Printing more money
- Thread starter hanorac
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Worked well in Germany in the 1920's and in Zimbabwe.
http://en.wikipedia.org/wiki/Hyperinflation
http://en.wikipedia.org/wiki/Hyperinflation
Germany issued €6bn in bonds yesterday and only €4bn were taken up.
Italy needs €200bn this year. The US needs close on $2tn.
Good luck Ireland inc!!
There has to be a serious concern now that hyper inflation is looming. The cash will come back to the market sooner or later. I just hope the governments know what to do when it does.
Italy needs €200bn this year. The US needs close on $2tn.
Good luck Ireland inc!!
There has to be a serious concern now that hyper inflation is looming. The cash will come back to the market sooner or later. I just hope the governments know what to do when it does.
On a more serious note, currences are now 'fiat currences' which means they are not backed by eg. gold or silver.
If we look at US at the moment we can see the effects printing money has on the ordinary Joe. The Fed has been printing money since the US came off the gold standard in the 1970s. With no gold standard to back the currency, the dollars that are printed are effectively worthless.
US has been running massive trade deficits in recent decades (currently over $8.7 trillion). The $700 billion bail out and Obama's proposed $3 trillion dollar stimulation plan will be sourced effectively from the Fed printing dollars.
The printing of dollars has been a major factor in the US real estate bubble, as credit became easier to obtain and along with lower interest rates and lax lending standards, there led to a huge supply of dollars into the economy.
This has and will effect ordinary people because;
Damian
If we look at US at the moment we can see the effects printing money has on the ordinary Joe. The Fed has been printing money since the US came off the gold standard in the 1970s. With no gold standard to back the currency, the dollars that are printed are effectively worthless.
US has been running massive trade deficits in recent decades (currently over $8.7 trillion). The $700 billion bail out and Obama's proposed $3 trillion dollar stimulation plan will be sourced effectively from the Fed printing dollars.
The printing of dollars has been a major factor in the US real estate bubble, as credit became easier to obtain and along with lower interest rates and lax lending standards, there led to a huge supply of dollars into the economy.
This has and will effect ordinary people because;
- It has contributed to the real estate bubble and overvaluation of the stock market which encourages a 'Greater Fool Theory' where people speculate without proper due diligence with an aim to create wealth through anticipated capital appreciation.
- With more and more dollars being printed, the dollars an ordinary person holds become increasingly worthless as inflation increases. This means that while nominal value may be maintained, purchasing power will be destroyed
- It discourages saving as inflation, which is caused by printing money wipes out savers, and passes power to lenders
- Using printed money as a stimulus in recessionary times encourages lending which leads to consumer binges, when in fact the consumer should be saving and tightening the belt
- Using printed money to bridge trade deficits can lead to foreign lenders becoming less comfortable in lending.
Damian
Duke of Marmalade
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That's fine Damian except all the talk is of deflation not hyper inflation.
What we have is a credit crunch whereby the natural market forces are causing big contractions in money supply i.e. recession and deflation.
The monetary easing by governments (called here printing money) is an attempt to counteract the vicious deflationary tightening in the free market.
What we have is a credit crunch whereby the natural market forces are causing big contractions in money supply i.e. recession and deflation.
The monetary easing by governments (called here printing money) is an attempt to counteract the vicious deflationary tightening in the free market.
True but if you look in the States, demand for inflation protected treasuries are soaring as investors bet that higher inflation will be the natural consequence of all the Government's actions. Deflationary pressures are still the main concern everywhere but fast forward the clock and through this cycle and it is easy to imagine the Central Banks having to fight soaring inflation.
What actual use is gold? Decoration and a few niche uses. The value comes from perceived value. What happens if this perception disappears?
If you would allow me to my self from November:
I mentioned the possibility of an increase in inflation to due to the ECB cuts to an economist in one of the banks a few weeks ago. Little did I know that Hyper Inflation (not just high) was one of his favorite theories of what was to come, and that I should be stocking up in high level consumer goods such as LCD TVs etc. As A, I won’t be able to afford one afterwards and B, they are good for bartering. He would still be talking about it now, if his wife did not drag him away.
george.shaw
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Not sure if that "perception" will ever change Diarmuid. Gold has been used as money for thousands of years as it is extremely finite and therefore cannot be mass produced or debased - all the gold in the world when refined to .9999 purity would only fit on Wimbledon centre court.
Two articles in the Daily Telegraph today are worth a read as they show that the "perception" is highly unlikely to change especially as we face the worst financial and economic crisis since the Great Depression:
Gold to rise for eighth consecutive year
http://www.telegraph.co.uk/finance/personalfinance/investing/4162212/Gold-to-rise-for-eighth-consecutive-year.html .
