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underYa wrote:

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donbrasco4 wrote:

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$1 trillion taken out of the supply?  That money is sitting out on bank balance sheets, because Bill Gates and Warren Buffet don't have X number of billions in actual tangible dollars, they have a balance on a bank's balance sheet or Treasury bills or equity in their companies (mostly equity in the case of Gates and Buffet).

Yea, it would produce some deflation. But that's not how the Federal Reserve prints money these days, because you can print money without actually printing it (CNN Money/Fortune Magazine). The fed would just credit more to banks in reserve if every billionaire burnt their money overnight.

So the banks would get free money to go into their balance sheets?  Technically they wouldn't need it in their reserves, as the money no longer belongs to anyone - so I don't think so.  I would assume, more than likely, the government would print, print and print money, and follow up with a spending spree... but that's totally a guess - never really considered a scenario like this happening.

Don't forget the money multiplier though... 1/r x (amount of money just removed from the economy) is the actual money 'lost'... assuming a reserve ration of 5%, that means you can multiply the amount removed by 20 and get the actual amount of money you're removing from the economy... BUT because much of that money has already been loaned out, and the richest of the rich are taking out 80% of their money, I would assume a bank run or two would happen.

But to keep it simple, lowering the money supply would cause deflation, increase interest rates (the price of money, and as money is more scarce now, interest rates will increase), lower investment, lower income, and perhaps cause a recession... anyways that's keeping it uber simple!