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Why does this not cause inflation?

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Yoga Face

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When the government borrows from people that does not create inflation because no new money has been put in circulation

however

when the government (or anyone ) borrows from the banks the banks lend monies they do not have so they are making up money in the form of credits so why does this not cause inflation ? and why would the government borrow made up credits when they can make their own credits up at 0 % interest?
 
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Hangman

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Wow. You really don't understand finance or economics, do you?

I suggest reading wilipedia on the subjects of inflation, interest, and other financial topics. Once you understand how interest works you'll have an answer to your question.
 
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Yoga Face

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Hangman said:
Wow. You really don't understand finance or economics, do you?

I suggest reading wilipedia on the subjects of inflation, interest, and other financial topics. Once you understand how interest works you'll have an answer to your question.
Click to expand...
Hangman my question stands as is

Inflation is increased money supply divided by GNP

If you have doubled the money supply but doubled the amount of widgets than the price of widgets remains stable


The banks lend more monies than they have taken in through deposits ergo they create monies in the form of credits which has the same effect as printing money yet very little inflation

But if the government prints more monies to fund their projects this creates massive inflation

While bank created monies are eventually repaid (taking the monies out of circulation) the government could take its monies back through taxation so why would the government borrow from banks and pay interest instead of borrowing from itself at 0 interest ?

As well. if the government prints monies but creates GNP with those monies so this should not creater inflation
 
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splooge

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Why was Hangman so rude? It's not like he gave a good answer. And Yoga Face, that is a great question.

Rockslinger is right, however, inflation is delayed because of the sluggish economy.... Things are still in high supply with very low demand right now. There is more to it then this, but even the fed chair of the USA is haing difficulty understanding it all.
 
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djk

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Printing money is not the only cause of inflation.

Another factor is demand-pull inflation which really cannot occur in the current environment. I haven't seen any examples of cost-push inflation, tho.
 
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Yoga Face

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My question is not about the current economy but applies to any economic situation be it capitalism or otherwise

I just cannot understand why the banks can lend money they do not have ( in the form of credits) that may or may not create GNP - IE some of this lent money causes bidding wars EG the American housing market before the crash - and not cause inflation ( unless the monies go into bidding wars ) but when the government does the same thing by printing more monies to pay for projects that increase the GNP it causes inflation



While it is true most of the banks lent credits create GNP IE you buy a Ford now Ford builds another car - keeping inflation down but when the government prints monies to create GNP it causes inflation ?

Consider 90% of the government debt is the paying of the interest on borrowed monies , if the government borrows money from itself they pay no interest !
 
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nottyboi

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Yoga Face said:
Hangman my question stands as is

Inflation is increased money supply divided by GNP

If you have doubled the money supply but doubled the amount of widgets than the price of widgets remains stable


The banks lend more monies than they have taken in through deposits ergo they create monies in the form of credits which has the same effect as printing money yet very little inflation

But if the government prints more monies to fund their projects this creates massive inflation

While bank created monies are eventually repaid (taking the monies out of circulation) the government could take its monies back through taxation so why would the government borrow from banks and pay interest instead of borrowing from itself at 0 interest ?

As well. if the government prints monies but creates GNP with those monies so this should not creater inflation
Click to expand...

The bulk of money is created by banks and not by the Govt. It is assumed that banks will allocate capital more efficiently though the lending process...although this concept has been proven to be quite a laughable one by the last financial crisis. In fact the large banks and the govt have essentially been merged by the last financial crisis.
 
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nottyboi

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Yoga Face said:
My question is not about the current economy but applies to any economic situation be it capitalism or otherwise

I just cannot understand why the banks can lend money they do not have ( in the form of credits) that may or may not create GNP - IE some of this lent money causes bidding wars EG the American housing market before the crash - and not cause inflation ( unless the monies go into bidding wars ) but when the government does the same thing by printing more monies to pay for projects that increase the GNP it causes inflation



While it is true most of the banks lent credits create GNP IE you buy a Ford now Ford builds another car - keeping inflation down but when the government prints monies to create GNP it causes inflation ?

Consider 90% of the government debt is the paying of the interest on borrowed monies , if the government borrows money from itself they pay no interest !
Click to expand...
Of course it caused inflation... housing prices went up... before they imploded. The govt and the central bank (which creates money) are supposed to be arms length entities.. although this has become quite shaky in the US.
 
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Yoga Face

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nottyboi said:
Of course it caused inflation... housing prices went up... before they imploded. The govt and the central bank (which creates money) are supposed to be arms length entities.. although this has become quite shaky in the US.
Click to expand...
Bank credit does not cause inflation unless the lent monies go into a irrational bidding war. This is obvious as we can go decades without serious inflationary problems

So why does it cause inflation when the government prints money to pay for public projects instead of borrowing bank created money to pay for same projects ?
 
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nottyboi

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Yoga Face said:
Bank credit does not cause inflation unless the lent monies go into a irrational bidding war. This is obvious as we can go decades without serious inflationary problems

So why does it cause inflation when the government prints money to pay for public projects instead of borrowing bank created money to pay for same projects ?
Click to expand...
because govt printing is magnified through the banking system. Banks can borrow at the overnight rate to meet their reserve requirements and lend 10x. They can also borrow for speculative activities. Govt's don't always print. They often borrow, and that competes with the private sector and drives up rates.
 
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Yoga Face

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nottyboi said:
because govt printing is magnified through the banking system. Banks can borrow at the overnight rate to meet their reserve requirements and lend 10x. They can also borrow for speculative activities. Govt's don't always print. They often borrow, and that competes with the private sector and drives up rates.
Click to expand...
So why would the government ever borrow?

Just print money to build the subway and this should not cause inflation as they have increased GNP

However, they would be increasing wages as the market competes for labor but borrowing would have the sane effect```````````````````````````````````````````````````````````````````````s
 
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Rockslinger

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Having learned their lesson from the 2008 recession, corporate America is sitting on $2 trillion of cash as they enter the great recession of 2011-2015.
 
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Rockslinger

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The TSX first touched 11,177 in August 2000. Guess where it closed on October 4, 2011? Yup, 11,177.:frown:
 
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