When the Fed directs the Treasury to print money on the other hand, it's not a loan.  But it gets recorded as profits and is remitted back to the Treasury at the end of the year, as I understand it.  At any rate, I've seen in an annual report from the NY Fed regional bank that it remits its profits to the Treasury.  The NY Fed's profits probably come largely from its Open Market Operations.

The Fed as a whole is a different animal from its regional banks, and it's the Fed as a whole rather than regional banks that makes the Treasury print money (I think), so I don't remember seeing direct evidence that this particular profit is remitted back to the Treasury, but I have the impression that it is.

There are some limits on a given bank because it needs to keep a "fractional reserve" but money is being created during the loan process.

This money may initially a blip on a computer screen, but those blips can be converted to paper bills, if desired.

My understanding is that regional or local banks cannot print US dollars but they can create money.  If people or businesses pay that money back with interest, then the bank has a larger asset base from which to make larger loans.

This ability for money to be created throughout the banking system can lead to a situation where there is more and more money in the system.  If not checked, this can lead to instability.

I have heard the phrase "government currencies eventually become worthless."  This may be related to the fact that it is tempting to create more and more money to meet current needs and then eventually the system crashes.   People in political office often like to put problems off into the future, rather than deal with them in a given current term.   I think that the US currency and economy may have been designed to crash.  In volatile markets, is one understands what is happening, it is possible to make money in both upswings and downswings.  More fundamentally, the conditions for "crash by system design" may have been implemented as an attempted societal control mechanism.

It's true that "money" is created out of thin air.  However your neighborhood bank doesn't get to spend that money.  The money that's created is not "high powered money" aka "M0" aka "dollar bills".  It has matching debit and credit entries.  So the bank doesn't exactly get your car for free when you finance it.  The money they gave you to pay for the car had to come from someone else.

I think you forgot fractional reserve. If bank A loans $100,000 for a mortgage they only have to have a small percentage in reserve. Then they sell the mortgage to bank B who puts it on their books as an asset; then they can loan out multiples of that asset. And again, and again. Of couse, if the original asset loses value the whole chain of loans is in danger, which is what is happening now with the housing crash. Am I right or did I miss something?

http://www.ny.frb.org/aboutthefed/annualreports.html

They also have tutorial articles about how the US central banking system works at

http://www.ny.frb.org/aboutthefed/fedpoints.html

But the Fed does a P&L statement every year and reports its profit.  It subtracts its operating expenses and remits the rest to the Treasury.

Does anyone know if the profit and loss statement is publicized?  Does anyone know the operating expenses for a year?

It's true that "money" is created out of thin air.  However your neighborhood bank doesn't get to spend that money.  The money that's created is not "high powered money" aka "M0" aka "dollar bills".  It has matching debit and credit entries.  So the bank doesn't exactly get your car for free when you finance it.  The money they gave you to pay for the car had to come from someone else.

The ones who get to create dollar bills out of thin air are the Fed.  Whenever they so decide, they instruct the treasury to print up dollar bills and circulate them (thru Fed correspondent banks).

But the Fed does a P&L statement every year and reports its profit.  It subtracts its operating expenses and remits the rest to the Treasury.

Then they want to call the mortgage (if they don't mind owning the real estate and reselling it)!

But if you're upside-down and ask to get out of it, they may approve a short-sale as described above.  Or they may not approve it.  Recently I've seen a couple price increases in houses for sale, in a weakening market where raising the asking price makes little sense.  I wonder if the bank is demanding full payoff and not approving a short sale, so as the seller gets further in debt they must raise the asking price.

What happens when the value of the asset becomes less than the outstanding debt? Can it be called? This may be bad info since I don't have a mortgage; would someone who does (Lono?) please check the fine print on theirs?

This is usually called a short sale.  Hopefully that's what you were lookin for...

A short sale is the sale of real property in which the proceeds (or fair market sale price) falls short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments (after a huge pain of a process, of course). By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. See also deed in lieu (or foreclosure).

starling wrote:

A lot of the mortgages have been sold to big investors as CMOs (Collateralized Mortgage Obligations). All they're concerned about is "show me the money"; they'll sell in a New York minute if they think the value of the investment is dropping. When they do the mortgage will be called and the homeowner who doesn't have the cash will lose his house.

Well it's not quite that simple ... the person who owes the mortgage retains the right to pay under the original terms.  It can't be called unless he defaults, no matter who buys the mortgage.

They are already giving quiet deals to people to let them stay in the houses with more manageable payments.  I don't know what the terms of those deals are and they certainly aren't publicized.  And they surely aren't doing it out of the goodness of their hearts, because banks don't have hearts, but -- as ShineOn said -- because they don't want to own the real estate.

If the banks don't want to own the real estate, why would I?  Rental is still cheaper than the all-in cost of owning.  But to tell the truth I am a bit tired of renting (can't fix the place up the way I like) so I do keep my eyes open.

My mortgage company turned around and sold my original loan within a week.  We still have the same terms, the same payments, interest rate, etc., but we send the payment to a different company.

What caused me to make the change from renter to owner was exactly the reasons you cited.  I want to exercise my creativity any way I see fit.  I want to plant flower gardens and know that I'll benefit from the perennials and organic materials I've worked into them years from now.  I want to paint walls funky colors without worrying about repainting when I move (which I've had to do), tile with unusual materials without asking permission, etc.  To me, these are the real reasons to own.  All that crap about it being a necessary investment is just that-- crap.  It may very well be a good investment, but then again, it may not.

A lot of the mortgages have been sold to big investors as CMOs (Collateralized Mortgage Obligations). All they're concerned about is "show me the money"; they'll sell in a New York minute if they think the value of the investment is dropping. When they do the mortgage will be called and the homeowner who doesn't have the cash will lose his house.

Well it's not quite that simple ... the person who owes the mortgage retains the right to pay under the original terms.  It can't be called unless he defaults, no matter who buys the mortgage.

They are already giving quiet deals to people to let them stay in the houses with more manageable payments.  I don't know what the terms of those deals are and they certainly aren't publicized.  And they surely aren't doing it out of the goodness of their hearts, because banks don't have hearts, but -- as ShineOn said -- because they don't want to own the real estate.

If the banks don't want to own the real estate, why would I?  Rental is still cheaper than the all-in cost of owning.  But to tell the truth I am a bit tired of renting (can't fix the place up the way I like) so I do keep my eyes open.

Banks are not interested in owning your home. The debt to be concerned with is unsecured. Credit cards and small signature type loans. These , if things go south, will be called on overnight.

A lot of the mortgages have been sold to big investors as CMOs (Collateralized Mortgage Obligations). All they're concerned about is "show me the money"; they'll sell in a New York minute if they think the value of the investment is dropping. When they do the mortgage will be called and the homeowner who doesn't have the cash will lose his house.