I don’t think the Fed’s actions were to increase production, it was more to stabilize the financial markets off the bottom. From a pyschological view, I think it did just that.

Yes they increased their balance sheet, but they took warrents and stock in exchange for those investments into the market. And you may be down on them for doing it, but the fact is they are making money, lots of it. Over $11 billion in profit from Citi alone. The market sees this and is why you are not seeing gold prices take off.

Your question should be not what they have created and spent, but what are they going to do with the windfall they will get in. If they give it to the Treasury to pay down debt, it would be great. But if they give it to the Treasury to pay for healthcare, not so great.

I am confused too. I thought that the money supply increased primarily as a result of the multiplier effect from the Fed’s open market operations, coupled with lower interest rates to spur lending. How can the money supply be increasing if the money from Fed’s open market purchases is just sitting as reserves?
Charles Eisenstein

“(Remember, without a growing pool of real savings no economic growth is possible.)”

Printing dollars is real savings. It is savings confiscated from those with dollars.

Then the government “invests” it as it sees fit. It might do a good job, but usually probably does a terrible job.

The government could print money to build a railroad or some other project that has a return on investment which leads to economic growth.

So I would just be weary of statements like without real savings no growth is possible and instead say that growth without real savings is contingent on how the government uses the money they confiscate with the printing press.

If I understand your article correctly, you are stating that the seed capital (savings) needed to sustain wealth producing activities has been eaten by the wealth consuming activities. The ebb and flow of this has been going on through the very many business cycles that we have experienced since the evolution of the FED. Accordingly, we are reaching a point where liquidation of the wealth consuming activities or malinvestments must occur before any real growth can emerge which would be defined as redirecting wealth producing activities I visualize this as an economy that has been supported by a sea of paper or electronic money which is now sinking. Very ominous to the chief benefactor of wealth consuming activity, real estate in all its forms.

Is putting money to work rather than dropping it from a helicopter a better solution or will you get the same result?

Let’s say the fed could inject money into productive enterprises. Instead of money going to tax rebates and cash for clunkers and community organizing, the money would find its way into the production of goods and services mostly on the small business scale. This is the only scenario I see that the government could actually stimulate the economy. I would go further than the supply siders and include employee hire tax credits and abundant funding to institutions like the SBA.

I don’t see the point of the US government writing unemployment checks month after month to people who are sitting around watching soaps. I bet many unemployed Americans want to do something. They should be give a choice, either receive $2500 for 18 months or take a lump sum to be used for investment in a start up business. The government could pay unemployed people $45,000 in benefits over the 18 month period. Or the unemployed person could take a lump sum of $25,000 to start a business. In reality, I don’t think this would be feasible. There would be too much corruption and fraud. The impetus is to get people to be productive and use resources in the most efficient and optimal manner.

Sproul’s here! Welcome back, Mike!

Austrians – if you’re sick of sitting around agreeing with each other all day, try clicking on Mike Sproul’s name and reading his papers:

“There’s No Such Thing as Fiat Money”

and

“Backed Money, Fiat Money and the RBD”

then let the greatest show on earth commence!!!

So I would just be weary of statements like without real savings no growth is possible and instead say that growth without real savings is contingent on how the government uses the money they confiscate with the printing press.
Since the government is necessarily diverting savings from voluntary market choices, how can it possibly use the money in a way that satisfies consumers better than if they had not diverted those savings? It will always do a worse job, no matter what kind of return it gets on its spending.

” if printing money can grow the economy, then why not to print plenty of it and cause massive economic growth? ” Frank Shostak

If printing money can not grow the economy, why printing money at first ?

[quote]Since the government is necessarily diverting savings from voluntary market choices, how can it possibly use the money in a way that satisfies consumers better than if they had not diverted those savings? It will always do a worse job, no matter what kind of return it gets on its spending.[/quote]Personal liberty aside (and I am libertarian), but from a pure economic perspective with the overall economy in mind, this is a simple question to answer.

A hypothetical rail road, school, library, etc that has big ROI could easily be better for the economy as a whole than someone buying cocaine, hookers, a car, or some other miscellaneous expense.

There are many “good” government expenditures that can have higher ROI than “bad” private expenditures. In some cases, the government indeed can spend people’s money better than they can.

Again, that is setting aside personal liberty, which I would prefer to not do. I would rather have 400 hp MR2 and assault rifles that I “don’t need” than have that money be spent on something else by the government.

But purely from an economic stance, the government could take that money from me so I don’t get my assault rifle, and then spend it by buying stock that pays a dividend. I could do that too, but I decided to have a present good instead of a future good – and no ROI.

As the government prints money they take wealth from savers and spend it as they like. It is a transfer of wealth from savers and workers to government.

If workers choose to work even harder the government is encouraged to continue its unjust activities. The US has increased its debt by more than 9% per year since 1970. This is a hidden tax on productive parts of our society. If you have a treasury bond paying 5% you are losing 4% purchasing power every year and more after you pay taxes on your “5%” yield.

Income tax, sales tax, estate and inflation tax all push wealth from the private sector where it is created to the government where much is wasted and stolen.

Hard working Americans have not elected politicians who are willing to reduce the growth rate of government debt except for Clinton. If the top 10% of tax payers purposefully worked part time, earned less and paid less in taxes there would be change. If American businesses moved to other countries there would be change.

The American dollar would fall as it should.
Prices would surge. Unemployment and interest rates might rise to 20%. Voters would then decide to elect leaders who balance our budget and expand private business. Reasonable taxes and a small limited government would bring prosperity to America.

Instead, what will happen again is gradually economic activity will improve. Investors will get excited like Larry Kudlow when the Dow gets to 14,000 even though the number is inflated by fiat currency printed by the government. Low interest rates will lead to risky investments and another financial crisis will occur.

hmm..not to worry. those silly asians with their savings glut will recycle their savings thanks to the magnanimous US fed/treasury.all the wealth generators in asia will remain foreved indebted to his highness bernanke