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> now is the time to print a bunch of new money I'm curious as to whether the money would ever make it into the hands of the average consumer (which is where I

> now is the time to print a bunch of new money I'm curious as to whether the money would ever make it into the hands of the average consumer (which is where I'm assuming it needs to go to actually cause an increase in inflation, considering how consumption-heavy our GDP is, but correct me if I'm wrong!) There have been recent calls for the government to distribute money to prop up demand, but won't banks lobby politically against this sort of activity? Seems like a lender wouldn't want inflation to actually increase because that would cause their current lower-interest loans to be less valuable? One of the oft-cited concerns for continually missing our 2% symmetric inflation target is that market participants will begin to expect and plan for low inflation, which has a negative feedback effect on future inflation. Seems to me like financial institutions are already expecting low inflation and aren't all that interested in seeing it rise.

AnthonyMouse 7y ago
It isn't really mortgage banks that lose out from inflation. The money banks loan you is created from nothing as a fiction inside their computers and destroyed again when you pay it back. The only money that continues to exist is the interest you paid them, which they get to keep. Low inflation kind of sucks for banks (and investors in general) because it tends to coincide with low interest rates. When interest rates are low, people borrow money and invest it, which reduces real returns by increasing competition to buy securities. The people who dislike inflation (really, higher interest rates) are the people doing all the borrowing.
- nrdvana 7y ago
  > The money banks loan you is created from nothing as a fiction inside their computers and destroyed again when you pay it back. The only money that continues to exist is the interest you paid them, which they get to keep. Care to cite a link for this? My understanding is that the money they loan you is physical and real, but the money “held” for savers is a fiction that could be lost if the bank went under, thus the reason that the federal government offers FDIC insurance for money deposited in banks, and why the feds are allowed to dictate interest rates and tell banks what overall percentage of their holdings they are allowed to loan out.
  - deleted 7y ago
    [deleted]
  - AnthonyMouse 7y ago
    https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp https://www.investopedia.com/articles/investing/022416/why-b... Banks (like everybody) use double entry accounting. When they make a loan, there are two entries. One is a credit to your account for the amount of the loan, the other is a debit representing the debt you now owe to the bank. You borrowed $5000, so you owe the bank $5000 (the loan) and they owe you $5000 (it's in your checking account), which cancel out. Notice that the amount of cash in their vault hasn't changed at all. Banks have reserve ratios. They're required to keep a certain amount of their deposits on hand in case somebody actually wants to withdraw them. (Those just got set to zero, but they're normally something like 10%.) But as long as they've satisfied their reserve requirements, they create money from nothing when they make a loan. When you pay back the loan, the debt of the loan and the credit in your deposit account cancel each other out again, they both disappear and the money that was created is destroyed along with your debt.
    - nrdvana 7y ago
      So I think your description is in agreement with mine, but I consider the first action of the borrower to be withdrawing the money and giving it to e.g. someone selling a house. If the person selling the house uses the same bank, then yes the bank really did just create the money for the loan, but if it wasn’t the same bank then I consider them to have created money for the previous investors while handing out the real money to a borrower. Mostly a matter of perception I guess.
tathougies 7y ago
> I'm curious as to whether the money would ever make it into the hands of the average consumer (which is where I'm assuming it needs to go to actually cause an increase in inflation, considering how consumption-heavy our GDP is, but correct me if I'm wrong!) If you listen to white house press conferences, Sec Mnuchin said that he and the president of the united states would like to see direct cash payments to Americans in the next two weeks.
- HenryBemis 7y ago
  Yes of course, he/they want to "make it rain". Printing money will reduce the value of USD, but people would be filled by the cash-at-hand. In the long run that doesn't help. It may help to win elections though.
  - nerdponx 7y ago
    Knocking $1000 off a student loan or mortgage is a nontrivial benefit.
  - tathougies 7y ago
    > Printing money will reduce the value of USD That's really good. The fed has been trying to spur inflation to hit their 3% inflation target for many many years now. However thanks to the great economy, we haven't seen that. Printing money would sure help create much needed inflation.
airstrike 7y ago
> Seems like a lender wouldn't want inflation to actually increase because that would cause their current lower-interest loans to be less valuable? If the alternative is -10% GDP growth in Q2 2020 and God knows what later in the year, a little inflation won't kill banks
nerdponx 7y ago
Isn't this precisely the objective of Keynesian-style fiscal stimulus? Put money in people's hands by literally paying them. It doesn't have to be UBI either. The USA is desperately behind on infrastructure investment. In New York alone, we could use this opportunity to: build high-speed rail between NYC and Albany, rebuild the decaying Amtrak bridge in the Bronx, extend the NYC Subway with the Triboro Line, rebuild the Amtrak tunnels under the Hudson, heavily renovate NYCHA housing, invest in downtown beautification projects across the state, overhaul the Rochester bus system, etc etc.
bhl 7y ago
Banks have more to lose from a decline in economic activity with higher-interest, commercial loans being defaulted on, than from slightly above average inflation if that ever occurs. In my opinion, it's more important to focus on the factors causing inflation, rather than using inflation-as-a-metric by itself; e.g. banks would benefit from economic growth which leads to inflation.
bawana 7y ago
^THIS. The system of lowering interest rates and 'printing money' only helps banks. Back in the day, banks made money by lending money and that WAS their job. The whole Keynesian move to 'pump money into the economy' was to encourage banks to loan money so businesses and houses could get loans.TODAY, since the repeal of Glass Steagall and other regs, banks are make their money by speculating and financial engineering. The larger public is out of the circuit (or at best only a small, ignorable part). There are essentially two economies- the one where the financial sector operates and the real one where people work. The financial sector trades trillions every day-orders of magnitude more than the flesh, blood, sweat and tears of humanity on this planet. When interest rates are falling and especially when the fall is perceived to be accelerating, the speculative instruments of the financial sector start to fail because the conditions on which their profits are predicated have changed. To prevent the collapse of these modern day robber barons, we have to pump money into the system- The government does this through the Fed who purchase bonds that are created to underwrite the financial sector. What we need is a way for the Govt to get money into the hands of the people who will spend it on real stuff that will stimulate our factories and housing industry. Although helicopter money is a phrase I hear more frequently, the method of execution so that it doesnt appear as an entitlement is obscure. Personally, I think the Fed should print money with a half life. This 'Fed coin' should be issued to every taxpayer and the value of that bequest should gradually fade away until it is spent. At which point it enters the economy and it's value is fixed.

