Question by who is #1?: Paying down debt results in deflation?
Even though all that new money is circling in the stratosphere between FedGov & banks and hasn’t hit the streets (yet), at street level Americans have been reducing their debt load; so far about 10% (27% in Arkansas! who knew?!). Since our money = debt, by canceling debt, we essentially pull money out of the system, destroy ‘money’ thanks to the magic of fractional reserve banking.
http://en.wikipedia.org/wiki/Fractional-reserve_banking
It has been said that if all debts were paid, there would be no more currency, since those ‘Notes’ we use for money = debt notes and they would have all been paid off. {The fact that USA and its people owe more money than exists should be no surprise in a debt-based universe. So there’s a bubble there, and you know what happens when bubbles burst….}
So, what happens when Americans get out of debt and the M-whatever money supply of bank/credit/notes/electrons become scarce? Will people resort to trading silver coins or chickens?
http://www.silverandgoldshop.com/
http://www.commonsenseprep.com/WhyPrep.html
All you money gurus out there who remember Jimmy “you can trust me” Carter’s inflation, which can of course be blamed on Nixon’s “closing the silver window”, which can be blamed on FDR and Woodrow Wilson and the creation of the Federal Reserve in 1913 and of course the evil Congress which continues to refuse to exercise its Constitutional Duty to “coin money and regulate the value thereof”,
where does this end? How’s it going to play out? What should we do?
Best answer:
Answer by SDD
You’re not going to see huge reductions in debt. Paying down debt makes economic sense only where the use of funds generates lower IRR than the cost of borrowing. While this is usually true of most government spending, it is not usually true for corporate debt — which is why companies are issuing lots of bonds at record low rates. And even in the case of government where reducing debt makes economic sense, it won’t happen because the current occupants of government are quite happy with the Ponzi-like schemes that defer the reckoning to some future time when they will be working elsewhere.
What do you think? Answer below!
Tags: debt, deflation, down, Paying, Results
There is no political will for deflation. Bankrupt entities will continue to be bailed out, including FDIC, State Govt, Fed Govt.
“Anyone who says the stimulus measures ever stopped doesn’t know what they are talking about. We actually have several “blackhole bailouts”; bailouts with undefined limits or no limits at all, draining money from the American taxpayer continuously. One would be the endless bailout of Fannie Mae and Freddie Mac, which will require more and more stimulus every quarter as the housing market continues to disintegrate. Another, would be the rarely spoken of bailout of the FDIC, which has been in the red for quite some time now. Just as Fannie and Freddie’s bailout is dependent on the constant default of mortgage loans, the FDIC’s bailout is predicated on the constant default of banks.” – Giordano Bruno – Zerohedge
The outcome will be the failure of the US dollar, as the money for these bailouts will be created from thin air. There isn’t much you can do except purchase some gold and silver and hope that the hyperinflation is over within 6 months.
It is not as simple as paying down debts. This post from FOFOA blog may give you some perspective:
http://fofoa.blogspot.com/2010/09/just-another-hyperinflation-post.html
We have been playing with false money ever since allowed credit cards to be a form of payments.
Money is credit not debt, it is the stuff you can buy things with, and if people pay off their debts credit will still be available,
please check this out(if you havent)… http://video.google.com/videoplay?docid=7065205277695921912#
the money comes from a non-government agency…the Federal Reserve…the fed is not governed…it is private…you go search around the internet and you may get the impression that it is a government agency…but no its not…and Greenspan has admitted it so there is no debate.
here is a good answer http://answers.yahoo.com/question/index?qid=20090107183347AAU7s0y
wanna see something just great…watch this clip… http://www.youtube.com/watch?v=ol3mEe8TH7w if you wanna get to the meat of it go to 7:40 where Alan Greenspan says exactly “there is no other agency of government that can overrule actions we (the Federal Reserve) take”
honestly…i am beginning to think Greenspan is the anitchrist
where does it end…how does it play out…??
Well there are 3 choices that we have. We can revolt at which point the military would be called in to fight against their national brothers and sisters and we would slip into civil war and then world war. we can continue to trust blindly the decisions that the corporatocracy makes which will lead to the collapse of the monetary system at which point we will have to have a global currency controlled by the world bank…this will only happen though after an abrupt collapse of one or more major business sectors most likely food or water at which point people will become savages and marshal law will be enacted(i estimate that on current course this will happen by 2050).
or the last option we drop out of the system completely. stop voting…stop buying…stop selling…stop working…stop competing.
When debt is repaid, money goes from person X to the bank. The bank lends it again to another person Y. (it has to lend, otherwise it cannot make profits – its profits will shrink). If the debt was not repaid, the money would have stayed with X. So now the money has changed hands from X to Y. So there should be no effect.
If any change of hands happens within the system, it will not affect inflation or deflation – unless, all money goes into or out of a specific sector. Say, banks give loans to many customers with the end use in housing sector. Then, there will be an isolated effect in the housing sector. This can push up inflation. And vice versa. It all depends on channeling and end use stipulation.
The only bit of sense in your ramble is that paying down a bank loan does erase that money from existence: bank loan issuance creates money and bank loan amortization destroys money. Congrats, most people who think like you never figure that part out. However, that actually does not mean money = debt: that misconception is sort of a tattoo that usefully identifies morons.
However, everything else you said is a waste of ASCII characters. There is not much chance that people will become so completely debt-averse they cause deflation just from debt repayment. In fact much of the “debt reduction” is just write-offs of bad loans, so that was not real money in circulation anyway.
Debt was invented long before money was, it’s an integral part of every economy. Fractional Reserve banking has been around for 500 years, and in the days of the US gold standard, money was created by bank loans, just as it is today. We had debt long before we had the Federal Reserve or Jimmy Carter.