Join Early Retirement Today
Reply
 
Thread Tools Display Modes
printing money?
Old 08-31-2012, 01:05 PM   #1
Recycles dryer sheets
ducky911's Avatar
 
Join Date: May 2010
Posts: 497
printing money?

Hi,

I was wondering if someone could explain what is happening as we print more dollars and what the difference is from taking on more debt vs printing money or is it the same.

It seems to me that if we print more money it is the same as raising taxes on anyone with a dollar in the bank. But it seems that my dollars are buying about the same..?..

How much in percentages have we printed/borrowed in the last four years five ten percent?

sorry understanding econ. disadvantaged

Bob
__________________
You've got to ask yourself one question: Do I feel lucky? Well, do ya, punk?
Retired July '11 investments in very low cost index and mutual funds, balance once a year at best.
ducky911 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-31-2012, 02:02 PM   #2
Full time employment: Posting here.
tightasadrum's Avatar
 
Join Date: Aug 2006
Location: athens
Posts: 802
Well Bob,

You're right about the value of our dollars. However the one good outcome is personal debt like your mortgage. You borrowed when dollars were worth more, but you will be paying it back with dollars that are worth less. Of course if you are retired on a fixed income generated by historically low interest rates that's not much help.
__________________
Can't you see yourself in the nursing home saying, " Darn! Wish I'd spent more time at the office instead of wasting time with family and friends."
tightasadrum is offline   Reply With Quote
Old 08-31-2012, 02:25 PM   #3
gone traveling
 
Join Date: Sep 2011
Location: Placerville
Posts: 161
Printing more money devalues the worth of every dollar out there. That's good for the national debt; For every billion in debt, it means less overall since our government waters down the value of what a billion dollars is. The Chinese hate this!!
However, it will also affect the rate of inflation. A main reason we aren't seeing inflation take off right now is because, even though our government is flooding the economy with more printed dollars, they are not getting into circulation. The banks are sitting on them. Or, more accurately, they are investing them in the market. Ever wonder how a stock market can go up when there are less people with jobs and those with jobs are making less money? I read a statistic sometime ago that said there are 1/3 the number of individuals in the market these days but we are back hovering around the 13,000 an all time high. Less investors with more money.... wonder where that money came from and who's doing the investing...?
Sooner or later, this has got to bust wide open. Once jobs are back and people can afford to spend money they are now earning, these printed dollars will start being circulated. This will cause an increase in demand for money and drive up the interest rate too. Interest rates are so low right now because people who can, are not borrowing or people who can't qualify for loans don't have access to the stuff. More jobs will change that.
The only solution I can see is that we don't just create more jobs, but that those jobs are in manufacturing and the goods created are sold overseas. If Iraq and Afghanistan could be settled down, that would be a great market place to do just that. They have the natural resources to pay and certainly a need for basic infrastructure that would fuel our exports if we were to manufacture anything. Just rebuilding their electric grid to an acceptable standard would do but that's just a beginning.
skipro3 is offline   Reply With Quote
Old 08-31-2012, 02:55 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 1,653
Quote:
Originally Posted by skipro3 View Post
Printing more money devalues the worth of every dollar out there. That's good for the national debt; For every billion in debt, it means less overall since our government waters down the value of what a billion dollars is. The Chinese hate this!!
However, it will also affect the rate of inflation. A main reason we aren't seeing inflation take off right now is because, even though our government is flooding the economy with more printed dollars, they are not getting into circulation. The banks are sitting on them. Or, more accurately, they are investing them in the market. Ever wonder how a stock market can go up when there are less people with jobs and those with jobs are making less money? I read a statistic sometime ago that said there are 1/3 the number of individuals in the market these days but we are back hovering around the 13,000 an all time high. Less investors with more money.... wonder where that money came from and who's doing the investing...?
Sooner or later, this has got to bust wide open. Once jobs are back and people can afford to spend money they are now earning, these printed dollars will start being circulated. This will cause an increase in demand for money and drive up the interest rate too. Interest rates are so low right now because people who can, are not borrowing or people who can't qualify for loans don't have access to the stuff. More jobs will change that.
The only solution I can see is that we don't just create more jobs, but that those jobs are in manufacturing and the goods created are sold overseas. If Iraq and Afghanistan could be settled down, that would be a great market place to do just that. They have the natural resources to pay and certainly a need for basic infrastructure that would fuel our exports if we were to manufacture anything. Just rebuilding their electric grid to an acceptable standard would do but that's just a beginning.
If employment bumps up the FED should sell off the bonds it has been buying. This should take some of the "printed" money off the street. Timing is everything. No guarantees they get it right.
jebmke is offline   Reply With Quote
Old 09-02-2012, 11:06 AM   #5
Thinks s/he gets paid by the post
John Galt III's Avatar
 
Join Date: Oct 2008
Posts: 2,782
I've noticed very high inflation in the last 4 years. Motor oil was $2 a quart, now $5 a quart. Unbelievable. Meat that was $2 a pound is now $5 a pound. The banks get the free electronically printed money from Uncle Ben, and speculate in commodities like soybeans, corn, and oil, causing inflation for us, and profits for them.
John Galt III is offline   Reply With Quote
Old 09-02-2012, 11:15 AM   #6
gone traveling
 
Join Date: Mar 2007
Posts: 559
If printing money was an answer than Greece would get out of the euro and just print drachmas.
gerrym51 is offline   Reply With Quote
Old 09-02-2012, 04:14 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,558
Funny, I've noticed very little net inflation over the last four years.

