Economic fix: print more money?! (Insider Report)."Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply," explained a Harvard-trained economist during a November 21st speech before the National Economists Club in Washington. "But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. Sounds like an accurate critique of the fiat money Fiat Money Money that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves.Notes: Most of the world's paper money is fiat money. See also: Currency, Gold Standard, Money, Money Market, Seigniorage system inflicted on our nation with the 1913 creation of the Federal Reserve System, doesn't it? Well it would--except that the speaker was Federal Reserve Governor Ben Bernanke, and his remarks were an endorsement of using inflation--an increase in the money supply Money Supply The entire quantity of bills, coins, loans, credit, and other liquid instruments in a country's economy.Notes: Money supply is divided into three categories--M1, M2, and M3--according to the type and size of account in which the instrument is kept. The money supply is important to economists trying to understand how policies will affect interest rates and growth. See also: M1, M2, M3, Monetary Policy, Narrow Money, Velocity --to "cure" deflation Deflation A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression.--falling prices and declining asset values. Bernanke ended his little sermon on the supposed value of a fiat money system by concluding, "under a paper-money system, a determined government can always generate higher spending and hence positive inflation." A brief, accurate translation of Bernanke's remarks, noted New York Post economics writer John Crudele, is, "we'll just print more money if the economy doesn't respond to traditional remedies." But while Bernanke insists that the government can print new money New money In a Treasury auction, the amount by which the par value of the securities offered exceeds that of those maturing. "at essentially no cost," Crudele supplies the historical context that the Fed governor artfully avoided: "The printing press image is a hot button with economists because that's exactly what the Germans did in the 1920s when that country was faced with huge budget deficits because of World War I." The resulting hyperinflation Hyperinflation Extremely rapid or out of control inflation.Notes: There is no precise numerical definition to hyperinflation. This is a situation where price increases are so out of control that the concept of inflation is meaningless.The most famous example of hyperinflation occurred in Germany between January 1922 and November 1923. obliterated the German mark's value, leading to the imperishable image of German citizens having to drag wheelbarrows full of money to stores to buy a day's worth of groceries. "Those economic problems eventually led to the political upheavals in Germany that brought Adolph Hitler to power," observed Crudele. "Enough said? Bernanke should shut up." Actually, Bernanke's devastatingly candid remarks should be given the widest possible audience. |
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