eli5: if we hypothetically got every American to burn a $20 bill, could we slow down inflation?
In: 0
No
That would be only about $7B. Say 350 million americans x $20 each = $7 billion. Thats not very much money on a big scale. In fact on the scale of inflation its essentially equal to $0. Inflation deals with giant massive numbers, not puny numbers like small billions.
Now you start talking a trillion or two dollars, and we may be in business.
Not even close.
There are, give or take, 320M Americans. If every single one of them burned a $20, that would take $6.4B out of the US economy.
That seems like a lot, but the overall money supply in the US is a little over $20T (the M2 number). $6B is a rounding error compared to that number.
I don’t think $20 would do it. That’s only $7B dollars. Maybe $2000 would help?
You don’t have to burn it. You could simply not spend it. Your savings account could probably work, but safely stashing it somewhere off the grid (a safe, it under your mattress) would probably work well enough. Burning money is not necessary.
You’d never get everyone to agree to it, though. People need things. The amount of people living paycheck-to-paycheck in the US is a large number.
And lastly, and most importantly, it would slow the economy down and people would lose their jobs. That’s the trade off. Central banks fight inflation, but once inflation gets below a certain number, they start worrying about unemployment as well.
You can just not spend it and it’d be the same effect. Inflation requires spending to operate
Yes.
There is a pervasive misconception that inflation is simply a result of the amount of money that exist, and this is false.
If inflation was just because of the amount of money that exist (money printed) then we would have seen massive inflation since 2008. In reality, from 2008 to 2018, money in circulation increased by 84.8% while inflation was a total of 19.4%. This disproves the majority of other comments in this thread.
So what causes inflation? Money that is actually being spent. This is because prices only go up when two people want to buy something and they can’t both have it (Demand is greater than supply). Money not being spent is the same thing as a person who doesn’t want to buy something.
I forget the exact statistic, but a large number of Americans live paycheck to paycheck. These are people who are actually going to spend their money and buy stuff. If every single one of them were to burn $20, this would remove some* of the money that actually causes inflation.
I can’t say how much of an impact this would have on inflation, but it would be way more notable than what others are saying.
no, as many others have mentioned here. It would be a tiny dent in the US economy. additionally much of what is causing inflation is debt, which isnt something that can be slowed down by burning money
Ignoring the fact that most money is non-physical…..
Would it not be easier for every American to just… not spend that $20….
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