simple thought experiment..
Paul owns a $100 bill.
Tim owns a piece of paper he says is worth $100.
Total amount of 'value' in the world is $200.
Tim sells Paul the piece of paper for $100.
Paul now owns the piece of paper and Tim the $100 bill.
Total amount of 'value' in the world is $200.
Ben is a central banker and says he will buy Paul's paper for $100, which Paul accepts.
Now Ben holds the piece of paper but there is still $200 in the world, but all in cash. Ben holds the piece of paper.
It seems like Ben made the world have $300 in the world, but this is not the case unless someone else can create money and buy that paper off Ben. No one else can, so there is only $200 in the world. Unless Ben decides to give it to Paul or Tim for free.
Initially, in your experiment the world had a $100 bill and $100 dollar worth paper. To purchase the $100 paper, Ben printed $100. Now effectively after the transaction, the world has a $200 in cash and $100 in paper. There's more cash in the system than what existed before the transaction. I am not sure what is so complicated in this simple transaction to understand that Ben printed money.
MikeyG is spot on. Ben is financing the out of control U.S govt in a indirect fashion with euphemisms like QE. Plain terms like money printing will spook the common man.
Edited by NAV, 05 December 2010 - 09:22 PM.
