Currency expansion

PrivatisetheNHSnow

the government should fund all of its expenditure it cannot raise from taxes by crediting its own account at the bank england with money created out of nothing.

why bother to borrow money on the bond market when it can create it interest-free itself? imagine the money that would save, which would be used on productive spending instead of debt interest. we wouldn't need to ever cut the 'deficit'.

in a fiat system, taxes and the bond market are not necessary to fund a government's expenditure. they only exist to maintain confidence in currency as a medium of exchange.

RDB

PrivatisetheNHSnow wrote: »

the government should fund all of its expenditure it cannot raise from taxes by crediting its own account at the bank england with money created out of nothing.

why bother to borrow money on the bond market when it can create it interest-free itself? imagine the money that would save, which would be used on productive spending instead of debt interest. we wouldn't need to ever cut the 'deficit'.

in a fiat system, taxes and the bond market are not necessary to fund a government's expenditure. they only exist to maintain confidence in currency as a medium of exchange.

Thats exactly what all the queezing is. More to come to.

Degenerate

PrivatisetheNHSnow wrote: »

you seem to imply fractional reserve banking and a gold standard are opposites. they're not.

when countries like the US were on the gold standard, they had fractional reserve banking too.

a fractional system is sustainable as long as there are no bank runs - it doesn't matter whether commercial bank reserves are fiat money or gold.

Central banks have limited capacity as lenders of last resort under gold, whereas in a fiat currency system there are no physical limits to the support they can give.

like us rome tried to stave off collapse by the equivalent of the government 'printing money' (debasing the coinage). but if you increase/debase the money supply without increasing production in the economy, then the value of money becomes decreased very quickly, leading to consequential social and economic problems.

Except money supply is not limited to base money. The fractional reserve system creates a multiplier effect, which is what broke down during the crisis. Money supply had actually dramatically fallen, that's why central banks had to create more base money to plug the hole.

in a fiat system, taxes and the bond market are not necessary to fund a government's expenditure. they only exist to maintain confidence in currency as a medium of exchange

This is indeed the key. And the way to maintain that confidence is to maintain the currency's value relative to the goods and services it can buy - in the UKs case, to a target of 2% CPI inflation. There is no reason to fear manipulating the money supply if it is in line with this rule.

DaddyBear

The current fiat money system is not the same as the original. When paper money was first circulated it was essentially an IOU for a real asset and you could go to your bank and exchange it for such an item.
Fiat money is no longer backed by anything tangible and is essentially worthless. The only reason that the system works is because all of the inhabitants think that it's worth something and thus exchange it for goods and services. You have to ask yourself about the integrity of a system when you can simply produce £200b from thin air.
Eventually people will realise that they work for worthless pieces of paper.

Degenerate

DaddyBear wrote: »

The current fiat money system is not the same as the original. When paper money was first circulated it was essentially an IOU for a real asset and you could go to your bank and exchange it for such an item.

No, that would be the gold/silver/whatever standard. Fiat money does not mean paper money.

PrivatisetheNHSnow

Degenerate wrote: »

There is no reason to fear manipulating the money supply if it is in line with this rule.

there's no reason to fear manipulating within that rule - but the thing to fear is that the system is itself unsustainable - which few people seem to acknowledge.

in a system where almost all money is created as interest bearing debt, the supply of money must expand exponentially to service that debt, because only the principal is loaned into existence, not the interest. however, if interest growth exceeds debt growth (because individuals/govt/companies are not willing or capable of taking on more debt),then existing debt become mathematically unpayable, and that's the start of a wave of defaults and deflationary collapse in production.

StevieJ

RDB wrote: »

What do you think Steve, where does the one trillion come from? Thin air?

Why not 10 trillion? Wouldnt that be better?

If you print money you devalue the currency so the money in those back pockets is worth less, so I guess the German taxpayers are correct

RDB

Is there a limit to how much the world currency supply can expand?

Whats the difference to Zimbabwe and the USA? Why hasnt the USA had hyperinflation yet? How many more trillions are needed to get inflation going I wonder.

I wonder what is the time scale if the worlds currency keeps on expanding at the current rate before there is a currency crisis somewhere in the world?

What will that do to the price of gold and silver?

PrivatisetheNHSnow

RDB wrote: »

Is there a limit to how much the world currency supply can expand?

If the currency uses a monetary system based on interest bearing debt, like ours, yes.

http://www.financialsense.com/fsu/editorials/2005/1212b.html

http://www.chrismartenson.com/martensonreport/end-money

A debt-based monetary system has a lifespan-limiting Achilles heel: as debt is created through loan origination, an obligation above and beyond this sum is also created in the form of interest. As a result, there can never be enough money to repay principal and pay interest unless debt is continually expanded. Debt-based monetary systems do not work in reverse, nor can they stand still without a liquidity buffer in the form of savings or a current account surplus.

When interest charges exceed debt growth, debtors at the margin are unable to service their debt. They must begin liquidating.

Degenerate

StevieJ wrote: »

If you print money you devalue the currency so the money in those back pockets is worth less, so I guess the German taxpayers are correct

Yep, anyone holding Euros will be paying a little bit, in effect. But they won't feel it.