually that fact will become public and confidence will collapse. They are supposed to be in financial charge. Now we no longer have the security of our currency being backed by Gold (!) we are utterly dependent on public confidence that the Fed is getting it right. Keep it up. The world depends on you and people who think like you.

I can assure you that I am listening and I would love to be enlightened as to the difference between “ the issuance of government bonds. These are debt instruments, carrying an interest rate and a maturity date” and QE. The first is, I agree, perfectly acceptable as long as there are people willing to buy them. But no one knows the effect of the second and as it is now such an enormous sum it must eventually bring about a crisis

Hmmmm. As I suspected, Dickybird.

>>When I was learning double entry book keeping it was sometimes difficult to decide on the other side of any transaction.<<

This would seem to be a fairly massive hole in your education, I'm afraid. It would certainly explain your inability to grasp some fairly straightforward concepts.

>>Presumably this statement means that the Fed created credit and purchased the toxic loans etc from the banks and financial entities who would have gone bust if this exchange had not occurred.<<

Sigh.

The packaging of loans into AAA-rated instruments was not conducted by the Fed. They stepped in later, to remove them from the balance sheet of banks who were overloaded with non-performing assets (see TARP: Troubled Asset Relief Program). Whether it was better to do this than let the banks drown in red ink is a matter for politically-motivated debate, but one thing it did not do is "create credit".

>>However how does this transaction change those toxic loans, now owned by the Fed, into interest paying assets/bonds like the ones in your next quote below.<<

It does not. The issuance of bonds is entirely separate from the purchased assets, whose component parts are sold off over a period of time - mostly, obviously, at a loss.

>>Do we now have a bankrupt Fed full of toxic loans ? If so eventually that fact will become public and confidence will collapse.<<

Here is all the information you need in order to make this judgment for yourself.

http://www.federalreserve.gov/monetarypolicy/bst_fedsbalancesheet.htm

Let me know what you find.

But first, sort out your understanding of debits and credits. It is quite important when looking at balance sheets.

Dickybird,

>>Private sector credit normally arises when surplus wealth from productive businesses needs to find further profitable investments.<<
That would be the case if banks didn't exist. But banks do exist, so private sector creation normally arises when banks can lend profitably.

>>If private credit was lacking it could be that too much was being removed in taxes and spent on unprofitable investments or just wasted. (Pink Batts !)<<
Firstly pink batts are a sensible use of money when people are wasting large amounts heating and cooling badly insulated homes.

Secondly, unless there's a labour shortage, private credit is scarcely affected by what the government removes in taxes and puts back in spending; what counts is what the government removes in taxes and doesn't put back in spending. AKA the surplus.

If the government runs a surplus it reduces the money in the economy, making it harder for businesses to make a profit. Sometimes that's a good thing as it's a way of reducing inflation without having to increase interest rates. Better still, it can enable interest rates to be cut, enabling more private credit creation. But in a downturn there's little scope for cutting interest rates, so a surplus is a bad thing.

Taking money out of the economy retards it and putting money in accelerates it. That's true no matter which side of zero we're on. Which brings us to the situation we're currently in: the economy's suffering because the deficit the government is running is too small.

Both of you appear to approve of the standard socialist view that the way out of problems is to give money to anyone who seems to need it. This is a delightful idea and you have immense support from the voters who naturally hope to gain any crumbs left over. But you completely ignore the inevitable crisis when it comes to repaying the debts. “ And so one of the wonders of the modern financial world unfolds before our dumbstruck eyes: borrowing from someone who has no money… charging it to someone else's account… and pocketing a good part of the cash”. A short but accurate description of what is going on. How can you seem to think this is quite acceptable behaviour

Thirty-five trillion dollars is a good estimate of ‘excess credit’ created since the 1970s in the U.S.. But instead of debt to GDP at 140% — where it had been for decades — the rate has risen to over 300% of GDP, where it is today.

I may not be an economics professor, but I know that for households, businesses and governments ‘there’s no new way to go broke, it’s always too much debt’. Sovereign nations default when debt burdens become too onerous or it’s politically opportune and when there is no other alternative. The serious problem is that this time it is the biggest economy in the world, not peripheral economies like Zimbabwe and Argentina

And Aidan you tell me that the cure is to have more debt. When this cure has been tried for years and has never succeeded in fixing the problem, only pushing the solution further down the road, why on earth do you think that more of it will do any better.
Pericles. Perhaps you should be the one to study debits and credits. When they are created out of thin air, they tend to evaporate. Garbage in Garbage out !

One more time, Dickybird. Neither debits nor credits can be made from "thin air".

>>Pericles. Perhaps you should be the one to study debits and credits. When they are created out of thin air, they tend to evaporate.<<

There will always be one of each, balancing each other out. And whether in a business or a government context, they invariably refer to specific, identifiable and visible transactions.

I refer you to your own words:

>>When I was learning double entry book keeping it was sometimes difficult to decide on the other side of any transaction.<<

Instead of saying "it was sometimes difficult", you should be more honest with yourself, and say "I didn't understand how". Debits and credits are the bedrock of accounting, but it is clear that to you they remain an unfathomable mystery.

Failure to grasp this leads you to say things like:

>>Thirty-five trillion dollars is a good estimate of ‘excess credit’ created since the 1970s in the U.S<<

I'm afraid that coming from someone who cannot figure out where debits and credits should go, this lacks just a smidgeon of credibility.

At least you are honest enough to put the words ‘excess credit’ in quotation marks, indicating that you haven't a clue what that means, either.

As for this:

>>“And so one of the wonders of the modern financial world unfolds before our dumbstruck eyes: borrowing from someone who has no money… charging it to someone else's account… and pocketing a good part of the cash”<<

I know a number of ten year-olds who would drive a double-decker bus through that little diatribe. They would ask you: who are you imagine you are borrowing from; to whose account is it then charged; and how do you get to pocket part of the cash?

Any thoughts? Or shall we leave it there, that you don't actually have a clue, and are just cut'n'pasting from some fruit-loop web sites.