I wonder how that has worked out in the past?
Posted on 11/26/2003 11:07:19 AM PST by Tauzero
Edited on 04/22/2004 12:37:59 AM PDT by Jim Robinson. [history]
If you weren't bored to tears or taking a nap during the first few lessons of Economics 101, perhaps you remember the instructor droning on about the role of the Federal Reserve. You may even recall how that role was summed up in the mysterious phrase, "Controlling the money supply."
(Excerpt) Read more at foxnews.com ...
I wonder how that has worked out in the past?
Most of the money comes from people willing to lend it out, not printing.
The Fed can only make it easier for people to do what they want to do anyway. Which is why the fed really doesn't like deflation. Deflation sets a floor on real interest rates that the fed can't do anything about, although various unpromising schemes have been devised to try to get around that.
We enjoy a scale, and present status as the world's reserve currency, that temporarily hides the egregiousness of the Fed's money creation in contrast with Weimar Germany. But we also have a new Fed Governor, and potentional chairman, named Bernanke who has made it public to the world they feel they can crank up the printing press whenever they see fit. That's not comforting if you have savings in dollars.
Yes. That's why the FED of the 1930's couldn't stop a deflationary debt collapse, and why today's FED would be just as helpless.
I don't think a lot of the money is even printed but is nothing more than some number stored in a computer. A lot of consumer debt is for purchases like clothes, furniture, electronic items which have no value at all. A lot of people don't even think there is much stigma associated with declaring bandrupcy --- they get to keep the things they believe bring them high status, they erase their debt and within a couple months, the offers of more credit come rolling in.
so the Fed cannot change the required reserves percentage for banks to retain in cash deposits ?
That is an credit creator if they drop it or immediate brake on credit if they increase it.
The difference that time is that all of the credit is then secured .... one bankruptcy every 7 years .... then you MUST pay up or they can take everything
That is an credit creator if they drop it or immediate brake on credit if they increase it.
Not necessarily. You can decrease a bank's reserve requirements (or even add newly-created fiat to its reserves,) but you can't make it lend. Nor can you make consumers and businesses borrow, should they choose not to. Predicting the future of the economy cannot be done "by the numbers" alone. One must also consider the psychology of economic actors--and discern how it will change over time.
The desire to spend instead of save, or to save instead of spend, is cyclical over time. We are currently at historic extremes in the propensity to spend instead of to save. Sooner rather than later, the psychological trend will reverse towards a preference for saving over spending. Such reversals have always happened in the past. Assuming that "this time will be different" is a sucker's bet.
As Yogi Berra would say, the dollar is so popular, nobody uses it anymore.
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