I’ve always wondered how the extra money that’s printed gets into circulation. They print the money, and then what? Do they hand it out to banks? Do they absorb it into the government’s funds, and feed it into the economy by spending it?
#26
Deficit spending. In the “old days” when the government wanted to spend more money than it collected in taxes, it sold treasury bonds to raise the money. Now they literally just create the digits on a computer and spend it on everything from rockets to welfare. With a $38 trillion debt, abut half of which is from made-up money, I’m surprised it has taken this long for inflation to kick in.
And money doesn’t go away when you spend it, the company you spent it on pays their workers and staff and it gets spent again. Who in turn spend it on gas for their car and clothes and so on.
Now, as the others said, we have more money chasing the same goods.
“Do they absorb it into the government’s funds, and feed it into the economy by spending it?”
You’ve identified one way to siphon off money. If we give it to foreign nations for “aide” whether food or weapons, and get nothing out of it except the politicians slapping themselves on the back, then that’s “worth” that is tossed down the toilet. And that worth is not the diluted stuff we have domestically but arrives at a worth they recognize with their economy. So our dollar at the amount we’ve inflated it is further inflating it locally as our economy has nothing to do with their domestic spending. So if we give them $1.25, that is actually worth 50 cents, to them it’s worth a dollar in their economy. We lose twice with the waste and the further inflation of worth not being recovered by covering only their loss prior to their getting it.
wy69
That’s a tricky question and not so easy to explain. There are multiple components to the process, but let me give it a shot.
First of all, when we talk about “printing money” we aren’t talking about the US Mint firing up the presses and printing banknotes any more. It’s just little electrons in a computer system that go from “0” to “1” nowadays. So at the most basic level, the money is “created” as soon as that electronic switch is thrown to change a “0” to a “1” without a corresponding change from a “1” to a “0” in some other electronic account. The tricky part is explaining exactly where that happens in the modern banking system.
First, Congress passes spending for which they don’t have the money on hand to pay for. In order to pay for it, they have the Treasury issue bonds, and sell those bonds to the public. This way they trade debt for currency. The people who purchase the bonds (debt) can now show that on their balance sheet as an asset, and then they can go to the banks and get loans based on those assets. Now it’s actually at that point, when the bank issues the loans that the new currency is “created”. That’s the exact point when a “0” becomes a “1” without another “1” somewhere becoming a “0”.
To understand why that is the case requires explaining more about the modern banking system. But the basic gist is that banks are allowed by law to lend out money that they don’t actually have. So when they issue loans they are often creating money, money that they won’t possess until the loans are paid back, but it is money that goes into circulation right when the loan is issued. That’s why I say the “0” becomes a “1” when someone takes those government bonds to the bank and uses them as collateral for a loan.