From: ssave@ole.cdac.com (The Devil Reincarnate)
Newsgroups: sci.econ
Subject: Re: A NEW WAY TO REDUCE THE PUBLIC DEBT
Date: 3 Oct 92 19:54:52 GMT
Organization: CDAC, WA

In article <1992Oct2.191448.19991@magnus.acs.ohio-state.edu> cthorne@magnus.acs.ohio-state.edu (Charles E Thorne) writes:
>In article <BvI7un.LpB@gdls.CSCTMD.COM> mccabe@gdls.CSCTMD.COM (Harold McCabe) writes:
>>In article <1992Sep30.180124.28457@ole.cdac.com>, ssave@ole.cdac.com (The Devil Reincarnate) writes:
>>> In article <30380002@hpspkla.spk.hp.com> richards@hpspkla.spk.hp.com (Darrell H. Richardson) writes:
>
>>> Inflation in a country like USA will skyrocket to hyperinflation
>>> in a matter of months if the Govt. started to print more money.

>>I am concerned about many references (both here and on misc.invest) to the
>>US Federal government `printing more money' because according to my
>>limited understanding, `print more money' is not an easy thing to do.

>One of the ways the Federal Reserve makes money "easy" is to buy up govern-
>ment loans.  Since it "creates" the money to do this, it is in effect "printing
>money".  The result of buying back notes is that banks have more money to
>lend.  The lender's then use that money to buy things and prices go up--
>thus inflation.  The effect on the debt is that inflation makes the debt
>payable in "cheaper" dollars.  Of course inflation also causes interest
>rates to rise, which increases the governments cost of financing the debt.

	   The other major factor in the rise of cost of commodities, is 
	that a lot of the imported commodities (like TVs, VCRs, and iron, steel, 
	textiles) become more expensive, because now the Dollar is weaker, and 
	so you can buy less.  What this also does, is that the exports become 
	more lucrative, because the foreign countries can now buy more at a 
	lower price. This in turn stimulates the economy. 
	
	   Now the problem with the exporting part, is that we are already 
	in a deficit, meaning, our net import is more than our net export.  So 
	inflation will cause us more damage than good. 

	   A small comment about inflation and "printing money".  Once upon
	a time, GOLD was the standard. Meaning, if you wanted to print more
	money, you first put more gold in Fort Knox.  As the gold is mined, the
	reserves grow, and more money gets printed.  So there is a very
	"controlled" inflation.  This is good. Then people got a little
	smart. They figured that there was no real reason to tie the printing
	of money to gold, since they could control the printing of money 
	based on "need" of the economy. Meaning, when the going was good, the
	economy was doing well, more money would be printed.  When the going
	got tough, there was already enough money in the market to keep the
	economy stimulated, so it would even out.  But human nature does not
	work that way.  When the going was good, inflation was kept at a very
	controlled low.  There was enough money in the market to keep the
	economy stimulated, the dollar got stronger, and there was no reason
	to print more money (or so it seemed).  But now, the economy has 
	taken the down-turn.  As Charles say, the people do not want to 
	spend their savings.  Money supply is short.  There isn't enough
	money to keep the economy moving. The government didn't print
	enough money when the going was good.  Sooner or later, it is going
	to catch up with you. 

	   A personal feeling is that we should have printed at a steady
	rate when we had the good times and the economy was strong, but we
	didn't and so now we have to print when the economy is bad and that
	is going to prove difficult for the middle class.

-S
ssave@ole.cdac.com
	   
>There are thus counterflows which are not necessarily easy to calculate
>ahead of time.
>
>One of the reasons that the present increase in money is not necessarily
>showing up in M2, is that there is a recession.  People are very reluctant
>to invest (in goods and services) and thus, even though money is "easy"
>people are reluctant to spend in recessionary times.  This is one thing
>that happened in the 30's, although interest rates were essentially zero,
>people didn't want to spend money and the economy remained low until WW II.
>
>The realistic method of cutting the debt is to cut spending.  We've been
>on an inflation "binge" since the late 60's and the present federal debt
>is about 4 times the federal income (I don't use the ratio of federal
>debt to GNP because the GNP is not the government's money).
>