When money is inflated, where does it go?

[jackg]

To that point, we have to look at what no growth in a global economy means and I don't think it means anything.

If an economy grows by 2% because inflation grows by 2% then it may as well grow by 0%.

Cfds and etfs are as bad for bitcoin as the exchanges are... You have to keep withdrawing money as quickly as its added there, otherwise companies get too comfortable with the stable amout of money they'll "always" have... This also causes inflation indirectly to a bitcoin based commodity.

The bank of England has a vault that stores 20% of the mined gold in the world. They got caught a few years ago with a total daily market volume of 500% of the mined gold in the world. Call it what you want but to me that is extremely inflated...

Inflation benefits those in debt, the people who rig the system in the financial rat race we have where money can't be saved because you get paid no interest on it while banks get their 5%... I made a post a while back where the European central bank changed its interest rates to be negative, that seems extremely irresponsible, the dead cat doesn't have infinite persistence, it can bounce once or twice but you can't keep doing cpr on it for years in the hope it comes back...

[el kaka22]

Inflation in the sense that the products will be more expensive and inflation in the sense that you have 100 dollars but deal with 1000+ dollar trades are totally different.

If you mean the inflation that trade with leverage like bank of England then that is alright since they are losing money that doesn't exists and the moment they get caught they are forced to remove that option and follow the new laws regarding those stuff and when they "win" money they don't have its just that they bet 1000 gold they don't have against someone who does have 1000 and if they win they don't have to pay anything could very well may have zero since they will just get paid but if they lose than they pay the fiat equal of it anyway. So, long story short the real trouble for humanity is the products getting more expensive not traders using leverage.

[South Park]

Inflation is created when the government print bank notes. This newly-printed money increases the price of products, due to having more money around. Fiat money is not backed by gold, and since governments have debts to international banks, each note is a garantee for that debt. For this reason, there is a constant need for growth in the economy, so that the multiplication of products can pay the interests of these debts, leading to more bank notes being printed, which in turn inflate the price of products and creates more debt, in a snowball effect.

snip

I agree but inflation is also produced by private banks, since private banks can use fractional reserve banking this means that for each dollar they receive they can lend about 90% of those dollars, so they can create money by just adding an entry in their accounting books, in fact it is speculated by some economists that most of the inflation in the world right now comes from this sleight of hand that banks play with our money.

[jackg]

I thought the thing about a fractional reserve system was that the currency can be increased by 90% each time bringing git to a total of about 80x every dollar invested or something (I don't have the accurate figures).

[pereira4]

There is no real competition between banks. There is a monopoly. If there was a real competition going on and users choosing whatever fits their needs best it wouldn't be such a clusterfuck. Hal Finney talked about this back in the day with his "bitcoin banks" idea:

Actually there is a very good reason for Bitcoin-backed banks to exist, issuing their own digital cash currency, redeemable for bitcoins. Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the block chain. There needs to be a secondary level of payment systems which is lighter weight and more efficient. Likewise, the time needed for Bitcoin transactions to finalize will be impractical for medium to large value purchases.

Bitcoin backed banks will solve these problems. They can work like banks did before nationalization of currency. Different banks can have different policies, some more aggressive, some more conservative. Some would be fractional reserve while others may be 100% Bitcoin backed. Interest rates may vary. Cash from some banks may trade at a discount to that from others.

George Selgin has worked out the theory of competitive free banking in detail, and he argues that such a system would be stable, inflation resistant and self-regulating.

I believe this will be the ultimate fate of Bitcoin, to be the "high-powered money" that serves as a reserve currency for banks that issue their own digital cash. Most Bitcoin transactions will occur between banks, to settle net transfers. Bitcoin transactions by private individuals will be as rare as... well, as Bitcoin based purchases are today.

[Yakamoto]

I thought the thing about a fractional reserve system was that the currency can be increased by 90% each time bringing git to a total of about 80x every dollar invested or something (I don't have the accurate figures).

I'm trying to figure out what it is that you mean when you ask where the inflated money "goes". Every dollar still exists, the difference is that it is worth less individually because of the constant re-issue of it in the form of debt. The original dollars aren't going anywhere.

You're pretty close with your comment that each dollar can create an additional 80, because they can re-issue up to 90% of a deposit a ridiculously large amount of times, if not every time it's deposited.

If you're trying to ask where the money goes once it's paid back, it turns into a profit for the bank. Inflated money just kind of continues to exist once it's "repaid", although the debt can never be truly paid back because there is always more money required to pay back the interest as well as the principle than that which existed in the first place.

