Quote:
Originally Posted by gwynedd1
* Can't just keep printing money...
* printing money = bad
* printing money causes inflation"
All the above, complete junk economics.
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Well, I guess it's just too bad you weren't around to tell Lincoln that, or the Wiemar Republic, and it would seem Zimbabwe didn't get your memo either.
Quote:
Originally Posted by gwynedd1
When gold was all the rage I wonder if faux "Austrian" economists tried to dynamite newly discovered gold mines seeing as more gold must mean it will destroy us all.(actually it was more gold that finally cured us of the catastrophic silver demonetization).
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That would be
prima facie evidence that you don't understand monetary policy. On top of that, you threw a Straw Man out there for you to beat up on.
Standard-based currencies and fractional reserve banking are two entirely different things.
If you're going to use fractional reserve banking with gold and/or silver backing it up, then you just created Real Inflation.
Quote:
Originally Posted by gwynedd1
Banks create bank credit to, say , allow someone to buy a car which is supposed to be credit added to the system to represent the new product, the car.
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So what? People on Earth have been doing that for 10,000+ years. It didn't just start happening yesterday.
How do you think people purchased goods in the US up through the 1950s?
On freaking credit.
You get your horse and wagon, roll into town, buy your seeds on credit, shoes for the kids on credit, clothes on credit, something for the wife on credit, and then you go home, plant your seeds, harvest your crop, sell it, go pay off your debts and whatever you got left is your profit.
How do you think doctors and hospitals operated in the US up through the 1970s? On credit.
Everyone used credit. Why did that kind of credit stop? Well, The Big Corporation really ain't on that. They have to keep their books up to date with SEC filings and what not. Fred's Pharmacy doesn't really give a damn. Neither does Harry's Hardware or Chuck's Chili Parlor or Ted's Tavern or Gary's Grocery or Sam's Shoes.
And then mobility.
"Who the hell are you? Who's your papa? Who's your mama?" If you're new in town and no one knows who you are, then you don't get no credit.
And then telephones and things like key-punches. Banks could facilitate and manage credit better, plus bank credit is universal for the most part.
Quote:
Originally Posted by gwynedd1
Otherwise double the cars means half the credit circulation. So its rather curious people believe this sort of thing when the entire banking system is predicated on creating credit on the spot for productive loans(problem is we have unproductive loans).
If I printed a "counterfeit" $100 bill and handed it to someone who would create 1000 widgets when the going rate of widgets was $100 a piece , is that supposed to cause inflation? Worse is I would be doing everyone more good than the average bank has been doing this decade Err, uh, golly gee. If the numerator is increased with the denominator, there is no inflation.
The problem is not in the amount of credit creation. The problem is when credit creation does jack squat, like say printing money when unemployment is at 0. However if unemployment is a 100% and you print up a note and hand it to someone who will actually do some work....people think THIS causes inflation?
Now I am all for the expectation that public credit is more likely to introduce credit in the system hardly distinguished from land fill , but given that banks are making similar loans, how are we going to finally give credit to a producer?
But I have had enough of junky, crappy, Australoidiotic economics.
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Well, again, you've demonstrated complete ignorance of the issue.
Banks do not create credit, it is the fractional reserve banking system that does that.
When you are on a standard-backed currency, a bank can only loan against its deposits. If a bank has $100,000 in deposits, then how much can the bank loan? Not more than $100,000. In fact, a bank cannot even loan $100,000 because those are its deposits, and if a bank loans out $100,000 and you go to the bank to withdraw $100, the bank ain't got it.
The bank cannot loan more than it's deposits, because that would make the value of the currency worthless -- due to Real Inflation.
If a bank has $100,000 and loans out $200,000, then the value of $1 is not $1 rather its $0.50.
As you can see, a standard-backed currency makes it nearly impossible for the economy of a country, a region, state/province, county or an household to grow.
And during the Great Depression, printing money would have led to Real Inflation, which would have exasperated problems, even more so since it would make the US Dollar worthless outside of the US. And why did banks collapse in the US? Because depositors withdrew their money, leaving the bank unable to loan money to anyone for any reason.
Getting off the gold standard and using fractional reserve banking was the best way to grow the economy and get out of the Depression. With fractional reserve banking, the value of the currency is now for the most part tied to GDP, and not tied to the value of the standard in relation to the quantity of specie in circulation.
It's called fractional reserve, because a bank only needs to maintain a fraction of its cash/deposits as assets against its loan. Fractional reserve banking allows a bank with $100,000 in deposits to loan out $1 Million in part because it's backed by the central bank. Almost every country on Earth operates that way.
If the central bank increases the fraction, then the bank has to restrict its loans, so $100,000 in deposits might mean the bank can loan $500,000.
What the Ron Paul Pukes don't understand, is that on the Gold Standard, you ain't got no credit card. It's cash only baby. So if they want that 42" Plasma TV, they'll have to save up money for it, because there ain't no VISA or MasterCard. Now, maybe Best-Buy will allow you to set up a revolving charge account or installment account -- maybe.
Monetarily....
Mircea
Quote:
Originally Posted by Willy702
Credit is a reflection of future production.
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Uh, in most respects. Credit also facilitates business and consumer transactions.
