Why do we borrow $ from abroad when the FED can just print $?

[sam9657]

Never understood why US has to borrow so much $ from over seas, when we can just print $. Can anyone explain this?

 

[ItsTime]

inflation

 

[misericordia]

We don't borrow money from abroad. We borrow it from a guy. just kidding.

We get stuff made in Taiwan, Japan, China, and India IN EXCHANGE for US Treasury bills, which are IOU's for US dollars, payable in the future, with interest.

That's what they mean when they say some country buys our debt. Really it's a trade of somthing....tv, bike, car, candle, rice, clothes, etc, for a piece of paper....the t bill.

that piece of a paper is a promise. But it will default soon and then the party's over.

When I say the party's over, it could be that a loaf of bread costs a thousand bucks or more. You'd be a millionaire, but it wouldn't mean anything. There would be riots and starvation.

It could be like the great depression.....no jobs, no hope.

It could be worse than either of these two scenarios if they implement some big brother one world currency....cause you gotta know absolute power will destroy mankind.

So we live in interesting times, Ron Paul wants to let the crash happen so we can get real about the worth of things....like real estate. Everybody else (Obama, McWar, EU, banks), wants this big brother helper.
But it never works out like that, it's either fascism or communism, neither are good.

We're here because RP is the only hope for America and maybe even the world. Seriously.

 

[Isaac Bickerstaff]

The money they "just print" actually has debt attached to it as well.

 

[Josh_LA]

We DO just print the money, but we print the money, and buy their goods, they consider what we pay them "debt" until we back it up with production (or goods). Trade deficit is simply we owe more because we took more, we can print it and give it back, but they won't want it unless they know our money is of any value.

 

[Isaac Bickerstaff]

If you wrote to the Treasury and asked them how money is created, they will tell you, "All money is created by an extension of credit by a private commercial bank."

Ask them again. See if you get a different answer.

Actual production of real goods has nothing to do with Fed money.

 

[sevin]

We get stuff made in Taiwan, Japan, China, and India IN EXCHANGE for US Treasury bills, which are IOU's for US dollars, payable in the future, with interest.

Today the average American looks at China as that awful place where people work in sweat shops to produce cheap crap.

Someday America will be that awful place where people work their asses off to product cheap crap in a futile attempt to pay off debt.

The balance of wealth and power is shifting.

 

[jon_perez]

The US government cannot create money. It has to borrow it. It has to borrow in US dollars of course.

Now, Chinese companies earn US dollars when they sell goods to customers here in the US.

These companies exchange their US dollars for Renminbi which China's central bank prints up.

The Chinese central bank then ends up holding a lot of USD. How do they invest most of these USD? By buying up US Treasury Bills (in the Open Market, I presume) that are issued by the US Treasury. Thus, because China buys up a lot of debt issued by the US government, it helps fund the US government's spending and keep T-bill prices up (interest rates low...).

Now, what is the Fed's role in this picture? The Fed is tasked with influencing the interest rates ostensibly for the good of the economy (e.g. maintain price stability and at the same time promote growth... which can be conflicting goals...)

Thus, the Fed buys and sells T-bills in order to influence the interest rate, but everyone else is also free to participate in this buying/selling.

If people stay away from T-bills, their price plummets and the interest rate goes up. The US Treasury (aka US government) would then have a hard time raising money. The Fed is there to come to the rescue by manipulating the price of these T-bills with their ability to create money at will, but if it ends up creating too much money to keep the price of T-bills down, it will increase the money supply greatly and provide a catalyst for inflation.

If the Fed wants to reduce money supply / raise interest rates, it will dump a lot of T-bills on the market making them cheap for other people to buy. The money that goes to buying these T-bills end up back to their source (the Fed) and essentially disappears from the economy and is one way for the money supply to shrink.

As for the interest servicing on the T-bills, I believe the Treasury is the one who has to pony up the money to pay for those, not the Fed.

 

[the count]

We DO just print the money, but we print the money, and buy their goods, they consider what we pay them "debt" until we back it up with production (or goods). Trade deficit is simply we owe more because we took more, we can print it and give it back, but they won't want it unless they know our money is of any value.

actually, the printing of money and the creation of debt would not even be so bad were it not for the INTEREST we must pay on the debt!

a good deal of the work we will all be doing in the foreseeable future will only used to pay for the interest of the trillions we owe. this is money that goes oversea and is bye bye...

 

[Leroy_Jenkems]

Today the average American looks at China as that awful place where people work in sweat shops to produce cheap crap.

Someday America will be that awful place where people work their asses off to product cheap crap in a futile attempt to pay off debt.

The balance of wealth and power is shifting.

Precisely.

 

[jon_perez]

We DO just print the money, but we print the money, and buy their goods, they consider what we pay them "debt" until we back it up with production (or goods). Trade deficit is simply we owe more because we took more, we can print it and give it back, but they won't want it unless they know our money is of any value.

You shouldn't be buying wholesale into this "paper money is worth nothing" claim. Of course paper USD can be exchanged for american assets and services. The Chinese after all, tried to buy Unocal with all those USD they held. The Arabs, the Port Authority...

But oops... apparently, their USD is not good for those...

