By creating more of it out of thin air.
In other words, in the forms of I.O.U.'s or credit, with the promise of payback.
And when more of those promises are broken than kept, that's how you get a weak dollar value. Which is what's happened now.
Well at least that's one of the ways it happens, in a nutshell.
Originally posted by chithappens
How the **** can you make money worthless? Just so damn stupid.I wondered that as a kid...
By creating more of it out of thin air.
that's one of the ways...money is subject to the same market forces as anything else...the more of it there is...the less it's worth...only difference is which way it operates
for example
if there is only 1 copy of a comic book in existence...and lots of people want it....it's worth alot of money....if there's millions of copies...it's worth less
with money its the same only if there's alot it...it's value in relation to goods in less...meaning you get less for your money
so printing money is counter productive because the cost of goods goes up in reaction...meaning each individual note buys you less
the problem now is much more complex though....a mix of speculation by traders meaning doubt is cast onto a bank's stability....the causes the bank's share price to drop and it's ability to borrow decrease...this means it's ability to lend money decreases as well...and this means the average person in the street finds it harder to get credit....meaning they cant get mortgages...which means they spend less on credit cards (cause they cant get them) so the retail sector slows...they cant buy houses to the housing sector collapses
small businessess also cant get credit so they find it difficult to expand so that sector stagnates
then of course you've got the traders short selling...meaning they sell shares they dont actually own in order to drive the share price down so they then buy it cheaper...share price goes up and they make bigger profits....difference is this time they've driven the prices too low in the banking sector and everything is going to shit
then there is all this sub prime mortgage problems...people with poor credit ratings still able to buy houses because they get mortgages at higher interest rates than normal....inflation caused by the high price of oil makes the interest rates go up to the point where they cant afford their monthly mortgage payments
the banks repossess but they cant sell the houses on cause noone can get credit to buy them
so you end up with the banks stuck with a huge amount of money owed to them that they cant recoup...and thus they cant pay back the loans they got from other banks so the banks stop lending to each other...and the whole thing is compounded