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News Link • Economy - Economics USA

Letter Re: QE3--What Just Happened To Me?

•, Jacob R.
 When I put currency somewhere(make a purchase or invest it) it is currency that I worked to obtain and represents an exchange of my labor for a specific amount of currency. This currency is representative (if I negotiate the salary correctly) of the value of the work I preformed or the risks I took to obtain it. So when you or I put money somewhere it is a transfer of value that we obtained from our labor or risk from somewhere to somewhere.

When congress decides to put currency somewhere it can be from tax payers in the form of taxes or from IOUs (Treasury notes) that the treasury department sold to investors or to the Fed. When the Treasury sells these IOUs to investors, again the investors are taking the value of their labor or risk and trading it for the chance to to make a return in essence renting their currency to the Treasury for a fee. Taxes are the same way, it is part of the value of our labor that we are willing to trade for services, but the value came from our labor.

However, and this is where it gets interesting, when the Fed purchases these IOUs (Treasury Notes) from the Treasury, they have not traded any of their labor or risk for the currency that they are handing to the Treasury Department. So the big question is where does the value of that currency that the Fed gave the treasury come from? The answer is pretty simple it comes from you and me, it devalues the currency that we hold.  

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