My mortgage costs have dropped substantially due to refinancing. The people I know buying and selling houses sure aren't seeing inflation.

Gas is about the same as it was before the financial crisis started, and I buy less of it because I have a newer car with better mileage. Pull up a chart at gasbuddy.com and look. The run-up in gas occurred before the financial crisis. We are just getting back to those prices.

My heating bill has dropped substantially due to much lower natural gas prices.

The new computer I bought was about half the price of the last one I bought, and much, much more powerful.

My downtown parking costs are lower now that they replaced the people with credit card machines.

What meat were you buying 4 years ago for $2/pound? I seem to remember that like most things, the big run-up in meat actually came before the crisis.


Quote:
Originally Posted by John Galt III View Post
I've noticed very high inflation in the last 4 years. Motor oil was $2 a quart, now $5 a quart. Unbelievable. Meat that was $2 a pound is now $5 a pound. The banks get the free electronically printed money from Uncle Ben, and speculate in commodities like soybeans, corn, and oil, causing inflation for us, and profits for them.
Hamlet is offline   Reply With Quote
Old 09-02-2012, 06:58 PM   #8
Moderator Emeritus
M Paquette's Avatar
 
Join Date: Oct 2007
Location: Portland
Posts: 4,946
I'll probably get shot for saying this, but simply printing money doesn't cause inflation. That new money has to be participating in economic activity, not just sitting on the books somewhere (technically, this is called the "velocity of money"), and further, the amount of money added to economic activity has to be greater than the amount of goods and services added to the economy. Money stuck under a mattress or carried on various ledgers and not available for spending doesn't contribute to economic activity (but it does keep the doors open on certain financial institutions).

That is, if we add money to the economy, and don't have matching goods and services added, we have more money chasing the same amount of goods and services, and so prices for those goods and services will tend to rise. Dats inflation... If on the other hand, we produce more and more goods and services, but keep the money supply constrained to where it was, we have less money chasing each item of goods and services, forcing prices of those goods and services to drop. (Think of the dollar pegged to a limited, fixed resource like gold, in the face of an economic expansion. This is deflation.). If the money exists in bookkeeping but isn't chasing goods or services, it's not participating in economic activity (Dude! Did he just say A = A?), and won't be inflationary.

The real trick is to siphon off the surplus money supply as economic activity improves to keep the money on the books from diluting the money involved in economic activity. That will look like a rise in interest rates, particularly on shorter term Treasuries, as the Federal Reserve sells from its Treasury stash in exchange for the dollars of reserve notes it wants to soak up.

Yeah, yeah. I know. "Monetarist! Kill the unbeliever! Stone him with stones!"
M Paquette is offline   Reply With Quote
Old 09-03-2012, 12:28 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,037
Quote:
Originally Posted by M Paquette View Post
...Yeah, yeah. I know. "Monetarist! Kill the unbeliever! Stone him with stones!"
Actually, I appreciated the explanation. I've seen this info before, but a refresher is always welcome.
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Old 09-03-2012, 12:40 PM   #10
Administrator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,586
Quote:
Originally Posted by M Paquette View Post
Yeah, yeah. I know. "Monetarist! Kill the unbeliever! Stone him with stones!"
They might stone you with something that has a more desirable outcome. Ask Dylan...

Watch Videos Online | Bob Dylan:Rainy Day Women #12 & 35 London 31-03-95 | Veoh.com
MichaelB is offline   Reply With Quote
Old 09-03-2012, 02:53 PM   #11
Thinks s/he gets paid by the post
teejayevans's Avatar
 
Join Date: Sep 2006
Posts: 1,691
Quote:
Originally Posted by M Paquette View Post
I'll probably get shot for saying this, but simply printing money doesn't cause inflation. That new money has to be participating in economic activity, not just sitting on the books somewhere (technically, this is called the "velocity of money"), and further, the amount of money added to economic activity has to be greater than the amount of goods and services added to the economy. Money stuck under a mattress or carried on various ledgers and not available for spending doesn't contribute to economic activity (but it does keep the doors open on certain financial institutions).
Correct, when the banks didn't have enough reserves, they borrowed money from the fed, and pay a super low interest rate, but that money didn't go into the economy, it's just sitting in the bank. The inflation already occurred during the real estate boom when money was injected into the economy. This gets into the M1 M2 M3... money supply definitions.
TJ
Money supply - Wikipedia, the free encyclopedia
teejayevans is offline   Reply With Quote
Old 09-04-2012, 12:06 AM   #12
Recycles dryer sheets
 
Join Date: Dec 2011
Posts: 388
Quote:
Originally Posted by John Galt III View Post
I've noticed very high inflation in the last 4 years. Motor oil was $2 a quart, now $5 a quart. Unbelievable. Meat that was $2 a pound is now $5 a pound. The banks get the free electronically printed money from Uncle Ben, and speculate in commodities like soybeans, corn, and oil, causing inflation for us, and profits for them.
Availability bias. Because consumers make more food buying decisions in a month they overweight food costs as a component of inflation. All of the inflationist diatribes start with a discussion of food prices. These days you'll notice that no one starts a conversation about supposed inflation by talking about housing cost. US households on average spend about 8% on food and 30% on housing.

