enlighten me on inflation.

Discussion in 'Economy' started by aioniosfilos, Mar 9, 2012.

  1. aioniosfilos
    Offline

    aioniosfilos Rookie

    Joined:
    Mar 9, 2012
    Messages:
    1
    Thanks Received:
    0
    Trophy Points:
    1
    Ratings:
    +0
    I am no expert in eco but isn't part of inflation being a problem because we printed so much damn money? so with technology allowing us to take pictures of checks and deposit them, do you see a potential fraud issue also why not deposit cash this way, in theory you take a pictures and it records serial numbers them after it is recorded It can be destroyed.
     
  2. DSGE
    Offline

    DSGE VIP Member

    Joined:
    Dec 24, 2011
    Messages:
    1,062
    Thanks Received:
    30
    Trophy Points:
    71
    Ratings:
    +30
    Inflation isn't a problem.

    [​IMG]


    In fact you might argue that inflation isn't high enough. Following the low inflation and temporary deflation of the GFC, we should have allowed some "catch up" inflation to bring nominal spending back to trend. But we didn't, and now we're stuck with a tight money induced downturn.

    Did we print so much damn money? I assume you're referring to the $2.7 trillion dollar monetary base. The thing about that is that it's not actually contributing to any nominal spending, and hence not contributing to inflation (or a recovery for that matter). First, because banks are being paid interest to have that money just sit there in their accounts at the Fed; second, because banks know that the injection is only temporary. If it starts getting lent out and causing inflation, the Fed will just extract the money they injected. So banks can't exactly go around making long term loans with it. And they don't care about buying short term securities, because all their yeilds are near zero. They may as well just hold it in cash anyway. So yeah, we did "print a bunch of money". But it's not doing anything. And it'll be removed if anybody tries to do stuff with it.

    Yeah fraud is a problem. But is it a problem because we can just photograph cheques? No. Hell, just having cheques opens everybody up to fraud. Pay for something with a cheque, but don't have any money in your account. Exactly as much fraud as just being able to photograph a cheque. But the whole thing gets handled by the interbank clearing system. So they take down your cheque serial number and everything. Then if you try to deposit the photograph at another bank, they know it's already been cleared and they'll talk to you about it.

    In theory the depositing cash thing could work. The first argument would be "people would just not destroy the cash". But that wouldn't be too big a problem because they have the serial number and your account details recorded, so if you don't destroy it and it turns up in the banking system, they'll just call the police and you'll be arrested. But I suspect that if we're going to go that far, we may as well just get rid of currency altogether and do everything electronically.
     
    Last edited: Mar 9, 2012

Share This Page