How does the Federal Reserve cause Inflation?

[TommyJeff]

Would anyone help me understand how the federal reserve causes inflation please?

i thought the printing of money (not literally any more) causes inflation but I have been told that isn't true. The most compelling point I heard to counter this is that local business owners could not all know that more money is in circulation and therefore they should inflate their product prices and employees' salaries. So then how does it happen? It sounds logical to me that the Fed increasing the money in circulation will devalue the purchasing power of the dollar and result in inflation but im missing the connecting dots. Any help is welcomed thank you.

 

[Ronin Truth]

http://www.thefreedictionary.com/inflation

 

[acptulsa]

The only way extra supply of a thing could possibly not affect its value is if demand goes up likewise, and at the same time.

Businesses do have access to data concerning the money supply, though you're right in assuming a goodly number of them don't pay attention to it. But the money is more readily available or it isn't. And businesses don't just sell, they also buy, because there are costs of production in everything. Overhead exists. So, it really isn't hard to keep track of the falling value of the dollar.

 

[TheTexan]

Would anyone help me understand how the federal reserve causes inflation please?

i thought the printing of money (not literally any more) causes inflation but I have been told that isn't true. The most compelling point I heard to counter this is that local business owners could not all know that more money is in circulation and therefore they should inflate their product prices and employees' salaries. So then how does it happen? It sounds logical to me that the Fed increasing the money in circulation will devalue the purchasing power of the dollar and result in inflation but im missing the connecting dots. Any help is welcomed thank you.

How does that money enter into circulation? It doesn't just magically "go into circulation". Something is bought with it, to put it into circulation.

 

[Ronin Truth]

How does that money enter into circulation? It doesn't just magically "go into circulation". Something is bought with it, to put it into circulation.

http://www.hiddenmysteries.org/freebooks/studies/money.pdf

 

[TheTexan]

http://www.hiddenmysteries.org/freebooks/studies/money.pdf

There is no way the OP is going to read that. TLDR

 

[TommyJeff]

How does that money enter into circulation? It doesn't just magically "go into circulation". Something is bought with it, to put it into circulation.

Isnt it "given" to specific banks for purposes of granting loans? I am not sure so I welcome a correction if im wrong.

 

[TommyJeff]

http://www.thefreedictionary.com/inflation

Am I correct to say that - if we moved back to the gold standard and population increases faster than new gold is discovered, we would have deflation?

 

[TheTexan]

Isnt it "given" to specific banks for purposes of granting loans? I am not sure so I welcome a correction if im wrong.

This is an extreme example of how inflation works, but if you were offered a $3 billion loan, with 0% interest, what would you do with it?

I know what I'd do with it. I'd buy 10 huge mansions, 3 yachts, and spend the remaining ~1 billion on hookers & coke.

How would that affect the mansion market? The yacht market? And the street price of hookers & coke?

 

[Ronin Truth]

Am I correct to say that - if we moved back to the gold standard and population increases faster than new gold is discovered, we would have deflation?

http://www.thefreedictionary.com/deflation

 

[TommyJeff]

This is an extreme example of how inflation works, but if you were offered a $3 billion loan, with 0% interest, what would you do with it?

I know what I'd do with it. I'd buy 10 huge mansions, 3 yachts, and spend the remaining ~1 billion on hookers & coke.

How would that affect the mansion market? The yacht market? And the street price of hookers & coke?

Only $1B on hookers and soda? That's a lot of pop.

 

[HVACTech]

Only $1B on hookers and soda? That's a lot of pop.

the hookers or the bubbles in the soda?

 

[Jordan]

Much to RPF's chagrin, it isn't the printing of money that causes inflation, but the spending of money. Fortunately, the velocity of money has been falling for a long time, so inflation has been muted.

 

[HVACTech]

Much to RPF's chagrin, it isn't the printing of money that causes inflation, but the spending of money. Fortunately, the velocity of money has been falling for a long time, so inflation has been muted.

so, digital "money" (currency) does not cause inflation, if someone does not "borrow" it and go into debt?

does this mean, that by avoiding debt.. we are winning?

 

[jbauer]

Disagree. Most of the printed money since 2008 has gone directly into the USA treasury bond market and mortgage backed securities. (Home notes)

That money has hit the system. It's how we've funded the government for the last 7 years. Giving out welfare both corporate and personal as well as funding the Great War machine.

In my opinion the reason we've not seen massive inflation yet is that everyone else around the world has been on a quest to print more then we have.

At some point the chicken comes home to roost. We will have jimmy carter inflation at some point here.

Much to RPF's chagrin, it isn't the printing of money that causes inflation, but the spending of money. Fortunately, the velocity of money has been falling for a long time, so inflation has been muted.

 

[ctiger2]

Where's Zippy to set the record straight?

 

[HVACTech]

Where's Zippy to set the record straight?

probably filling out his "contribution" form. (taxes)

or taking out a loan?

 

[angelatc]

Only $1B on hookers and soda? That's a lot of pop.

Hookers get thirsty.

Really, according to Ron Paul, the reason that the rich get richer has a lot to do with how the money is distributed. Because it gets distributed at the top, they get to use it first, before the inflation hits. One obvious example is seen in the stock market. Seriously, has industry really streamlined and modernized enough to justify the prices we're seeing there? I don't think so. I think it's just the new money flowing into the market.

If we have to have a welfare state, it would make more sense to me to have a government that printed money just to pass out to the poor. At least then the workers would get some increase in demand as a result.

 

[NorthCarolinaLiberty]

...but im missing the connecting dots. Any help is welcomed thank you.

 

[Carson]