[jademaxsuy]

Inflation is created when the government print bank notes. This newly-printed money increases the price of products, due to having more money around. Fiat money is not backed by gold, and since governments have debts to international banks, each note is a garantee for that debt. For this reason, there is a constant need for growth in the economy, so that the multiplication of products can pay the interests of these debts, leading to more bank notes being printed, which in turn inflate the price of products and creates more debt, in a snowball effect.

Bitcoin and precious metals have PoW (proof of work) and for this reason, they are not inflactionary. In fact, they are deflactionary, as there was no growth in the economy when gold was the money standard. Today gold is being controlled by derivatives, but not bitcoin, so bitcoin is a threat to the fiat system, as it would not roll the debt. The whole idea of the fiat system is to impoverish the nations through the stacking of debt, which happens through inflation.

yes I am.thinking that printing of more bank.notes is the reason for the inflation as its market price will going to deteriorate as the economical value for a certain country remains the same. This is why bank.notes will going to go down in terms of its market value as banks added supply. This will result why the products too became expensive. However, printing bank.notes were also play important roles like having a smooth transaction when it comes to big and small transactions.

[buwaytress]

I'm not an economist but I have had this explained to me by a former classmate now working in the equivalent of a central bank (it's a small country, so they have a monetary authority, but it's the entity that prints new money so in essence, it's the one monitoring and regulating the other banks, so the de facto central bank).

The short answer to OP = money that prints belongs to the country's central bank. A country's central bank is the one who decides how much money it has. It prints it, and says it's legal tender.

I have further input, maybe it's helpful maybe it's not:

Banks print money because they need the economy to flow. People need to buy goods and services, and people need to get paid, civil service needs salaries, etc.

I was told that this particular central bank for the past years since he worked there, prints about 3% of its annual GDP (which actually is very different and much higher than what is calculated, for example, by OECD). The poorer the economy, the higher this tends to be. Lots of other factors too of course. Some are simple and more direct, especially in emerging economies. Population growth (you simply need to put more money out into more hands).

So a growing GDP naturally needs more cash circulating so the economy runs.

The more sophisticated the central bank's system of calculating the demand for currency, and the supply of it, the better it keeps things equal. So it works really well in small countries like the one my friend works in. <300k people for the past 30 years, and there is barely any inflation because they know really well the demand for money and print really small amounts. Petrol and a pack of food (rice + meat) has been the exact same price since 1980s. Salaries also have changed very little.

[FanEagle]

The idea of trickle down economics is giving the money to rich people and let them spend money on stuff and then the public will be profiting from it. That has never worked in history because the rich spend money on rich things whereas poor only sell poor things. The rich get yacths and there is no poor yatch sellers, they buy stocks and poor barely can survive living a month without need of extra money let alone save enough to buy stocks, rich buy luxurious cars and other rich people are selling it.

Basically, what rich spend their newly found money is helping other rich people get richer whereas none of it goes to bakery that baked the bread since it is same price to rich and poor. That is why when inflation happens because of printing money there is no way the poor will get help from it.

[Naida_BR]

I'm missing a link here and things don't seem to add up.

Most places say that a bank gets the money for inflation and has to pay it back, but if this is the case the system would topple much faster than it does when it's just with its fractional reserve ponzi shit.

Is the government given this money? I'm talking about the UK but if there's the same or different elsewhere then feel free to discuss thst too.

Unfortunately, the government prints more money but this money is not backed up by any reserve.
So, to answer your question. Yes, the government gives this money but it is not backed with any value and it creates a ponzi scheme that will blow faster if governments print more and more money.

[jackg]

I have further input, maybe it's helpful maybe it's not:

Banks print money because they need the economy to flow. People need to buy goods and services, and people need to get paid, civil service needs salaries, etc.

I was told that this particular central bank for the past years since he worked there, prints about 3% of its annual GDP (which actually is very different and much higher than what is calculated, for example, by OECD). The poorer the economy, the higher this tends to be. Lots of other factors too of course. Some are simple and more direct, especially in emerging economies. Population growth (you simply need to put more money out into more hands).

So a growing GDP naturally needs more cash circulating so the economy runs.

The more sophisticated the central bank's system of calculating the demand for currency, and the supply of it, the better it keeps things equal. So it works really well in small countries like the one my friend works in. <300k people for the past 30 years, and there is barely any inflation because they know really well the demand for money and print really small amounts. Petrol and a pack of food (rice + meat) has been the exact same price since 1980s. Salaries also have changed very little.

