If a dollar comes into the US as a loan (i.e. T-bill), it will have to go back out again.
more than a dollar goes back out actually. there's the interest payable on the T-bill, which is the whole point in buying them in the first place. if we didn't have to worry about inflation it would definitely be a net loss.
if we inflate the crap out of the dollar ...
say, how many 2005 dollars does it take to equal one 1945 dollar anyways?
on the downside, hyperinflation isn't very much fun on the domestic front either. and it's hell on investment / savings.
if the dollar deflates, the Chinese and other ex-US holdings mean we are well and truly screwed. which is actually part of the danger of what's happening right now.
the number of paper dollars that the Treasury prints is so small as to be near meaningless compared to the number of dollars that are actually in circulation. that's because most US Dollars exist only as numbers on a bank's balance sheet.
when trying to understand the money supply ( the number of USD that are in circulation ) it is essential to understand that the Federal Reserve creates and destroys orders of magnitude larger quantities of money than the Treasury will ever print in paper or stamp in coin via the Reserve's changes to the primary credit rate.
the reason this works ( or is supposed to anyways ) to control the money supply is the Fractional Reserve lending practice. currently, the US only requires a bank actually have 10% of the deposits on it's books "on hand". it can lend out 90¢ on every dollar that is deposited at the bank. which will then get deposited at another bank and then lent out again and again and again. the Fed interest rate stimulates or dampens the eagerness with which people/businesses attempt to get loans. the more loan activity that goes on, the larger the money supply gets.
the problem we've got right now is that the banks are still required to have that 10% held back in real dollars or other assets. and far too much of the banks asset sheets are tied up in real estate.
so, a bank which last year had 15% ( to pull a number out of my butt, they normally run much closer to the reserve limit than that ) in reserve assets booked on it's sheets, without lending out a single dollar, is insolvent today because the real estate that it is using/holding as collateral has collapsed in valuation as much as 50%. think "IndyMac".
this is why Bernanke dropping the interest rate is having no effect. it does not matter what the interest rate is, if the bank doesn't have excess reserves to lend out it cannot make a loan. if the bank cannot make loans, money 'creation' ( via the Federal Reserve mechanisms ) grinds to a halt.
this is also why McCain proposing to have a court lower your mortgage interest rate and principal by judicial fiat is so stupid. it does nothing that is not already being done by the market ( when possible, lenders are eager to renegotiate mortgages to keep people in homes now ). and it creates the prospect of banks being made insolvent by judges who have no qualifications in real estate whatsoever revaluing property to any damn thing they feel like.
the issue of banks being required to make loans to people who are manifestly unqualified to pay them off is why Barney Frank and so many others on the Congressional banking committees need a bullet in the face.
The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.
Vladimir Lenin
Government schooling is about "the perfect organization of the hive."
H.H. Goddard, Human Efficiency (1920)
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