I have a lot to say so hold on to your hats people. I have been keeping this in for quite a while now and since healthcare reform is in the process of passing, I feel like I have the right to my concerns despite the fact that this rant won't change anything... whew... you ready?

Now everyone has been debating on whether we should have universal healthcare and blah, blah, blah. In theory, free healthcare for everyone sounds awesome! But it doesn't take an economist or business man to tell you that nothing in life comes free. So the real question is how are we going to pay for this? Money doesn't grow on trees, right? Now the simple answer is to raise taxes. However, we all know that this will enrage the entire Republican party (and piss off the libertarians). But how else are we to pay for it? Well, this is where the wonderful institution called the Federal Reserve comes in. We can just print the money! (See money does really grow on trees) Now to you people who think that the Fed really doesn't create money out of thin air let me explain some simple banking principles to you.
So lets start with a simple graph of the supply and demand of money, as seen to your left. So "i" represents the interest rate, or price of money, MS represents the supply of money, MD represents the demand for money, and Q represents the quantity of money in circulation. Okay, stay with me. When the FED wants to increase the money supply (say in order to afford a $900 billion dollar healthcare bill) they participate in open market operations, or they either buy or sell bonds. In this case, the FED will buy bonds from banks at a premium (more than the market value) and pay for these bonds by crediting the banks account for the appropriate amount of money. Yes, this means they simple adjust numbers on a computer, thus creating money out of thin air. This shifts MS1 to MS2, which lowers interest rates and makes everyone happy. WOOHOO!! But keep in kind that this is all in the short-run. In the long-run, this increase in money supply will increase inflation of the dollar which means that the purchasing power of the dollar will decrease (FYI, thats bad). If the FED increases the money supply to say M3, it falls into a liquidity trap. The interest rate is no longer decreasing at noticeable amounts, if changing at all. Money becomes completely worthless, thus sending us into a very nasty monetary situation.

So healthcare reform will be a great thing, relatively, just as long as the government pays for it.
Does that make sense President Obama?

That is all.

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