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Everyone is afraid of the debt because...

Mimshot
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2/23/2012 12:08:10 PM
Posted: 4 years ago
Why exactly?

I mean, grandma's got her savings bonds, and the government pays a few percent to organizations that have accounts at the Fed. Maybe one could argue that this isn't a proper role of government and we should stop, but why all the doom and gloom?
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lewis20
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2/23/2012 1:27:32 PM
Posted: 4 years ago
? because we print money to pay for the debt and eventually that will lead to price inflation.
"If you are a racist I will attack you with the north"- Abraham Lincoln

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Mimshot
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2/23/2012 3:23:05 PM
Posted: 4 years ago
How does moving money from a savings account to a checking account cause inflation?
Mimshot: I support the 1956 Republican platform
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darkkermit
Posts: 11,204
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2/23/2012 3:25:58 PM
Posted: 4 years ago
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.
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imabench
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2/23/2012 3:34:24 PM
Posted: 4 years ago
Is this about the government debt or personal debt???
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Mimshot
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2/23/2012 3:39:01 PM
Posted: 4 years ago
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.

Who said anything about expanding the money supply? There was no change in private sector net financial assets. We just swapped one dollar denominated asset (a bond) for another dollar denominated asset (cash). A savings bond is just cash that pays interest.
Mimshot: I support the 1956 Republican platform
DDMx: So, you're a socialist?
Mimshot: Yes
lewis20
Posts: 5,093
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2/23/2012 3:44:11 PM
Posted: 4 years ago
At 2/23/2012 3:39:01 PM, Mimshot wrote:
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.

Who said anything about expanding the money supply? There was no change in private sector net financial assets. We just swapped one dollar denominated asset (a bond) for another dollar denominated asset (cash). A savings bond is just cash that pays interest.

This might be true if there was free market, in which case interest rates would rise naturally, but since the Fed wants to keep low interest rates, they buy T-Bills with money made out of thin air (not cash) and this keeps demand for T-Bills artificially high.
The money that buys the debt comes out of thin air.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
Mimshot
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2/23/2012 4:09:46 PM
Posted: 4 years ago
At 2/23/2012 3:44:11 PM, lewis20 wrote:
At 2/23/2012 3:39:01 PM, Mimshot wrote:
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.

Who said anything about expanding the money supply? There was no change in private sector net financial assets. We just swapped one dollar denominated asset (a bond) for another dollar denominated asset (cash). A savings bond is just cash that pays interest.


This might be true if there was free market, in which case interest rates would rise naturally, but since the Fed wants to keep low interest rates, they buy T-Bills with money made out of thin air (not cash) and this keeps demand for T-Bills artificially high.
The money that buys the debt comes out of thin air.

Huh? I wasn't talking about the Fed, I was talking about the T-Bills held by the public. FOMC purchases are akin to paying off the debt; they swap T-Bills for cash. You say that the Fed buying back treasuries (removing them from the private sector) lowers the interest rate. If so, then if the government stopped issuing treasuries all together (removing all government securities from the private sector), what would happen? Risk free interest rate should fall to zero, no?

Well, really it should fall the the rate payed on excess reserves (now 0.25%) unless the government stopped paying that too. It sounds to me like they are keeping interest rates artificially high, by paying interest on FF&C securities in the first place.
Mimshot: I support the 1956 Republican platform
DDMx: So, you're a socialist?
Mimshot: Yes
lewis20
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2/23/2012 4:26:18 PM
Posted: 4 years ago
At 2/23/2012 4:09:46 PM, Mimshot wrote:

Huh? I wasn't talking about the Fed, I was talking about the T-Bills held by the public. FOMC purchases are akin to paying off the debt; they swap T-Bills for cash. You say that the Fed buying back treasuries (removing them from the private sector) lowers the interest rate. If so, then if the government stopped issuing treasuries all together (removing all government securities from the private sector), what would happen? Risk free interest rate should fall to zero, no?

Well, really it should fall the the rate payed on excess reserves (now 0.25%) unless the government stopped paying that too. It sounds to me like they are keeping interest rates artificially high, by paying interest on FF&C securities in the first place.

I honestly can't follow you at all.
The govt. borrows by issuing t-bills.
When the private sector demand for said t-bills drops, naturally the interest rate on the t-bills rises. However, the Federal reserve can step in and buy t-bills, keeping the demand for t-bills artificially high which in turn keeps interest rates artificially low.
The money that the Federal Reserve used to buy these t-bills was created out of thin air.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
Mimshot
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2/23/2012 4:36:07 PM
Posted: 4 years ago
At 2/23/2012 4:26:18 PM, lewis20 wrote:
At 2/23/2012 4:09:46 PM, Mimshot wrote:

Huh? I wasn't talking about the Fed, I was talking about the T-Bills held by the public. FOMC purchases are akin to paying off the debt; they swap T-Bills for cash. You say that the Fed buying back treasuries (removing them from the private sector) lowers the interest rate. If so, then if the government stopped issuing treasuries all together (removing all government securities from the private sector), what would happen? Risk free interest rate should fall to zero, no?

