Your on an island.
On that island are ten seashells.
A man on the island sells coconuts for 1 seashell per coconut.
Being the morally onerous islander that you are, you cleverly create 10 more seashells.
You go to coconut man in the morning, but today, he’s asking for 2 seashells.
His comment, “You’re quite the sculptor, you should go into business for yourself, but stay away from seashells.”
Same principle.
Economics of Money and Banking
https://www.coursera.org/learn/money-banking?
The Treasury Department’s Bureau of Engraving doesn’t actually print a lot of new banknotes. The largest banknote is the $100, so it would take a lot of paper to print a billion, much less a trillion dollars. Most money exists as accounting entries on the books of financial institutions, e.g. balances in checking and savings accounts.
Money is created by the Federal Reserve and the financial system, which is much more complicated than you’d imagine.
However, the simple explanation is that when the Federal government deficit spends it does so by issuing Treasury notes and bonds. These become reserve assets in the banking system. The increase in reserve assets allows the banks to loan more money to other borrowers. If the supply of money grows faster than the supply of goods and services, inflation results.
Briefly, if you have a million dollars in circulation and you print another million dollars then each dollar becomes worth 50 cents.
European Central Bank to create new tool to address fragmentation risk after bond yields surge
gov’t handouts doesn’t just cause inflation...
it causes a major rise in college tuition (colleges increase tuition because the gov’t is paying for it)
an increase in housing costs (why charge someone $1000 a month rent when section 8 will pay $1500 a month)
medical costs (kung flu tests cost about $0.38 but since the gov’t pays for much of it, they charge $150)
More money in the hands of the public, the more they are willing to spend on a good. Competition for that good raises the price. Simple supply and demand.
The only way ‘more money chasing fewer goods’ causes inflation is if the person selling the item raises the price.
If it was an auction it would be a bidding war, and that’s easier to understand. This is (I guess) someone just saying I can sell it for more.
This is exactly what happened with the COVID stimulus money. Prior to that, deficit spending by the government took a longer path to get into the economy, and inflation was generally low enough to hardly be noticeable. But with the stimulus programs, there was a flood of money into virtually every wallet in America. Taken individually, the amounts did not seem large, but with just about everyone getting a check, and most companies getting money, the supply of cash went up dramatically in a very short time.
Too many dollars chasing too few goods. That is what in flatiron is
Govt pumping dollars into an economy ALWAYS causes inflation
You’ve got the basic supply and demand down, I think.
Now apply that to dollars - what happens when dollars are printed w/ out limit? The supply quickly out runs the natural demand, and they become less desirable. It may sound odd, but that is another way of saying ‘too much money chasing not enough goods.’
The same would be true of gold, platinum, jewels, or any other measure of wealth. If stones in every gravel driveway in my neighborhood were replaced by 8 inches of gold nuggets, would that be a measure of wealth, or the worthlessness of gold? It would be the latter.
The printed money is used to buy services and goods. It isn’t printed then put into a savings account!
Stable value of money happens when money supply matches production. More people, more produciton, need more money to represent the productive activity.
Money is pretty much an efficiency-convenience over barter.
if a widget costs 10 blodgetts, and the government gives everyone 100 blodgetts to buy widgets, widgets will fly off the shelves and the price will rise because there are more blodgetts available to spend on widgets. too few widgets, too many blodgettes... inflation.
Yes, as others have said, it dilutes the value, and even more. Because the money is of less value, prices for the cost that government pays for goods automatically goes up, sending consumer (ordinary people) prices even higher. Who can keep up with the government, when it comes to spending? So far, incomes have not kept pace because they can’t. A race to get ahead of the value lost? Impossible. At least for the middle and lower classes.
What’s worse is that the requests for money by the government on so many of the items are not spent as allocated, meaning the continual need to request more budgetary money for these things. When these moneys, budgeted for let’s say the military to purchase or build new equipment are not spent as such, but instead are awarded to contractors who support certain issues the government promotes, then this money supports the very people who want to eradicate the middle and lower classes and make those left their servants/slaves. Inflation brings in a new class of slaves who unwittingly vote for the very people who are enslaving them.
Unless there is a very quick turn around by a savvy leader who understands the destructive nature of inflation to the economy and to the lives of the very people, it will become harder and harder to change the course, which leads to chaos. In the Marxist agenda, this is the way forward and the deplorables are removed from society in one way or another. Use your imagination...or read about the Soviet Union.
Inflation is never desirable. Corrupted capitalism is neither desirable or beneficial morally to a people...and this is where inflation gets it’s start.
A good capitalist is morally grounded. Morally grounded capitalism will reign in inflation.
Macro Theory will teach you about national income accounting.
Money printed on paper is like a check drawn on the USA’s gold reserves. In and of itself, it has no value - the value is WRITTEN ON IT: “Pay to the order of _______.”
I used to know this gal who would joke: “You’ve got checks? You’ve got MONEY!” - it’s a joke, right? Because a check is just a piece of paper (so you present it to your bank and they give you a stack of checks! right?) until the bank you present it to ensures that there is actual money in the check-writer’s account. (Isn’t it confusing? One begins to wonder where the actual REAL MONEY is.)
