I’m interested in the mechanics of how a government goes about borrowing huge amounts of money, or alternatively spending huge amounts. So, senate recently passed a $700bn bailout. How exactly is that money obtained? Further, how is that money distributed? What are the steps between passing an act and money actually making its way into the economy?
Bump. I’d like to know, too. WAG: it becomes part of the next budget, taken from taxes, just like we set aside money for schools or wars, whatever.
They’ll have to print more money, which will lead to rapid inflation. This will at least help home prices go back up.
Nearly, but not quite.
They simply print Treasury Bills and/or Treasury Bonds, then those can be ‘sold’ to raise ‘cash’.
The quantity of physical money may increase, if it is ‘demanded’ - but in the USA I would expect the demand for physical cash to decline as the economy cools.
Actually I think that they are going to give Bills/Bonds to the banks in return for the illiquid securities.
How does more printed money equal inflation? I’ve heard this before, but never asked nor understood.
Increasing the amount of money without increasing the amount of things that you can buy with it will make those things cost more.
Imagine that, tomorrow, everyone woke up and had exactly 100 times as much paper currency as they did the day before. It wouldn’t make them any richer, relatively, because there’s still only as much stuff that people want to buy as there was yesterday. Everyone who owns actual goods will increase their prices because the goods are still limited in quantity.