Well, really it should fall the the rate payed on excess reserves (now 0.25%) unless the government stopped paying that too. It sounds to me like they are keeping interest rates artificially high, by paying interest on FF&C securities in the first place.

I honestly can't follow you at all.
The govt. borrows by issuing t-bills.
The government isn't really borrowing when it issues T-Bills. If it were, where did the dollars used to buy the government securities come from?

When the private sector demand for said t-bills drops, naturally the interest rate on the t-bills rises. However, the Federal reserve can step in and buy t-bills, keeping the demand for t-bills artificially high which in turn keeps interest rates artificially low.
The money that the Federal Reserve used to buy these t-bills was created out of thin air.

The Fed and the Treasury are both public sector. They are responsible for each other's debts so one cannot ever owe money to the other. They play this little accounting game where the Treasury pays interest to the Fed and the Fed calls that a "profit" and returns it to the treasury. However, from the point of view of the private sector the internal transactions between Treasury and the Fed don't matter. When cash is removed from the private sector and replaced with a T-Bill, it makes no difference whether it was the treasury or the fed that did so. The same is true in the reverse situation when T-Bills are bought back (or "repaid").

If the Fed buying T-Bill lowers the interest rates because there's not enough supply in the private sector, then what would happen to interest rates if all of the T-Bills were removed by the treasury "paying off" the debt?
Mimshot: I support the 1956 Republican platform
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Mimshot: Yes
lewis20
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2/23/2012 4:44:05 PM
Posted: 4 years ago
At 2/23/2012 4:36:07 PM, Mimshot wrote:
The government isn't really borrowing when it issues T-Bills. If it were, where did the dollars used to buy the government securities come from?

The government is absolutely borrowing when it issues T-Bills, that's what a T-bill is, a government debt. The dollars used to buy the T-bill were created on a computer at the Federal Reserve.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
lewis20
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2/23/2012 4:48:27 PM
Posted: 4 years ago
At 2/23/2012 4:36:07 PM, Mimshot wrote:
The Fed and the Treasury are both public sector. They are responsible for each other's debts so one cannot ever owe money to the other. They play this little accounting game where the Treasury pays interest to the Fed and the Fed calls that a "profit" and returns it to the treasury. However, from the point of view of the private sector the internal transactions between Treasury and the Fed don't matter. When cash is removed from the private sector and replaced with a T-Bill, it makes no difference whether it was the treasury or the fed that did so. The same is true in the reverse situation when T-Bills are bought back (or "repaid").

The transactions between the Treasury and the Fed absolutely matter to the private sector.
When the private sector uses cash to buy a t-bill the govt gets that cash. When the Fed buys a t-bill, the govt gets that cash but the cash they get this time was created out of thin air by the Federal reserve.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
lewis20
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2/23/2012 4:52:01 PM
Posted: 4 years ago
At 2/23/2012 4:36:07 PM, Mimshot wrote:
If the Fed buying T-Bill lowers the interest rates because there's not enough supply in the private sector, then what would happen to interest rates if all of the T-Bills were removed by the treasury "paying off" the debt?

What would happen to the interest rate if there was no debt being issued? There wouldn't be an interest rate.
If i don't get a loan to buy a house, how much interest am I paying on the loan to get a house?
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
16kadams
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2/23/2012 5:16:31 PM
Posted: 4 years ago
Because our debt is 101% of GDP
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ConservativePolitico
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2/23/2012 5:23:41 PM
Posted: 4 years ago
Eventually the interest payments on our massive debt will become too large to pay.

Eventually people will stop loaning money to us and we will default.

The our currency becomes worthless...
lewis20
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2/23/2012 5:28:52 PM
Posted: 4 years ago
At 2/23/2012 5:23:41 PM, ConservativePolitico wrote:
Eventually the interest payments on our massive debt will become too large to pay.

Eventually people will stop loaning money to us and we will default.

The our currency becomes worthless...

Two separate things.
Either the Federal Reserve keeps printing money to keep the interest rates low and our currency becomes worthless.
or the Fed decides to stop printing money, interest rates rise, the govt can't find anyone to borrow money from so it has to default on its bills.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
Mimshot
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2/23/2012 5:47:04 PM
Posted: 4 years ago
The government is absolutely borrowing when it issues T-Bills, that's what a T-bill is, a government debt. The dollars used to buy the T-bill were created on a computer at :the Federal Reserve.

