Too Many Dollars? (debt, borrow, buying, interest)
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There has been a lot of QE, and trillions of dollars created out of air. But there have been no bad effects -- no inflation. Only good effects -- low interest rates and soaring stock market.
So that's good.
Or not.
Sometimes bad things take a while to happen. Like, for example, you could smoke cigarettes for decades without getting cancer.
I am not an economist, so please excuse me for having an opinion.
The US dollar is worth much less than it used to be, because there are now so many more of them. However, this fact has not yet become apparent. Maybe because most of those dollars are still hidden away somewhere, lurking in the banks?
So the world is still ok with the dollar and they trust that it has value.
But what if ... the world somehow starts catching on that a dollar is now worth about 2 cents? Could they possibly start to lose faith in the good old dollar and the US economy?
And what if they did? Then what would happen? Would other countries stop buying our debt? Would it become impossible for us to borrow? How would it effect our economic health?
Would we have another great depression? Or wild inflation? Our banks full of nearly worthless dollars? Would we have to rent a truck to carry our dollars to the grocery store?
I don't know enough about economic terminology to understand all the technicalities. But I do know that increasing the money supply by trillions has to result in some kind of consequences.
The US dollar is worth much less than it used to be, because there are now so many more of them. However, this fact has not yet become apparent. Maybe because most of those dollars are still hidden away somewhere, lurking in the banks?
So the world is still ok with the dollar and they trust that it has value.
But what if ... the world somehow starts catching on that a dollar is now worth about 2 cents?
Why do you think this? There's no intrinsic reason that printing more dollars must decrease their value. There is not some sum of value of America that is parceled out into each dollar printed. Currency is a medium of exchange, it has no "value".
Consider a situation where the treasury printed a $10 trillion dollar bill, and shot it into space. What would the impact on currency purchasing power or inflation be? Nothing! It has no impact unless it's being circulated and spent by people. Then you might devalue those dollars.
But, giving currency to people to spend is not the only way to change the power of the dollar. After all, there are always dollars sitting around, unspent or saved away. What if people just started to spend the dollars they already had? Then you'd see some inflation. But, never fear! The Fed has tools it can use to fight back, such as by increasing rates.
Or, what if people decided en masse to stop spending their money? Then you have a deflationary pressure, which the Fed can fight by decreasing rates and circulating more cash to encourage spending. And, hey, that's exactly what they did with QE!
The point is, don't get hung up on the quantity of dollars. The amount of cash and its purchasing power fluctuates naturally, and the Fed has tools like rates and QE to moderate those fluctuations. We're far from the uncontrollable days of the gold standard, where we'd have depressions as society ran short of gold to spend, or spikes of inflation because someone suddenly struck a rich new gold mine.
Why do you think this? There's no intrinsic reason that printing more dollars must decrease their value. There is not some sum of value of America that is parceled out into each dollar printed. Currency is a medium of exchange, it has no "value".
Consider a situation where the treasury printed a $10 trillion dollar bill, and shot it into space. What would the impact on currency purchasing power or inflation be? Nothing! It has no impact unless it's being circulated and spent by people. Then you might devalue those dollars.
But, giving currency to people to spend is not the only way to change the power of the dollar. After all, there are always dollars sitting around, unspent or saved away. What if people just started to spend the dollars they already had? Then you'd see some inflation. But, never fear! The Fed has tools it can use to fight back, such as by increasing rates.
Or, what if people decided en masse to stop spending their money? Then you have a deflationary pressure, which the Fed can fight by decreasing rates and circulating more cash to encourage spending. And, hey, that's exactly what they did with QE!
The point is, don't get hung up on the quantity of dollars. The amount of cash and its purchasing power fluctuates naturally, and the Fed has tools like rates and QE to moderate those fluctuations. We're far from the uncontrollable days of the gold standard, where we'd have depressions as society ran short of gold to spend, or spikes of inflation because someone suddenly struck a rich new gold mine.
But I don't understand why the quantity of dollars has no impact on their value. Ok, so most of those QE dollars aren't circulating now. But what if something caused them to start circulating.
Maybe you're right, and it's true that some economists feel the same way as you. But there are others who are worried.
But I don't understand why the quantity of dollars has no impact on their value. Ok, so most of those QE dollars aren't circulating now. But what if something caused them to start circulating.
Maybe you're right, and it's true that some economists feel the same way as you. But there are others who are worried.
so you are stressing about a lot of "maybes"?? exactly what are these "other" economist worried about, for the next 3-6 months there is no indication that something will happen to "cause" major quantities of dollars to start being release.
Now of course we could start a nuclear war with N. Korea but if that happens the last thing I'm worried about is the value of the dollar.
I apologize if I seem a little skeptic but you've posted 3 different threads pretty much with the same theme. You don't particular like the federal reserve. but what concrete gives you the idea that there is financial doom around the corner that would cause major devaluation of the dollar or massive inflation?
But I don't understand why the quantity of dollars has no impact on their value. Ok, so most of those QE dollars aren't circulating now. But what if something caused them to start circulating.
Maybe you're right, and it's true that some economists feel the same way as you. But there are others who are worried.
The mere existence of dollars does not have impact on value; that is an observable fact.
If QE dollars started circulating then the Fed would roll back QE and increase the Fed Funds Rate, which would counteract the impact. Inflation might go up a percent or two before the Fed reacts, but there's no existential threat.
The mere existence of dollars does not have impact on value; that is an observable fact.
If QE dollars started circulating then the Fed would roll back QE and increase the Fed Funds Rate, which would counteract the impact. Inflation might go up a percent or two before the Fed reacts, but there's no existential threat.
Can they un-make some of the money they made? I know they have slowed or stopped making it. But can the process be reversed?
And by the way, I am not one of those who think gold is the answer. One obvious problem with the gold standard is that if the population increases the money supply should increase, but it can't if it's stuck on gold.
I honestly think we should just go back to clam shells.
so you are stressing about a lot of "maybes"?? exactly what are these "other" economist worried about, for the next 3-6 months there is no indication that something will happen to "cause" major quantities of dollars to start being release.
Now of course we could start a nuclear war with N. Korea but if that happens the last thing I'm worried about is the value of the dollar.
I apologize if I seem a little skeptic but you've posted 3 different threads pretty much with the same theme. You don't particular like the federal reserve. but what concrete gives you the idea that there is financial doom around the corner that would cause major devaluation of the dollar or massive inflation?
I am not stressing. I am wondering, and I dared to ask what others at this forum think! But I have noticed that people at CD forums are awfully prickly. Not all, just some, but too many.
No, I don't like the Federal Reserve. I think they have been given too much power, and I think they are over-confident. No one can control a market economy, but they keep trying. QE since 2008 was unprecedented in size. A massive experiment that the trusting public doesn't seem to worry about.
We are too trusting of experts, in general.
I won't say I am a libertarian, but I lean in that direction. I believe economies are natural systems, more complex than experts could possibly understand. It's like trying to control or predict the weather. It can be done, but only in very limited ways.
Am I saying we should give up and no one should try to prevent economic disasters? No, I am not saying that, but I am saying there should be some caution and some humility. But there isn't.
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I am not an economist, so please excuse me for having an opinion.
........
Clearly you are not an economist. Having an "opinion" about something you do not understand is of limited or no value.
If you want to learn something about economics, there are better ways than posting your "opinions" on the internet and expecting a valuable response. Many times it works better to actually do some reading, take courses and talk with experts. Believe it or not there are major institutions devoted to helping people to learn.
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