This sounds like quite an interesting case to look at. Thanks for posting this about your acquaintance.


It seems I'm getting a lot of different answers and I'm not sure if this is the case because different countries work differently but I assume it is. Places like India are known to give the wealthiest of people more money. Its interesting to look at two ways of how wealth is percieved:
1. A lot of wealthy people and conservatives at that believe that poor people are poor because they haven't made money even after being given opportunities. And in some cases this is of course true but in quite a lot of cases it isn't.
2. A lot of poor people are poor because in some cases they don't want too much money (people normally end up in debt if they get rich quickly). Some poor people are poor because they can't get anything. A homeless person can't claim unemployment benefits in most places as they don't have a fixed address and are often without relevant paperwork like passports and birth certificates...

[Theb]

Most places say that a bank gets the money for inflation and has to pay it back, but if this is the case the system would topple much faster than it does when it's just with its fractional reserve ponzi shit. 

You might be talking about central banks directly getting a big part of the money supply here through debt collection owed to the government and by treasury bonds being released by them which is purchased by investors who are looking for fixed interest paid income, this is only one of the methods but it's hardly the most used one since not all of the people are interested in treasury bonds or even have direct debts to the government. What's more effective is by directly changing their monetary policy through raising up interest rates which forces people to save and keep most of their money supply which greatly affects the majority of the money being recirculated in that country. The bottom line is if lesser money is being supplied or being recirculated in the economy then inflation can either decrease or slow down in a certain period.

[exstasie]

Cfds and etfs are as bad for bitcoin as the exchanges are... You have to keep withdrawing money as quickly as its added there, otherwise companies get too comfortable with the stable amout of money they'll "always" have... This also causes inflation indirectly to a bitcoin based commodity.

The bank of England has a vault that stores 20% of the mined gold in the world. They got caught a few years ago with a total daily market volume of 500% of the mined gold in the world. Call it what you want but to me that is extremely inflated...

It surely is. This is one of the reasons I've always been nervous about the effect of Wall Street on the Bitcoin market. The London bullion market is the price setting mechanism for the gold spot market. It still is, long after it became abundantly clear that fractional reserve practices are being employed. These are the same fractional reserve practices that are employed at COMEX, ICE, and all Wall Street exchanges. Yes, that's the same ICE that's backing BAKKT.

[buwaytress]

This sounds like quite an interesting case to look at. Thanks for posting this about your acquaintance.


It seems I'm getting a lot of different answers and I'm not sure if this is the case because different countries work differently but I assume it is. Places like India are known to give the wealthiest of people more money. Its interesting to look at two ways of how wealth is percieved:
1. A lot of wealthy people and conservatives at that believe that poor people are poor because they haven't made money even after being given opportunities. And in some cases this is of course true but in quite a lot of cases it isn't.
2. A lot of poor people are poor because in some cases they don't want too much money (people normally end up in debt if they get rich quickly). Some poor people are poor because they can't get anything. A homeless person can't claim unemployment benefits in most places as they don't have a fixed address and are often without relevant paperwork like passports and birth certificates...

No problem, I'm happy if it helps (or even if it doesn't haha) -- there aren't that many countries with the descriptions I've given so it could be easy to narrow it down.

You can actually also look on LinkedIn and find some people in these smaller jurisdictions who might have a lot to share (and could be happy to share). Malta, Gibraltar, San Marino, for example, all have set up blockchain jurisdictions and all have small enough networks to probably give insight.

1. You're right that most people of advantage naturally believe poorer classes simply have not used their opportunities well but social and economic situations at birth are statistically proven as huge advantages. I'm no communist or socialist ideologically but I do see a lot of problems in socioeconomic policies in developing countries where I spent a lot of my life in. Systems that really force people to be in cycles of poverty and debt, for example.
2. A lot of poor people have been born poor, very few make the transition from rich to poor in one fell swoop, although there are many blurred lines now. There is a global poverty line my country uses, but as well a national poverty line (which is many, many times the global poverty line) and there is an official Urban poverty line to reflect cost of living in the cities. Since the 1980s, my parents and my generation belong to the urban poor but I would never call myself poor... it simply means we don't own property, we are renters, and probably owe banks money. But we can eat;)
For most able-bodied adults, they don't even have unemployment benefits here but it's the same throughout most of Asia.