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Inflation, what's it for?

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gruff5
751037.  Mon Oct 11, 2010 6:36 am Reply with quote

exnihilo wrote:
inflation ....is not some capricious invention of government.

Well, given that the central banks (eg the "Federal" Reserve of the USA and the Bank of England) are private banks, that is certainly true.

Printing money out of thin air and then loaning it at interest to us poor suckers - what a splendid wheeze!

 
Neotenic
751045.  Mon Oct 11, 2010 7:14 am Reply with quote

Quote:
The MPC’s decision to inject money directly into the
economy does not involve printing more banknotes.
Instead, the Bank buys assets from private sector
institutions – that could be insurance companies, pension
funds, banks or non-financial firms – and credits the seller’s
bank account. So the seller has more money in their bank
account, while their bank holds a corresponding claim
against the Bank of England (known as reserves). The end
result is more money out in the wider economy.


Quantitative Easing Explained

Oh, and the Bank of England was nationalised in 1946 - but what's half a century between friends?

The Fed is a rather more complicated beastie - but this explains it rather well. Calling it a 'private bank' is something of a misrepresentation, as it is absolutely nothing like, say, Coutts.

 
gruff5
751377.  Tue Oct 12, 2010 8:14 am Reply with quote

thanks for the info on Central banks.

I'm not the only one to use the phrase "printing money" as a graphic picture of what's going on with our currencies, however. Your quote says "the Bank buys assets" - with what, exactly?? Money it just created out of thin air - banknotes, or digits on a screen, it's the same thing ultimately.

Still, in our finite world it seems the only way to produce the infinite growth that our financial system is addicted to.

 
PDR
751382.  Tue Oct 12, 2010 8:32 am Reply with quote

Neotenic wrote:
One does not boil water by manipulating a thermometer.


[mode=pedent]
Not usually, but it can be done.
[/mode]

PDR

 
PDR
751384.  Tue Oct 12, 2010 8:33 am Reply with quote

HarryAlffa wrote:
I have a sneaking suspicion that its more to do with banks shaking the populace down ... somehow!


Now there's a surprise.

PDR

 
Neotenic
751403.  Tue Oct 12, 2010 9:40 am Reply with quote

Quote:
Money it just created out of thin air - banknotes, or digits on a screen, it's the same thing ultimately.


That is the case - but that money is used to purchase actual assets. Then, when those actual assets are eventually sold, the money used to purchase them is (or at least bloody should be) removed from the balance sheet of the bank again.

The important point, though, is on motivation - it is not done on a 'for profit' basis, but for the continuing function of the entire economy.

Quote:
Still, in our finite world it seems the only way to produce the infinite growth that our financial system is addicted to.


It's not just the financial system that is 'addicted' to growth - I think you'll probably find that you're quite keen on it too. Especially when it comes to the size of your pay packet, or your pension pot.

 
CB27
751432.  Tue Oct 12, 2010 11:04 am Reply with quote

When people say that the money comes from nothing they forget that the money in their pockets come from nothing as well.

Have a look at that paper money in your pocket and you'll see it says "I promise to pay the bearer", it basically means you're putting your trust in a promissory note from the Bank of England that it will pay you the money promised on the note if you ask for it.

That trust is usually based on assets, but even that's not enough, and if trust goes away then inflation creeps up and you might even face devaluation.

If you have a central bank as strong as the BoE is regarded, and an economy who's credit rating is as strong as the UK, the trust is there for the central bank to issue more money than their assets in the understanding that they are "borrowing" the asset that money is set against.

 
PDR
751440.  Tue Oct 12, 2010 12:13 pm Reply with quote

CB27 wrote:
If you have a central bank as strong as the BoE is regarded, and an economy who's credit rating is as strong as the UK, the trust is there for the central bank to issue more money than their assets in the understanding that they are "borrowing" the asset that money is set against.


That's part of it, certainly. Baut the major part is that if there ever is a situation where the BoE (fregsample) CAN'T repay the debt then their inability to do so will be the least of your worries - it's a "shared faith in our econonic society" concept which is rather well discussed (believe it or not) in Tom Clancy's "Debt of Honour"[1].

PDR

[1] It's mixed in with the boring pseudo-political manifesto in the boring first half of the book before he gets back to his normal forte of describing how F15s, F18s and and F22s kick the sh!t out of someone.

 
gruff5
751957.  Thu Oct 14, 2010 2:36 pm Reply with quote

Neotenic wrote:
Then, when those actual assets are eventually sold, the money used to purchase them is (or at least bloody should be) removed from the balance sheet of the bank again.

Does that ever actually happen (removal from balance sheet), though?

 

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