Economics 101: Without the Bullshit

[Mike Mitrosky]

This is a little lengthy, but I trust you will find it educational and thought-provoking.



The Silver Bear Cafe

 

[Oddball]

Another outstanding series by an outstanding economist:

Economics for the Citizen

 

[Paulie]

Pretty simple explanation of things, I personally approve of it except for one thing.

A lot of people that are initially exposed to the idea of "printing money" and the Federal Reserve's role, assume that the Fed prints money and that it somehow automatically enters the economy, immediately causing price inflation.

This is probably the most misunderstood part of Fed monetary policy. All the Fed can literally do is increase or decrease the amount of reserves of its member banks.

The Fed can not make a bank lend, although it certainly can persuade it to in various ways. But theoretically, the Fed could print money into the quadrillions, and it would actually be quite possible (theoretically, of course) that all or most of it never entered the economy.

I would just prefer to see this piece you created mention the fact that banks have to lend or invest the money that the Fed created and increased their reserves with, before it can enter the economy and chase goods and services.

This is where Keynes' idea of the "liquidity trap" is derived.

Mike, you're a poster at the Ron Paul forum as well, correct? I think I remember that username back during the primaries when I posted there from time to time.

 

[Mike Mitrosky]

Pretty simple explanation of things, I personally approve of it except for one thing.

A lot of people that are initially exposed to the idea of "printing money" and the Federal Reserve's role, assume that the Fed prints money and that it somehow automatically enters the economy, immediately causing price inflation.

This is probably the most misunderstood part of Fed monetary policy. All the Fed can literally do is increase or decrease the amount of reserves of its member banks.

The Fed can not make a bank lend, although it certainly can persuade it to in various ways. But theoretically, the Fed could print money into the quadrillions, and it would actually be quite possible (theoretically, of course) that all or most of it never entered the economy.

I would just prefer to see this piece you created mention the fact that banks have to lend or invest the money that the Fed created and increased their reserves with, before it can enter the economy and chase goods and services.

This is where Keynes' idea of the "liquidity trap" is derived.

Mike, you're a poster at the Ron Paul forum as well, correct? I think I remember that username back during the primaries when I posted there from time to time.

Yeah I still go over there from time to time though the percentage of trolls went up after the elections.. I check out their headlines everday to see if anything is a buzz.. same with dailypaul but I dont post a whole heckuva lot.

 

[truthsaga]

They incourage it when they artificially set interests rates and prop up these industries. Who was pushing so hard for these bailouts..?

 

[Mike Mitrosky]

They incourage it when they artificially set interests rates and prop up these industries. Who was pushing so hard for these bailouts..?

Well the banks themselves. This is the problem. The banks collectively own the federal reserve.. And while the real solution is to extinguish bad debt (which would require some banks might have to go bust) they instead will print the money for themselves to bail themselves out.

You hear the people bicker about the $700 Billion TARP and $787 Billion Obama bailouts but meanwhile in the same time the fed has cranked out over $13 TRILLION, and it barely gets any news coverage.

 

[Sunni Man]

This is a little lengthy, but I trust you will find it educational and thought-provoking.



The Silver Bear Cafe

Thanks for the link Mike

 

[Paulie]

They incourage it when they artificially set interests rates and prop up these industries. Who was pushing so hard for these bailouts..?

Well the banks themselves. This is the problem. The banks collectively own the federal reserve.. And while the real solution is to extinguish bad debt (which would require some banks might have to go bust) they instead will print the money for themselves to bail themselves out.

You hear the people bicker about the $700 Billion TARP and $787 Billion Obama bailouts but meanwhile in the same time the fed has cranked out over $13 TRILLION, and it barely gets any news coverage.

When you say the fed cranked out 13 trillion, are you saying just since the recent financial collapse, or throughout the fed's entire history?

Because the Fed most certainly has NOT printed 13 trillion dollars during this latest downturn.