The Fed, Inflation, and a Solution...

Let's kick it then...

The Federal Reserve (http://en.wikipedia.org/wiki/The_Federal_Reserve) is a bit of a mystery to me. What do they do? From what I can gather, they are basically a bank for banks. They lend money to banks like Bank of America who lend money to companies and people like me. My question is where does the Federal Reserve get this money to lend to big banks? I think the answer is: they make it out of thin air. This seems crazy to me. Is this true economics PhD's?

That's pretty bad-ass if true. I wish I could just decide that I have a billion dollars and lend it to people and charge them interest. But let's take it a step further. If you can just make money out of thin air [side note: google "the Gold Standard" which we are NOT on], what's the point in charging interest to the banks you lend this made up money to? Those banks then charge interest to companies and people like me. So I'm paying interest for money that was basically free to someone else? Enter an interesting fact: "The U.S. Government receives all of the [Fed's] annual profits, after a statutory dividend of 6% on member banks' capital investment is paid, and an account surplus is maintained. The Federal Reserve transferred $78.4 billion to the U.S. Treasury in 2010" (source: Wikipedia).

So--
Winners - 1) US Government, 2) "member banks." Who are the member banks? Not so clear to me, but it seems like they are private banks like Bank of America.

Losers - me, US businesses borrowing money, and everyone else borrowing money

So you hear about the Fed having power over interest rates, raising them, lowering them etc. This is to control the economy in a way. If they lend money (which they have created out of thin air) to big banks without charging much interest, the big banks will lend that money to us at a low interest rate, and we'll use that money to buy shit. Bam, economy stimulated. If they raise the rates on the money they lend to big banks, the banks raise the rates for loans to us, and we stop buying shit. Pow, economy cooled down.

Right now the rates are really low. So what does that mean? The Fed is making lots of money out of thin air and lending it to banks to lend to us to spend. That's all sounds great, but making a ton of money out of thin air and just giving it away doesn't make us any better off. Remember my first post? Money has no value in and of itself. Creating a ton of money doesn't do anything but make the prices of real stuff like houses, food, etc. to go up (i.e. causes inflation). You and I have no power to stop this inflation because the decision to create all this money is not in our hands. Seems to me like if I'm the US Government or big banks, and I want some money for _____________ (project I don't want to raise taxes for / saving my bank from collapse), a great option is to make this money out of thin air. The catch is, you and I actually have to WORK (create something that actually has value) for our money to pay back these loans. We do not have the luxury of just deciding we have a billion dollars. So, does this inflation = secret tax? Sure would be convenient if you are a US Government politician. You get more money based on people who created real value to pay you the money, but you didn't raise taxes. Inflation happened. You don't control that. Do you???

Does this make sense? Could it be true or am I just a conspiracy theorist? I hope I'm wrong! Please tell me where I'm wrong.

So knowing this, can we somehow save ourselves? My idea: if we know the Fed is making money now, we know this WILL lead to inflation. If they are doing this at an unprecedented rate, we should expect really high inflation. So right now, stuff is cheap because we are basically in a recession, and money is being lent at low rates. In the future, if my assumptions are right, stuff is going to get more and more expensive quickly. So what should we do? Buy big ticket items NOW that are relatively expensive and will grow in value over time. BUY HOUSES. Am I right?

Please enlighten me homies.