You are here:

Economics/Can that ......


What if banks borrow from the fed ,make growth in GDP( 30 to 50 percent  ), pay the fed profits (82 billion in 2011 ) , and do not pay it back , that does not make inflation and benefit USA GDP . Can that happen ?

Such a case would surely end up in the courts.  Either the banks would be forced to repay, or they would file bankruptcy.

Let's say, theoretically, that this happens, though.  Yes, that would cause inflationary pressures through increased circulation of currency and increased lending.  Now, whether that would cause a significant increase in inflation rates would depend on other considerations, such as the supply/demand differential, cost indicators such as food and energy prices, and existing influences on the currency itself.  Inflation and growth are commonly associated with each other.  With full employment comes much greater demand across the nation; when people have money, they spend money.  This demand results in companies being forced to invest in expanding their production which results in higher prices.  Also, increased demand for labor increases wages, especially in response to higher prices.  This results in an inflationary cycle common found when the economy is booming.  Stagflation, which also includes inflation but low employment, tends to be rarer, because it requires a specific set of circumstances.  You need to have high unemployment, as in a recession, but with some factor contributing to cost push inflation - such as a severe drought, or a disruption to oil production.  Bad monetary policy can also contribute, such as when one prints way too much money, or intentionally depreciates their currency.  This increasing of money supply by borrowing without repayment would be an example of increased money supply, since more total currency would be introduced into circulation.  Usually loans from the fed only last a few hours for liquidity purposes, so they don't actually enter into circulation.  If you didn't pay it back, then that would change, contributing to inflationary pressures.


All Answers

Answers by Expert:

Ask Experts


Michael Taillard


Accepts most economic questions


Consulting with major corporations, government agencies, political organizations, small businesses, non-profits, start-ups, and even individual people. Teaching at universities around the world, and developing original coursework. Performing original research and analysis. Writing books and scientific studies.

American Economics Association

Publications You can also check Proquest for a small selection of my research.

PhD (Financial Economics; honors) -- MBA (International Business Finance; honors) -- Grad School Certificate (International Business Management; honors) -- BS (International Business Economics; honors) -- AA (Business Administration; honors) -- Certificate (Chinese Language and Culture) -- Trade School (Transportation Logistics; honors)

©2017 All rights reserved.

[an error occurred while processing this directive]