Can someone give me a simple explanation of how the supply of new dollars is introduced into the economy. I'm looking for a real simple one or two sentence summary. Here are some examples of the type of answer I am hoping for: 1. Dollars are printed and given to political contributers. 2. Dollars are loaned out by the government and they are repaid continuously, but the average outflow is generally larger than the inflow hence dollar growth over time. 3. The government buys back treasuries by printing money which results in more dollars in circulation. Hopefully the above gives examples of the simple kind of answer I am hoping to get. Also, hopefully, some of the examples above are meant to be jokes and are not true. Don
Many different ways but let me take a shot at the most recently used: - Foreign Central banks buy US Treasuries for a paltry return... thus injecting dollars into our system - Fed lends money to commercial banks (and now investment banks) through it's discount window at an interest rate, currently 2.5% - Fed created "term auction facility" and other instruments which allows banks to borrow money against specified collateral at an auctioned rate. - Fed accepting some forms of CDOs in exchange for treasuries (usually the bad kind - mortgage backed securities) etc One thing to note is that money, in essence is debt. There has to be debt for their to be money and if all the debt was repaid there would be no money.
THIS IS CORRECT, HOWEVER IT IS ALSO THE CAUSE OF INFLATION (MORE MONEY THAN WHAT IS NEEDED IN THE ECONOMY) WHICH REDISTRIBUTES WEALTH TO THE ALREADY WEALTHY. interesting ah??
Thanks, guys, for the replies, but I still don't get it. The replies seemed to describe mechanics, but I was looking for a simple philosophy explanation. Also, some of the replies seemed to be talking about existing money, not newly printed money (e.g., Foreign Central banks buy US Treasuries for a paltry return). I don't have a financial background and some of the replies probably went over my head. Is it possible to put the answer into a simple philosophy? For example, is newly printed money: 1) given away 2) loaned out (faster than it's repaid causing a growth of dollars in circulation). 3) The government buys stuff with the new money. Thanks Don
What more can I say? Those are the most common ways US dollars are added to the "system". Printing money is an adage that's often used to describe the expansion of the money supply. The money isn't really printed though, it's keyed up digitally into whatever bank borrows it from the Fed at the current rate of 2.5% and, voila, their balance sheet has some new dollars.
in Zimbabwe, you need to pay for your $13US meal with a pile of Zim notes... kinda looks like firewood
Anyone notice the game of Monopoly is highly deflationary. What needs to be added is a central banker which could loan out money. Is it also a coincidence that near the end of the game there are dozens of sub-prime mortgaged properties owned by financially strapped players who are just about to go bankrupt? Again if players could borrow an unlimited amounts of funds from the central banker at low interest rates per turn. And exchange their mortgaged St. Charles place or BBO Railroad at face value for freshly printed crash, it's like a get out of jail free card and the monopoly economy can stay afloat.
All I gotta do is become a government, convince people it's worth something, hope it doesn't depreciate too fast and there you have it, money.
So ignoring the mechanics of your explanation it sounds like the philosophy of my #2 example applies (the government loans the money out). If that's right (that it's loaned out), in order for the dollars in circulation to increase over time the ongoing loan amounts must be higher than the repayment amounts. Is that correct? Don P.S. Sorry for avoiding the mechanics but somehow they confuse me.