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OK ok, So I hear all this talk that the treasury is going to be forced, and is, printing money like crazy to pay for all the bailouts and such...and how all this new money is going to be so inflationary. More $ same demand for $ equals devalued $ equals inflation, I got that.
However it seems that with fractional banking, the banks have been creating mucho $ out of thin air for years with 30 and 40 to 1 ratio's. Now they overextended themselves they have to de-lever those to 10 or 20-1 shrinking the money supply greatly...so less money same demand = deflation right? So the treasury pumping out more $'s isn't going to be such a bad thing for inflation? They are just trying to slow the deflation that would naturally occur otherwise in this system? and should they print too much and inflation gets too out of control, they could just start destroying the $ they printed by selling treasury notes?
Just trying to wrap my head around this as I'm concerned that this recent round of minor deflation will be followed by rampant inflation.
OK ok, So I hear all this talk that the treasury is going to be forced, and is, printing money like crazy to pay for all the bailouts and such...and how all this new money is going to be so inflationary. More $ same demand for $ equals devalued $ equals inflation, I got that.
However it seems that with fractional banking, the banks have been creating mucho $ out of thin air for years with 30 and 40 to 1 ratio's. Now they overextended themselves they have to de-lever those to 10 or 20-1 shrinking the money supply greatly...so less money same demand = deflation right? So the treasury pumping out more $'s isn't going to be such a bad thing for inflation? They are just trying to slow the deflation that would naturally occur otherwise in this system? and should they print too much and inflation gets too out of control, they could just start destroying the $ they printed by selling treasury notes?
Just trying to wrap my head around this as I'm concerned that this recent round of minor deflation will be followed by rampant inflation.
Hi GregTraub,
I would be one of those people that has been saying this. Nothing but deflation so far. Other countries that have lost assets from deflation where inflation followed is when they lose tax base and productivity over the long run which has been known to snap back with inflation. When locals lose mineral rights, the minerals no longer back the currency. I just don't know if anyone will buy up the US like this and remove capital out of it. The only near term inflation possibility I see is loss of reserve currency status or petro dollars in a catastrophic fashion.
I have a pretty good head for figures, but this thread has my head aching. No wonder I barely passed Economics in college. I REALLY don't understand all this money stuff. It just seems to me that common sense dictates that we should have solid resources to back up our money. Gold, silver, lumber, food, and other products.
And I could never understand how "shopping" helps our economy, since very little is made in the US. Isn't shopping helping China's economy?
Hi colleeng47;,
They don't really teach this in economics. I know because I took economics and I used to read the text books class or no class. The real thing to wrap you head around is what are money is NOT. It is not a cup of sugar. If I have no cups of sugar and you have 3 and you lend me one, you have 2 and I have 1( 1+2=3). In our banking system you still show 3 cups of sugar on the books and now I have 1. I then put this sugar into another bowl of yours as a deposit and now you have 4 cups of sugar on the books. This less 10% or so. In short its a scam and always was. Since it is at interest we must have perpetual growing debt or defaults both of which draw wealth from the rest of the economy to the banks. Even with this scam they created enough phony assets to even sink some of them before they could unload it.
I would be one of those people that has been saying this. Nothing but deflation so far. Other countries that have lost assets from deflation where inflation followed is when they lose tax base and productivity over the long run which has been known to snap back with inflation. When locals lose mineral rights, the minerals no longer back the currency. I just don't know if anyone will buy up the US like this and remove capital out of it. The only near term inflation possibility I see is loss of reserve currency status or petro dollars in a catastrophic fashion.
Hi gwynedd1,
I agree that in the short/mid term we've been seeing and will continue to see a deflationary environment. But, eventually, China and other Creditor nations will revamp up production and continue to decouple from the US economy.
In a deflationary environment, cash is King, and China and the Saudis being major dollar reserve holders can buy up American products/services at a discount with their US dollar Reserves...
This in turn can potentially increase the money supply through exports of our goods bought with US dollar holdings... This action will also help us transition towards a more production oriented economy.
At this point (early/mid next year?)... I think we'll see a stagflation environment... like we saw in the summer (where we see price pressures rising on exportable/global goods but domestic assets still deflationary).
Eventually though, as other nation's currencies rise, and creditor nations continue to grow, we'll see our economy start to stabilize as investment into our country would be cheap for foreigners and foreign investment for our domestic companies will be prohibitively more expensive (wages increasing, their currency increasing, once again costs of transportation increasing) so they'll stay here.
