David Beroff ([info]d4b) wrote,
@ 2006-03-29 14:36:00
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Federal Reserve orders TWO TRILLION dollars to be printed and placed into circulation

Source: rumor or reality?

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[info]mortonfox
2006-03-29 08:44 pm UTC (link)
You do realize that the Fed doesn't actually need to print the money, right? Most of it is created electronically when Bernanke snaps his fingers. See? He just did that again. :)

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[info]d4b
2006-03-29 09:31 pm UTC (link)
True, but what better place to stash the evidence than among those who use cash the most? :-)

Don't mind me; I don't know what I'm talking about. I personally don't see how having more physical money available even affects the economy. I mean, how many people do you know who earn or spend differently based on how easy it was to get physical cash? (I'm not talking about the ability to earn the money, just supply and demand of the physical paper.)

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[info]mortonfox
2006-03-30 03:34 am UTC (link)
In case you're interested, here is a little primer on how the Fed creates money. I was only half-kidding about Bernanke snapping his fingers and creating money. They actually do create money out of thin air when they buy Treasuries in their so-called open market operations.

As for how money supply affects economic behavior, it's simple. In theory, if money supply expands without a corresponding increase in goods and services, then you have a situation where more money chases the same goods and services. So that makes each dollar worth less, or equivalently, that causes inflation. In practice, we don't tingle, or itch, or anything when new money is created. Instead, we get subtle cues from the availability of goods at certain prices, prices that other people charge, or prices that other people pay, and so pricing information ripples through the whole economy that way.

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[info]d4b
2006-03-30 05:33 am UTC (link)
Thanks!

You obviously know more about this than I, and I am not arguing about how inflation affects things. But I'm still scratching my head over the supply-and-demand issue for physical cash.

I mean, let's consider how most people receive cash. You get change for purchases; not like the amount will change based on there being more bills around. Some employers might pay in cash; typically, one will get paid the same. You go to the bank to withdraw cash; in my experience, they always have enough. Sure, they may be out of tens and ask you if it's ok to get fives instead, but the point is that the bank having more cash in their safe is not going to encourage them to say, oh, hey, we're really stuffed with bills today; here's eleven ten-dollar bills in exchange for that $100 check, or, we're running a special on twenties today, only $18 each. You see my confusion?

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[info]mortonfox
2006-03-30 07:45 am UTC (link)
There is no supply and demand issue for physical cash. The BEP just prints it up and the Fed ships it over as needed. (Yeah, it's mind-blowing, I know. They also print new bills all the time to replace worn-out ones.) From numerous discussions at Where's George, we know that banks can order as many bricks of cash as they need and they do that at certain times of the year, especially just before the holiday shopping season. When not as much physical cash is needed, banks can send it back to the Fed. What essentially happens is all money is virtual, but some of it can be temporarily represented by paper.

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[info]d4b
2006-03-30 08:28 am UTC (link)
Exactly! So you're essentially agreeing with me that the printing of more bills doesn't necessarily mean anything with respect to the economy.

I'm surprised you haven't yet gotten into e-gold, a private, virtual currency backed by physical gold.

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[info]mortonfox
2006-03-30 05:11 pm UTC (link)
Okay, I need to explain this a little better. If the Fed actually ordered $2 Trillion to be printed AND placed into circulation (i.e. not just stored in a vault), that is an actual increase in money supply of about 20%. That will cause inflation. (And also, they'll need more armored vehicles to hold all those bricks of hundreds. :) ) Normally, they just create a few billion here and a few billion there, and the money that they print is a fraction of that. That's why I don't believe the story. I rechecked the link and it appears that they've removed the story, so it's not credible as I suspected.

Also yeah, I do have gold and silver. But I figured, let's save the hard currency for after the collapse and use up the unbacked fiat currency first.

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[info]d4b
2006-03-30 06:00 pm UTC (link)
A few billion here, a few billion there... pretty soon, you're talking real money! ;-)

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[info]sofahead
2006-03-29 09:22 pm UTC (link)
If that's true... hooooooooooly shit!

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[info]d4b
2006-03-30 06:00 pm UTC (link)
retracted

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