The FED cut the rate again...I don't get it, why is increasing the money supply good for the economy? And if...

[b0mbrman]

And if it's so good...why don't we just print a bazillion dollars?

 

[illusion88]

Because its not
By doing this it only causes inflation wich is bad. The fed aint looking at long term here, only fot short term Reliefe.

 

[Logix]

Well, as if it wasn't already easy enough to borrow money to buy a dishwasher, car, or house, it's now even cheaper to do so. Presumably, the pickup in borrowing to buy big ticket items will help spur the economy out of its current rut. Businesses will be more likely to borrow for expansion as well.

Look out for mad inflation next year, though. Things could get ugly with this many rate drops.

 

[iamshady]

They don't want to cut it too much, by cutting the rate and increasing the money supply, banks are more willing to lend money out to people like you, me and businesses at lower rates to invest. The banks have to hold a certain amount of money as required by the Fed, when the Fed increases the money supply, banks can let more money out for investing. So more investing means the economy should expand and do better. However, companies over-invested in technology during the internet boom and are not looking into new investments since it's still paying off the old ones

 

[b0mbrman]

Hmmm...) + :| = [evil grin]) Since we all seem to know that inflation is on the horizon, is there any way to make money off that?

 

[Barnaby W. Füi]

well money will decrease in value so i dont see how you would make money off it.

 

[Logix]

Two ways to benefit from inflation:

1) Borrow money. By the time you have to pay it back, inflation will have kicked in and you only have to pay back the original dollar amount, which will be worth less.

2) Buy real estate. Generally, the value of real estate will keep up with the rate of inflation. Its value is subject to the ups and downs of the economy, but generally, if you're smart, it's hard to lose money in real estate while inflation is in full gear. Real estate prices are dropping now anyway, especially in the Bay Area.

So, in summary, borrow money to buy a house.

 

[Maetryx]

If you're expecting inflation, you ought to consider precious metals. Gold is measured in US Dollars, worldwide. When our dollar weakens, it generally results in an increase in the price of gold. And by extension silver, which parallels the gold rate.

But the *smart* precious metal speculator knows that mining company stocks move much more spectacularly when the price of gold goes up. Consider this:

Gold at $260 goes up to $286. A 10% increase in value.
Gold mining company gets gold out of the ground at a cost of $250/oz and sells it for $260. A profit of $10. Then it goes up to $286/oz and now the profit is $36. An increase of 260%!

 

[glen]

M * V = P * Q

M= money supply
V= velocity ( how many times a dollar is spent in a year)
P= consumer price index
Q= GNP

If the money supply goes UP, and P stays the same, then the GNP will HAVE to go up.