posted on May, 13 2013 @ 05:18 AM
reply to post by afoolbyanyothername
It is a self-imposed
restriction and a wise one too.
Given that all modern currencies are fiat or faith-based (faith that they are redeemable for things of value), limiting the volume of money in
circulation to that necessary to enable commerce without significantly lowering the value of the currency (in terms of the goods and services it can
buy) and hence retain faith in its continued use is an extremely tricky business and something that should never
be entrusted to a government
with a need to respond to short term compulsions.
That said, the Central Bank of any country is practically part of the country's government and will have to bow down to the demands of the government
regarding monetary policy, if the demands are strong enough. That is one possible reason why the West European nations chose to create the ECB and use
the Euro thus placing the monetary policy outside the direct influence of any single country within the EMU.
The US government can create as much money as it strongly desires. However there needs to be support for it across the federal executive and
legislature. The legislature has to agree to raise the debt ceiling limit (or do away with it altogether), approve the expenditures and the treasury
has to issue T-Bills for the excess money. If the banks don't have the money to buy the debt, the Fed loans them money to buy US debt (the Fed by law
is prohibited from buying the government debt directly) and then buys it from them. If you are concerned about the government being indebted to the
Fed, you don't need to be. The interest paid on the debt to the Fed comes right back to the treasury as revenue, since all of the Fed's profits are
remitted to the treasury. The Fed buying the T-Bills should be the last resort because it increases the money supply far in excess of the needs of
commerce resulting in inflation, but has been resorted to since the QE began. So for all practical purposes the US government is printing money as it
chooses and if it doesn't curb the habit, it will lead to very high inflation and a consequent loss of faith in the currency both domestically and
internationally (the latter likely to happen first) which will lead to further inflation in a self-reinforcing cycle until probably the currency is
replaced with another and a tighter monetary policy put in place.