43
votes
Accepted
If no one knew about inflation, would inflation take place?
In this case, I think it is best explained without any economics jargon.
If your thought experiment is taken to the extreme and no one knows about the money, it would literally imply that the money ...
- 1,756
26
votes
Accepted
Destroying the dollar
I think you misunderstand what "electronic money" is - moving electronic money around isn't simply a matter of sending the right "codes" - it is ultimately about asking the central bank of that ...
- 1,428
26
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Why do banks take deposits if they do not need them to make loans?
I think there are a few separate issues here.
First, semantics: if an institute doesn't let you deposit money into your account, I think we'd be hard-pressed to call it a "bank".
This really ...
- 385
22
votes
If no one knew about inflation, would inflation take place?
Yes and there is a real-world historical example.
Inflation is the term given to a natural phenomena where an overabundance of resources in human societies leads to the devaluation of such a resource ...
- 321
14
votes
Implications of abolishing Fractional Reserve Banking on mortgages and interest rates
There is a long standing problem in most discussions of Fractional Reserve Banking (FRB), around the precise definition of money. Cash money (that is M0) is an asset on the banking system balance ...
- 2,700
14
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Is the Federal Reserve issuing money in a fair way?
Normative questions require a standard of fairness in order to then be analyzed and answered with some degree of "objectiveness" so that the answer is not just a declaration of philosophical-...
- 31.8k
13
votes
When a stock market crashes, how does money just disappear?
Stocks are not money.
The valuation of a company - the market captialisation - is the number of shares multiplied by the share price.
The share price is the price people are willing to trade at ...
- 918
12
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Why is fractional reserve banking allowed?
I recommend a careful read of the Wikipedia page for Fractional-reserve banking because it seems you are confused about how fractional reserve banking works.
Banks only lend out money they have under ...
- 15.8k
12
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Why is money in circulation a liability of the central bank?
Balance sheets always balance, so assets equal liabilities.
Imagine a commercial bank goes to the central bank and wants cash. The central bank provides the cash, but asks for some of the commercial ...
- 1,047
12
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Why doesn't the government create money, spend it for free without interest, and recollect it with taxes?
Why doesn't the government create money, spend it for free without interest, and recollect it with taxes, you ask. Well, it does. That's exactly what public investment & spending, and the taxation ...
- 8,002
9
votes
Accepted
Is the Federal Reserve issuing money in a fair way?
The Fed introduces money in the economy through the banks via the mechanism of fractional-reserve banking, as you mentioned in your article.
This means the Fed is then allowing the banks to provide ...
- 2,155
8
votes
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Inflation, cause or result of monetary emission?
The problematic part of the statement, is the "because of other reasons not important here" part . In other words: "ignore general equilibrium" -which is an unacceptable statement to make when ...
- 31.8k
8
votes
Why is the money supply perfectly inelastic?
The Fed controls the nominal money supply as they are the only ones who can add or remove money from the economy by printing it. Real money supply is only affected by increases or decreases in ...
- 954
8
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Why are there (still) coins?
In 2013 researchers at the Federal Reserve Board published a paper {link} considering the costs and benefits of replacing \$1 bills with \$ coins.
Here are the takeaways from their executive summary: ...
- 16.6k
8
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Why do banks take deposits if they do not need them to make loans?
This isn't the first time I've seen people claim that this Bank of England article says banks don't need to take deposits, but in fact the article actually says the opposite.
In order to make loans ...
- 189
8
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Why does the inflation not follow the money supply?
This is because classical economic theory absolutely does not say that:
inflation occurs when the money supply is increased faster than the economic growth.
Even in most basic 101 models inflation ...
- 42.1k
7
votes
Accepted
Does the money's "Store of value" function actually exists?
What is value? Ultimately, value flows from the utility people get from consuming goods and services.
Now, suppose, in your example world, I am a farmer and it is Autumn so I have the product of a ...
- 16.6k
7
votes
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What is the advantage and disadvantage to have a high value of USD for USA?
When the USD is highly valued, it allows people from the home country, the United States in this case, to purchase goods relatively cheaply from abroad and put pressure on domestic firms to have low ...
- 86
7
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What are taxes for since law forbids printing of money?
"Why I don't hear nobody speaking about such idea?"
Because historical experience says it won't work.
By printing money instead of collecting taxes, what increases is the nominal disposable income....
- 31.8k
7
votes
How can the stock market keep growing indefinitely?
As mentioned in the other answer, the amount of money does not have to correspond to the total value of all assets in the economy. However, there is some correspondence that is not mentioned in the ...
- 42.1k
6
votes
Unlimited supply of national currency?
He's being glib. The only constraints on their capacity are political, not from technical constraints or inventory issues. They can make more Kroner by changing their own balances at Danish banks, ...
- 15.8k
6
votes
Why is fractional reserve banking allowed?
This is meant to add to @BKay's answer. Here are some examples that might help to see what's happening when a bank makes a loan.
A bank's balance sheet
The image below is text taken from Greg ...
- 9,127
6
votes
Accepted
What prevents a bank from simply going into their computer system and adding some zeros to their bank account?
Double entry book keeping.
If we take the example given here, of the Greek Central Bank (bank nerd trivia - interestingly the GCB is a commercial bank, listed on the Greek Stock Exchange), ...
- 2,700
6
votes
What would be the effects of an expiration date on currency?
A bill with an expiration date does not become worthless suddenly. Clearly its value would decrease over time until, just before the expiration date, it was next to worthless. Think about it: how much ...
- 390
6
votes
Accepted
Who owns the federal reserve?
The Federal Reserve is a system, consisting of the reserve banks, which are "owned" (in a limited fashion) by their member banks (members select the leadership of the reserve banks), and the Federal ...
- 6,255
6
votes
Gold coins as currency?
Here are three types of money:
Commodity money: goods of value are used as money (e.g. gold in your example, or cigarettes in a prison),
Representitive money: money is still based on a commodity but, ...
- 16.6k
6
votes
Is the Federal Reserve issuing money in a fair way?
No, because monetary policy is known to increase inequality.
In effect, evidence indicates that monetary policy has contributed toward higher inequality. Therefore, the Fed is not being very ...
- 8,437
6
votes
Accepted
Why are banks allowed to resell mortgages?
A bank selling mortgages does not, by itself, increase the money supply.
To see this, work through the balance sheet implications step-by-step:
A bank makes a mortgage loan, swapping cash assets on ...
- 6,255
6
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Why is the US rating AAAA+ after they printed trillions of dollars out of thin air, and bailed out the US stock market?
First of all let's get our facts straight as it is not proper to argue based on incorrect premises.
The maximum ranking possible, used by conventional internationally respected debt ranking agencies, ...
- 42.1k
6
votes
Why does an economic slowdown lead to deflation?
First, let me address some incorrect premises in your question
Usually economists say that in recession there is deflation, so increasing the money supply does not lead to high level of inflation.
...
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