Cool thanks for the reply. I want to keep this thread positive and non-partisan since I am learning more everyday about this topic. Also it’s taken me a few years to understand so I’m looking to vet my thoughts with you guys.
So for me first I had no real idea how money came about I just earned it, used it, and saved it. You can describe printing it as one way to describe it. For me I first understood money creation to be fractional reserve banking. Then I found out, that this is simply a model they used to teach economy students so they can comprehend a sort of money multiplier effect of the banks based on a fractional reserve. Money printing then begs the question.
So recently I came across an article from the bank of England which describes it in detail:
This religious site has a simplified story to understand what is effectively the same thing but it has moral undertones so I prefer the bank of England which is from the banks themselves:
So for me the best way to describe it is this: Money gets created by banks from nothing, in response to the need for loans.
Banks simply credit your account when you need money, provided you are credit worthy. It works this way for people, business, and the government. Banks do it for you and me. The federal reserve (the bankers bank) does it for the government through government bonds, if the government’s need for funding exceeds what investors and governments around the world want to buy. The mint is responsible for creating physical printed money, but about 97% of our money is strictly digital and not printed.
Now for inflation, it’s true that printing too much money causes it, but it’s not just the printing of too much money that causes it. It’s actually the relationship of money to goods and services that are available for that money to buy that is the problem. For example if you simply print a trillion dollars and give it to people who will use it to buy things then you’ll see price inflation. If you give that trillion dollars to investors, then you will see asset price inflation. If however there is a corresponding increase of a trillion dollars of goods and services to correspond to that trillion dollars then there should be little inflation.
Ok, so you think “so what” about the creating of money. Well if you think about it hard, then you realize that this means literally that all of the money that we have and create, comes from debt. It’s logical since money comes into existence in response to loans/debt right? But then you realize what that means… If all our money is literally created from debt, then not all people/business/government can ever pay off their debt. If they did, there would be no money. When you pay back a loan to the bank, you are effectively destroying money - taking it out of existence. The reason this bothered me (at first) is that it means that at the federal level, we can never repay that debt. Since a child I was used to hearing how much the national debt was and how bad it is and what a burden it is on the future generations. Someone has to pay it back right? AND it’s looking like that’s going to be me and my kids… Dems and Republicans both blame each other for increasing the debt. BUT if all our money comes from debt, and our GDP has to keep increasing, there is literally no way to do that except to create more debt.
Think about it, if you balance the budget and have a surplus then the government is effectively choking the savings of business and people - causing them to drawn it down, and a recession is going to follow shortly. What is the response to a recession, the government spends the crap out of the economy to get it growing again, to get the debt growing again. I think it sucks but is the system we have.
SO now I believe that in fact the debt will have to grow if you wish to have a growing economy. Look at how much China’s economy has grown and if you look, then you realize that their debt has also grown to match. Banks control the amount of money that is in our economy, and the federal reserve tries to control that using interest rates.
Let me know what you think so far. Where I am going with this is that politics and politicians are so important because they control a huge amount of spending. We all argue about how much we spend on this and that, and how much we can afford to spend. I’ll continue after your and hopefully others feedback.