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1, banks and companies are sitting on the cash. This lowers velocity which offsets the increase in money as per the equation mentioned by a previous poster.
2. Thats not all though. There is still inflation, but its not showing up in the US because we export our inflation to other countries. Since we have the unique status of being the worlds reserve currency we get a few perks. A simplified explanation is this. When we buy all that cheap chinese crap, those chinese companies import back to China all those US dollars. They go to the bank to swap the dollars to chinese yuan, the bank goes to the central bank of china to get more yuan for the dollars they now have. The central bank of China (the Chinese government) then has 2 options. They can print more yuan to buy those dollars which causes inflation in China (hence our inflation is exported to China), or they can allow the yuan to rise in value against the dollar, therefore paying fewer yuan for each dollar. If they do that then the price of Chinese goods here go up in price because Chinese manufacturers now have to have more dollars to get the same amount of yuan. Then we buy less Chinese stuff because suddenely Mexican, Vietnamese, etc stuff looks cheaper. Chinese economy tanks. So they can either eat our inflation or tank their economy. So far everyone is choosing to print more money to buy the dollars and keep the economic edge. Which is why you see so many stories of other countries printing lots of money.
Some developed countries that can afford to lose some of that economic trade let their currency rise slowly by taking option number 2. Thats why you see currency from places like Canada and Austrailia gaining against the US dollar so strongly.
Quote:
Originally Posted by mathjak107
All the printing of all that money did was re-inflate the banking system back to the point it was before the crash.
to see real inflation we need strong job growth and wage increases which we are not seeing.
banks create money to be loaned out because they get to loan you money, you put that in your checking account and that counts as an asset ,the loan counts as an asset and they can loan against those 2 assets even though only one really exists.
when the demand for loans dropped that created money went away and vaporized so much of what was printed just filled the existing hole.
It counts as an asset for you but for the bank, the deposit counts as a liability which is backed by the loan being an asset. Now due to the fractional reserve lending we have they are only required to back 10% of that liability, the remaining 90% they can then turn around and loan out.
Job growth and wage increases are not the cause of inflation so I am unsure why we would need to see them before we see any inflation.
"A bank makes a loan to a borrowing customer. This simultaneously, creates a credit and a liability for both the bank and the borrower. The borrower is credited with a deposit in his account and incurs a liability for the amount of the loan. The bank now has an asset equal to the amount of the loan and a liability equal to the deposit. All four of these accounting entries represent an increase in their respective categories: the bank's assets and liabilities have grown, and so has the borrower's."
but that deposit has a check written against it that has a loan turned into a deposit again where ever it gets deposited . that loan once deposited again can be loaned against again..
'Banks create money in the economy by making loans. The amount of money that banks can lend is directly affected by the reserve requirement set by the Federal Reserve. . . When a bank gets a deposit of $100, assuming a reserve requirement of 10 percent, the bank can then lend out $90. That $90 goes back into the economy, purchasing goods or services, and usually ends up deposited in another bank. That bank can then lend out $81 of that $90 deposit, and that $81 goes into the economy to purchase goods or services and ultimately is deposited into another bank that proceeds to lend out a percentage of it.
In this way, money grows and flows throughout the community in a much greater amount than physically exists."
when loan demand fell off that process screached to a halt and things deflated in the banking system. the printed money just filled in those gaps left.
Last edited by mathjak107; 10-12-2013 at 07:05 AM..
when loan demand fell off that process screached to a halt and things deflated in the banking system. the printed money just filled in those gaps left.
What happened was that when the housing bubble collapsed the banks market value of assets (loans) dropped below what they are required to maintain as a reserve. Hence the accounting voodoo of allowing them to mark those assets to book price vs market price making them appear solvent. That solved part of the problem. The second part happened when people realized that their 600k mcmansion was worth 100k less than they payed for it a few yrs ago and they were underwater. No longer was it going up in "value" so quickly that they could extract money to blow on stuff by leveraging up with another HELOC. That along with the insurance/derivitave powder keg it ignited tanked the economy. People started defaulting (intentionally or because of poor credit requirements to begin with) which put further stress on the banks through non-performing loans. Credit markets tightened. The FED stepped in and dished out money to bump the reserve column in larger banks back into the green (supposedly).
People who would spend newly "printed" money to buy more crap, thus driving prices up, don't get most of that newly minted money to spend. Newly "minted" money is injected by means of the large banking institutions which then must loan out their windfall to the peons (who must apply very real physical effort to pay that "debt" off). I believe neo feudalism with its rent extractions and debt peonage is the final stage of capitalism, so it seems for time being at least.
Medical, energy, food, education costs keep on rising up though, but I believe it's because these sectors get influxes of the newly minted money seeking safer than average venues for the debt peonage schemes.
Last edited by RememberMee; 10-12-2013 at 12:16 PM..
Howcome US is printing money like crazy but there is no change in inflation?
Why would there be a change?
Economics is poorly understood, and the internet actually lessens people's understanding, leading people to draw erroneous conclusions.
We can see that you have been misled and given false information, on which you will make decisions that slit your own throat.
You said, "...US is printing money." I'm certain you don't understand what that means, and the people who foist that crap on web-sites don't understand what it means either.
I'm sure someone will scream, "Zimbabwe!" or "Wiemar Republic!" That is a favorite scare tactic used by Econ-Nazis.
When you can answer the question, "Why would there be a change?" then you'll be on your way to acquiring real knowledge.
While a great idea, that project is worthless to compare to CPI as they will not reveal the exact inputs into it nor the weighting algo they use. Without both of those its foolish to claim that it backs up the CPI because it may very well contain the same flaws. Furthermore they state that there are sectors not included in this because online price determination is problematic. I would assume they are talking about services and energy.
While a great idea, that project is worthless to compare to CPI as they will not reveal the exact inputs into it nor the weighting algo they use. Without both of those its foolish to claim that it backs up the CPI because it may very well contain the same flaws. Furthermore they state that there are sectors not included in this because online price determination is problematic. I would assume they are talking about services and energy.
It is simply another estimate of inflation, and I wouldn't say worthless. I do most of my buying online these days.
my best guess is that Hasbro needs it for "monopoly" money because everyone keeps passing "go" and collecting the money and then spending it until they get round the board again.
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