So, eventually things will stabilize as default rates drop (once most or all of the resets pass through ~2010) and our trade imbalance becomes more balanced naturally. Banks will eventually start lending again... and once again we'll feel the effects of the ramp up in credit. BUT, what happens to all those dollars that the Fed and Central banks pumped into the system?
Fearing destroying the fledgling growth of our economy in a few years from now, the Fed will be pretty powerless in reeling in inflation when those Dollars come rushing back to us. I think this is where the inflation alarmists are most weary about.
Hi gwynedd1,
I agree that in the short/mid term we've been seeing and will continue to see a deflationary environment. But, eventually, China and other Creditor nations will revamp up production and continue to decouple from the US economy.
In a deflationary environment, cash is King, and China and the Saudis being major dollar reserve holders can buy up American products/services at a discount with their US dollar Reserves...
This in turn can potentially increase the money supply through exports of our goods bought with US dollar holdings... This action will also help us transition towards a more production oriented economy.
At this point (early/mid next year?)... I think we'll see a stagflation environment... like we saw in the summer (where we see price pressures rising on exportable/global goods but domestic assets still deflationary).
Eventually though, as other nation's currencies rise, and creditor nations continue to grow, we'll see our economy start to stabilize as investment into our country would be cheap for foreigners and foreign investment for our domestic companies will be prohibitively more expensive (wages increasing, their currency increasing, once again costs of transportation increasing) so they'll stay here.
So, eventually things will stabilize as default rates drop (once most or all of the resets pass through ~2010) and our trade imbalance becomes more balanced naturally. Banks will eventually start lending again... and once again we'll feel the effects of the ramp up in credit. BUT, what happens to all those dollars that the Fed and Central banks pumped into the system?
Fearing destroying the fledgling growth of our economy in a few years from now, the Fed will be pretty powerless in reeling in inflation when those Dollars come rushing back to us. I think this is where the inflation alarmists are most weary about.
-chuck22b
Hi chuck22b,
In that scenario I don't think inflation is necessarily the case because its slow. Make no mistake it is a threat but not a forgone conclusion. Inflation or deflation is a decision made by government. Governments allow banks to print and they tax and its entirely up to them what the money supply should be despite what anyone tells you is the case. Its not rocket science. Currency is just another commodity bucket. We may run out of oil, we may run out of fresh water, we may run out potatoes from a blight but only a mental decision can run us out of book entries or not take them off the books with taxes. This is not to say that a heavy tax will not ruin us but many dollars may be sucked up through taxes. In the end we may be owned offshore if deflation goes further and if we don't take them down with us. I just want people to understand that money supply is a conscious decision.
Now congress of course has delegated this function to the banking system to loan our money into existence. That entity cannot very well increase the money supply as we can see because no one wants to lend or go into debt. I can however see them stop all loans and dry it up. That is easy. That would again sell us out to overseas. To stop deflation all they would need to do is print treasury notes to everyone in proportion and the problem would be solved . However this is a no, no since its not loaned out as debt in our lovely system. The people that scream "inflation" forget if prices rise they can simply tax the notes back in. Also, as in our sytem, the Fed can jack up rates but It is entirely possible that we will never see a Paul Volker the next inflationary run but who knows? Its all up to them.
Odds the masses will ever grasp a baseline understanding of our money system and how debt is related to "wealth" creation? Slim.......
Odds this will then be forced upon a national discussion that involves presidential candidates and our so-called elected officials, who in turn have the authority to change our fiscal and monetary policy, and our monetary system no less? .....To none.
We're effed fellas. A self-sustaining system is incompatible with our human nature, we are unable to collectively grasp the exponential function, like the video points out, but we live eternally servant to it. Quite literally, a pitchfork is a more valuable instrument than a vote in my existence, and mind you we live in times where the thought of physical unrest is something relegated to history books, yet here we are facing a reality that if enough people understood and connected the dots to their personal stake, we'd be back in 1776 making history.
Watching the yapping heads on TV today with all the back and forth with the election, and the outright irrelevancy of such debate vis-a-vis what we're discussing here, makes me feel like I live in a really bad episode of the "Truman Show" while I pick desperately behind my head looking for the Matrix plug that someone must have unplugged from me by mistake; surely is a lonely world when we're the only ones who took the red pill.....
