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| Thread: So Mvass |  This thread is pages long: 1 2 3 4 5 6 7 8 9 · NEXT» |
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blizzardboy
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posted October 24, 2009 12:53 AM |
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So Mvass
My son, I know you're all nuts about economics and all, and I have this question on the whim that you could answer for me.
Why (if it's true at all) do people say holiday's are a good thing for the economy? I mean, sure it's a great way to get people to spend money and there's a temporary surge from it, but wouldn't people spend their money eventually either way? I mean ultimately, wouldn't less fickle holiday shopping lead to an improvement in sound investing, which would actually be better than if there were no holiday's? I mean it's not like if there's no holidays people are just going to not spend that money, they'd just spend it elsewhere.
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TheDeath
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posted October 24, 2009 01:04 AM |
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Who said it's good for the economy?
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mvassilev
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posted October 24, 2009 01:33 AM |
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It's a Keynesian idea - spending driving the economy. You see, Keynesians believe that if people save too much money, then the economy will slow down. (This is especially true during recessions.) Suppose I hear that unemployment is increasing and stocks are falling. My reaction would be to save more money - just in case. But if I save more money, that means I'm not spending it on a TV. But then the company making TVs will have less money, meaning that it will lay off workers, reduce their pay, or spend less - all of which means that they (or their workers) won't buy as much of something else, which will result in someone else buying less, and so on. (And, in the meantime, this makes unemployment worse and stocks fall even more, further increasing the effect.) This is the reasoning behind fiscal stimulus.
The idea behind holidays is that there is social pressure to spend, so people would spend more money.
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TheDeath
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posted October 24, 2009 01:34 AM |
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In your scenario mvass, where does new money appear from?
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mvassilev
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posted October 24, 2009 01:43 AM |
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Death:
Presumably, the government, although this need not necessarily be so.
blizzardboy:
Quote:
On the flip side, isn't there concern over the consequences of too much spending? A bunch of people getting into loans that they end up not being able to pay off, then the banks are like "oh ****"?
That's why they're Keynesians - because they're wrong. 
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TheDeath
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posted October 24, 2009 03:13 AM |
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In the Keynesian scenario i mean, where is money printed from? There are no bank loans since supposedly the workers get paid a salary, which they then buy goods. So the bank isn't involved. Question is, where does new money get in, in which hands? (so there's more in circulation ofc).
Or is the Keynesian model that wrong and can't answer this properly?
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mvassilev
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posted October 24, 2009 03:23 AM |
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Well, Keynesians don't really trust the market, and they need to have control over the money supply for their schemes. So it's the government.
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TheDeath
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posted October 24, 2009 03:59 PM |
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In your economic model, where does money come from? Printed at a national bank? When, how much? When it is lended? Isn't that the debt-driven economy we keep hearing about?
Like this?
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mvassilev
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posted October 24, 2009 10:06 PM |
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May this idiotic money-as-debt idea die.
And that's not "my" economic model. It's the Keynesian one - one I rather disagree with.
Although it is debt-driven, although not in the "money as debt" sense. During recessions, government revenues decrease (because people are making less money, and thus pay less in taxes). Keynesians advocate increased government expenditures to counter the decrease in private spending - but, because G (government spending) is increasing and tax revenues are decreasing, the difference has to be made up somehow. Usually, it's done through a combination of printing money and borrowing from foreign countries.
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TheDeath
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posted October 25, 2009 01:36 AM |
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Isn't that pretty much what I said, or did I misunderstood it? So money gets printed when you make a loan?
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mvassilev
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posted October 25, 2009 02:15 AM |
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Even better.
Quote:
So how, then, do we pay for interest? Is it by going back to the original money supply, over and over, so that it is a self-selecting cycle and we are forever in debt? Emphatically not! In truth, people use loans not usually for current consumption of goods like televisions or furniture (though this does happen, and these people get badly burned), but for current investment. And if that investment pays out, real goods and services are created. And the money gained from those real goods and services is what borrowers use to pay off their interest rates--and still have some left over, hopefully!...
MAD alleges that banks can continue to lend on into infinity, and that lending->money supply->lending creates an infinite cycle of debt. It claims that there is no effective limit on banks' money creation ability. This is poppycock. There is a monetary base (M0, mentioned earlier) and a money multiplier created by banks. The cycle ends there. Banks cannot print new money; in the United States, the Federal Reserve has this sole responsibility.
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TheDeath
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posted October 25, 2009 02:21 AM |
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Edited by TheDeath at 02:22, 25 Oct 2009.
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I'm not sure i get it. I never said you'll run out of money, obviously when people get loans they expect to be productive with it (at least those with big loans), but the point is: is money printed when the bank lends some money to someone? (doesn't matter WHO prints it, as long as it is printed because of loans)
Is that right?
OK here's an example: there's $500 in circulation, and someone decides to loan $300. He goes to the bank, the bank gives him $300 (and possibly orders the gov to print $300+$interest?), so now there's $800? I'm trying to use simple scenarios here, for sure they are flawed but who cares.
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mvassilev
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posted October 25, 2009 02:07 AM |
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No, money is created by the Federal Reserve before any loans are made at all.
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TheDeath
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posted October 25, 2009 04:03 PM |
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Quote:
No, money is created by the Federal Reserve before any loans are made at all.
When? And who receives it? The bank? Is it used only for loans?
(America seems pretty complicated with all those private banks even called "FEDs")
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mvassilev
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posted October 25, 2009 06:54 PM |
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The Fed is controlled by the federal government, so it's private in name only. It's semi-independent because Congress and the President can't jerk it around every few days - but Congress is what gave it its power in the first place (and has the power to abolish it), and the President appoints its chairmen.
The money is created whenever the Treasury Department prints it. Whoever sells treasury bonds gets the money.
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Adrius
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posted October 25, 2009 07:05 PM |
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Hey you two. Yeah you. Wouldn't it be awesome if you would have the same avatar?
I mean, it would confuse everyone who's trying to understand your debates even more 
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Geny
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posted October 25, 2009 08:21 PM |
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Lol, that's actually worth trying. Maybe save it for April Fools though.
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TheDeath
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posted October 26, 2009 01:35 AM |
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Quote:
The money is created whenever the Treasury Department prints it. Whoever sells treasury bonds gets the money.
Isn't that when they need to handle out loan (lend money to someone)?
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mvassilev
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posted October 26, 2009 01:37 AM |
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TheDeath
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posted October 26, 2009 01:38 AM |
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Some bank makes an order to lend money, isn't that when it (the bank) issues an order for the Treasury (or bond whatever) to get the money?
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