Printing more money when there’s no gold in the treasury to back it up is like writing a whole bunch of bad checks.
I remember a relative of mine had some Confederate money. At one point the person he’d got the money from had had bushels of Confederate dollars. At one point, because the Confederacy had no more gold to back up the paper money, it would cost like $100 Confederate dollars for, like, a dozen eggs. Then the money became worthless and was just an item of interest.
To sum up: Paper money is like a check. When there’s no gold to back it up, it’s a bad check. Printing more money is like writing a whole bunch of bad checks.
How the newly-printed money gets into circulation, I’m not sure. You’d have to ask the Democrats. (They used to be the Confederacy so they are pretty much the bosses of worthless printed money.)
I’m one of those folks who would like a simple currency based on a gold standard. Also, the “federal reserve” bank needs to GO.
Several folks here have suggested Milton Friedman’s videos - that’s a great idea. You will learn a lot.
When the government sends out multiple rounds of COVID "Economic Impact Payments", that put unearned money in pockets. When they extend unemployment benefits, that puts unearned money in pockets. When the government and/or the Federal Reserve keeps interest rates artificially low, more people borrow, and the difference between a market rate and the discounted rate is basically free money in pockets.
So it's not really the printing of money that's the big issue. It's putting that money in circulation that's the issue. If the government just raised taxes on Peter to give it to Paul, that wouldn't drive inflation, but Peter would be pretty angry if taxes were raised enough to cover all of the new spending.
So instead of doing that, the government takes out loans (by selling treasury bonds) in the name of Peter and Paul to pay for the new spending. That also puts unearned money into circulation (free money in pockets).
When government spends the money, it is on goods and services same as when you spend yours. When it prints money, it increases the supply and devalues the currency the same way that putting too many gem quality diamonds on the market would devalue diamonds, or printing too many fine art prints would devalue a “limited” edition. . Diamonds only have high value because the supply is tightly controlled by one company, Beers.
In standard English, “money” has several, quite different definitions.
1. the medium of exchange
2. income, and
3. wealth
To illustrate, when you are asked “how much money do you make?” this is an entirely different question than when the Federal Reserve (or, any nation’s central bank) is asked “how much money do you make?”
The Federal Reserve makes money in the sense of medium of exchange. It literally prints the paper currency part of the money. It’s like a legal counterfeiter of money. If James Bond has the 007 license to kill, the Federal Reserve has the even more powerful 006 license to print money.
For most of us mere serfs in this modern elitist-run world, we make money by producing goods and services that are valued by our customers. (This is “money” defined as income.) We peasants fight inflation when we make money, because we are increasing the availability of goods and services relative to the availability of the kind of money that the Federal Reserve makes.
But, when the Federal Reserve makes money, it does the opposite. It increases the availability of medium of exchange relative to the availability of goods and services. So, what the Federal Reserve does is inflationary (at least when it increases the availability of medium of exchange relative to the availability of goods and services).
Now, what about government spending. In Democrat land, the government is like a Fairy Godmother (except there is no God and “mother” is merely the first part of a two-part word, the second part begins with the letter “f”). In Democrat land, the government waves a magic wand, and presto! changes pumpkins into motor carriages, all-electric of course, as well as, food stamps, housing subsidies, college loans, etc. etc.
While many people believe in government as Fairy Godmother, other people - called Republicans - don’t believe. They think (because their heads are full of racism, colonialism, homo and transphobia) that when the government spreads around money, it actually gets that money from people who work (through taxes) or from the Federal Reserve (through the printing of new money). The first way (taxes) is neutral with respect to inflation, and the second way (deficit spending financed by the printing of new money) is inflationary.
To be sure, there is a third way to finance government spending, borrowing. But, borrowing depends on the credibility that the government will repay the money it borrows with money of equal purchasing power. When the government loses that credibility, because it is running an unsustainable deficit, then lenders will demand a higher interest rate, which will worsen the deficit and lead to an inflationary spiral.
This inflationary spiral will get worse and worse, leading to a hyper-inflation, or else the Federal Reserve will have to cause a recession by jacking up interest rates even higher than the inflation rate, which will precipitate a recession.
This way of thinking is way too complicated for Democrats like Joe Biden and Janet Reno, and maybe even for a lot of people. They are free to pursue virtue and do-gooding because math and real science are too complicated for them. So, every now and then, the God that doesn’t exist has them learn through experience the lessons they should have learned from the wisdom of the past.
If you think it’s dangerous that a fool like Joe Biden is be president of the United States, think of how dangerous it would be for Joe Biden to be a brain surgeon, or to run a nuclear power plant, or to operate heavy equipment at a construction site? Government might seem to be a place where people can be fools. But, when we have fools running government, we will suffer. Then, with new elections, we have an opportunity to elect people who aren’t fools.
Abraham Lincoln put it this way: He said you can fool some of the people all the of the time. Those are the Democrats. And, you can fool all of the people some of the time. That’s when we elect the Democrats. But, you can’t fool all of the people all of the time. So, democratic government isn’t perfect. We sometimes make mistakes. But, with new elections, we will correct those mistakes.
The very first step is to ask yourself “what is money?”