Where is money created?

kallu · Post by **kallu** » Sat Oct 20, 2007 10:54 am

Every month, people get salaries, they go and buy stuff, their quality of life improves. Every quarter, thousands of companies report earnings. More often than not, they are profitable even though their profits might be lower than last year. Where is all the money coming from considering the fact that world economy is a closed system? Is there a printing press somewhere? Can someone could point me in the right direction.

Bobus · Post by **Bobus** » Sat Oct 20, 2007 11:22 am

When you say money, if you are refering to currency / money supply, try to see if thinking of circulation helps.

If you are refering to economic growth, then try to think about productivity enhancements via accumulation of human and physical capital, that make the pie larger - so it is not a zero sum game.

cnu · Post by **cnu** » Sat Oct 20, 2007 6:41 pm

Very thought provoking question. Lets assume our prospective customer gets money from source x. He uses this to buy goods that you produce [The reason for which we go to work everyday], now you become customer to someone whose goods you need... and the vicious cycle continues.

But then y the same philosophy doesnt apply to every part of the world? Reasons: Inability to produce required goods because of geographic, political, cultural, historical reasons...

mmm, let me think more about your question more deeply, am still unsatisfied the way I answered, am off to the grocerie stores, lets see if I can get a better answer :)

This forum rocks, you guys are great! Keep all these discussions alive!

KRV · Post by **KRV** » Sat Oct 20, 2007 7:25 pm

I don't know about you Bobus but I am disappointed that Fed stopped publishing the M3 money supply data. There seems to be an attempt to conceal how much total money is out there and how this is growing due to fast running printing presses of the world's fiat currencies.

MrLong · Post by **MrLong** » Sat Oct 20, 2007 8:02 pm

Money is printed on a need basis. The question in my mind is - how much money is printed and do they always balance the circulation with gold bullions etc?

Bobus · Post by **Bobus** » Sat Oct 20, 2007 8:58 pm

#6:

The gold standard is off now.

KRV:

I have not followed the news / analysis regarding M3 - so no comments.

pjigar · Post by **pjigar** » Sat Oct 20, 2007 10:34 pm

MrLong;52355Money is printed on a need basis. The question in my mind is - how much money is printed and do they always balance the circulation with gold bullions etc?

You are right about that but the "need" is for people who owns the Central Banks around the world. Did you know that Federal Reserve Bank is neither federal (not owned by government) nor they have any reserve. If anything, government is the biggest debtor of Central Bank who is owned by private entities just like any other bank. Search "Money Masters".

layman · Post by **layman** » Sun Oct 21, 2007 2:11 am

kallu;52308Every month, people get salaries, they go and buy stuff, their quality of life improves. Every quarter, thousands of companies report earnings. More often than not, they are profitable even though their profits might be lower than last year. Where is all the money coming from considering the fact that world economy is a closed system? Is there a printing press somewhere? Can someone could point me in the right direction.[/quote]
Good question. What do you mean world economy is a closed system? Whatever you mean, the world economy is growing over time. The developments and advancements cause economy to grow. This growth in economy is measured in each country by GDP (real). For example, in India in 2005 let us say GDP (real) was 100 billion and in 2006 it became 110 billion, there 10 billion of wealth is getting created. With the advent of internet, I work from home. Let us say if I used to work from 9-5 earlier, I log on to the network every night 2 hrs and work extra now. That is 2hrs x my hourly rate of productivity of wealth getting created everyday. So, one cannot take the argument that the world economy is stagnant. Wealth is indeed getting created. But, the question is whether the new money created by central banks is comparable to the wealth created. If there is a huge disparity, then it will get corrected by market forces. Either we will have a crash like what we had in 1929. In that case all the excess money will vanish in thin air. Or else we will have hyper inflation in the future where money will lose its value.

tejasvee · Post by **tejasvee** » Sun Oct 21, 2007 4:35 am

pjigar;52385 Search "Money Masters".[/quote]

I watched this for the first 1.5 hours. Information is packed and really good.

http://video.google.com/videoplay?docid=-515319560256183936

Let me make time for the remaining part and then comment on the understanding.

banda_delhi · Post by **banda_delhi** » Sun Oct 21, 2007 6:50 am

kallu;52308Every month, people get salaries, they go and buy stuff, their quality of life improves. Every quarter, thousands of companies report earnings. More often than not, they are profitable even though their profits might be lower than last year. Where is all the money coming from considering the fact that world economy is a closed system? Is there a printing press somewhere? Can someone could point me in the right direction.

The money supply used to based on the gold standard. Under the gold standard, governments guaranteed to redeem notes, upon demand, in that amount of gold. Technically, world economy has never been a closed system, because you are consistently adding units of production ie. labour , materials and services. After gold standard went away, currency supply became a mixture of art/science where central banks try to provide enough money supply to keep a balance with demand.

Printing presses print a very small portion of actual money exchanged. And yes, if central banks mess up, you can introduce inflation/recession. if you want to learn more, google Bretton Woods and then drink whiskey until you see 2 Bretton Woods, then go to bed. In the morning, you will feel much better. BTW, do google Bretton Woods