How is money generated by the US/ in general?
I have been reading a lot in the newspaper about how a recession in America will drive global recession because the US constitutes something like 95% of the world exports. I understand that concept, this may seem like a stupid question but how does the United States have all this money to spend? How is money generated? If we are making money from other countries how is it that we owe so many countries so much money? I dont' know if this is clear, but if you can help me wrap my head around this concept, it would really help. Thanks
Economics - 2 Answers
Random Answers, Critics, Comments, Opinions :
1 :
If it was clear, than we'd all be multimillionaires. If you want to understand international markets, don't study economics, study psychology.
2 :
Money was generated from past money. This money was originally a note that promised the owner of the note a certain amount of money which was then backed by gold, which was a universal form of money. Gold got to be money because it was rare, and people could denominate things in gold - 1 oz of Gold is worth a cow, a acre of lang, a cannon ball. Banks began printing dollars because gold was very heavy and could be stolen by pirates. Bankers noted that they could issue more dollars than gold because no one wanted all their money at once, and fractional reserve money was born. The US makes money by printing, and buying things with it, like treasury bills it had lent in the past. But the US also allows it's banks to lend out 80% of the dollars they get, so most of the money is created this way. We are not exporting - they are exporting to us. They are also buying from us, but not as much, and the trade deficit is a measure of how much assets foreigners are holding. The idea is the US developed this incredible industrial and capital infrastructure that we are now selling off in order to finance our current consumption. Its like a man who looses his job, sells his house and lives on the cash. Obviously, not a long run solution for his children!
