Somethingthat recently popped up on facebook:
Economics (of any sort) really isn’t my strong point, but/so the above is a bit of a head-scratcher…
The first thing you should know about economics is anything you read about economics on facebook is bullshit.
There’s no interest payment on a dollar bill. Nobody who exchanges a dollar bill goes into debt by doing so. The government does not owe any debt to any bank because it issues dollar bills.
The promissary part just means the government is promising that bill is worth a dollar.
Thanks - knew this didn’t seem right…
Here are some different facts that relate to some of the claims:
[ul]
[li]Interest paid via taxes is for federal debt. This debt is acquired when individuals or institutions give money to the government, not when they give it to each other. [/li][li]Interest paid by banks to the federal government (the Federal Reserve) is for short-term lending. For example, if a bank is short money for its required reserves one night, it can borrow money overnight. No real relation to dollar bills here.[/li][li]Labor as collateral? Not really. There’s no literal collateral on federal debt. However, the federal government can continue taking on new debt as long as there is a demand for it, and one factor in the demand is the perception that the federal government can repay it. Since the US can raise taxes, and since taxes apply to earnings on labor, you could make the argument that our labor is collateral. But it’s a tortured metaphor and, again, not even remotely connected to dollar bills.[/li][li]Exchanging debt for more debt? Even if dollar bills represented debt, as soon as you exchange them for something, you’ve acquired an asset, not a debt. For example, I can use cash to buy gold, or land, or guns, or whatever the crazies think is a better asset. [/li][li]Inflation is affected by many factors. We often talk about the government “printing money” as one of those factors… but this phrase is metaphorical. The actual printing of pieces of paper doesn’t drive inflation.[/li][/ul]
Excuse the hijack, but this seems a good time to ask a question about the notion of governments “printing money”.
How exactly does a government introduce more money into its economy? Is it by “printing money” to pay off its debts (and thus introducing the money by virtue of putting it into the hands of its creditors)? That would lead to inflation, I’m sure (I think;)).
But, let’s assume the government has no debt. If it prints money under such circumstances, how does said money actually get into the economy? By paying government employees’ salaries with the money? By paying for some of the government’s other financial obligations (e.g. infrastructure costs, heating of the Presidential palace) with the newly printed money? (ETA - any of which would seem to be inflationary, no?)
Thanks!
The way the U.S. works is this. There is a quasi-governmental entity called the Federal Reserve Board. This entity can practice single-entry bookkeeping–if it feels it needs to increase its assets it can simply enter the amount it wishes. Any other entity, including banks and the Federal Government, practice double-entry bookkeeping, in which any debit in one account is matched by a credit in another account.
The Federal Reserve Board purchases (or sells) assets on the open market using this created money. Most of the assets that it purchases are Treasury Bills, but it is able to purchase certain other assets. When it purchases assets it increases the money supply (since the entities that it buys them from now have dollars to spend) and when it sells assets it decreases the money supply.
The Treasury Department of the Federal Government collects most (all?) of the revenue of the government. When it needs more money than it is collecting in taxes, it issues Treasury Bills, which are in fact government promissory notes, aka government debt. These bills are sold on the open market, which sets the interest rate that the government must pay.
The U.S. Bureau of Engraving actually prints the physical dollar bills that wind up in wallets, but this has no effect on the money supply.
Money is also created by private banks practicing fractional-reserve banking, and the amount of money that the banks can create is influenced by the banking rules, which are set by the government, but that is a case where the government influences but does not control the rate of money creation.
As far as I know, most (all?) first-world nations have a similar fiscal structure.
There are a number of things that are being asserted here. They are essentially all wrong, to varying degrees.
A hundred years ago, this was essentially true. People considered that real money was gold and silver bullion, and a banknote (a “dollar bill”) was just a right to obtain money. Old Federal Reserve Notes actually said that they were “redeemable in lawful money.” Since 1933, however, Federal Reserve Notes themselves are legal tender, and there is no longer a right to redeem for specie. In other words, the U.S. Dollar is a fiat currency, worth what it is worth because the government says so and the people accept that statement.
