I’m puzzled. Quantitative Easing in the US has been pumping $85 billion newly-created (out of thin air) dollars into the US economy every month. This is about $280 per man, woman and child in the US. Can someone who knows something about economics explain to me why this appears not to have caused inflation or diluted the value of existing dollars, i.e. caused the value of the dollar to fall?
Know nothing about economics (I think it’s yet another unknowable thing that God invented outside of the universe just to taunt the skeptics), so I can only speculate that they flogged some of their Fort Knox stash to that guy in Pawn Stars.
Also know nothing about it. Is inflation not happening, but on a wider scale? The Dollar has a world wide effect, and it is maybe the poorer countries that feel it first. But I am sure that if they carry on it will catch up to them sometime.
So, to be blunt, it’s a self fulfilling prophecy of sorts?
Like many things economic, the tactic exploits both general optimism about the future and the fact that adverse effects are usually delayed: Pumping more currency into an economy stimulates spending, which in turn is expected to stimulate economic growth, all the while with the hope in mind that such growth is sufficient to offset or even exceed the currency inflation that should ensue. Also, prices do not rise instantly as new currency is issued, further delaying any effects. That is, the additional new wealth generated through stimulated growth adequately covers the deficit from the new currency issue, aided by retarded price increases, so that a new dollar rapidly acquires roughly the same buying power as an old one. At least, that’s the theory cast in lay terms.
In brief, it’s a calculated gamble that people will believe that the future will be good enough to cover up their past irresponsibility.
(BTW, I’m hardly an economist. One of those would no doubt explain the whole thing by resort to vastly more arcane and befuddling jargon.)
'Luthon64
Not necessarily. Several factors could prevent it from having the desired outcome, e.g. China buying or selling bulk US currency in response, or a sudden rush on US Treasury bonds.
'Luthon64
I’m no economist either, but you’re on the ball like I also understand it, the delaying effect is called the lag effect or something like that and has to do with the 2 ways that government use to stabilize the economy, monetary and fiscal policy and the way they are supposed to be able to pump more cash into the economy without like destroying its value is through something called the multiplier effect:
Credit multiplier
But yeah, I heard this whole thing is what lead to the fall in our gold prices, said to be below the operating margins, really can’t find anything know, but it was in the news in December. And of course the value of our money hasn’t been based on the gold standard, since like the early 1900’s - it has to do with the trust the world has in our country and things like the budget deficit is also one of the big contributors for that trust, but like Mefiante said, it’s a bit of gambling and it’s mixed up with philosophy, anyway that’s my 2 cents, buy, don’t buy it, I’m not an expert, just giving through the bit I understand, though not very well.
In the old days currencies were on the gold standard. There was supposed to be some value to it that was out of the control of the government issuing it. That has changed and now, as far as I can see, it is the government say so, and the market that determine the value. This Bidcoin thing is global. No one government can meddle, and so change the value of it, in the blink of an aye. Is this, or something similar, not what we need on a universal scale? You don’t get a coin or note for Joburg but something else for Cape Town. The whole country works on one universal standard, the Rand. Why not the world?
Because there’s far too much money to be made from trading currencies against one another.
'Luthon64
I see a lot of hype around bit-coin, I think people are forgetting it is an experiment.
so there is no guarantees as yet that it will be around in 30 years.
At the moment it doesn’t look sound, priced around $800 dollars for something you can’t
widely use to buy and also not yet supported by major financial institutions, and also a
system that is easily copied, so competing virtual
currency will be popping up all over the place. The hole thing seems to be running on speculation,
which seems like another bubble to me.
The whole country works on one universal standard, the Rand. Why not the world?My guess is for the same reason that there is not one universal language in the world. Some people think theirs is better, so they'll never change :). Of course Mefiante is also right.
Yes what would the girl with the pritey blue eyes in the online Forex trading adds do
More seriously, the lessons from the EU and its euro are manifest. The Germans and French aren’t overly enchanted about having their national productivity exploited to support, perhaps even to fund the inefficiencies and excesses of the Portuguese, Spanish, Greeks, Italians, etc.
'Luthon64
I wonder why they decided to leave the gold standard in the first place…
Because it’s not easily compatible with fractional reserve banking and charging of interest since the gold reserves constantly need to be kept commensurate with the currency that is in circulation. The net effect of this is that economic booms could be retarded, reduced or even forestalled. And who wants to impede economic growth? (Oddly enough, the flipside, i.e. that the gold standard could mitigate, reduce or even prevent economic recessions, is never mentioned by those who advocate against it.)
'Luthon64
Exactly: and 'coz the Yanks didn’t like it and favoured the notion of a global currency (the USD of course): they were also obliged to buy the gold from us (to back up the value of the dollar) and bury it again at Ft Knox…simplistic view though!
Absolutely! The value of a currency is largely derived from the value it represents in its area of validity: this a among others a function of labour- and capital productivity. When the Euro was launched I predicted its eventual failure due to my view that a Greek hamburger will cost more than a German Hamburger to produce. The political machinations of the EC and its members will ultimately have to bow their knees to this reality or pay the price (propping up by more productive nations to keep it alive, at the cost of the taxpayers in those countries.
Here’s what Tony Leon has to say on the subject. I predict that it will all end in tears, fairly soon.
heheh Tony Leon or Leon Louw?
Bah! It’s late…