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When the Government Writes Checks, Where Does the Money Come From?

With billions of dollars paid out or promised for financial industry bailouts and the stimulus bill -- and more requests on the way -- Paul Solman looks at where the government is getting the money to pay for the rescue measures.

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    The rescue money source question comes from our economics correspondent, Paul Solman.

    PAUL SOLMAN, NewsHour economics correspondent: Time and again, viewers like you have visited our Q&A Web site, "The Business Desk," and asked the following Q: Where is the government getting all the money, several trillion dollars so far, for all its bailouts and stimuli?

  • Here’s the A:

    The government gets the money two ways, as we're about to explain by putting it graphically.

    The Treasury Department borrows money; the Federal Reserve creates it. We'll start with the Fed and creationism and, this being PBS, with a bit of history.

    Once upon a time, money — that most convenient stand-in for value — was itself valuable, often made of precious metals like gold and silver. Rulers minted the metals into coins and stamped them to vouch for their content, a kind of "Royal Housekeeping Seal of Approval."

    But with the industrial revolution came an explosion of new wealth. The supply of gold and silver couldn't keep up; that shackled the trading of wealth and thus economic growth.

    So folks came up with paper money: printed promises issued by rulers or rich merchants or banks redeemable for something precious, like gold or silver.

    In fact, the U.S. government issued gold certificates from the 1880s to the 1930s. And as recently as the 1960s, all one-dollar bills and most fives and tens were silver certificates, payable to the bearer on demand.

    Until recently, few wanted to meddle with the metals, preferring to trust the paper. After all, it's a real hassle to store the shiny stuff, as we learned on a recent visit to a gold and silver dealer in Oakland, California.

  • CHARLIE MAMMOSER, Northern California Coin Exchange:

    I've had people come in, and they say, "I want to buy 10, 20, 40 ounces of gold." And they take it away, and I tell them, "Don't think you can hide it in the freezer, because crooks know to look there." "Oh, no, I'm going to go put it in my safe deposit box."

    If the bank goes belly up, how do you get into your safe deposit box to get your gold that you bought to protect yourself from all this stuff?


    So Charlie Mammoser's customers wind up spending their energy on camouflage.


    I had a customer. He had some thousand-ounce silver bars. And what he did is he spray-painted them black, and he would use them as doorstops in his house. You could walk right by it and never know what it was.