When Government run low on money to finance their social programs one of the ways they get money is to get it from The Fed. When Banks, Corporations or the Government need more money in their reserves, these entities issues securities (e.g. Treasury Bonds) to the Fed in exchange for more cash. These bonds accumulate interest. These interest rates are determined using very complex mathematical equations and are controlled by monetary policies that are implemented using Open market operations, Discount Windows and other, very complicated for laymen to understand, systems.
The idea on how it works can, crudely, be simplified in terms of simple Supply and Demand. When the supply of money in our system increases the interest rates decrease. Fiat currency is very elastic, for this reason, it replaced commodities backed currency (i.e. Gold Standard). But, unlike commodities backed currencies, which are backed by precious metals (e.g. U.S. $20 bill, before being replaced by the fiat system, used to be exchangeable for exactly 1 Troy Ounce of gold), the fiat system is backed by nothing! That's right... Nothing!
If The Fed wants to put more money into the market, all it has to do is print more of it. Inflation is, crudely explained as, too much money in circulation. While The Fed prints more and more money, to lower interest rates and stimulate the economy, it is also raising inflation rates. It doesn't take a genius to know that the increased currency being put into the market depreciates the value of each dollar in circulation. Manipulating the interest rates creates unsustainable economic booms and sets the coarse for inevitable busts and hyperinflation.
Why is The Fed manipulating our economy, limiting our free market?
Are we prepared, if our market becomes hyper inflated?
These are just a few questions i think we should start asking ourselves.
For a good information on economics i recommend anything from the Austrian School of Economics.
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