Thurs. 10/04/08 19:10 EDT
.post #53
Although, I would argue this point. I would argue that “most of your inflation” comes from the Fed’s financing of government deficit spending, via the purchase of T-bills.
This continuous injection of new money constitutes the original, and major, inflation.
Given a fixed reserve ratio and Fractional Reserve Banking, inflation via the multiplier effect would level off and cease, without the Federal Reserve.[color=red]*[/color] It is only the Fed’s continous creation of new money that allows inflation to continue.
[color=red]*[/color]In fact, without the Federal Reserve, I suspect Fractional Reserve Banking might also cease to exist.
Edit:
In a sense then, MOTS, by writing a $100 check on an account that actually contains $10, is acting like a miniature Fed. He is spending money that doesn’t exist. This leads me to redefine “inflation” thusly:
Inflation: The expenditure of non-existent money.