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Hey sdenton, I agree with a lot of what you say about how Greece needs it's own currency to inflate, but sometimes I don't know if someone has a non-mainstream

Hey sdenton, I agree with a lot of what you say about how Greece needs it's own currency to inflate, but sometimes I don't know if someone has a non-mainstream opinion or just needs a little help with consensus economics. So if you are like me a student of economics this post will hopefully help clear some things up. If not then I guess we disagree and the next person to read this post will have a better understanding of the different views of monetary policy present in economics :). The consensus view in economics about issuing bonds is that it moves the needle away from inflation and towards deflation. Think of money in a very simple supply and demand model. More (supply)money means it is worth less. When the government issues bonds it auctions them off and takes money from people(out of circulation) in return, reducing the supply of money. This leads to less money, which is worth more(deflation, or disinflation). The consensus view about lowering interest rates is that it leads to inflation. Imagine a country with a long term interest rate of 10%, then the FED turns the dial down to 0%. Vick the VC, previously had to average 10%+ on all of his start up investments because investors would move their money to banks(and make 10%) if he made less. So Vick previously only invested in the best start ups, all ex-googlers and previous entrepreneurs. But now he only needs to break 0%, so he invests in all the maybes. This leads to more start ups and more dev positions. Now if we go back to supply and demand, more openings(demand) means greater price. This same things happens across the entire economy. Many projects/start ups/buildings get funded that weren't before because of the drop in interest rate. And these projects create openings, leading to higher wages. Since labor composes most of the goods and services we consume, when we pay more labor, we pay more for good and services call it inflation.

mike_hearn 11y ago
> When the government issues bonds it auctions them off and takes money from people(out of circulation) in return, reducing the supply of money. Where did you get that idea? Governments usually borrow money so they can spend it. That money isn't deleted or burned, it heads right back out of the government into the economy.

mike_hearn 11y ago

> When the government issues bonds it auctions them off and takes money from people(out of circulation) in return, reducing the supply of money. Where did you get that idea? Governments usually borrow money so they can spend it. That money isn't deleted or burned, it heads right back out of the government into the economy.