There is still an element of truth in this statement, in that issuing banknotes is one way for the federal government to finance its operations and is an alternative to issuing debt instruments. If the government does this correctly, there will be sufficient currency in use to enable commerce, but not so much that there is an undesirable level of inflation. However, a dollar is not a promissory note, because it is not a promise to pay.
Apparently the assertion is that a purchase transaction consists of an exchange of a banknote, purportedly a governmental promissory note, in satisfaction of your debt for the goods you just purchased. As just explained, a banknote is not a promissory note. In addition, a contemporaneous exchange of cash for goods does not actually involve the creation of a debt.
This has always been false. Banknotes by their nature do not incur interest.
This doesn’t even make sense on its own terms, since the banks obviously are not lending the government notes. There is an element of truth here, but it’s pretty far removed from what’s said: The value of U.S. currency is dependent on the viability of the U.S. government, which in turn is dependent on the government’s ability to collect taxes, and of course your ability to pay taxes is dependent primarily on your labor.
I think whoever wrote this has become so confused that he forgot what he was trying to say, because it’s inconsistent with everything said previously. The small element of truth: The government can cause inflation by putting too many dollars in circulation. In the current environment, inflation is quite low, so this is an odd complaint for our deluded writer to make.
Let’s look at it this way. You want a dozen eggs from me. Now, you can give me a sack of feed, and there’s no ‘fiat” or “money” or “promissory” going on.
But even if you pay me in gold, I can’t use the gold to feed my chickens. I have to use that to exchange for feed. I accept the fact that “so much” gold is worth a dozen eggs and will buy “so much” feed. Same with a $5 bill. Gold is just a medium of exchange like paper money, electronic funds, gold or Yap island stone cash.
In the end, it’s all chicken feed (or would that be guano?). 
If the government has no debt, that implies that the money coming in (via various taxes) is equal to the money going out (via salaries etc.). If they’re paying the salaries with brand-new banknotes, then they must be doing something else with the money they’re bringing in via taxes. What are they doing with it, just piling it up in some locked vault? In that case, the situation is the same as if they were just using the tax money to pay their expenses and hording away the new money. Which in turn is the same as just not printing the new money to begin with. They could take the “new money” out of the vault at some future time when there is debt (which would be inflationary), but that’d be equivalent to just waiting until then to run the presses anyway.
In other words, no, “printing more money” isn’t inflationary without debt, but then again, there’s also no reason to do it without debt, either.
Yeah, I guess losing 95% of it’s value would, in fact, make me a little irate.
However, one cannot print more Gold. (You want to try to dig some up, good luck!) One can print as much paper money as they like. One can create as many electronic funds as they like.
This is a HUGE difference.
This just the old Zeitgeist film snake oil pared downed w/o attribution. I’m sure this has been addressed multiple times here, but it was easier for me to Google it. This HuffPo article from 2009 looks like it covers the difference between money and debt plus goes into a little economics. I just skimmed. I’m sure people less burnt than moi will be able to find prior SDMB threads. Von Mises might also be a good search term.
This is more an issue of money flow (M-1.) The value creation is with you and either your supplier or your customer. The bank simply spits out the equivalent of those values with no interest whatsoever. The Federal Reserve prints out those PN’s and the cost is shouldered by both taxes and Bank reserve deposits.
There’s no cost. Money exists solely to facilitate transactions. The article discusses this. More economic activity => more transactions => more money and vice versa. Interest is the cost of money and ceteris paribus will reflect supply and demand.
^
Exactly. I’m confused as to why the article charges interest on a 20-dollar bill.
can you quote the offending passage please, as I said I only skimmed it.
The PN referred to here is the 20-dollar bill (I think.) Does this make sense?
I take it you don’t intend to read the article I linked to. OK.
If Congress so wanted, the government could print money and use it to buy more things, hire more people, and pay out more subsidies, in excess of tax receipts. And it could do all of this without incurring debt.
You mean this?
That is not the definition of depression. I don’t think the guy is an economist. When money supply is short, you have interest rates going up and usually less lending and spending. But a sudden shock to money supply is not a depression. :rolleyes: