I thought it was intresting...

[tabi]

"Coins and paper currency are economic petty cash. At the end of 1990 the total amount of currency in circulation was $246 billion. The total amount of money, by the strictest definition (what economists call M1), was $825 billion. M1 money is whatever you can spend right now--currency plus checking deposits. A more inclusive estimate of the money supply (M2--includes savings accounts) was $3.3 trillion.

While currency is still the most popular method of payment, it accounts for only 1 percent of the value of all transactions. (The big money travels via "wire transfer" between banks--0.1% of the transactions, but 80% of the dollars.) People sometimes say inflation occurs when the government "prints too much money." Nonsense. The amount of money actually printed is inconsequential.

Nobody is in charge of deciding how much currency to issue. The Treasury Department prints it, but the amount actually distributed to the public is purely a function of consumer demand. If people want more greenbacks, they draw down their checking accounts and get them. The government prints as much as people want.

The government doesn't create money, private banks do. Banks create money by making loans. Suppose I put $100 in my checking account. The bank bets I won't draw it out for a while and lends $85 of my $100 to legendary cartoonist Slug Signorino. Slug blows the $85 on Captain Morgan and lottery tickets at McGinty's. Now McGinty's has $85 in folding green and I've got $100 in checking that theoretically I can draw out at any time. Behold, the local money supply has bloomed from $100 to $185.

It doesn't stop there. If McGinty's puts the $85 in its checking account, its bank will lend out most of it, increasing the money supply even more. That's how the banks find the cash to lend to Uncle Sam. They lend it out, the government spends it, the recipients put the money in the bank, and the banks lend out that. The total amount of money that banks can create is regulated by the Federal Reserve. Too much money (not too much currency) = inflation.

The whole financial system is a house of cards. Probably during that last example you were thinking, jeez, what if Uncle Cecil drew out his $100, as he was legally entitled to do? It wouldn't be there! Righto. If everybody decided to take what they had coming out of their accounts and bury it in the garden, the financial system would collapse, civilization would end, and we'd all go back to being hunter-gatherers. The modern world is made possible by the trust and sheeplike predictability of millions of depositors. (Deposit insurance makes it less of a crapshoot than it once was.)

The Federal Reserve System is not part of the government and is answerable to no one. (I know you didn't ask, but lots of other people have.) By "government" I mean the executive branch. The President does appoint the Fed's governing board but the members serve for long terms and can do as they please, free of political interference (in theory). The Fed is a quasi-public agency created by Congress and as a practical matter does not lightly defy the President.

The government will never pay back the money it owes and nobody expects it to. The government borrows money by selling bonds. Each bond is a portable money machine, generating interest for its owner on a dependable schedule. Nobody wants these bonds to go away. In fact, in a time of worldwide financial instability, they are in great demand. To pay off old bonds the government simply issues new ones. The main concern is that the government not issue so many bonds that the interest payments get out of hand"

[Janet Kindel]

Thank you for taking a confusing "problem" and making it simple enough for me to understand. - jshore

[tabi]

I think this is what really makes the gears start turning...

"Nobody is in charge of deciding how much currency to issue. The Treasury Department prints it, but the amount actually distributed to the public is purely a function of consumer demand. If people want more greenbacks, they draw down their checking accounts and get them. The government prints as much as people want.

The government doesn't create money, private banks do. Banks create money by making loans."

[Fi3ry_Ph03n1x]

This is the kind of explanation I was hoping to get from Ennorste in another post. Just to understand how hard currency and money supply contracts and expands. If I understand your post, Tabi, trillions of IQD will not be removed from Iraq's money supply through these normal financial mechanisms... most certainly not in a matter of months, anyway. I already knew this on some level, I just didn't have the background in economics to see exactly how it works. Your post is very sensible. Thanks for sharing!

FP

[keylime]

This also tells you Iraq will not have to have assets in the CBI to buy back the IQD when it RV's because it will be the US Treasury printing enough money to buy it back and hold it for paying off debt to other countries, and/or buying oil from Iraq with their own currency. The longer the US Treasury holds the dinars they buy back from us, if the dinar increases over time, the richer the US Treasury will get. In effect, the US Treasury will have bought a currency with the backing of oil and gold, and eventually pegged to a basket of other GCC currencies, for the price of what it cost them to print our US dollar(backed by nothing, a promisory note). The investors they buy from will take their earnings(in the billions?) and put it back into the economy, thus circulating it back to the US Treasury, where they will also store it right next to(so to speak) those beautiful brand new large denom dinars. Iraq doesn't pay a penny(dinar) for our dinars, but in the electronic world those dinars are stored as numbers from which the US Treasury can deduct from when they want to use them. Thus, large 3 zero notes are out of circulation, and at no real cost to Iraq, except for future oil exports to the good ole' US of A. And when the US pays off China, they will do so with the dinar and now China will hold the dinar in their Central Bank for future use.

Go US Hockey team!!!!

[tabi]

This also tells you Iraq will not have to have assets in the CBI to buy back the IQD when it RV's because it will be the US Treasury printing enough money to buy it back and hold it for paying off debt to other countries, and/or buying oil from Iraq with their own currency. The longer the US Treasury holds the dinars they buy back from us, if the dinar increases over time, the richer the US Treasury will get. In effect, the US Treasury will have bought a currency with the backing of oil and gold, and eventually pegged to a basket of other GCC currencies, for the price of what it cost them to print our US dollar(backed by nothing, a promisory note). The investors they buy from will take their earnings(in the billions?) and put it back into the economy, thus circulating it back to the US Treasury, where they will also store it right next to(so to speak) those beautiful brand new large denom dinars. Iraq doesn't pay a penny(dinar) for our dinars, but in the electronic world those dinars are stored as numbers from which the US Treasury can deduct from when they want to use them. Thus, large 3 zero notes are out of circulation, and at no real cost to Iraq, except for future oil exports to the good ole' US of A. And when the US pays off China, they will do so with the dinar and now China will hold the dinar in their Central Bank for future use.

Go US Hockey team!!!!

Keylime, I didn't mean to repeat you but, that's about what it turned into...

Exactly as the US will do, so will all the other countries that hold Dinar....They will by the oil back with the IQD they bought at the current rate. It will be like a guarenteed loan/repayment plan except no real money will ever be exchanged with Iraq.

Each country will loan speculators thier currency in exchange (creating more bank loans) on the assumption we will deposit most and spend some. In turn boosting the economy.

Every country will make a fortune with the currency they ALREADY HOLD, our currency we exchange, interest while they hold it, and more depending on further revalue of the IQD. In turn Iraq's cost is oil. I would also, assume when we do buy the oil, it would be more like 50%IQD to 50%USD to assure thier survival.

[quadraph0nic]

Keylime, I didn't mean to repeat you but, that's about what it turned into...

Exactly as the US will do, so will all the other countries that hold Dinar....They will by the oil back with the IQD they bought at the current rate. It will be like a guarenteed loan/repayment plan except no real money will ever be exchanged with Iraq.

Each country will loan speculators thier currency in exchange (creating more bank loans) on the assumption we will deposit most and spend some. In turn boosting the economy.

Every country will make a fortune with the currency they ALREADY HOLD, our currency we exchange, interest while they hold it, and more depending on further revalue of the IQD. In turn Iraq's cost is oil. I would also, assume when we do buy the oil, it would be more like 50%IQD to 50%USD to assure thier survival.

In a chat log from a few days back if I remember correctly, Enorrste said the same thing. Keylime and Tabi thank you very much for sharing this. I appreciate you both.

[Smackers]

Thanks these were a few of the most informative posts I've seen on this site.

[tabi]

In a chat log from a few days back if I remember correctly, Enorrste said the same thing. Keylime and Tabi thank you very much for sharing this. I appreciate you both.

I hope he did. maybe some people will listen to HIM!? It's hard enough no getting side tracked and start questioning youself w/all the debris flying around in here!!!