4 ms·

> Because if you spend more than you make, you are essentially borrowing from the future (with compound interest). Not if you never pay it back. > Eventually

by Suncho 11y ago

> Because if you spend more than you make, you are essentially borrowing from the future (with compound interest). Not if you never pay it back. > Eventually the quickly-compounding interest and principal overwhelm you and you have to spend most of what you produced to service/repay the debt for many years If the fed holds the treasury securities, the treasury just pays the interest to the fed. By law, any profits the fed makes go right back to the treasury again. Why would the interest payments be a problem? > (exactly the situation Greece is in) Greece can't issue their own currency. > Printing money without the accompanying increase in goods/services produced is _stealing_ from everyone who has savings using the currency. Right. But I was asking about a scenario in which there would be an accompanying increase in production. > The only sustainable way to prosperity/affluence is through increased productivity, not financial shenanigans. Agreed. But financial shenanigans do have the potential to hurt our prosperity/affluence. Wouldn't preventing the supply of money from growing in line with our productive capacity count as such a shenanigan? We tend to expand credit/debt to keep the economy running and then it all comes crashing down when we start calling our debts back in. THAT is not sustainable. Instead of expanding the amount of credit, why shouldn't we just expand the amount of actual money?

jazzyk 11y ago
>Instead of expanding the amount of credit, why shouldn't we just expand the amount of actual money? So just print more money? I just tried to explain to you that printing money without producing more goods/services just dilutes your purchasing power. The pain caused by _moderate_ inflation is easier to hoist on unsuspecting public, so inflation is typically chosen over bankruptcy (if you control the money printer - Greece is out of luck). >there would be an accompanying increase in production. Easier said than done. The US GDP has been bumping barely above 0 over the past several years, which means we are not producing more. A lot of reasons for it, but one of them is lack of consumption caused by excessive debt of consumers, who are flat out broke (and heavily in debt).
- Suncho 11y ago
  > So just print more money? Right. And hand it directly to consumers. > I just tried to explain to you that printing money without producing more goods/services just dilutes your purchasing power. Yes. But then you went on to say: > The US GDP has been bumping barely above 0 over the past several years, which means we are not producing more. A lot of reasons for it, but one of them is lack of consumption caused by excessive debt of consumers, who are flat out broke (and heavily in debt). If we hand real money to consumers instead of handing them credit and plunging them into debt, why wouldn't that address the lack of consumption problem? > The pain caused by _moderate_ inflation is easier to hoist on unsuspecting public, so inflation is typically chosen over bankruptcy I'm skeptical that printing money and handing it to consumers would cause any amount of inflation. If we assume a downward-sloping long-term aggregate supply curve -- and the long term gets shorter the more scalable our businesses are -- then the more stuff we produce, the cheaper that stuff gets. Right? Besides, if we do see inflation rates that are higher than what we want, the government has other levers it can use to address that. 1. Open market operations. The fed sells treasury securities back to the open market thereby removing dollars from the supply. 2. Increase bank reserve requirements to discourage bank lending. This reduces the amount of credit (and therefore debt) and can help reduce future credit crises. 3. Tax consumption/spending. Taxation is fine as a means to reduce the money supply and influence consumer behavior. But I'm not sure how useful it is to view taxation as a way to fund the government. Why not spend as needed and tax as needed without worrying about balancing the two? > Greece is out of luck Yup.
  - jazzyk 11y ago
    >I'm skeptical that printing money and handing it to >consumers would cause any amount of inflation. Printing money and giving it to consumers IS inflation (it is the very definition of inflation). Example: if you have two oranges and $10 in money supply, they will each cost $5. If you print additional $10, you will have $20 sloshing around and the price of an orange will automatically jump to $10 each. The consumer will still be able to only buy the same amount of oranges as before.
    - Suncho 11y ago
      Okay. Let's say we have two oranges and $10 in the money supply. Let's also say that one guy has all of the $10 and he's only ever going to want one orange. What's the price of an orange? $10. One orange gets sold and the other gets wasted. If you print an additional $10 and hand it to a different guy, what's the price of oranges? Still $10, but both oranges get bought.

by Suncho 11y ago

jazzyk 11y ago

>Instead of expanding the amount of credit, why shouldn't we just expand the amount of actual money? So just print more money? I just tried to explain to you that printing money without producing more goods/services just dilutes your purchasing power. The pain caused by _moderate_ inflation is easier to hoist on unsuspecting public, so inflation is typically chosen over bankruptcy (if you control the money printer - Greece is out of luck). >there would be an accompanying increase in production. Easier said than done. The US GDP has been bumping barely above 0 over the past several years, which means we are not producing more. A lot of reasons for it, but one of them is lack of consumption caused by excessive debt of consumers, who are flat out broke (and heavily in debt).

Suncho 11y ago
> So just print more money? Right. And hand it directly to consumers. > I just tried to explain to you that printing money without producing more goods/services just dilutes your purchasing power. Yes. But then you went on to say: > The US GDP has been bumping barely above 0 over the past several years, which means we are not producing more. A lot of reasons for it, but one of them is lack of consumption caused by excessive debt of consumers, who are flat out broke (and heavily in debt). If we hand real money to consumers instead of handing them credit and plunging them into debt, why wouldn't that address the lack of consumption problem? > The pain caused by _moderate_ inflation is easier to hoist on unsuspecting public, so inflation is typically chosen over bankruptcy I'm skeptical that printing money and handing it to consumers would cause any amount of inflation. If we assume a downward-sloping long-term aggregate supply curve -- and the long term gets shorter the more scalable our businesses are -- then the more stuff we produce, the cheaper that stuff gets. Right? Besides, if we do see inflation rates that are higher than what we want, the government has other levers it can use to address that. 1. Open market operations. The fed sells treasury securities back to the open market thereby removing dollars from the supply. 2. Increase bank reserve requirements to discourage bank lending. This reduces the amount of credit (and therefore debt) and can help reduce future credit crises. 3. Tax consumption/spending. Taxation is fine as a means to reduce the money supply and influence consumer behavior. But I'm not sure how useful it is to view taxation as a way to fund the government. Why not spend as needed and tax as needed without worrying about balancing the two? > Greece is out of luck Yup.
- jazzyk 11y ago
  >I'm skeptical that printing money and handing it to >consumers would cause any amount of inflation. Printing money and giving it to consumers IS inflation (it is the very definition of inflation). Example: if you have two oranges and $10 in money supply, they will each cost $5. If you print additional $10, you will have $20 sloshing around and the price of an orange will automatically jump to $10 each. The consumer will still be able to only buy the same amount of oranges as before.
  - Suncho 11y ago
    Okay. Let's say we have two oranges and $10 in the money supply. Let's also say that one guy has all of the $10 and he's only ever going to want one orange. What's the price of an orange? $10. One orange gets sold and the other gets wasted. If you print an additional $10 and hand it to a different guy, what's the price of oranges? Still $10, but both oranges get bought.