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Government deficit spending circulates worthless money and increases the money supply beyond demand. This dilutes the value of the dollar. It also increases the cost of imports and oil in particular.
To stem the inflation tide, the central bank increases interest rates to tighten the money supply. This makes less money available to the economy but does nothing to halt the reason for the start of the inflationary cycle: government deficit spending.
How can the central bank's efforts be effective as long as government spending is out of control?

2007-06-27 00:12:57 · 8 answers · asked by .... . .-.. .-.. --- 4 in Politics & Government Politics

The problem with the gold standard is that it doesn't keep up with the rate of the expansion of the economy.
There is only so much gold on the planet. It cannot be dug up and put in reserve as fast as the economy expands.
The current monetary system depends on the assets on the reserve banks. As the value of their assets increase, they are allowed to circulate money script.
All money issued since 1971 has been Federal Reserve notes, not U.S. dollars.

2007-06-27 00:57:55 · update #1

8 answers

where government is involved the world seems to have ill effects what the government thinks is good for the people is not all ways the case.

2007-06-27 00:17:28 · answer #1 · answered by rocccj 2 · 0 0

I really think we need to go back to the gold standard because it gets government out of the business of controlling the money supply.
At this point, this is over-simplifying I know, they just print more money when it is needed. That drives the value of the dollar down thus in another way, making less money value in what money supply is available.

2007-06-27 07:48:47 · answer #2 · answered by citizenjanecitizenjane2 4 · 1 0

So far inflation's not too bad, so the Fed is able to balance things. I'm not saying prices are not rising, I'm saying it's not like the 1970's and 1980's rates of inflation.

At some point, this economy is going to crash. Intuitively I see it as a house of cards, and the fact that hedge funds are so profitable now, worries me.

2007-06-27 07:42:53 · answer #3 · answered by Anonymous · 1 0

The bank tries to keep inflation at a so-called tolerable level. If interest rates get pushed too high, the economic activity declines.
If you can control government spending, go for it. No one else can.

2007-06-27 07:33:12 · answer #4 · answered by regerugged 7 · 1 0

The federal budget has always been the fly in the ointment in monetary control.

2007-06-27 08:03:56 · answer #5 · answered by Perplexed Bob 5 · 0 0

i am not sure how you can say the goermnet is devaluing our money when pennies pre 1982 inthe usa are worth 4 cents each on the copper market.

2007-06-27 07:33:13 · answer #6 · answered by Anonymous · 1 1

I agree with citizenjane on this.

2007-06-27 08:56:00 · answer #7 · answered by Anonymous · 0 0

I don't think they are really trying.

2007-06-27 08:47:06 · answer #8 · answered by Anonymous · 0 0

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