Location: Sitting on a bar stool. Guinness in hand.
4,428 posts, read 6,507,366 times
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Quote:
Originally Posted by paperhouse
I'm amazed at how few people understand fractional reserve banking.
Quote:
Originally Posted by paperhouse
Banks create new money (debt) based on the amount of reserves they hold in deposit at their bank. That money can come from individual depositors or from the Federal Reserve. The typical ratio is 9:1. This means for every $1111 a bank has on deposit, they can create a new loan in the amount of $10k. The system works fine until you realize that more money(debt) has been created than can ever be paid back.
For more information, I'd suggest the wiki entry and the video below.
Many have us have been trying . My face is blue from explaining it to people who did not care to hear it and some of us are tired. Thomas Jefferson told us 200 years ago what would happen to us.
Now when you get it it turns on like a light. When people don't they start with the
cliche`. I have several threads on it.
And yes you guys will continue to be blue on the face about this...........This is because your only half right about it.
Domestically you are correct in all ways.
But international it sooooooo......much more simple that what you think it is.
Money is TRUST..........let say that one more time..........TRUST. End of story...........Period. If we keep running our deficit to the moon and you keep creating injecting U.S. liquidity (dollars whether they are actually physical or not.) Eventually those foreign countries are going to stop and look at the American balance sheet and know that they (The Chinese, Middle Eastern countries) will never get back the money they lent to us. This will cause them to lose FAITH in the U.S. Government and in turn lose FAITH in the dollar. They in the end will stop buying our debt instruments and will stop trading certain commodities in dollars. This can/will cause a plunge in the dollar's worth world wide and will cause inflation on anything we import in to the country. Which at this point is everything.
This is way the national Debt does matter. Yeah having small amount of debt is healthy. But at the rate we are going we are on track to destroy ourselves. Look You guys can blow national debt off all you want...........But it will bite us in the A$$ in the end.
Though it this does happen it may not be such a bad thing as one poster said we will have to actaully start producing items again. At least then we will have something..........anything actually back the worth of our currency.
China, especially, can also buy our exports to unload their dollars. That increases inflation domestically with so many US dollars rushing back in. We need to watch our trade deficit with China very carefully.
And yes you guys will continue to be blue on the face about this...........This is because your only half right about it.
Domestically you are correct in all ways.
But international it sooooooo......much more simple that what you think it is.
Money is TRUST..........let say that one more time..........TRUST. End of story...........Period. If we keep running our deficit to the moon and you keep creating injecting U.S. liquidity (dollars whether they are actually physical or not.) Eventually those foreign countries are going to stop and look at the American balance sheet and know that they (The Chinese, Middle Eastern countries) will never get back the money they lent to us. This will cause them to lose FAITH in the U.S. Government and in turn lose FAITH in the dollar. They in the end will stop buying our debt instruments and will stop trading certain commodities in dollars. This can/will cause a plunge in the dollar's worth world wide and will cause inflation on anything we import in to the country. Which at this point is everything.
This is way the national Debt does matter. Yeah having small amount of debt is healthy. But at the rate we are going we are on track to destroy ourselves. Look You guys can blow national debt off all you want...........But it will bite us in the A$$ in the end.
Though it this does happen it may not be such a bad thing as one poster said we will have to actaully start producing items again. At least then we will have something..........anything actually back the worth of our currency.
Oh. And a cliche for you.
"It the economy stupid."
Hi baystater,
The Federal Reserve is not the end all be all. All other countries have the same system. The World Bank and IMF will and are already filling in nicely to enslave the rest of the world.
Location: Sitting on a bar stool. Guinness in hand.
4,428 posts, read 6,507,366 times
Reputation: 1721
Quote:
Originally Posted by gwynedd1
Hi baystater,
The Federal Reserve is not the end all be all. All other countries have the same system. The World Bank and IMF will and are already filling in nicely to enslave the rest of the world.
1. please provide the proof that China is falling into line, actually let's make it all of Asia. And please give a credible source. Otherwise it just conjecture.
2. Never said the Fed and Treasury is the End all Be all to the world economy. Though very important in the scheme in our economy and how the other world economies view our monetary stewardship.
Last edited by baystater; 10-16-2008 at 09:39 PM..
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. My face is blue from explaining it to people who did not care to hear it and some of us are tired. Thomas Jefferson told us 200 years ago what would happen to us. 
