Million's, Billion's and Trillion's, Oh My !

[cravertosu]

Tim, I made my mind up long ago that I'm gonna live my life as best I can under the circustances too. I know I can't change what happen's "up there" and probably couldn't do better myself anyway. But every now an again I still try and make sense out of it. It bother's me that I can't. I know "just get over it" and go fishing. Well my friend that's what I'll do tomorrow. Rockfishing out'a Rudee Inlet, me, some buddie's and the wind!!!! There that'll help thing's pull back into perspective. Life is good again!!!Frank,SeaPower

Catch a couple for me while you guys are out there!! Look forward to the report and pics when I get up Tuesday morning!!

Good Luck, Catch em' up!

[seapower]

Flat, you wouldn't by chance be an Economic's Professor under contract with the FED would you? You have the exacting quality to make everything CRYSTAL clear, ecspecially in the monetary system. THanks for your time and patience with my silly little question's. Frank,SeaPower

[iguana1]

seapower,

Your initial post is right in that there really isn't anything standing behind our money besides trust. Ultimately it is backed by the word of our government, and one might argue that this is what has contributed to the recent long slide of the dollar vs/ other currencies (the lack of faith in ouor govt). Before the meltdown, had you bought the dow in Euros in 2001 you would have been DOWN in Jan 2008. However, post-meltdown the dollar has strengthened, arguably because in bad times you park your money with the govt with the strongest military standing behind it.

Flat is right on the multiplier effect where banks can lend mroe than they have in deposits. This cuts both ways. It can be very dangerous in creating bubbles, but it can also be very helpful in allowing the the Fed to manage monetary policy (create liquidity through rate ctus, capital requirements, etc) which has saved us in from prior market hiccups (1987, 1998 for example). If you look at economic shocks when we were on the gold standard they were more frequent and more severe.

The scary thing I see about monetary policy today is that the vast majority of the country's citizens and businesses are net debtors (not to mention the govt debt). This creates a huge temptation to inflate the problem away using monetary policy (inflation effectively reduces). If you are a saver, you could be screwed.