Not much more to it than that. Why is it the world’s end when a government prints money but fine when a banking system does it?
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Firstly, I am not aware that the world has ended as your initial comment suggests. Big if true, lol.
All banks create money, from the Federal Reserve down to the branch bank in your community. Anyone who says commercial banks don’t create (i.e. print) money is simply wrong.
However, not all money has the same impact on inflation. We have several different measures of money in economics for this reason, you can do a google search for M0, M1, and M2 if you wish to learn more. The money the Fed creates directly is called the Monetary Base, though another nickname is “High Powered Money”.
Put simply, banks can print money into your account but cannot print into their own account at the Fed. But the money in the Fed account directly regulates how much they can print into your account. This is because we have pretty strict rules on just how fractional banks can be, they need to keep a certain percentage of the assets as cash in their Fed account. Central bank money printing is like the little domino in that meme, and that is by design.
Firstly, I am not aware that the world has ended as your initial comment suggests. Big if true, lol.
All banks create money, from the Federal Reserve down to the branch bank in your community. Anyone who says commercial banks don’t create (i.e. print) money is simply wrong.
However, not all money has the same impact on inflation. We have several different measures of money in economics for this reason, you can do a google search for M0, M1, and M2 if you wish to learn more. The money the Fed creates directly is called the Monetary Base, though another nickname is “High Powered Money”.
Put simply, banks can print money into your account but cannot print into their own account at the Fed. But the money in the Fed account directly regulates how much they can print into your account. This is because we have pretty strict rules on just how fractional banks can be, they need to keep a certain percentage of the assets as cash in their Fed account. Central bank money printing is like the little domino in that meme, and that is by design.
Because there is a counter-party to the debt. New money isn’t magically created out of thin air when you get a bank loan. It’s taken from deposits. Even the FDIC is funded by insurance premiums banks are required to pay by Federal Law.
Lending doesn’t change the amount of money available, it just changes where it’s allocated. It turns a pile of money in a vault into a home or business loan. Now QE won’t cause what the government calls inflation, because the government doesn’t measure asset prices in the CPI, and QE funds are spent on assets, specifically Treasury Bonds. But what they do is indirectly inflate the liquidity, and therefore the spending, of the Federal Government, and that *can* cause inflation, if the spent funds are put into goods that are tracked by the CPI.
But CPI inflation is informed by more than just monetary policy and government spending. It also is affected by, you know, the actual economy, the production and logistics of real goods and services that money is paying for, and that’s where our inflationary pressure is really coming from. The world’s factories and shipping closed down for two years, and the businesses which are left standing afterwards did so because they sold off productive capacity, went into debt, or both. Now those businesses need to rebuild and repay, and the costs are being passed onto us.
Make no mistake, monetary policy can cause inflation, or deflation, but nothing in the economy happens in a vacuum.
Because there is a counter-party to the debt. New money isn’t magically created out of thin air when you get a bank loan. It’s taken from deposits. Even the FDIC is funded by insurance premiums banks are required to pay by Federal Law.
Lending doesn’t change the amount of money available, it just changes where it’s allocated. It turns a pile of money in a vault into a home or business loan. Now QE won’t cause what the government calls inflation, because the government doesn’t measure asset prices in the CPI, and QE funds are spent on assets, specifically Treasury Bonds. But what they do is indirectly inflate the liquidity, and therefore the spending, of the Federal Government, and that *can* cause inflation, if the spent funds are put into goods that are tracked by the CPI.
But CPI inflation is informed by more than just monetary policy and government spending. It also is affected by, you know, the actual economy, the production and logistics of real goods and services that money is paying for, and that’s where our inflationary pressure is really coming from. The world’s factories and shipping closed down for two years, and the businesses which are left standing afterwards did so because they sold off productive capacity, went into debt, or both. Now those businesses need to rebuild and repay, and the costs are being passed onto us.
Make no mistake, monetary policy can cause inflation, or deflation, but nothing in the economy happens in a vacuum.
Because there is a counter-party to the debt. New money isn’t magically created out of thin air when you get a bank loan. It’s taken from deposits. Even the FDIC is funded by insurance premiums banks are required to pay by Federal Law.
Lending doesn’t change the amount of money available, it just changes where it’s allocated. It turns a pile of money in a vault into a home or business loan. Now QE won’t cause what the government calls inflation, because the government doesn’t measure asset prices in the CPI, and QE funds are spent on assets, specifically Treasury Bonds. But what they do is indirectly inflate the liquidity, and therefore the spending, of the Federal Government, and that *can* cause inflation, if the spent funds are put into goods that are tracked by the CPI.
But CPI inflation is informed by more than just monetary policy and government spending. It also is affected by, you know, the actual economy, the production and logistics of real goods and services that money is paying for, and that’s where our inflationary pressure is really coming from. The world’s factories and shipping closed down for two years, and the businesses which are left standing afterwards did so because they sold off productive capacity, went into debt, or both. Now those businesses need to rebuild and repay, and the costs are being passed onto us.
Make no mistake, monetary policy can cause inflation, or deflation, but nothing in the economy happens in a vacuum.
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