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Old 09-29-2008, 05:29 PM   #1
KongoSan

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Default Thue asks stupid basic economics questions
I believe they are going to selling Treasury Bonds to raise the funds.

The problem with just raising money out of nothing is, of course, massive inflation.
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Old 09-29-2008, 05:40 PM   #2
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They can magic money up like that if they want. It causes inflation though and so reduces the value of the dollar in everyone's pocket.

It's kind of like an indiscriminate tax on everyone who holds/is paid in dollars. It's better to take it in tax as more of the funds can be paid by rich people instead of the poor. Also, if they keep just printing loads of extra money then foreign investors won't want to hold dollars as the value is going down, when they all sell the price will go down more.

That said, they'll probably just print it off as voters will probably be more p!ssed of by a massive tax hike. Or they might borrow it. Yeah, they'll probably borrow it from China.
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Old 09-29-2008, 05:49 PM   #3
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Originally posted by ColdPhoenix
They can magic money up like that if they want. It causes inflation though and so reduces the value of the dollar in everyone's pocket.

It's kind of like an indiscriminate tax on everyone who holds/is paid in dollars. It's better to take it in tax as more of the funds can be paid by rich people instead of the poor. Also, if they keep just printing loads of extra money then foreign investors won't want to hold dollars as the value is going down, when they all sell the price will go down more.

That said, they'll probably just print it off as voters will probably be more p!ssed of by a massive tax hike. Or they might borrow it. Yeah, they'll probably borrow it from China. They have a huge debt already. It doesn't strike me as a sign of confidence if the US keeps loaning money from all around the world. The US have been living above their standard already for so long now.

And printing money and ergo inflation would screw the whole world along with the US citizens, and nobody'll want to use the dollar anymore after a while. It's funny to see this crisis happen right when there are elections near... It would be impossible to beef up taxes right now; it's not something you want to say when you want to get elected. But maybe there's a workaround, i dunno
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Old 09-29-2008, 05:58 PM   #4
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Originally posted by snoopy369
How does an 'inflation tax' not also tax the rich more than the poor? The rich, after all, have more ... money ... than the poor, don't they? That's true but it's more like a flat rate tax rather than progressive tax. Not sure what it's like in the US but in the UK people on low salaries pay very little income tax as the first few thousand you earn is tax free and the % of tax increases as you earn more. 'Inflation tax' would mean rich people 'paying' a lot more but everyone 'paying' the same percentage.

Fair point though.
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Old 09-29-2008, 06:15 PM   #5
amotoustict

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Originally posted by Thue
And why should it be better that the government print a treasury security instead of printing a $100 bill?

Since it seems to me that treasury securities and $100 bills are more or less interchangeable, I don't see why one should be substantially better than the other. Cash is more inflationary than securities.
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Old 09-29-2008, 06:23 PM   #6
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Originally posted by Ecthy


Wrong time. The mid 1920s is still mid 20th century.
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Old 09-29-2008, 06:34 PM   #7
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Originally posted by Ecthy
it's not, especially since the times you're speaking of were separated by the middle of the 20th century by some marked events in Germany. Is too. I'm right, you're wrong, because I was on the winning side of both wars. You can deal with that however you choose, just don't let me catch you lying again.
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Old 09-29-2008, 06:50 PM   #8
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Originally posted by Thue
And why should it be better that the government print a treasury security instead of printing a $100 bill?

Since it seems to me that treasury securities and $100 bills are more or less interchangeable, I don't see why one should be substantially better than the other. Borrowing from the markets with a fixed money supply creates an upward pressure on interest rates as there's an increased demand for funds. Printing money has the opposite effect.
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Old 09-29-2008, 08:04 PM   #9
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The "Lumberjack" patrol rumor again. Some Apolyton memes never die.
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Old 09-29-2008, 09:13 PM   #10
HomePageOEMfreeSOFTWARE

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Originally posted by Asher


Ask Germany from the mid-20th century why this is a bad idea. Or Zimbabwa today. --The good news is you can convert your pocket change and become a millionaire!
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Old 09-29-2008, 10:50 PM   #11
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How does an 'inflation tax' not also tax the rich more than the poor? The rich, after all, have more ... money ... than the poor, don't they? When new money is added to the system the one who receives the money first and spends it first buys assets when prices are still low which causes prices to rise, by the time the money has been defused through the system those people at the end of the chain must buy at high prices. The net wealth transfer is upwards to the banks and wealth individuals who always receive new money first.

Deflation has essentially the same effect but rather then spread evenly it hits selectively, when the money supply contracts it makes it mathematically impossible for all loans to be repaid, some portion of the population defaults and loss the assets they put up as collateral, again net wealth is transfered upwards even if total wealth might drop.

This is cycle of increasing and decreasing the money supply has been named the buisness cycle.
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Old 09-30-2008, 12:30 AM   #12
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Originally posted by Vanguard
Although I am opposed to the bailout, in fairness to the Fed and Treasury, I should point out that printing $700 billion will not necessarily result in any more inflation than we currently have.

After all, all the Treasury is planning to do with that money to buy assets at the same price as they were selling for 18 months ago. By themselves, they aren't "bidding" up the price of anything--- they are simply trying to return prices to the same level as they were.

Whether this is preventing "asset deflation" or whether is it locking in "asset inflation" is a question that is very difficult to answer. Printing the money wouldn't increase the value of the dollar economy as a whole but would increase the number of dollars in circulation and in doing so reduce the value of each dollar. This would cause inflation for food, fuel etc. The kind of things you and I buy.

How it affects the price of the banks assets? Does anyone even know what they're worth? They were certainly overvalued a year ago.
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