4 ms·

Because it stimulates the economy by making it easier to consume. Without consumption the whole house of card falls down.

by c1sc0 3y ago

eru 3y ago
It doesn't really make consumption easier. In any case, you can just print more money, if people in the economy aren't spending enough. (In more formal terms: the central bank can control nominal gross domestic products.)
- tourmalinetaco 3y ago
  The Federal Reserve already overprints, that’s one reasonwhy the USD and almost every other major currency is currently struggling. Printing more money during high inflation only worsens the problems.
  - eru 3y ago
    Maybe. But in that case, adding more consumer spending via consumer credit would be a negative, not a positive? (Only money that's actually being actively spent makes a difference. If the Fed prints oodles of money but buries it in their backyard, it would have no impact on inflation.)
    - qwytw 3y ago
      > adding more consumer spending via consumer credit would be a negative, not a positive? In a way yeah. I mean you increase demand for goods/services without an equivalent increase in productivity you just end up with higher prices (of course the idea is that "economic" stimulus still tends to increase productivity somewhat, just by a lower % than the increase in money supply. That generally seems to be fair).
    - tourmalinetaco 3y ago
      Absolutely. I am not advocating for consumer credit, in fact I find the current system immoral. I am saying that injecting Monopoly money into the economy is part of what’s gotten us into this mess.
- scatters 3y ago
  Yes, but instead of consumption, that alternative money would be biased towards investment or even less productive activities, such as house price speculation. Consumer credit creates money where it has the greatest benefit.
  - eru 3y ago
    > [...] that alternative money would be biased towards investment or even less productive activities, such as house price speculation. How is that supposed to work? When the central bank injects money into the economy, they don't earmark it to be only spend in specific ways. Just to forestall one pseudo-explanation: yes, a central bank usually injects money into the economy by buying government bonds. However (a) they buy the bonds at market prices and (b) the whole process is very well known and announced in advance, so market participants can and will anticipate what is happening. Money in the economy does not act on 'hydraulic' principles where it has an effect first on where it enters the economy and then slowly works its way through. As a hypothetical: assume that the US Fed credibly announces today in 2023 that in 2030 they are going to keep printing money until American Dollar and the Japanese Yen are at par. (At the moment, 1 USD buys about 147 Yen.) You can bet your hat that prices in the US would react long before 2030 has arrived, and thus long before any of that new money had been printed and had any chance to slowly work its way through the economy. Nothing special would happen on 2030-01-01 when the money-printing starts, because everything would have long been priced in already for years. The economy in general, and monetary policy specifically, is all about expectations and anticipation.
    - qwytw 3y ago
      I guess the idea that directly giving out money to consumers is more beneficial to the economy (e.g. if the government just gives a $1000 check to everyone making under 100k) they are more likely to just spend it on goods and services. If the central bank printed an equivalent amount per capita, more of it would be invested (into both productive and unproductive assets). On the other hand that wouldn't increase consumer good inflation as much.
      - 3y ago

Because it stimulates the economy by making it easier to consume. Without consumption the whole house of card falls down.

by c1sc0 3y ago

Because it stimulates the economy by making it easier to consume. Without consumption the whole house of card falls down.

eru 3y ago

It doesn't really make consumption easier. In any case, you can just print more money, if people in the economy aren't spending enough. (In more formal terms: the central bank can control nominal gross domestic products.)

tourmalinetaco 3y ago
The Federal Reserve already overprints, that’s one reasonwhy the USD and almost every other major currency is currently struggling. Printing more money during high inflation only worsens the problems.
- eru 3y ago
  Maybe. But in that case, adding more consumer spending via consumer credit would be a negative, not a positive? (Only money that's actually being actively spent makes a difference. If the Fed prints oodles of money but buries it in their backyard, it would have no impact on inflation.)
  - qwytw 3y ago
    > adding more consumer spending via consumer credit would be a negative, not a positive? In a way yeah. I mean you increase demand for goods/services without an equivalent increase in productivity you just end up with higher prices (of course the idea is that "economic" stimulus still tends to increase productivity somewhat, just by a lower % than the increase in money supply. That generally seems to be fair).
  - tourmalinetaco 3y ago
    Absolutely. I am not advocating for consumer credit, in fact I find the current system immoral. I am saying that injecting Monopoly money into the economy is part of what’s gotten us into this mess.
scatters 3y ago
Yes, but instead of consumption, that alternative money would be biased towards investment or even less productive activities, such as house price speculation. Consumer credit creates money where it has the greatest benefit.
- eru 3y ago
  > [...] that alternative money would be biased towards investment or even less productive activities, such as house price speculation. How is that supposed to work? When the central bank injects money into the economy, they don't earmark it to be only spend in specific ways. Just to forestall one pseudo-explanation: yes, a central bank usually injects money into the economy by buying government bonds. However (a) they buy the bonds at market prices and (b) the whole process is very well known and announced in advance, so market participants can and will anticipate what is happening. Money in the economy does not act on 'hydraulic' principles where it has an effect first on where it enters the economy and then slowly works its way through. As a hypothetical: assume that the US Fed credibly announces today in 2023 that in 2030 they are going to keep printing money until American Dollar and the Japanese Yen are at par. (At the moment, 1 USD buys about 147 Yen.) You can bet your hat that prices in the US would react long before 2030 has arrived, and thus long before any of that new money had been printed and had any chance to slowly work its way through the economy. Nothing special would happen on 2030-01-01 when the money-printing starts, because everything would have long been priced in already for years. The economy in general, and monetary policy specifically, is all about expectations and anticipation.
  - qwytw 3y ago
    I guess the idea that directly giving out money to consumers is more beneficial to the economy (e.g. if the government just gives a $1000 check to everyone making under 100k) they are more likely to just spend it on goods and services. If the central bank printed an equivalent amount per capita, more of it would be invested (into both productive and unproductive assets). On the other hand that wouldn't increase consumer good inflation as much.
    - 3y ago