How Government Finances Spending
- Taxation
- Borrow
- Sell Assets
- Print Fiat Money
Broke From The Start
- USA emerges from Revolutionary
- Borrows from countries like Holland
Quantity Theory of Money
- Well-known Inflation Theory that works often but not always
- Quantity Equation of Money: Mt * Vt = Pt *Yt
- M Money Supply
- V Velocity of Circulation
- P Aggregate Price Level
- Y Real GDP
Hamilton
- Tariffs on imports made by Hamilton was significant in boosting economy
- Made three types of Bonds
- Criticized then, but made USA very credible
Banking
- USA was late to the party on making a Central Bank
- Bank of New York unofficial Central Bank
- First Bank of United States was first national bank
- Only five states had banks
Free Banking Era
- Free Banking was the trend
- Backed by State Bonds and redeemable by face value
- Civil War helped unify the currencies of the Union
- Unit banking began
Federal Reserve System
- 1907 Panic caused Congress to make a permanent charter for the Federal Reserve in 1913
- Not entirely Government
- Works with 12 regional banks
- They buy stakes in the Fed
- Seven-member Board of Governors
Other Financial Intermediaries
- Investment Banks
- Thrifts
- Life Insurance
- Other Insurance
- Pension Funds
- Mutual Funds
- Hedge Funds
Gold Correlation
- If Gold doubles, dollar is worth half as much
- We found Gold in Alaska
- Deflation until Alaska
- Nixon ended Gold Standard
