When governments print money

Discussion in 'Economy' started by DavidYoung, Jun 10, 2012.

  1. DavidYoung
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    DavidYoung Rookie

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    This is an economics 101 question, as I have very little familiarity with the subject.

    I understand how increasing the number of banknotes in circulation affects inflation, but I don't understand how the extra notes get into circulation in the first place.

    When a government decides to run off, say, ten percent more dollar bills than usual, where do they physically go? How exactly does the newly created money 'enter circulation'?
     
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  2. Amazed
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    Amazed BANNED

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    Rght now nobody will buy our debt, traditionally we put up Bonds with a rate of return...whatever that may be...that allows the buyer of the Bond to makemoney on his "investment" that is guaranteed by the Gov....which of course gets it's money from us....

    Nobody will buy our bonds now....so what is happening is that we are still putting out there....but WE are buying them...How?

    They are printing the money to buy their own bonds....so now we are borrowing from ourselves and guaranteeing our debt...what could POSSIBLY go wrong with this?

    (rolling my eyes)
     
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  3. Mad Scientist
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    Mad Scientist Deplorable Gold Supporting Member Supporting Member

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    Banks go to the Fed who ask for loans at historically low rates. The Fed signals the Treasury to "electronically transfer the "money" to said Bank who then enters it as 1's and 0's in their Bank Ledger and then leverage (multiply) it as much as ten times and then (sometimes) lend it back to us at whatever rate they can get away with.

    Clear as mud right? :lol:

    This should explain it:
    [ame=http://www.youtube.com/watch?v=tGk5ioEXlIM]The American Dream Film-Full Length - YouTube[/ame]
     
  4. DavidYoung
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    DavidYoung Rookie

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    I'm interested to know what the practical application of Milton Friedman's suggestion that the mint stops printing more money would be.

    In the case of buying bonds, would ceasing to issue more bonds do the same thing?
    In the case of the electronic transfer from the Fed (by which I'm assuming you mean the Federal Reserve), how would an increase in the quantity of printed money affect this and how would it result in more banknotes entering circulation?
     

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