AnthonyMouse 7y ago

It isn't really mortgage banks that lose out from inflation. The money banks loan you is created from nothing as a fiction inside their computers and destroyed again when you pay it back. The only money that continues to exist is the interest you paid them, which they get to keep. Low inflation kind of sucks for banks (and investors in general) because it tends to coincide with low interest rates. When interest rates are low, people borrow money and invest it, which reduces real returns by increasing competition to buy securities. The people who dislike inflation (really, higher interest rates) are the people doing all the borrowing.

nrdvana 7y ago
> The money banks loan you is created from nothing as a fiction inside their computers and destroyed again when you pay it back. The only money that continues to exist is the interest you paid them, which they get to keep. Care to cite a link for this? My understanding is that the money they loan you is physical and real, but the money “held” for savers is a fiction that could be lost if the bank went under, thus the reason that the federal government offers FDIC insurance for money deposited in banks, and why the feds are allowed to dictate interest rates and tell banks what overall percentage of their holdings they are allowed to loan out.
- deleted 7y ago
  [deleted]
- AnthonyMouse 7y ago
  https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp https://www.investopedia.com/articles/investing/022416/why-b... Banks (like everybody) use double entry accounting. When they make a loan, there are two entries. One is a credit to your account for the amount of the loan, the other is a debit representing the debt you now owe to the bank. You borrowed $5000, so you owe the bank $5000 (the loan) and they owe you $5000 (it's in your checking account), which cancel out. Notice that the amount of cash in their vault hasn't changed at all. Banks have reserve ratios. They're required to keep a certain amount of their deposits on hand in case somebody actually wants to withdraw them. (Those just got set to zero, but they're normally something like 10%.) But as long as they've satisfied their reserve requirements, they create money from nothing when they make a loan. When you pay back the loan, the debt of the loan and the credit in your deposit account cancel each other out again, they both disappear and the money that was created is destroyed along with your debt.
  - nrdvana 7y ago
    So I think your description is in agreement with mine, but I consider the first action of the borrower to be withdrawing the money and giving it to e.g. someone selling a house. If the person selling the house uses the same bank, then yes the bank really did just create the money for the loan, but if it wasn’t the same bank then I consider them to have created money for the previous investors while handing out the real money to a borrower. Mostly a matter of perception I guess.

