this post was submitted on 28 Apr 2024
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Economics
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No, new money entering the economy comes from the government and government spending is one of the ways that happens.
Government spending is doing some heavy lifting here.
Yeah, if you are Zimbabwe and you are minting your currency like there's no tomorrow while all your debt is in USD. Your currency is at a huge disadvantage and you'll hit trillion dollar bank notes in no time.
Rich countries trade massively while they require poorer countries to hold debt in the currency the richer country controls. This makes rich countries too big to fail, because their currency failing hurts everyone. As long as a rich country is growing their economy they can mint as much as they want.
Japan is taking this to extreme levels with their debt to gdp because they are fighting deflation from an aging population. Russia had double digit inflation because of Western sanctions, but they literally spent their way into single digit inflation with their war economy.
This "fiscal responsibility" from conservatives is actually hurting the US economy. The only inflation the fed is fighting rn is high wages for workers. Don't fall for the propaganda.
How does having international trade and loaning out money make it so increasing the money supply doesn't cause inflation? And since we're talking about government spending, this isn't just adding to the money supply in a way where those dollars will sit hoarded in a bank account somewhere, with government spending people are being paid to do something, that's going directly into the heart of the economy, and more dollars flying around -> economic stimulus -> inflation.
That isn't to say I think the measures the government takes to fight inflation are justified and without blame. That thing about the fed fighting high wages is true and they literally admit it probably because wages and inflation are associated metrics so fighting high wages and fighting inflation are basically the same thing in economic terms.
This is a logic that seemed intuitive to me as well for a long time. However, it doesn't make much sense to me anymore when I think about money as simply a representation of wealth or value.
Imagine somebody spending their time and Know-how to build a chair which can be sold at 50$ more than what the original materials are worth. Through their work, they created wealth. The still unchanged amount of money does not accurately represent the currently avaliable wealth anymore and in order to still be redistributed among all goods and services relative to their worth, prices would need to drop (deflation). Now of course, the value of a chair and other goods generally declines over time such that wealth can also disappear, which will cause inflation if it happens excessively. If the government decides to stimulate the economy, ergo creating new money and distributing it, there will still be no inflation if this money is in some way or form used to create the same or more wealth than the equivalent of the newly introduced money. This can easily happen when there are bottlenecks in the current economic situation such as high unemployment or underdeveloped infrastructure.
If of course the new money isn't used to create more wealth, either because it is pocketed by some entities or because there simply are no people or natural resources available, it will lead to inflation.