Half of US Households Get Govt. Money

http://blogs.wsj.com/economics/2012/05/ ... -benefits/

Well yeah, giving people money stimulates the economy!

team homerdoks.

also, for the record, 49.1% is less than half, MiB.

I don't know if it's fair to include Medicare and SS money when making that statement. The title makes it sound like half the country is on welfare or Medicaid and that's not the case.

So, um, this isn't going too well . . .

Hmmm.... waiting for the alogs to take over and bring us back up... but it aint happening.




I'm sure glorious leader will do something to help.

Viva Solyndra.

Bernanke testimonial, reminds of the first verses of The Dark Tower.

Ok, for fear of sounding too much like an economic rube, can someone please explain to me how printing more money stimulates the economy? I guess more specifically, where does this newly printed money go in order to "work"?

This is a serious question, btw. It is something I never clearly understood.

Essentially, the "printed" money is transferred to private lending and depository institutions, who then keep 10% of this transfer on hand (the "reserve requirement") and lend out the remaining 90%. But because every bank is doing this, the money supply increases by an order of magnitude, interest rates fall, and consumption is stimulated.

Depository institutions - be they conventional banks, credit unions, or investment banks - practice something called fractional-reserve banking. Contrary to what most imagine, these institutions are not required to keep 100% of the deposits they take in immediately on-hand. These institutions are instead required to only keep some fraction of their deposits on hand (hence the name "fractional-reserve" banking). This is called the "reserve requirement" and impels banks to retain a certain percentage of deposits in the form of physical vault cash or deposits with Federal Reserve Member Banks. As it stands, any bank with more than ~$60 million in liabilities (read: deposits) is required to reserve 10% (the repeal of Glass-Steagall removed this constraint for investment banks) in physical vault cash or with the Fed. So for every $100 in deposits received by some depository institution (the "printed money"), they are only required to keep $10 on hand. The remaining $90 can then be legally loaned out.

Say B deposits $100 in Bank of America. BoA holds $10 in reserves and has $90 to loan out. Little Wing is trying to buy a refurbished tank and needs to borrow $90 to finance his purchase, so he goes to BoA and borrows the $90 BoA makes available. After buying the tank from, say, Red Mosquito, INC, RM INC then deposits the $90 in their bank, Wachovia. Wachovia now has an additional $90 in deposits. Wachovia is required keep $9 in reserve, but are legally permitted to loan out the remaining $81. So say I, thodoks, borrow the $81 to buy a signed, first print of Joseph Tainter's "The Collapse of Complex Societies" from Sun Devil. Sun Devil then deposits the $81 into his bank, Wells Fargo. Wells Fargo must reserve $8.10, but can then loan out the remaining $72.90. And on and on.

This process continues apace until no more money can be lent out. It turns out that the total - or "money multiplier" - is the reciprocal of the reserve requirement. Since banks must keep 1/10 of the deposit on hand, the multiplier - or the reciprocal of the reserve requirement - is 10/1. B's initial $100 deposit turns into $1000 of money actually operating throughout the general money supply. But here's the catch: 90%, or $900, is debt (some backed by collateral, some not). There is only $100 of equity - actual physical, liquid capital - in the banking system at any one time. Another way to say this is that the banks debt-to-equity ratio is 10:1., or that the bank is "leveraged" 10:1 or 10x.

The idea is that additional liquidity will make both credit and the dollar cheaper, both of which typically stimulate consumption. Lots of flaws in that argument, but that's the theory by which the monetary and fiscal authorities are operating.

Thank you.

Also, like this:

http://finance.fortune.cnn.com/2012/06/ ... =SF_F_Lead

The main flaw being that currency is nothing but a division of labor sanctioned by government...

I can find nothing in economic literature suggesting that increased liquidity in an economy does anything more than a psychological boost to markets.

Really?

For better or worse, monetarism's kind of a big deal.

I'm talking about its functional basis in a structural recession. I can understand liquidity issues given monetarism's goal of a slow inflationary economy and injections of money into the system stimulating the economy if there's a liquidity contraction. But in a structural recession? Sorry, there's no functional basis there to provide any real growth by simply giving lending institutions a bunch of digitized dollars. All you are doing with monetary injections is improving investor sentiment and confidence that things might not get worse. It's a psychological boost.

Injecting more money into the system doesn't motivate me to work more. Nor does it improve my skills in any way. It doesn't do this to anybody else either. You can give all the paper you want to private lending institutions, this doesn't make their potential investments into the economy any better, as their potential investments are a function of borrowers ability to provide a return on investment, a function their skill set. If there's nothing worth investing in, they're not going to lend, as we've seen in this recession. Economies are a summation of what we can do for one another, and the arbitrary supply money really doesn't change this (unless you are in a deflationary bomb).

An injection of Euro's isn't going to do anything to fix the structural issues in Spain or Greece. It's merely floating two who societies on the backs of others production, devaluing the labor of the Germans...

What are investors wanting The Fed to do right now?

qe3 bro