 

[satchelmcqueen]

i wonder this...i get the way things work in real life, but what if...


what if we kept our dollars in our own country and didnt let them get outside in trades or borrowing or investment. in other words our money would be good only in this country between our people. i figure that would make our money worth whatever the said people of the country said it was worth. of course we would have to be a self sustaining country with no outside help, but still thats a good thing. so ild still go to work, make x amount of dollars and pay 1 dollar for gas that our country produced because thats what we all said it was worth. same with food clothes etc......it would work, the key is keeping within our country.


in this imaginary setting i think we would all be ok.

 

[jon_perez]

what if we kept our dollars in our own country and didnt let them get outside in trades or borrowing or investment. in other words our money would be good only in this country between our people.

This is identical to saying you refuse to trade with other countries. Completely unrealistic.

 

[Mini-Me]

i wonder this...i get the way things work in real life, but what if...


what if we kept our dollars in our own country and didnt let them get outside in trades or borrowing or investment. in other words our money would be good only in this country between our people. i figure that would make our money worth whatever the said people of the country said it was worth. of course we would have to be a self sustaining country with no outside help, but still thats a good thing. so ild still go to work, make x amount of dollars and pay 1 dollar for gas that our country produced because thats what we all said it was worth. same with food clothes etc......it would work, the key is keeping within our country.


in this imaginary setting i think we would all be ok.

This wouldn't work the way you're thinking because you're forgetting that it's the market, not some central authority, that sets the prices of goods and services. Those prices are set based on supply and demand for assets, commodities, goods, and services vs. the supply and demand for the dollar. The price mechanism is a way of determining how much these things are worth in comparison to each other and in comparison to the money supply itself, and it's the way the economy can fairly decide how much each person can afford based on how much wealth there actually is to go around. If more dollars are created, prices of everything else naturally go up because there are more dollars chasing the same amount of everything else. If a central authority implements price controls to "fix" prices at unnaturally low levels, the end result will be shortages, because there won't be enough goods, services, etc. to go around at such artificially low prices. (And because people recognize this, they will hide their goods instead of selling them for prices far below what they're really worth.) In other words, hyperinflation can still occur in a completely isolated country.

actually, the printing of money and the creation of debt would not even be so bad were it not for the INTEREST we must pay on the debt!

a good deal of the work we will all be doing in the foreseeable future will only used to pay for the interest of the trillions we owe. this is money that goes oversea and is bye bye...

I agree this is one of our three biggest economic problems, but there are two others. Although the Fed refunds interest the US Treasury pays it (minus operating costs), the Treasury still has to pay tons of interest on treasury securities held by foreign banks and private individuals...and as you said, that's a whole lot of money, and it's slowly killing us. (As a side note, although the Fed refunds most interest the Treasury pays it, it keeps interest it "earns" from loaning funny money to private banks, and it's a huge moral problem that we allow private bankers to profit from money they create entirely out of thin air rather than from loaning out reserves.)

The second of our three biggest problems is that we allow our government to recklessly borrow more and more money in the first place, interest aside. Regardless of who is willing to lend the money by buying bonds and such or how high/low/nonexistent the interest may be, the whole population must eventually pay for the government's irresponsible borrowing habits. These first two problems could be fixed by having the government itself create currency out of thin air (rather than having to borrow money from a quasi-private central bank to do it). After all, it doesn't look like putting the reins in the hands of private bankers has fulfilled its supposed original intent and prevented the government from printing money constantly to finance its budget. However, even that does not fix the last of our three biggest economic problems...

The other biggest problem I'm referring to is just the simple fact that the money supply can be manipulated at will in the first place. People are basically forced to use US dollars, yet the purchasing power of their current holdings is constantly being debased by inflation, and this discourages saving and incentivizes unsustainable "borrow and spend" habits on the microeconomic level...and because prices also increase much faster than wages, people cannot just catch back up by earning new money, and their living standards continually deteriorate. This problem alone is enough to destroy a middle class and even destroy a currency. The other two problems do make it happen a whole lot faster though, and they also put the wealth we have left at the mercy of the foreign bankers buying up our debt. :-/

 

[satchelmcqueen]

This is identical to saying you refuse to trade with other countries. Completely unrealistic.

yes exactly what i acknowledged in my post. my point was, if we did this wouldn't it keep value to our money?

 

[jon_perez]

yes exactly what i acknowledged in my post. my point was, if we did this wouldn't it keep value to our money?

Not if the pace of money creation outpaces the increase in goods and services.

Funny Keynesian voodoo reasoning goes though: if the economy slows down (e.g. goods and services creation slow down), its prescription is to create monetary (or fiscal) stimulus... hence throw more fuel onto the fires of inflation...

While I don't entirely agree with the people who say that one level money supply is as good as any (i think money supply needs to be elastic and a properly managed fiat money supply has this property, whereas you can't do that with gold), I would think austrian economics has a very valid point in that it does not consider deflation as bad...

If prices go down, consumption will go up, isn't this pure common sense?

The whole keynesian reasoning that if prices go down, consumption will also go down as people wait for prices to go down even more is, frankly, a stupid, immoral horseshit of an assumption.