Merrill Lynch says rich turning to gold bars and not etf’s for safety
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4177766/Merrill-Lynch-says-rich-turning-to-gold-bars-for-safety.html
Gold is a safe haven asset and the only asset class that is not someone else’s liability and this is why it is thriving in the current environment and will likely reach its inflation adjusted high of $2,300 per ounce in the coming 3 to 5 years.
Gold is the only finite currency - as JP Morgan once testified to Congress, "Gold is money and nothing else". Even more pertinently and more recently Alan Greenspan said "Gold still represents the ultimate form of payment in the world. . . . Fiat money, in extremis, is accepted by nobody. Gold is always accepted" (Speech to Senate Banking Committee in May 1999).
Two articles in the Daily Telegraph today are worth a read as they show that the "perception" is highly unlikely to change especially as we face the worst financial and economic crisis since the Great Depression:
Gold to rise for eighth consecutive year
http://www.telegraph.co.uk/finance/personalfinance/investing/4162212/Gold-to-rise-for-eighth-consecutive-year.html .
Merrill Lynch says rich turning to gold bars and not etf’s for safety
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4177766/Merrill-Lynch-says-rich-turning-to-gold-bars-for-safety.html
Gold is a safe haven asset and the only asset class that is not someone else’s liability and this is why it is thriving in the current environment and will likely reach its inflation adjusted high of $2,300 per ounce in the coming 3 to 5 years.
Gold is the only finite currency - as JP Morgan once testified to Congress, "Gold is money and nothing else". Even more pertinently and more recently Alan Greenspan said "Gold still represents the ultimate form of payment in the world. . . . Fiat money, in extremis, is accepted by nobody. Gold is always accepted" (Speech to Senate Banking Committee in May 1999).
As mentioned previous, inflation and not deflation is the underlying threat. The housing bubble has over exaggerated deflation. By printing money, it is likely that inflation will start rising on consumer products and commodities and this will make housing relatively cheap in comparison. Many markets need to suffer deflation as a remedy and government interference can make the recession prolonged. Markets have a memory and tend to learn. By interest rates being cut and money being printed, an inflationary expectation is likely to set in, whether justifiable or not. This expectation is based on the past where such policies have prolonged recessions and led to an inflationary environment.
Gold's value is based on perception but so is money. If the public lose confidence in money, they switch to alternative currencies or to a barter system. This has happened in the past. It has not happened with gold. Gold is a hedge for inflation. It allows for wealth preservation in inflationary environments. I'm not suggesting that it is not possible for the perception value of gold to disappear, but it is highly unlikely for the following reasons;
· Gold is durable overtime unlike most metals. It is robust and can be exchanged frequently without damage or deterioration.
· The supply of gold is finite. A low percentage (around 5%) is discovered each year and because of this scarcity, it maintains its value. This can not be said for printed currencies, as huge quantities can be printed in short periods of time, and holders of the given currency experience perpetual weakening of their purchasing power.
· Gold can be used a control and discipline mechanism. If a currency is backed by gold, governments are limited to what money they can print. As their holding of gold will be finite, they can't print their way out of mistakes. This can encourage spending efficiency and decreases moral hazard risks.
· As mentioned, gold is a flight to safety to preserve wealth from inflation.
Not to go overkill on US examples, but it is interesting to note that the original founders of the American Constitution specifically stated that only gold or silver can be accepted as legal tender. The founders had experienced civil war shortly before the drawing up of the Constitution, and had started to print Continental dollars (the currency at the time). Massive inflation (90%) occurred and people lost confidence and abandoned the Continental. Hence the phrase 'not worth a Continental'!
Duke of Marmalade
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Money is a claim on future goods and services. A modern economy needs money to function. Imagine a world without gold or silver or anything of inherently sustainable value. We would still need money. Ergo it is ridiculous to expect that because we do have gold that its quantity exactly would match society's need for money.
Even more pertinently and more recently Alan Greenspan said "Gold still represents the ultimate form of payment in the world. . . . Fiat money, in extremis, is accepted by nobody. Gold is always accepted" (Speech to Senate Banking Committee in May 1999). [/quote]
I wouldn't be quoting Greenspan these days. He is largely responsible for the current economic crises and is totally discredited
I wouldn't be quoting Greenspan these days. He is largely responsible for the current economic crises and is totally discredited
Of course it is ridiculous to expect or assume that and money can take diverse forms in the form of commodity money. Society's needs are unlimited while resources are limited, so gold will never match society's needs. To back a currency with gold or even proportionally back it, as I mentioned previously, enforces control and discipline on a government. By printing excessive amounts of money with no gold backing means that this money will put a claim on future goods and services, and this claim can be met in two ways; 1) print more money 2) become more productive.