Probably 98% of what you’ll read or be told about money is simply flat out wrong.
Read this:
https://www.pragcap.com/where-does-money-come-from/
Teaser excerpt:
There’s a reason why myth # 1 in my “biggest myths in economics” is “the government prints money”. It is, by far, the most pernicious and misleading of the economic myths that exists. I was reminded of this today as I was reading a piece in Reason by John Stossel who is discussing the merits of replacing Hamilton on the $10 bill. He writes:
“But none of us would have to fight about whom to put on currency if it weren’t all created and printed by a central government.”
Ah, but John – we already have an entirely private money creation system. It just so happens to be controlled by these things called banks which compete within a private market based system to create loans! So, maybe we all need to be reminded where “money” really comes from. While it’s true that the government can “print” money it’s much more important to understand where money actually originates and how that printing fits into the broader context because it doesn’t work the way most people seem to think it does. I hope this simple explanation helps clarify:
1) Banks create most of the money in our system. Loans create deposits and deposits are, by far, the most dominant form of money in the economy. Importantly, banks do not “multiply” reserves as is commonly believed. Banks make loans first and find reserves later. The money multiplier is a myth. So, if you want to say someone “prints money” you would be most accurate saying that private banks print money.
2)...
2) The government is a user of bank money. When the government taxes Paul they take Paul’s bank money and redistribute it to Peter when they spend.
3) If the government runs a budget deficit (taxes less than it spends) then Paul buys a bond from the government and the government gives Paul’s bank deposit (which he used to buy the bond with) to Peter. Paul gets a bond which the government created in much the same way that a private corporation creates a bond when they issue corporate debt. If you want to say these entities “print” financial assets then fine. Corporations print stocks and bonds every day and you don’t hear the world exploding with hyperinflation rants because of it. Likewise, the government “prints” bonds when it borrows.
4)...