U.S. Dollar Growth

Quote from Don87109:

So ignoring the mechanics of your explanation it sounds like the philosophy of my #2 example applies (the government loans the money out).

If that's right (that it's loaned out), in order for the dollars in circulation to increase over time the ongoing loan amounts must be higher than the repayment amounts. Is that correct?

Don

P.S. Sorry for avoiding the mechanics but somehow they confuse me.
More...

NO worries... you have the gist of it, sort of.

The money supply is in effect governed by the Interest Rate the Fed sets. If the rate is lowered the money supply expands (more borrowing), if the rate is increased the money supply contracts (more saving).

The Fed's main responsibility is to ensure the value of the dollar by keeping the interest rate at the right level. Unfortunately, they have strayed far away from the initial intent of Keynesian theory and use the internet rates to affect the business cycle (all the busts and booms are caused by lowering and increasing interest rates at the wrong time).
 
when the fed sells bonds they are purchased with whatever currency,converted to dollars and they take the money back,when they buy bonds back they do it with cash and that cash is redistributed back into the world economy, just one of the ways, they bring dollars in or put dollars back out
 
Debt is not inheritly attributable to money. Rather, in our fiat money system, the great majority of money is created through the creation of debt.

Quote from PaulRon:

Many different ways but let me take a shot at the most recently used:

- Foreign Central banks buy US Treasuries for a paltry return... thus injecting dollars into our system

- Fed lends money to commercial banks (and now investment banks) through it's discount window at an interest rate, currently 2.5%

- Fed created "term auction facility" and other instruments which allows banks to borrow money against specified collateral at an auctioned rate.

- Fed accepting some forms of CDOs in exchange for treasuries (usually the bad kind - mortgage backed securities)

etc

One thing to note is that money, in essence is debt. There has to be debt for their to be money and if all the debt was repaid there would be no money.
More...
 
Quote from The Kin:

monopoly-money.jpg


Anyone notice the game of Monopoly is highly deflationary. What needs to be added is a central banker which could loan out money. Is it also a coincidence that near the end of the game there are dozens of sub-prime mortgaged properties owned by financially strapped players who are just about to go bankrupt?


Again if players could borrow an unlimited amounts of funds from the central banker at low interest rates per turn. And exchange their mortgaged St. Charles place or BBO Railroad at face value for freshly printed crash, it's like a get out of jail free card and the monopoly economy can stay afloat.
More...

best observation ever
 
Quote from bellman:

Debt is not inheritly attributable to money. Rather, in our fiat money system, the great majority of money is created through the creation of debt.
More...

Money is not debt literally, no... you got me!!!

Rather than the great majority of money being created through debt, I'm going to have to go with <b>all</b> new money is created through debt ever since the release of the gold standard
 
I would argue all three, and add a fourth philosophy: [4. stolen]. Here's how. If the money is loaned out (2) at an interest rate that is lower to or equal to the rate of growth of the money supply, then some portion of that money is essentially given away(1), or rather stolen from all other currency holders(4).

When these loans are made to the governmentv(2), some portion has been given to them (1), and thus stolen from the taxpayers (4), so that it can be used to buy stuff (3). Well, that's my philosophy anyways.

Quote from Don87109:

Thanks, guys, for the replies, but I still don't get it.

The replies seemed to describe mechanics, but I was looking for a simple philosophy explanation.

Also, some of the replies seemed to be talking about existing money, not newly printed money (e.g., Foreign Central banks buy US Treasuries for a paltry return).

I don't have a financial background and some of the replies probably went over my head.

Is it possible to put the answer into a simple philosophy? For example, is newly printed money:

1) given away
2) loaned out (faster than it's repaid causing a growth of dollars in circulation).
3) The government buys stuff with the new money.

Thanks
Don
More...
 
You must log in or register to reply here.
Back
Top