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SlowThought (88.97)

Where are all the dollars coming from?

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May 29, 2009 – Comments (5) | RELATED TICKERS: GLD , EWZ

The Fed currently shows more money sitting in banks than there are dollars in circulation (go here and choose "Selected Liabilities").  Since I still have some cash in my own pocket, and I presume most of you do, too, I take this to mean that the "dollars in circulation" line in the chart referenced above is wrong, and inflation is here.  Regardless of what they say, the Fed's been printing money.  Time for inflation plays, time for foreign investments.

5 Comments – Post Your Own

#1) On May 29, 2009 at 7:00 AM, devilinside (94.77) wrote:

I couldn't agree more. Inflation is here and it is here for along time. Remember that the last report on inflation is now history.

You can't print and spend the kind of money that this gov't is spending and not cause untold inflation and higher interest rates.

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#2) On May 29, 2009 at 8:07 AM, ralphmachio (< 20) wrote:

It's not getting to the people.

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#3) On May 29, 2009 at 8:15 AM, TMFSinchiruna (98.15) wrote:

Also, remember that the inflation we expect is not an economic event, but a currency event ... it can occur independently of the prevailing economic conditions. This is a very important thought to keep in mind. :)

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#4) On May 29, 2009 at 9:15 AM, JTShideler (96.37) wrote:

There is always more dollars in banks then in circulation, because banks create money everytime they make a new loan.

When you apply for a 200,000 mortgage, most people think that the bank takes 200,000 dollars from their depositors to loan out but in reality all they do is electronically add the 200,000 to you account thereby creating 200k magically.  This isn't a problem when the asset that secures your loan (your house) is worth 200k but if that goes south like it did with the housing crisis then all those electronic dollars disapear.

Banks are required to keep a small percentage of their assets with the Federal reserve as part of the fractional reserve system.  Its pretty complicated to explain but if you want to be baffled take a look at this wikipedia article.  It does a pretty good job of explaining how far each dollar actuall goes.

http://en.wikipedia.org/wiki/Money_supply

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#5) On June 08, 2009 at 9:28 AM, SlowThought (88.97) wrote:

An excellent link, but what I was taught way back when has served me well.  My economics professor used to talk about the "velocity" of money, how fast currency traded hands.  So GDP = Money Supply x Velocity.  In a healthy economy, there's lots of activity, high velocity.  In the current economy, the velocity is definitely down, so the government's propping the money supply up in order to keep GDP from crashing.  Increased supply, decreased relative worth, inflation.

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