What will be the impact of unlimited/abundant money supply?

Question

Today I was listening to a debate on the topic "Can we have unlimited money supply" and "Effect of unlimited money supply on an economy". There were two schools of thought:

1. If Central Bank reduces the reserve requirement (as it is currently zero in some countries) and allow commercial banks to issue as much loans as possible, this will fuel economic growth.

2. If Central Banks reduce the reserve requirement (as it is currently zero in some countries) and allow commercial banks to issue as much loans as possible, this will increase prices too much and bring inflation.

I have just a basic understanding of economics, and cannot myself reach to a conclusion as to which of the above is correct (if any). Can you please explain the scenario in the light of any popular theory?

Please can you also explain the impact of Interest, if:

1. All the increased loans are interest based.
2. All the increased loans are free of cost.

Answer 1

If you really want to understand it, read:

"The Mystery of Banking" and

"What Has Government Done to Our Money?"

both by Murray Rothbard, both free online I think. He explains it all in plain language step by step from first principles.



You have to distinguish between money and money substitutes. The central bank doesn't issue money - the Mint does. The central bank issues money substitutes - credits - which are in other words, in the final analysis a claim to money.



The first thing we need to understand is that increasing the supply of money or money substitutes does not and cannot increase the supply of physical wealth.



If it were true that by increasing the supply of credit, we could increase "economic growth", that's the same thing as saying we can increase real physical wealth - houses and cars and roads and hospitals etc. - out of thin air just by stamping pieces of paper. This is flatly incorrect - in fact no better than a superstition - and it doesn't matter how many government-funded economists insist that Pharaoh is magic and can do no wrong.



The second thing we need to understand is that increasing the supply of money substitutes - in other words, cheap credit - causes disco-ordination throughout the economic system which has numerous negative effects. It causes economic recessions. It transfers wealth from the working people to the class of political favourites who are thus able to live at everyone else's expense. And it promotes a culture of instant grat, debt and speculation over work, savings and wealth accumulation.



The third thing is that the central bank, and you and I, can't know in the abstract what the price of money should be. It's a market phenomenon. If it was true that the government was able to know the price of money, it would be true they could know the price of everything. Socialism would be possible and desirable. But it's neither.



Notice how the *assumptions* in favour of the central bank never explain how the central bank is going to know what 7 billion people's subjective evaluation of money now and in the future is going to be? It's nonsense, it's a fraud on stilts.



The short answer is, there is no way the central bank has the knowledge, the competence or the selflessness to decide, for the whole economy, what the price of money or credit should be. It is a parasitic fraudulent institution by which governmental favourites are able to filch real wealth from everyone else in the economy, simple as that. The debate as between "economic growth" and "inflation" is fake - a false pretence of knowledge put forward as a phony front for what is a massive systemic fraud.

Answer 2

If something like this was done banks would start loaning out all the money they had in reserves right a way simply because that's how they earn most of their income. An increase in the money supply brings short term benefits. Sooner or later prices will rise. If the money added to the money supply was distributed equally among everyone and the prices rose, no one would be worse or better off than before. The real problem is that the added money doesn't get distributed equally. Not everyone takes out loans or sees an increase in their wages or salaries. Many people sign contracts for their salary and are locked in with a fixed income for a certain number of years. If this rapid inflation occurs their cost of living increase meaning they now have less disposable income than before which means a lesser standard of living. This concept also works for hourly workers. The minimum wage rarely gets raised and in general raising someone's wages doesn't happen overnight.

Answer 3

The banks will need cash. If people cannot withdraw their money, it will cause a bank-run which will lead to a financial crisis. Without reserve requirement, the banks will hold excess reserves anyway. But based on the Austrian school, an increase in liquidity, will enable the banks to support the malinvestment, mostly to create the bubble which will burst. And it is true around the world.

Answer 4

This is call short term patching economy .Reducing reserve and issue currency more than backup reserve (GOLD or other pressured valuable metals).It can solve short term economic pressure only inside the countries,which it rise the prices and will give a move to inner economy .If continue for long term will cause bunk crop and high debt .Since most the market are International will increase the currency power compare to other currency..

In system that the cash money it's not in movement or it's bi-cote by none market people the money will go to way that it's out of market and businesses ,it's like making money and spend for some thing that will not turn to money again .Which it cause a leak in money system .Bank it can control under the government policy (central banks) by investment in businesses that will double the money ,such as agricultural ,real states ,man factories ,origin investments and long term investments unless there be no economic clashes ,such as war ,civil war drug business ,over populations,natural disasters and other bugs of economy .

High rates loan are making seance when there's power of buy and prices are submitted in a rate for a long period ,If price changes ,high rates will cause people will go bank crop and it's like a virus that will get epidemic very fast and will transform to other systems .

So ,issue the reserve over the back up ,does need a very accrue calculation with control of the prices at same rate that they are,until things get back on track .Such risky operation must be done without the informing market and people ,reason that system will operate normally without any panic and hand of the economy bugs will be off the market but changes will appear slowly in the markets and power of buying will rise automatically.It's very important that when economy fixed ,collect all the over reserve issued out of the market ,cause money circulation will soon inform of it and will cause price suddenly jump and again clash and weaken the market .

Some economic solution are worked ,but need the educate the people for it ,such as Scandinavian system but in large system and open markets it very hard to enforce such solutions.

The problem is that they offer some free services but they double in general or in principles ,which it not help any side of the deal in market ,most the people if you ask now 50 dollar cash or after one month 400 cash ,they will get now 50 cash ,reason it's that market does not have stable state and 50 cash now it's better than maybe 400 after one month.In such condition it's hard to gain the trust of deal and make the people to invest ,so they will invest on things that will turn to the money fast ,such as buying gold or silver or

saving the food and supply ,which it cause the fake economy stress and pressure .

Having a console and study to how invest and spend it's very vise decision compare than saving and bad investments.

Also too many privet investors ,insurance companies and credit companies (none government banks) it cause that they play with money how ever they like and it's danger of the controlling market for own self profit ,which pressure it's back to people that are money maker .

It's a fake thought that banks are money maker ,they are only saving safe and controller of the people money ,which they use the saved money and invested acutely against the consumer ,this it's like using your money without you know it and without any profit back to you .So you will make more money and they will make more profit and they will rise rates on your own money without spending even a penny .

In a point of view bank, bad investments it can cause the market and consumer getting troubles ,that it cause government get to trouble too .Now where are those money no one will respond .VIP party ? giving high amount loans to Mr.X or spending for expensive vacations in cruise and gambling ? No one knows .

Backing in market they are all out of money ,they can not effort employee and workers and so on .

.

Answer 5

A. The value of money increases and the price level decreases.