At 6/7/13 11:48 AM, Tony-DarkGrave wrote:
Easy answer Fire the assholes and make the Fed part of the Treasury Department therefore it gets audited annually.
Come on Tony, you're making me pull out math again.
So Goverment spending looks something like this:
Government spending=tax revenue + change in borrowing + change in money
Makes sense, government spends (roughly) what it makes in tax revenue, how much it borrows, and how much money it prints. Now why is this important? Let's look back at our quantity theory of money equation,
MV=PY, where M is the total amount of money, V is the velocity of money, P is the price level of money, and Y is GDP. Once again doing log derivatives gives us this equation,
Change of money=inflation+change of GDP.
What the heck does this all mean? Well, as you can see with government spending, government can effectively "pay" for it's own expenditures by printing more money. But, as we can see with the growth theory of money, in doing so would increase inflation to the point of hyperinflation. And guess who gets to suffer from such an act? All of us holding currency. This is called seigniorage, or inflation tax. Governments tend to try to avoid this, because it doesn't end well. So they separate monetary policy from fiscal policy and give it to a central bank, who we hope is independent for this reason.