Quote:
Originally Posted by Willy702
Either the borrower has the ability to service the loan or not. Notice paying off the loan isnt always important. This point always seems to get lost. I had an elder person in my building say he had to pay off all his debts, doesnt the government realize they have to pay back the $15B in debt someday. He totally missed the truth, he had to pay it back because eventually he would not be able to work to service the debts so he better pay them off. The government is not going to retire so as long as the interest bill is within the ability to pay then debt in theory never needs to be paid off whethere you are a governemnet or a corporation.
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But that isn't entirely true.
The reason there is interest is because government sells the debt. At the end of the year, there's a budget deficit of $1.5 TRILLION. The government needs $1.5 TRILLION in cash but ain't got it, so it sells the debt with a promise to pay interest, in an attempt to raise cash.
So, as you can see, that only works so long as people are buying US government debt.
At present rates, the US National Debt will be 1/3 of World GDP by 2021; and US National Debt will equal World GDP sometime around 2040.
So when US National Debt equals World GDP, who is going to be buying US debt? No one. In fact, you'll be cut-off long before that.
Think of the US Government as a bank; the securities sold by Treasury are tantamount to deposits made by customers.
What if customers make a run on "the bank?"
Quote:
Originally Posted by Willy702
So getting back to what causes inflation, credit is not really the cause.
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It is for some specific things. Interest Inflation is a rise in prices caused by either the availability of too much credit and/or low interest rates. It affects those things tied to interest rates, such as cars, college tuition and housing (and any other big ticket items purchased on credit -- perhaps 42" Plasma TVs).
Millions of Americans are dumber than potatoes, because they seriously believe when they buy that Toyota at 72 months, the really are getting 0% interest on their financing.
I know for a fact they are not. They are actually paying more for the car --
ie the price of the car has been inflated.
Nothing is free.
Quote:
Originally Posted by Willy702
Velocity of money and money supply is what causes inflation. Fed actions at this time are aimed at increasing velocity of money which is down because of develeraging within the private sector.
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That's true for certain specific monetary systems, but not entirely applicable to the US, due to the fact that the US Dollar is the
de facto international reserve currency and
de facto international currency of trade --- at least for the time being.
There's a lot of factors that come into play here, that do not apply to other countries or their monetary policies. Americans are not the only people who use or consume US Dollars. That's one reason you can increase the money supply without causing instant Real Inflation, while increasing the money supply in countries like Zimbabwe where they were printing $100 TRILLION dollar bills because that's how bad Real Inflation causes almost instantaneous Real Inflation.
Quote:
Originally Posted by Willy702
Some of this has been a choice, some has been forced through tighter standards and capital requirements. Until velocity of money recovers much of what it has lost inflation is not a threat. If velocity recovers and credit expands then the Fed has to take countermeasures which would include unwinding QE measures and increasing target interest rates.
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I figured they can go $9 TRILLION to $13 TRILLION before Real Inflation starts to set in above the long-term average.
Europe is a problem, and another problem is who comes out of this funk first, because if Europe does, then it will result in excess US Dollars on the world market.
Economically...
Mircea
Quote:
Originally Posted by lifelongMOgal
1) By 2015 the interest on the debt will be larger than the entire military budget. How much longer do you really think this country can rack up larger amounts of debt and service the interest?
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Not too much longer. Remember with each credit down-grading you restrict the pool of potential buyers of debt.
For example, State and local governments have about $444 Billion tied up in the US National Debt. Why? As an example, a State might buy $30 Million in US bonds, and then sell $20 Million worth of State bonds to fund highway/road construction. The State thinks that it will get $20 Million in cash and use that to pay for the highways, and then redeem the US Treasury bonds and use the interest gained on that to offset the interest it has to pay on the State issued bonds.
Ever see things like school bonds for new school construction or remodeling? Same thing. They often sell bonds. So do cities, and then some cities have a "rainy day fund" from surplus taxes or something like that, and they buy US Treasury notes.
However, the reality is that city government often makes bad decisions, and often those decisions are based on bribery, graft and corruption. I donate to your campaign, and then you as mayor authorize the purchase of $5 Million of my corporate bonds, then my corporation goes belly up and the tax payers just got stuck with $5 Million in worthless bonds -- well, not totally worthless...they can use them as toilet paper or line bird cages or something.
So many if not all city charters and by-laws have something to protect tax-payers and that bars the city from purchasing any bonds that are not AAA or not AA+ or something like that.
Some even have sell orders. Cincinnati had bonds issued by the Chiquita Corp and when their bond-rating dropped, the city (and apparently some other cities and organizations as well) were forced to sell their bonds, and that caused even more strife for Chiquita, whose stocks ended up at $0.03 (three cents) a share.
Eventually a point will be reached where more and more entieis either stop buying US bonds or have to sell what they own.
Look at the cities as well as the pension plans going bankrupt and tell me there won't be a slow drawn-down here continuing for the long term.
Quote:
Originally Posted by lifelongMOgal
Furthermore, why should taxpayers be saddled with higher taxes because the government mismanages that which it receives from the taxpayers?
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That is the price of being stupid -- and it's a lot cheaper than being Darwin'd.
Americans who allow other Americans to vote stupidly should suffer, and Americans who vote stupidly should suffer twice, once at the hands of their government, and then again at the hands of angry Americans.
Downgrading to CCC-...
Mircea