So, the federal reserve issues money buy buying U.S. Treasury debt. That debt is dollars "borrowed" by the Treasury from the private sector. So, where did those dollars come from?

It's all a big circle and you're picking the wrong starting point. The way you outlined (and the way we're taught) money is created is basically, that the fed "prints" money to buy treasuries from the private sector. Those treasuries were bought by the private sector from the Treasury (who supposedly needed the cash to fund wars and social security). So where did the private sector get the dollars to "lend" to the treasury? From the Fed buying other treasuries?

The answer is that the money originally entered the private sector when it was spent into existence by the federal government. Then the fed/treasury issues/repays/buys/sells bonds because some people want interest on their dollars. We could stop paying this interest if we wanted to.

The transactions between the Treasury and the Fed absolutely matter to the private sector.
Once the fed buys back a bond the treasury pays interest to itself. The situation is no different than if the bond had been redeemed.

When the private sector uses cash to buy a t-bill the govt gets that cash. When the Fed buys a t-bill, the govt gets that cash but the cash they get this time was created out of thin air by the Federal reserve.
No, the Fed only buys t-bills from the private sector.

What would happen to the interest rate if there was no debt being issued? There wouldn't be an interest rate.
If i don't get a loan to buy a house, how much interest am I paying on the loan to get a house?

Ok, fine, what if they paid back all but $1000 of the debt? By your logic, that one last bond should be in very high demand and the interest rate on it should fall to zero. So by issuing more bonds the government keeps the interest rate higher.
Mimshot: I support the 1956 Republican platform
DDMx: So, you're a socialist?
Mimshot: Yes
lewis20
Posts: 5,093
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2/23/2012 6:01:52 PM
Posted: 4 years ago
At 2/23/2012 5:47:04 PM, Mimshot wrote:
The government is absolutely borrowing when it issues T-Bills, that's what a T-bill is, a government debt. The dollars used to buy the T-bill were created on a computer at :the Federal Reserve.

So, the federal reserve issues money buy buying U.S. Treasury debt. That debt is dollars "borrowed" by the Treasury from the private sector. So, where did those dollars come from?

It's all a big circle and you're picking the wrong starting point. The way you outlined (and the way we're taught) money is created is basically, that the fed "prints" money to buy treasuries from the private sector. Those treasuries were bought by the private sector from the Treasury (who supposedly needed the cash to fund wars and social security). So where did the private sector get the dollars to "lend" to the treasury? From the Fed buying other treasuries?

The answer is that the money originally entered the private sector when it was spent into existence by the federal government. Then the fed/treasury issues/repays/buys/sells bonds because some people want interest on their dollars. We could stop paying this interest if we wanted to.

The transactions between the Treasury and the Fed absolutely matter to the private sector.
Once the fed buys back a bond the treasury pays interest to itself. The situation is no different than if the bond had been redeemed.

When the private sector uses cash to buy a t-bill the govt gets that cash. When the Fed buys a t-bill, the govt gets that cash but the cash they get this time was created out of thin air by the Federal reserve.
No, the Fed only buys t-bills from the private sector.

What would happen to the interest rate if there was no debt being issued? There wouldn't be an interest rate.
If i don't get a loan to buy a house, how much interest am I paying on the loan to get a house?

Ok, fine, what if they paid back all but $1000 of the debt? By your logic, that one last bond should be in very high demand and the interest rate on it should fall to zero. So by issuing more bonds the government keeps the interest rate higher.

I must honestly just not be as smart as you because I cannot understand any of your explanations.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
Starcraftzzz
Posts: 487
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2/23/2012 6:36:26 PM
Posted: 4 years ago
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.
In the current situation printing money results in more economic growth. So only the ignorant think we should stop printing money. When something starts to become a problem you address it then, you don't address it when its not a problem
lewis20
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2/23/2012 6:59:59 PM
Posted: 4 years ago
At 2/23/2012 6:36:26 PM, Starcraftzzz wrote:
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.
In the current situation printing money results in more economic growth.

Yeah, well, that's just, like, your opinion, man
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
Starcraftzzz
Posts: 487
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2/23/2012 7:16:35 PM
Posted: 4 years ago
At 2/23/2012 6:59:59 PM, lewis20 wrote:
At 2/23/2012 6:36:26 PM, Starcraftzzz wrote:
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.
In the current situation printing money results in more economic growth.

Yeah, well, that's just, like, your opinion, man
No its reality.
lewis20
Posts: 5,093
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2/23/2012 7:35:18 PM
Posted: 4 years ago
At 2/23/2012 7:16:35 PM, Starcraftzzz wrote:
At 2/23/2012 6:59:59 PM, lewis20 wrote:
At 2/23/2012 6:36:26 PM, Starcraftzzz wrote:
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.
In the current situation printing money results in more economic growth.