Inflation describes the relationship between money and the pool of goods and services. If one of those goods and services goes up in nominal dollars, but not the others, due to reduced grain yields from weather, for instance, then it is not inflation, but supply and demand.

Judging from your login name you might do well to upgrade the quality of your reading in economics.
Khufu is offline   Reply With Quote
Old 09-04-2012, 04:45 AM   #13
Administrator
Gumby's Avatar
 
Join Date: Apr 2006
Posts: 22,973
Easy now.
__________________
Living an analog life in the Digital Age.
Gumby is offline   Reply With Quote
Old 09-04-2012, 07:15 AM   #14
Thinks s/he gets paid by the post
John Galt III's Avatar
 
Join Date: Oct 2008
Posts: 2,782
Gee. I seem to have outraged someone by stating the fact that the price I pay for many things has increased over the last few years, and rightly calling that inflation.
John Galt III is offline   Reply With Quote
Old 09-04-2012, 09:35 AM   #15
Thinks s/he gets paid by the post
 
Join Date: Jul 2012
Location: Mississippi
Posts: 1,894
I think personal inflation rates can be quite different than the national rate. It depends on where you live and the basket of goods you normally consume. Plus energy and food are very volatile components.
rbmrtn is offline   Reply With Quote
Old 09-04-2012, 11:45 AM   #16
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,558
Yes. Another issue is that lately (say the last 15 years or so), the things that have been going up affect most lower income people more than higher income people.

Lower income people tend to spend a higher percentage of their income on food and gas, and less on electronic gadgets.

You can see this if you look at the government CPI calculations for lower income areas versus higher income areas. Michigan has a higher rate of inflation than the national average because they have a lower median income and their basket of goods includes a higher percentage of food and gas.

Quote:
Originally Posted by rbmrtn View Post
I think personal inflation rates can be quite different than the national rate. It depends on where you live and the basket of goods you normally consume. Plus energy and food are very volatile components.
Hamlet is offline   Reply With Quote
Old 09-04-2012, 11:53 AM   #17
Recycles dryer sheets
 
Join Date: Dec 2009
Location: Cleveland
Posts: 344
Inflation as measured by the Consmer Price Index has been pretty low the last 5 years. If I recall correctly it has not been about 4% any year and was less than 1% a couple years. That is why there was no cost of living increase for social security for a couple years.

Gas and food have risen a bit more than the overall price of goods though. I agree that people focus way too much on those measures. For me personally, gasoline only represents 3% of my expenses and food only represents 8%.
skyvue is offline   Reply With Quote
Old 09-04-2012, 08:42 PM   #18
Recycles dryer sheets
 
Join Date: Dec 2011
Posts: 388
Quote:
Originally Posted by rbmrtn View Post
I think personal inflation rates can be quite different than the national rate. It depends on where you live and the basket of goods you normally consume. Plus energy and food are very volatile components.
Certainly true, but I have never encountered anyone who actually attempted to measure his own inflation rate. You would have to define your basket of goods and services and track them over time. No one does that. What they do instead is focus on both the spending decisions they make more frequently (availability bias) and those that have the largest increases (salience bias.) As a way of judging inflation, that's pretty much useless.

The bottom line is that the US economy is not facing inflation now and will not in the near future, until the exceeding slow recovery from the Great Recession picks up. The right wing has predicted high inflation and exploding US Treasury rates since 2009. Instead, just the opposite happened.

Here, by the way, is a comparison of the BLS CPI index and MIT's independent Billion Price Project, taken from Krugman's blog through April, 2012:



Now, you could rely on the statistical analyses of the Bureau of Labor Statistics, the quants at MIT, or notes on "My Latest Trip to the Grocery Store."
Khufu is offline   Reply With Quote
Old 09-05-2012, 02:36 AM   #19
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
I don't understand why the USD has not devalued compared to the Euro after all the money printing here. Granted, Greece is an issue but nothing compared to California for example. I don't get it.
Quote:
Originally Posted by gerrym51 View Post
If printing money was an answer than Greece would get out of the euro and just print drachmas.
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Old 09-05-2012, 05:01 AM   #20
Thinks s/he gets paid by the post
teejayevans's Avatar
 
Join Date: Sep 2006
Posts: 1,691
Quote:
Originally Posted by obgyn65 View Post
I don't understand why the USD has not devalued compared to the Euro after all the money printing here. Granted, Greece is an issue but nothing compared to California for example. I don't get it.
You can print all the money you want, if it doesn't make it's way into circulation it's not going to have any effect.
TJ
teejayevans is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


» Quick Links

 
All times are GMT -6. The time now is 04:23 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.