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Valyooo (99.60)

If printing money really stimulated growth...

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December 14, 2011 – Comments (27)

Then why doesn't the fed print a trillion dollars a second?  They always say it will stimulate economic activity and job creations, but they NEVER mention if theres any drawbacks.  If it helps the economy with no drawbacks, why only do it when the economy sucks?  Why not do it during boom times too?  Why don't we each have 9 trillion dollar salaries?

Seems like a simple flaw to me.

27 Comments – Post Your Own

#1) On December 14, 2011 at 11:06 AM, PainterPoker (20.92) wrote:

I like it Valyooo. Soon we'll all be millionaires or trillionaires or whatever! I feel stimulated already.

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#2) On December 14, 2011 at 11:21 AM, PainterPoker (20.92) wrote:

My guess is that the Fed money only stimulates a few (people or companies) and they are easily over-stimulated with no addtional benefit and large drawbacks like hyper-inflation.

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#3) On December 14, 2011 at 11:30 AM, kdakota630 (29.74) wrote:

Please don't give the Fed any ideas.

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#4) On December 14, 2011 at 12:12 PM, chk999 (99.98) wrote:

It only stimulates growth until people figure out that it is being printed. They then factor the printing into their projections. So you have to have an increasing rate of printing. But that only works until people figure it out and that that into account. So the second dirivative of the rate of printing has to be positive. But that way lies hyper-inflation.

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#5) On December 14, 2011 at 12:20 PM, DJDynamicNC (41.34) wrote:

"They always say it will stimulate economic activity and job creations, but they NEVER mention if theres any drawbacks."

That is simply false.

This is a textbook example of a strawman argument. There is no economist who believes the unrestricted printing of currency is a flawless positive with no drawbacks. You are arguing against a proposal that nobody has made.

By contrast, in a situation where the velocity of money (every time a single dollar is circulated through the economy, it increases the total velocity of money) is depressed, an increase in the money supply can offset that recessive input. That's fairly simple math. The downside is that too much input can cause increased inflation, although inflation isn't inherently negative (for example, if you're in debt, inflation is likely to be quite decent for you).

When dealing with complex problems, be wary of simple answers and certainty.

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#6) On December 14, 2011 at 3:30 PM, Valyooo (99.60) wrote:

@chk999: but everyone knows its being printed....bernanke has made sure its on the front page of everything...he even gives the dollar amount. 

@DJDynamic:  What?  Please show me one fed transcript where Bernanke says "We are easing to stimulate economic growth...but we are going to pay for it dearly in the future".  PLEASE show me 1....it does nto exist.

Also, I know what velocity is...I didn't need the explanation.  It does offset.  I am not sure how that has anything to do with what I said, since I never mentioned inflation or deflation.

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#7) On December 15, 2011 at 6:22 AM, jwebbzor (< 20) wrote:

Valyooo, just because central bankers don't mention drawbacks doesn't mean they aren't aware of them. Your right that if there were no drawbacks then our money supply would probably be infinite by now and we would all be wealthy.

To be blunt: what is your point?

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#8) On December 15, 2011 at 9:18 AM, Valyooo (99.60) wrote:

My point is, I don't understand how these 'economists' can just claim that something stimulates growth when CLEARLY it doesn't, and no drawbacks are listed.

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#9) On December 15, 2011 at 10:06 AM, DJDynamicNC (41.34) wrote:

If you aren't talking about inflation, in what manner precisely are we going to "pay for it dearly" in the future? When are we going to "pay dearly" for the printing of money used during World War II that led directly the most prosperous decades of growth in human history, and what form will that payment take?

From the framing, and your response, it's quite clear that you're not posing a serious question, you're just grinding an ideological axe. I wish you the best of luck with that endeavour.

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#10) On December 15, 2011 at 10:17 AM, Frankydontfailme (26.42) wrote:

DJDynamicNC, we never payed for the money printing of WW2? Check out 1966-1981. He is posing a serious question, central planners never mention the negative consequences of their actions.

I'm sure you'll find a way to delude yourself into thinking that the stagflation of the 70's wasn't the fault of money printing, and that it was the fault of fiscal conservatives... because you are brain dead.

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#11) On December 15, 2011 at 11:34 AM, Valyooo (99.60) wrote:

Oh and by the way DJDynamicNC, you do know there's a difference between monetary inflation and price inflation right?  Maybe you could clarify instead of just throwing around terms that you may be unfamiliar with.

