Our currency is "created" through the Federal Reserve Banking System of the United States. The Fed does this both by actually printing paper bills, and through manipulation of monetary policy--the expansion and contraction of credit/lending requirements. It also increases the money supply--putting more money in the hands of the "public"--by buying government securities in the market.
As strange as it sounds, the Federal Reserve pays for these by virtually creating the money out of thin air and transferring it to those people/entities selling the securities! There is no longer anything tangible behind the Federal Reserve Note--no links to gold or silver since 1971--only the full faith and "credit" of the United States of America.
Money supply is defined in terms of "M's." The M1 refers to the printed currency and all deposits in checking accounts (demand deposits), and unredeemed/outstanding travelers checks. The M2 picks up the M1 components plus all time-related deposits--savings deposits, small CD's and non-institutional money market funds. The M3 picks up the M2 components plus all large time deposits, institutional money-market funds, short-term repurchase agreements, along with eurodollar holdings.
In January 2001, the M3 stood at $7,249,900,000,000; at the end of June 2004 the M3 stood at $9,283,700,000,000. By printing currency, loosening credit, and "buying" government securities, the Fed has "created" $2,033,800,000,000 additional dollars for Uncle $ugar--in three and a half years!
This doesn't mean that Americans (or American businesses) have that much more money in their mattresses, bank accounts, or billfolds. The bulk of that whopping increase was added to outstanding reserve currencies. A reserve currency is one that is held by other governments and institutions as part of their foreign exchange reserves. They've accumulated that much because this nation buys so many more goods/products/services than we sell; and consumes so much more capital than we generate--an infusion of ONE AND ONE HALF BILLION dollars a day is presently required.
The US dollar is the "official" currency of OPEC. If you are a nation who needs OPEC oil, those purchases are priced/denominated in dollars. You are forced to pay in dollars, or in your currency's spot dollar valuation at the closing. Think of this as a US dollar monopoly within the OPEC oil cartel--hence, more and more dollars accumulate in the oil producing nations' treasuries.
In November 2000, Saddam Hussein broke that US dollar monopoly by denominating Iraqi oil pricing/sales in Euros. Saddam was even lobbying other OPEC members to do likewise. While this made the French, the Germans and other members of the European Union very happy; it made Washington D.C most unhappy. The implications to the dollar as the world's reserve currency, the US deficits (both trade and capital), the outstanding debt and its essential foreign rollovers and the US stock markets were tremendous--and all implications were negative.
The Saddam regime is now history. The evil dictator was preemptively/presumedly ousted because of his WMD's and his ties to terrorism, and the US dollar is back as "OPEC's currency." The trillions of petrodollars (US dollars earned from the sale of oil) give oil-producing nations the ability to do serious shopping in these United States--stocks, bonds, real estate, corporations, partnerships, government securities, etc.
We can only hope and pray that politicians are never offered for sale on the internet's sales portals.
I'm Fred Cederholm and I've been thinking. You should be thinking, too.