Quote:
Originally posted by UnseenWorld
The US Federal banking system understands that you just can't print more money whenever you need it. You don't need a basket of dollars to buy a loaf of bread the way countries that "just printed up more money when they needed it" did.
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I think with 10% banking reserve policy they in fact are destroying the currency.
I put $1000 in the bank. Then Joe can borrow $900 on a shiny new car and the dealer puts $900 in the bank. Then Jane can borrow $810 on a shiny new car and the dealer puts $810 in the bank. Then Mary can borrow $729 on a shiny new car and the dealer puts $729 in the bank....
So many thousands of dollars are created out of nothing. They are simply credits calculated in the Federal Reserve bank. The problem starts when I withdraw my money. Now the banks are forced to call loans to meet their reserve requirement and cars are repossessed, dealers are stocked with cars they can't sell and the whole engine stops.
We had such situation in Russia when for every rouble there were 2000 accounting roubles. In a week those roubles were called and the currency imploded.
Two weeks ago the Central Bank for the first time ever traded more euros than dollars. For an economy that was completely dollarized it is an ominous sign. Russia is the largest holder of U.S. cash outside the states. As these greenbacks drift out of mattresses and back into the U.S. the reserve will need to tighten credit or accept the resulting inflation.
For people who say it's fantasy please explain why the 25% $ devaluation is just a ripple.