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#12) On December 15, 2011 at 11:44 AM, TheDumbMoney (41.85) wrote:

Franky, I find it difficult to tie the economy from 1966-1981 to extraordinary Fed actions that ended fifteen years earlier.  But maybe you know something I don't.  So what you're telling me is, we're in for some serious sh!t in, oh, about 2028?  Batten down the hatches, brother!  By the way, looks like I'm going to win that SLV bet we made around SLV 30ish....it will see 22/23 again before it sees 60, or whatever number you said (that I think was somewhere above 45).

DTAF

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#13) On December 15, 2011 at 1:57 PM, Frankydontfailme (26.42) wrote:

I don't think you'll win that bet DTAF.

I can't prove the stagflation of the 70's was caused by printing at a specific period of time but it sure was caused by printing.

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#14) On December 15, 2011 at 1:57 PM, rfaramir (29.49) wrote:

The short answer is, it doesn't. That is, money printing is not good for the economy, period. It does not stimulate good economic activity. It DOES stimulate the direct early receivers of the new currency (bankers and their customers), but it is to the detriment of late receivers (wage earners) and to the great hurt of those who never receive it (those on fixed incomes).

In addition to the zero sum game (a few greatly benefitting and a great many hurt a little bit each), the intervention disrupts the structure of production, a net negative. Forcing interest rates lower by printing more money to buy the bonds that interest rates are based on gives a false price signal to both consumers and producers. Consumers see a low interest rate on savings and decide to save less and spend more, possibly even taking out consumer loans (HELOCs anyone?) to spend even more. This means less should be invested in future production (consumers will be poorer later) and more in current production (they are spending now). But the exact opposite prediction is made by entrepreneurs. Why? Because a lower interest rate naturally occurs (without intervention) when savers save more now (and spend less now, but will spend more later). So they are deceived by the low interest rate into investing in higher order capital goods and longer production processes which will produce much more in the future. But people are spending now and will have less in the future, so these projects are doomed to failure (on average, of course). The Bust is the return to health by liquidating such bad investments.

But the central bankers don't care about the damage they are doing. They benefit from monopoly production of our currency. The amount that their balance sheet increases, is the amount that they have just stolen in real resources from us all, because they print the money to do so, instead of producing something of value, with real effort, and trading that value for our value.

But to justify this theft, they show us the benefit to the direct receivers of their new money, crow about how they are stimulated, and assume you will be poor economists who have not learned the First Lesson: look not just at the immediately seen group benefitting in the short term, but look at the effects (of the policy under study) on all groups both short and long term.

Economics In One Lesson by Henry Hazlitt: http://fee.org/library/books/economics-in-one-lesson/ 

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#15) On December 15, 2011 at 2:09 PM, TMFHousel (93.42) wrote:

"They always say it will stimulate economic activity and job creations, but they NEVER mention if theres any drawbacks."

The Fed constatnly discusses possible negative implications of its policies.  

Just this morning: "While outright asset purchases are a potent monetary policy tool, Bullard said they must be used carefully because “increases in the size of the balance sheet entail additional inflationary risks if accommodation is not removed at an appropriate pace.”  

"If it helps the economy with no drawbacks, why only do it when the economy sucks?  Why not do it during boom times too?  Why don't we each have 9 trillion dollar salaries?"

If water helps put out fires, why doesn't everyone build their homes at the bottom of a lake?  

 

 

 

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#16) On December 15, 2011 at 4:19 PM, Valyooo (99.60) wrote:

"If water helps put out fires, why doesn't everyone build their homes at the bottom of a lake?"

Because your house isn't always on fire, but you always want economic growth.

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#17) On December 15, 2011 at 4:27 PM, TMFHousel (93.42) wrote:

But you always want to avoid fire. The logic that because something isn't good in unlimited amounts at all times means it must be bad in limited amounts during specific times doesn't seem relevant to our current problems. 

