[quote]PRCalDude wrote:
Bill Roberts wrote:
I should have said, do you think the consequence is permanent decrease in velocity. Only if so could there be no inflation in response to large increase in money supply.
I don’t think you are interpreting the term “value” as meaning goods or services purchasable.
At any rate, I don’t imagine you think that there is no regard in which those receiving these trillions get the goods and services that can be purchased with them, without others paying the piper? By what mechanism would you say they pay, if not by inflation (not necessarily immediate, but inevitable nonetheless?)
Or outright default.
You need to read the “inflation/deflation” thread started by John S.
According to Austrian economists, inflation and deflation is controlled by the quantity of money. The quantity of money is affected by 2 things: the amount of paper money and credit. So the Fed printed a lot of money and gave it to the banks in anticipation of it being lent out to businesses and consumers, this inflating our way out of this mess. The problem is, the banks didn’t want to lend it out because they made way, way too many $600k loans to Guatemalan gardners. While they were doing that, they were also allowing people to take out 2nds, 3rds, and 4ths out against the appreciated value of their houses. All of that money was spent on consumer goods and “lifestyle upgrades” (rims, flat screen tvs, new kitchens). In addition, people were also spending 133% of their discretionary income. Where did the extra 33% come from? Credit cards. People were buying a lot on their credit cards. Credit just expanded and extended from about 2000 onward. Now, the banks that made these bad mortgages and allowed people to take out 2nds on their houses (places like QuickLoan funding) are realizing that property values are collapsing and Guatemalan gardeners won’t be repaying the $600k notes they took out. Nor will the homeowners who took out the 2nds on their houses. The banks are in a real bind. They can’t lend any more out because the value of the loans they made is collapsing too quickly and they need cash reserves to stay in business. They’re calling in all of those credit card debts in an effort to build up their cash reserves. All of this is causing credit to keep shrinking, and credit is the other part of the money supply. In this case, it’s the bigger part because there was a mountain of credit out there that should have never been there. [/quote]
You avoided the rather direct questions.
There isn’t something for nothing. Wealth is not increased, if real GDP is not increased, simply from the government spending more than it receives. Though most assuredly those receiving that excess can purchase goods and services with it. This lack of something for nothing is a key fact. If your theorizing runs contrary to that fact, you have made an error in your theorizing. (Kind of like the Fair Tax folks arguing that even after the tax, price of goods at the checkout counter won’t increase, while people will have much more take home money, yet no immediate gigantic increase in GDP is predicted. It doesn’t matter how much research and theorizing they have: it doesn’t add up. Similar to the argument that people can receive trillions of dollars of increased wealth from receiving deficit spending spending without this being balanced out by equal loss of wealth from others, assuming same real GDP.)
Specifically the questions were or at least included:
[quote]At any rate, I don’t imagine you think that there is no regard in which those receiving these trillions get the goods and services that can be purchased with them, without others paying the piper? By what mechanism would you say they pay, if not by inflation (not necessarily immediate, but inevitable nonetheless?)
Or outright default.[/quote]
