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Whenever someone suggests a central bank creating money will lead to inflation I suggest they read this report - https://www.bankofengland.co.uk/-/media/boe/fil

Whenever someone suggests a central bank creating money will lead to inflation I suggest they read this report - https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... tl;dr Private banks create far more money than central banks. If you're worried about inflation from UBI, stimulus checks, bailouts, etc then your brain will explode when you learn about how much money banks put into the economy in the name of profit every year.

chii 5y ago
It's not money creation that causes inflation, it's _excess_ money creation. Banks only loan money to people who have good credit, and can pay it back. Those people with good credit will work to pay it back. This work is often worth more than the loan + interest, and thus, wealth is created by this process. E.g., you borrow money to build a business. And for consumer loans, the consumer would have to work harder to pay it back in the future, or sacrifice future consumption to pay it back. Money "printing" by banks are unlikely to cause inflation, unless they lent so much that productivity increases cannot keep up. Money printing by governments, however, will cause inflation. Venezuela and Zimbabwe both printed to solve their debt problems and spending obligations. But these aren't loans, and spending these money does not increase productivity. Therefore, they cause inflation.
- globular-toast 5y ago
  > It's not money creation that causes inflation, it's _excess_ money creation. No, it's just money creation. Money creation and inflation are essentially synonymous. > Banks only loan money to people who have good credit, and can pay it back. Well, that's clearly been far from the truth if we look back at recent events. But apart from that, the majority of bank loans nowadays go into housing and house prices are forever rising. So a bank might lend out $100k today but in 10 years when it's paid back they'll be lending out $200k to someone else for the same house.
  - Finnucane 5y ago
    Money creation and inflation are the same, according to an economic view that's like 100 years out of date. Money has to be spent to create inflation. Money that goes nowhere does nothing. What happens in the economy matters.Supply AND demand make inflation. Also, what is 'excess money'? How do you know what is 'necessary' and what is 'excess'?
  - Workaccount2 5y ago
    If you print $1000 to lend to a startup business, and that business grows to generate more than $1000 of raw value, then that original printed $1000 (that was paid back) is not inflation, its growth. Imagine you could print corn seeds. You print the seeds and get a whole bunch of (real) corn cobs back.
- onion2k 5y ago
  Banks only loan money to people who have good credit, and can pay it back. 2008 called. Not sure what it was saying because it was laughing too much.
etempleton 5y ago
I think the question is what happens when that money goes to the lowest income individuals and not the wealthiest, corporations, and the Military? If everyone has more money and there is constrained supply of a desired thing the price will go up. Housing prices, for example, would almost certainly rise with a UBI. Not saying a UBI would be a bad idea, but it would almost certainly cause massive inflation because the lowest income individual of society would have the largest increase in spending power—supply and demand and all that.
pharke 5y ago
Isn't it more important who gets the money and how the money is spent? Like if you create a trillion dollars but it goes to a single person who is incapable of spending it all so most of it winds up in high priced assets or investments vs. creating a trillion dollars and splitting it evenly among the entire population where it would wind up being spent on a wide variety of goods and services. In my mind, inflation is like bidding at an auction, the more people that participate and the more money they each have, the higher the prices will trend since they will attempt to outbid each other for the limited supply of goods. We saw this effect during the pandemic when spending shifted away from restaurants, entertainment and vacations to home improvements and home gyms for example. The prices at hardware and fitness stores went through the roof because there were suddenly more dollars and a big pool of people buying the same things.
globular-toast 5y ago
This was one of the most mind-blowing things I learnt about money. So many people assume the government prints money, but in fact government printed money is about 2% of the money in the economy. The vast majority of it is created by banks when they make loans, which are predominantly mortgages. Banks have been consistently creating money via mortgages at a higher rate than people are paying them back for decades. This is possible because house prices are constantly rising.

chii 5y ago

It's not money creation that causes inflation, it's _excess_ money creation. Banks only loan money to people who have good credit, and can pay it back. Those people with good credit will work to pay it back. This work is often worth more than the loan + interest, and thus, wealth is created by this process. E.g., you borrow money to build a business. And for consumer loans, the consumer would have to work harder to pay it back in the future, or sacrifice future consumption to pay it back. Money "printing" by banks are unlikely to cause inflation, unless they lent so much that productivity increases cannot keep up. Money printing by governments, however, will cause inflation. Venezuela and Zimbabwe both printed to solve their debt problems and spending obligations. But these aren't loans, and spending these money does not increase productivity. Therefore, they cause inflation.

globular-toast 5y ago
> It's not money creation that causes inflation, it's _excess_ money creation. No, it's just money creation. Money creation and inflation are essentially synonymous. > Banks only loan money to people who have good credit, and can pay it back. Well, that's clearly been far from the truth if we look back at recent events. But apart from that, the majority of bank loans nowadays go into housing and house prices are forever rising. So a bank might lend out $100k today but in 10 years when it's paid back they'll be lending out $200k to someone else for the same house.
- Finnucane 5y ago
  Money creation and inflation are the same, according to an economic view that's like 100 years out of date. Money has to be spent to create inflation. Money that goes nowhere does nothing. What happens in the economy matters.Supply AND demand make inflation. Also, what is 'excess money'? How do you know what is 'necessary' and what is 'excess'?
- Workaccount2 5y ago
  If you print $1000 to lend to a startup business, and that business grows to generate more than $1000 of raw value, then that original printed $1000 (that was paid back) is not inflation, its growth. Imagine you could print corn seeds. You print the seeds and get a whole bunch of (real) corn cobs back.
onion2k 5y ago
Banks only loan money to people who have good credit, and can pay it back. 2008 called. Not sure what it was saying because it was laughing too much.

etempleton 5y ago

I think the question is what happens when that money goes to the lowest income individuals and not the wealthiest, corporations, and the Military? If everyone has more money and there is constrained supply of a desired thing the price will go up. Housing prices, for example, would almost certainly rise with a UBI. Not saying a UBI would be a bad idea, but it would almost certainly cause massive inflation because the lowest income individual of society would have the largest increase in spending power—supply and demand and all that.

pharke 5y ago

Isn't it more important who gets the money and how the money is spent? Like if you create a trillion dollars but it goes to a single person who is incapable of spending it all so most of it winds up in high priced assets or investments vs. creating a trillion dollars and splitting it evenly among the entire population where it would wind up being spent on a wide variety of goods and services. In my mind, inflation is like bidding at an auction, the more people that participate and the more money they each have, the higher the prices will trend since they will attempt to outbid each other for the limited supply of goods. We saw this effect during the pandemic when spending shifted away from restaurants, entertainment and vacations to home improvements and home gyms for example. The prices at hardware and fitness stores went through the roof because there were suddenly more dollars and a big pool of people buying the same things.

globular-toast 5y ago

This was one of the most mind-blowing things I learnt about money. So many people assume the government prints money, but in fact government printed money is about 2% of the money in the economy. The vast majority of it is created by banks when they make loans, which are predominantly mortgages. Banks have been consistently creating money via mortgages at a higher rate than people are paying them back for decades. This is possible because house prices are constantly rising.