tathougies 7y ago

> I'm curious as to whether the money would ever make it into the hands of the average consumer (which is where I'm assuming it needs to go to actually cause an increase in inflation, considering how consumption-heavy our GDP is, but correct me if I'm wrong!) If you listen to white house press conferences, Sec Mnuchin said that he and the president of the united states would like to see direct cash payments to Americans in the next two weeks.

HenryBemis 7y ago
Yes of course, he/they want to "make it rain". Printing money will reduce the value of USD, but people would be filled by the cash-at-hand. In the long run that doesn't help. It may help to win elections though.
- nerdponx 7y ago
  Knocking $1000 off a student loan or mortgage is a nontrivial benefit.
- tathougies 7y ago
  > Printing money will reduce the value of USD That's really good. The fed has been trying to spur inflation to hit their 3% inflation target for many many years now. However thanks to the great economy, we haven't seen that. Printing money would sure help create much needed inflation.

airstrike 7y ago

> Seems like a lender wouldn't want inflation to actually increase because that would cause their current lower-interest loans to be less valuable? If the alternative is -10% GDP growth in Q2 2020 and God knows what later in the year, a little inflation won't kill banks

nerdponx 7y ago

Isn't this precisely the objective of Keynesian-style fiscal stimulus? Put money in people's hands by literally paying them. It doesn't have to be UBI either. The USA is desperately behind on infrastructure investment. In New York alone, we could use this opportunity to: build high-speed rail between NYC and Albany, rebuild the decaying Amtrak bridge in the Bronx, extend the NYC Subway with the Triboro Line, rebuild the Amtrak tunnels under the Hudson, heavily renovate NYCHA housing, invest in downtown beautification projects across the state, overhaul the Rochester bus system, etc etc.

bhl 7y ago

Banks have more to lose from a decline in economic activity with higher-interest, commercial loans being defaulted on, than from slightly above average inflation if that ever occurs. In my opinion, it's more important to focus on the factors causing inflation, rather than using inflation-as-a-metric by itself; e.g. banks would benefit from economic growth which leads to inflation.

bawana 7y ago

^THIS. The system of lowering interest rates and 'printing money' only helps banks. Back in the day, banks made money by lending money and that WAS their job. The whole Keynesian move to 'pump money into the economy' was to encourage banks to loan money so businesses and houses could get loans.TODAY, since the repeal of Glass Steagall and other regs, banks are make their money by speculating and financial engineering. The larger public is out of the circuit (or at best only a small, ignorable part). There are essentially two economies- the one where the financial sector operates and the real one where people work. The financial sector trades trillions every day-orders of magnitude more than the flesh, blood, sweat and tears of humanity on this planet. When interest rates are falling and especially when the fall is perceived to be accelerating, the speculative instruments of the financial sector start to fail because the conditions on which their profits are predicated have changed. To prevent the collapse of these modern day robber barons, we have to pump money into the system- The government does this through the Fed who purchase bonds that are created to underwrite the financial sector. What we need is a way for the Govt to get money into the hands of the people who will spend it on real stuff that will stimulate our factories and housing industry. Although helicopter money is a phrase I hear more frequently, the method of execution so that it doesnt appear as an entitlement is obscure. Personally, I think the Fed should print money with a half life. This 'Fed coin' should be issued to every taxpayer and the value of that bequest should gradually fade away until it is spent. At which point it enters the economy and it's value is fixed.