Onto your other point, how does the central bank "just" withdraw currency from circulation? Reserve requirements are a powerful tool, but they only apply to the ability of banks to make new loans. it would not pull money that was debt free from the economy. Please, explain to me how reserve requirements effect debt-free fiat currency?
"If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be." - Thomas Jefferson
"It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds" - Sam Adams
The FED buys debt with money. This does not make money debt, no more than you buying a car with money makes a car money, nor money a car.
FED buys T-bills with money. They manufacture the money to buy the T-bill. The money is not debt, the T-bill is debt.
It sells the T-bills it holds in the open market for money.Onto your other point, how does the central bank "just" withdraw currency from circulation?
Reserve requirements merely establishes the amount outstanding loans per dollar-money a bank can hold. It has nothing to do with currency or the amount of money in the economy.Reserve requirements are a powerful tool, but they only apply to the ability of banks to make new loans. it would not pull money that was debt free from the economy. Please, explain to me how reserve requirements effect debt-free fiat currency?
If you want to stop inflating prices, just stop buying gas.
Price inflation is a consequence of an oversupply of money to demand for money.
Like any economic good, money obeys the laws of supply and demand.
Oversupply, the price of money goes down -- means it takes more money to trade for goods; since goods are priced in money, we see this effect as "a rise in prices"
Deflation is the other way - a rising demand for money, means it takes less money to trade for goods, and the effect of "a fall in prices".
Oil is not money.
Do not confuse "inflation" - whose effect is a systemic rise in prices across all goods and services with merely the rise and fall of specific supply and demand within a single good or service.
Oil going up or down is not inflation - it is price adjustments due to changes in supply and demand of oil.
Food/oil/car/wage/toothbrushes...etc. all going up is due to the increase in supply of money - and since all goods and services are priced in money, the effect is that all prices across all sectors reflect that change in supply/demand.
If we priced our goods/services in barrels of oil, then the rise and fall in demand of oil would change that price for those goods/services too.
Since you do not hold a coherent theory of money, you made serious cause/effect mistakes.That's why the FED printed up money like it was going out of style in the past couple years and inflation has kept pace with the expansion in money supply.
The FED printing money has been given to the banks who - like never before in history of the US banking - stuffed into "Excess Reserves".
"Reserves" are the legal requirement of money a bank needs to hold at the FED so to support the loans the bank has issued.
"Excess" reserves are the over the legal requirement stored at the FED by these banks - it is money that is not lent to borrowers - instead held back.
Here is the graph:
For nearly all of banking history, excepting small blips, the banks have loaned out the money to the maximum capacity available, thus held nearly zero "excess" reserves.
Now -unprecedented in modern banking history- nearly $1.5 trillion of money held at the FED and not made into loans that has been held out of the economy.
Thus, no oversupply of money.
Thus, no inflation.
The day the FED stops paying interest (0.25%) and charges a fee for storing said money - you better be in gold....
Last edited by Black Flag; 04-05-2012 at 11:39 PM.
It is money.
It is manufactured by the FED.
One of the mechanics of introducing newly manufactured money into the economy is for the FED to buy a debt obligation of the Treasury, known as a T-bill. The government creates the IOU, sells to the FED for money, which the government then spends.
But the FRBN is money.
Another mechanism to introduce newly manufactured money is for the FED to buy assets such as property, like foreclosed property of the banks or their mortgages, or bullion. This is uncommon, but recently, exercised.