Yeah, well, that's just, like, your opinion, man
No its reality.

Ohhh alright.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
Rufus
Posts: 39
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2/24/2012 6:13:49 AM
Posted: 4 years ago
At 2/23/2012 7:16:35 PM, Starcraftzzz wrote:
At 2/23/2012 6:59:59 PM, lewis20 wrote:
At 2/23/2012 6:36:26 PM, Starcraftzzz wrote:
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.
In the current situation printing money results in more economic growth.

Yeah, well, that's just, like, your opinion, man
No its reality.

Woof ruff [Stop giving dogs a bad name with your poor grasp of economics]
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Mimshot
Posts: 275
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2/24/2012 8:47:39 AM
Posted: 4 years ago
In the current situation printing money results in more economic growth.

Yeah, well, that's just, like, your opinion, man
No its reality.

Woof ruff [Stop giving dogs a bad name with your poor grasp of economics]

Uh huh. Nuh uh. Uh huh. Nuh uh.
Mimshot: I support the 1956 Republican platform
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Mimshot: Yes
Starcraftzzz
Posts: 487
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2/24/2012 7:26:16 PM
Posted: 4 years ago
At 2/24/2012 6:13:49 AM, Rufus wrote:
At 2/23/2012 7:16:35 PM, Starcraftzzz wrote:
At 2/23/2012 6:59:59 PM, lewis20 wrote:
At 2/23/2012 6:36:26 PM, Starcraftzzz wrote:
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.
In the current situation printing money results in more economic growth.

Yeah, well, that's just, like, your opinion, man
No its reality.

Woof ruff [Stop giving dogs a bad name with your poor grasp of economics]
I die not realize the truth was a bad grasp
lewis20
Posts: 5,093
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2/24/2012 8:27:42 PM
Posted: 4 years ago
At 2/24/2012 7:26:16 PM, Starcraftzzz wrote:
At 2/24/2012 6:13:49 AM, Rufus wrote:
At 2/23/2012 7:16:35 PM, Starcraftzzz wrote:
At 2/23/2012 6:59:59 PM, lewis20 wrote:
At 2/23/2012 6:36:26 PM, Starcraftzzz wrote:
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.
In the current situation printing money results in more economic growth.

Yeah, well, that's just, like, your opinion, man
No its reality.

Woof ruff [Stop giving dogs a bad name with your poor grasp of economics]
I die not realize the truth was a bad grasp
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
MyVoiceInYourHead
Posts: 260
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2/25/2012 9:50:49 AM
Posted: 4 years ago
At 2/23/2012 6:36:26 PM, Starcraftzzz wrote:
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.
In the current situation printing money results in more economic growth. So only the ignorant think we should stop printing money. When something starts to become a problem you address it then, you don't address it when its not a problem

The trouble with QE is that it is just sloshing about the financial sector for banks to use to repair their balance sheets and for speculation. I don't think much has reached the real economy (non-financial sector where true wealth creation takes place). Not that businesses want any more loans (more debt). SMEs need the public to spend money but they can't because they're all skint and paying down debts. Why can't the state just issue some money publicly, directly to people, and at the same time abolish FRB, which is inflationary, unstable and unnecessary?
lewis20
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2/25/2012 10:45:42 AM
Posted: 4 years ago
At 2/25/2012 9:50:49 AM, MyVoiceInYourHead wrote:
At 2/23/2012 6:36:26 PM, Starcraftzzz wrote:
At 2/23/2012 3:25:58 PM, darkkermit wrote:
At 2/23/2012 3:23:05 PM, Mimshot wrote:
How does moving money from a savings account to a checking account cause inflation?

Do we really need to get into this? Expanding the money supply can cause inflation. If GDP does not keep up with it and the velocity of money stays the same, then you have inflation.
In the current situation printing money results in more economic growth. So only the ignorant think we should stop printing money. When something starts to become a problem you address it then, you don't address it when its not a problem

The trouble with QE is that it is just sloshing about the financial sector for banks to use to repair their balance sheets and for speculation. I don't think much has reached the real economy (non-financial sector where true wealth creation takes place). Not that businesses want any more loans (more debt). SMEs need the public to spend money but they can't because they're all skint and paying down debts. Why can't the state just issue some money publicly, directly to people, and at the same time abolish FRB, which is inflationary, unstable and unnecessary?

Because the big bankers and wealthy elite met on Jekyll Island a century ago and decided that this is the way it's gonna be and if we don't do it this way the economy won't work.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler