The next and current bubble
Not exactly. Yes, dollars are created by the Fed, in general. No, not all borrowing is based on legal counterfeiting by the Fed. Some of the borrowing is the Treasury borrowing real money from private or sovereign lenders who already have the money. However, some money in circulation now is clearly counterfeit in the sense that the Fed has been "buying" corporate paper etc. for over a year now to the tune of $2T or so, and doing so using its ability to create money ad hoc. While some of that has been paid back in "real money" by the borrowers, some of that excess liquidity is still out there showing up as real money but in fact is a generalized IOU on corporate IOUs based on Fed funny money "printed" over the past year.
This funny money could turn out to be inflationary, and is so to the
extent that it is not paid back. That is, the Fed has created what
looks like a huge monetary bubble by lending on corporate paper at
insane interest rates and without, to my knowledge, sufficient
collateral. Just as borrowers not paying back their loans (home or credit card etc.) is a fundamental cause of the current situation post-bubble, the Fed is risking an inflationary bubble here by creating a huge monetary burst (check the "money supply" charts).
If or to the extent that the bubble bursts, every dollar lent out by the Fed is net pure
inflation. If the bubble unwinds and all the loans are paid back, then
the Fed is richer for it (the tiny interest rates apparently being charged on trillions do add up) and there will have been no net inflation of
this kind. The monetary bubble will have come and gone relatively painlessly (and if corporate borrowers are paying less for their Fed loans than they would have in normal times for bank loans, corporate borrowers in effect profit too from the lower rates).
Modified from my comment in Dean Baker's thread: Europe's Leaders Must Say "Stimulus"
Eds, you are just wrong. Your keep saying that printing new money automatically causes inflation. Wrong. Inflation is caused by three factors.
1. Amount of money in CIRCULATION (not the total money supply)
2. Velocity of money
Do you not remember the Econ courses? It is money x velocity as it relates to the supply/demand ratios - just like water through a hose.
3. Demand/Supply of the goods and services that the money is chasing.
Consider 100 people on a barren island with a million dollars each. There is nothing to buy and way to much money chasing nothing. There is zero supply. What is the inflation rate? Zero
Consider 100 people on the barren island, a million each and there is only one hamburger stand owned by a local. How much will everybody pay for his hamburgers? A lot, of course - lots of inflation. Why? Too many dollars and not enough hamburgers.
Consider same as above, but thousands of hamburger stands with eager vendors and more hamburgers than 100 ship wrecked millionares could buy. How much inflation? None. What if a helicopter drops another 10 million to each of the millionares. How much inflation? None.
The recent infusion of money into the system by the Fed is replacing money that has disappeared. I know, you don't think real money dissappears, but it does. In addition, the velocity of the money supply has slowed to a crawl. And, we have ample, ample supply of all the staples of our economy. (Overabundance of hamburger stands.)
Therefore. We have decreased velocity of money, a decrease in the money supply, and way over ample supply of goods and services.
There ain't gonna be no inflation in the near term.
April 3, 2009 9:42 PM | Reply | Permalink
Sorry you are so wrapped up in bullshit that you cannot appreciate my post except as a chance to dump a load here.
Monetary inflation is the creation of money.
The velocity of money is not what I'm discussion here.
"Consider 100 people on a barren island with a million dollars each."
There is no inflation and there is no trade, but there is no monetary inflation either. So what?
"How much will everybody pay for his hamburgers? A lot, of course - lots of inflation"
Nope. High prices are not inflation, and still there is no monetary inflation in your example. That's two strikes out of two.
"What if a helicopter drops another 10 million to each of the millionares."
That's monetary inflation in the local economy. It just so happens that nobody needs the extra money so prices don't rise much unless the hamburger stands decide to restrict the supply in which case the CPI goes through the roof twice over.
Three strikes.
Was this supposed to be a test, or just stupid on your part?
"I know, you don't think real money dissappears, but it does. "
And you're the voice of authority... not. You probably confuse debt with real money. Typical jerk.
April 3, 2009 11:54 PM | Reply | Permalink
Eds, nothing in my comments was disrespectful - just told you that you are wrong. As a reply, you used the words "b...t, stupid, and jerk. No reason for that language. I was the only one who bothered to even rspond to your post. Maybe you should consider that when one responds, he is at least giving you the courtesy, ie respect, of a response. The worst form of insult is when no one responds.
April 4, 2009 8:56 AM | Reply | Permalink
That's your belief system but I don't buy it.
"Eds, you are just wrong. Your keep saying that printing new money automatically causes inflation. Wrong. "
That is at least two insults from your opening line. I basically ignored that part. Then you went on to offer three successive insults which I refuted.
Your kind of "respect" is dishonest at best, pandering if not atrocious manners.
If you want to discuss the topic, I'm open to doing so with you. But when you start a reply with at least two personal insults, and then continue with bullshit or lies in support of those insults, you don't seem at all serious. When you come back and lecture me for being rude, and without being funny, it's just stupidity on your part, Mr. Pot.
April 4, 2009 1:39 PM | Reply | Permalink