<b>Why cash is best as your go-to guy</b><br><br>People forget that central b...

Terrence Miao - 2012-09-15 12:51:00+1000 - Updated: 2012-09-15 12:51:00+1000

Why cash is best as your go-to guy

People forget that central bank balance sheets have to balance. So the new assets they create by printing money must be matched by new liabilities.

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Central banks have no magic wand with which to disappear debt. It is being passed from one hand to the next with the hope inflation will cause it to atrophy.

Dean Budd - 2012-09-15 16:11:43+1000 - Updated: 2012-09-15 16:12:08+1000

Plus my "go-to-guy" always demands "cash"
Hahaha

Bryan Murphy - 2012-09-17 18:06:14+1000

Central banks do have a magic wand which allows them to create money. The balance sheet balancing is easy because it is matched by the government creating an "asset" out of thin air (ie a bond) which is just a "trust me, trust me, I'll pay you later". So the Central bank fiddles the account balance for the governments account (increases its liability) and gets a bond as an asset - everything is balanced from the central bank perspective but the government has debt that theoretically it has to pay back (but shows no sign that it ever will). Haven't looked into the details of QE3 - it seems they are buying mortgage based assets - maybe they are doing the same trick with the Big banks that have an account with the Fed ie "buy" an asset from another bank by just increasing their balance.

Terrence Miao - 2012-09-17 22:42:25+1000

+Bryan Murphy Yes, this magic wand is called inflation.

$100 will match $1 purchase power today, maybe 30 years later. All the old debt just gone. Magic! :-)

Bryan Murphy - 2012-09-17 22:49:24+1000

All the old debt might be gone but the new debt is even more huge. At some point the result of spending tomorrows money today will come to a bitter end.