Topic: When money is inflated, where does it go? (Read 402 times)

It is regrettable to realize, but in reality not every one of us has fully used the chances that life gives us.  I am grateful for the opportunity to become part of the cryptocurrency community, because I have significantly improved my financial situation, but everything could be much better for me to take all the statements and the forecast in 2016 seriously.  I regret that by the end of 2016 I sold almost 5 Bitcoins, which by the end of 2017 could give me a lot more.

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.

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.

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.

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

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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...

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.

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.

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.

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.

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.

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:

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 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.

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.

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...

This is completely wrong, PoW has nothing to do with inflation, PoW is a mechanism that creates consensus in the network, it is its primary and only goal. Bitcoin's supply is controlled by a few variables in the code, if you change them, like many other coins including Ethereum did, then you'll have inflationary cryptocurrency. And precious metals or any other non-cryptocurrency thing doesn't have PoW, mining metals is not the same as PoW.
Gold standard doesn't mean that there is deflation and no inflation, because price of gold also changes, and by no means deflation or gold standard mean that there's no growth in economy - if it were true we'd still live like people lived in 19th century.

Sort of. Ponzi schemes are much simpler though. Once new investors stop entering, the scheme collapses under its own weight. This is a concrete, tangible event.

A collapse of the Keynesian/fiat money system is much more complex because it can only happen when trust and confidence in the system are completely broken. Until then, they can keep inflating the economy just like new investors in a Ponzi scheme, every time a crisis occurs. This makes predicting when the terminal loss of confidence will occur incredibly difficult. Everyone assumes the Fed will keep injecting liquidity in times of crisis, and they probably will. Eventually faith in the system will crumble and people will broadly stop accepting USD for payments, but we may all be dead by then.

I don't think you are missing anything, and yeah its fucked. Money isn't actually printed, what it boils down to in the simplest terms is the government pays it's bills and pumps the stock market with numbers pulled out of their asses that are simply added to the nation's debt. A debt that is impossible to stop from growing, much less pay off. Reagan started this appalling abuse of the fiat system back the 80s by financing tax cuts and a nuclear arms race with future debt. A lot of fucking morons thought he was a genius, when in fact he was one of the worst pieces of shit ever to be called president.
And the rest is history.

Yeah thanks, it explains it but confuses me more...

So in a world where this works, the fed/central bank has to either reduce its debts at some point to be non exostant as otherwise this makes a ponzi scheme?

As the central bank keep giving loans out when they inflate money with interest, more debt will be accumulated to the central banks than the banks and the government will be able to afford... No wonder the banks needed bailing out.

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There was no missing link to start with then, it is just an inherintly flawed system.

It could if it's debt monetisation - i.e., the central bank buys treasury notes from the government.


As a part of the federal reserve's operations, one of its goals is to maintain the fed funds rate.

To do so, they need to control the amount of liquidity available in the market (specifically, balances that banks hold with the Fed). Depending on whether they need to shrink the amount of reserves, or inflate the amount of reserves, they can either buy/sell securities or conduct repos.

E.g. If they need to inflate the amount of reserves so that the fed funds rate can be lowered due to an increased supply, then they can either buy highly rated securities from financial institutions outright, or essentially conduct a collateralised loan in the form of a repurchase agreement.

Hopefully this answers your question.

Well, just look at history, when CME launched futures in 2017, some hours later the bear market of 2017-2019 started. Before they launched it, I was already wary this could end in shit, and it confirmed.

Derivatives are suppressing gold and silver prices for many years. So yes, they can do the same to bitcoin. And they dont need to have the bitcoin, just authorization from State bureaucrats.

Let people hail Bakkt as they want, I just want profit. Ideology is useless in a clown world.

Normally, inflation is not equal to printing of money, of course printing money does cause an inflation but you do not need to print money to create inflation, you can have inflation without printing money too.

In the case there is no printed money the inflation is caused by the increasing values of the products, banks charge an interest for the loans, the landlords charge more for rents, the products gets more expensive, the workers require more salary and it continues like that in a cycle where everything gets more and more expensive in the world since one thing that gets more expensive affects all others. However, during money printing stage it is because there is more money in the flow and that results with money losing value which then makes things more expensive in return.

It is assumed that as prices go up more money is needed to cove those prices, but when the bank prints too much then it becomes worthless just like in Venezuela and Zimbabwe. This is where bitcoin comes in, can't just print more when the bank tells them to

When the Fed lowers rates, banks pay less interest, creating additional money to lend. Banks carry these cheaper rates over to businesses and investors, who borrow more money. This is inflationary since it pumps money into the economy.

The Fed also buys treasuries from banks (QE), swapping them for credit, which is then pumped into the economy through lending the same way.

So you could say the "printed money" is credited to banks, who inject that liquidity into the economy.

I hope I get the answer right because I am no economist too.

I think it goes directly to Central Bank of whatever country it is. All of them are government owned which means it is also credited to the government which first will be used into creating projects or for other necessary payments that needs to be done by the government.

Central Banks are the ones who hold the money printing plates and that is already one reason they are the only ones who could issue them.
I really hope I am right here.

Your point brings up an interesting question. What happens when Bakkt, Fidelity, CME, and other institutions launch physically settled derivatives for Bitcoin? Can the spot markets be controlled by derivatives like gold? Everyone is hailing Bakkt as a boon for the market but is it really?

No, I'm asking where the money goes immediately after it's printed? Who is it credited to as its made?

I don't really understand your question here - are you asking where the money goes after inflation occurs?

If yes, then I think the answer is just values of goods/services/assets. When the purchasing power of your dollar goes down, it means that more people have more dollars to throw around in the marketplace, pushing prices up for goods since the supply of these stay relatively the same.

However, if you're asking about who benefits from money creation that exists as a result of fractional banking practices, I think the answer is still banks. Given the fact that with a lower reserve requirement, they are essentially able to lend out multiples of their deposits, which wouldn't be otherwise possible.

@tp, I might just keep moving this topic as it can fit in economics, speciation and p&s.

I don't think government bonds are the whole story. The UK offer a fixed rate from nsandi and that pays interest at 1.7% a year. Our current inflation rate according to the bank of England is 1.9%.

Wait a minute, I've read that when we talk about "money printing" it means that the US government (usually the prime culprit) is issuing bonds, i.e., treasury notes and so forth.  The Fed isn't literally printing more bank notes, though I do believe that's a small part of it.

Obviously I'm not an economist, but I have read some stuff about quantitative easing and all that happy horse shit.  But in any case, the actual cash--the dollar bills--that get printed go to banks first and thence to their customers.  But as I said, the real inflationary money printing is in the form of securities from the government.

Would be nice if there was an actual economist who could answer this question.  There's got to be some on this forum.

Money is going to the government in the form of taxes.

They are printing money to give loan for us,then we are paying half to banks and remaining to government so they are printing more money and the cycle repeats.

They release from the central banks to the other banks, to put them into circulation.

I meant to say what happens to the money when it's printed? It goes to the government?

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.

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.