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"The Fed can't print money without devaluing the money already in print. " Yes it can. Banks do that all the time. Money grows and shrinks to ensure all the tr

"The Fed can't print money without devaluing the money already in print. " Yes it can. Banks do that all the time. Money grows and shrinks to ensure all the transactions that are worth completing gets completed. It's a dynamic system. "If this were not true, then why would would have taxes?" You have taxes, so you have to create output and hand it over for the currency the taxes are denominated in. That's how output is transferred to the public sector. The public sector then creates the money necessary for you (and everybody else transitively) to pay those tax demands. When government spends it will create the taxation that balances that spend to the penny for any positive transaction. It's a simple geometric progression. Unless somebody in the chain decides not to spend all their income. We call that saving. The maths is straightforward... https://medium.com/modern-money-matters/the-function-of-government-spending-9123e71737c1 https://medium.com/modern-money-matters/the-function-of-gove...

dredmorbius 9y ago
This answer ... misses some critical points, and skews pedantic. The Fed cannot net print money without devaluing what's in circulation. Inflation is literally the fact of more money chasing fewer goods. More money => more inflation. The question then becomes "how might money leave the system?" There are several ways. Taxation, if you subscribe to MMT, is money leaving the system. (Government spending is, as with Fed policy, creating money.) Increasing or decreasing the overall amount of consumer and business debt increases or decreases the money supply. Increasing or decreasing the overall value of financial assets -- stocks, bonds, derivatives, real estate, commodities -- by increasing or decreasing collateral and balance sheets, increases and decreases the money supply. Money going into savings, particularly off-shore accounts (where it's not otherwise available to the financial system) is effectively withdrawn, through the mechanism of reducing the velocity of money. Other factors effecting money velocity do likewise. (This is, essentially, how often a given dollar is transacted.) The more accurate answer would be that: "The Fed can't print money without devaluing the money already in circulations, unless there are offsetting withdrawals to they money supply".

dredmorbius 9y ago

This answer ... misses some critical points, and skews pedantic. The Fed cannot net print money without devaluing what's in circulation. Inflation is literally the fact of more money chasing fewer goods. More money => more inflation. The question then becomes "how might money leave the system?" There are several ways. Taxation, if you subscribe to MMT, is money leaving the system. (Government spending is, as with Fed policy, creating money.) Increasing or decreasing the overall amount of consumer and business debt increases or decreases the money supply. Increasing or decreasing the overall value of financial assets -- stocks, bonds, derivatives, real estate, commodities -- by increasing or decreasing collateral and balance sheets, increases and decreases the money supply. Money going into savings, particularly off-shore accounts (where it's not otherwise available to the financial system) is effectively withdrawn, through the mechanism of reducing the velocity of money. Other factors effecting money velocity do likewise. (This is, essentially, how often a given dollar is transacted.) The more accurate answer would be that: "The Fed can't print money without devaluing the money already in circulations, unless there are offsetting withdrawals to they money supply".