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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (102084)	9/16/2009 6:34:19 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 116555

It's just supply and demand. As the money supply increases relative to income, as debt increases, the value of money and it's interest rate declines. What's the value to you, as a banker, if I deposit $100 million in your bank, but you aren't allowed to loan it out, or can't find qualified borrowers? Do you suddenly pay me 10%+ on my deposited funds because you're attempting to give me the incentive to deposit more? You have to have loans drawing more interest than you're paying out to depositors (whoever they might be). Geezus Weeps.. Again.. it's not just the amount of money in the system that determines money supply and GDP, it's the velocity of financial transactions. If people deposit money in the banks and no one borrows it to purchase goods and services, GDP will decline. Right now the government is the primary borrower and all of those T-bills Obama had the Treasury issue are providing a place to park depositor money (whoever they might be). But all they are doing is borrowing against future tax revenues and the money is not being spent in a manner that creates new technological innovation, productivity, and economic investment. I don't think you'll ever understand that. Hawk