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#18) On December 15, 2011 at 4:31 PM, Frankydontfailme (26.42) wrote:

 -Just this morning: "While outright asset purchases are a potent monetary policy tool, Bullard said they must be used carefully because “increases in the size of the balance sheet entail additional inflationary risks if accommodation is not removed at an appropriate pace.” -

Interesting. Fed board member Kocherlakota said the opposite:

http://blogs.wsj.com/economics/2011/10/17/feds-kocherlakota-on-why-balance-sheet-expansion-need-not-be-inflationary/

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#19) On December 15, 2011 at 4:38 PM, TMFHousel (93.42) wrote:

He's not saying the opposite. He's actually saying exactly what Bullard implied -- that expanding the balance doesn't have to be inflationary *if removed at an appropriate pace.*

From the link:

"By raising that rate judiciously, the Fed has the ability to deter banks from using their reserves to create money, and through this mechanism, the Fed can prevent inflation. The Fed’s ability to pay interest on reserves means that the old and familiar link between increased bank reserves and higher inflation has been broken." 

 

No one at the Fed has said that expanding the balance sheet doesn't create risks. Just that it has the tools to prevent those risks from manifesting.  

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#20) On December 15, 2011 at 4:44 PM, TMFHousel (93.42) wrote:

To be clearer: Bullard says printing money will cause inflation if the Fed doesn't unwind its policies. Kocherlakota says don't worry, it will.

Those aren't contradictory comments.  

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#21) On December 15, 2011 at 5:07 PM, DJDynamicNC (41.34) wrote:

A serious question wouldn't be premised on a false assumption. The entire post hinges on the claim that economists "never mention" drawbacks to QE, which is demonstrably false. To invalidate a claim of "never," you need only one example, which Morgan provided above and which any of us could easly reinforce with dozens, if not hundreds, of additional examples if we so desired. And there is no way the author can fail to be aware of that.

Given the above, it's hard to believe this is anything but knocking down a strawman for ideological self-fellation. The author, and the 14 people who rec'd the post, are just seeking the quick dopamine hit that reassures them of their moral certitude.That's fair enough, but it's not the same as a serious question. Nothing anyone says will change the author's mind on the subject; all you'll see are rationalizations or, if there's enough pushback, the author will abandon the post and shift to a new topic.

There's nothing illegal about that, but don't cofuse it for a serious question or a discussion. It's just ideological axe grinding.

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#22) On December 16, 2011 at 10:23 AM, Valyooo (99.60) wrote:

You also don't want your house to be flooded at all times.

If the fed faces no danger as long as they unwind properly, cant they just keep printing and unwinding?

Also, you must have just discovered the saying "ideological axe grinding" and are excited to use it huh?

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#23) On December 16, 2011 at 10:49 AM, DJDynamicNC (41.34) wrote:

I'm always pleased when an opponent resorts to ad hominem attacks, for it indicates that they've conceded the intellectual battle. :) For the record, I was much more pleased with "ideological self-fellation."

As an investor, I'm sure you understand that risk is not a binary measurement, where something is either perfectly safe or completely unreasonable with nothing in between. A comparison of risk to benefit is one of the most fundamental analyses of the investing world, and so I absolutely do not believe that you don't understand this. I would politely request that you develop your questions accordingly.

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#24) On December 17, 2011 at 10:15 AM, TMFHousel (93.42) wrote:

Here's another example of Fed members warning of potential dangers, if you're interested:

http://www.reuters.com/article/2011/12/17/us-usa-fed-idUSTRE7BC0CW20111217?irpc=932 

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#25) On December 17, 2011 at 12:33 PM, Frankydontfailme (26.42) wrote:

Well Morgan, Fisher and Kocherlakota are out 2012, Bullard doesn't vote

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2011/12/2012%20Voters.jpg

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#26) On December 17, 2011 at 12:43 PM, TMFHousel (93.42) wrote:

I didn't realize that proof of Fed members warning of risks only applied to those within a certain distance of retierment. 

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#27) On December 18, 2011 at 11:52 PM, rfaramir (29.49) wrote:

The real question is this: "If printing money really stimulated growth... Then why doesn't the fed print a trillion dollars a second?"

valyooo, then goes on to put a poor argument into the Fed's mouth, which you rightly dismiss. (The 'NEVER' argument)

But the Fed defenders never answered his real question. Does anyone have a GOOD argument for the Fed's printing of money, and if you think you have one, does it include some logic that prevents the Fed from over-printing?

 

My answer was to refute the premise: money printing does NOT stimulate growth, so of course they also should not print a trillion dollars a second. But those who think it does help should say why, AND say why over-printing will be somehow avoided.

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