If I had a nickle for every time I heard someone say the government prints money and causes inflation, I would be as rich as the banking families who do print the money as debt and cause inflation.
The government does not create nor destroy money. The government does not manage the money supply. The government borrows, collects, and spends money. It is one of the reasons why we have a national debt, because the government borrows money. The Federal Reserve and government can engage in activities which try to manipulate how the banks create and destroy money and manipulate the money supply by misdirecting it out of the economy and flooding it back into the economy. However, it isn’t the government who manages the money supply.
The government can write laws to change the rules of banking. The government could choose to create money in lieu of taxation and borrowing. However, the government in the United States only did this twice in it’s history, with the Continental during the American Revolution and the Greenback during the Civil War.
The private commercial banks create and destroy money. It is called fractional reserve banking. It is this way because the banks like the profit and power that comes with the creation of money and loaning it at interest. When the private banks create money, they loan it at interest. The amount is determined by how much they have in reserves. When the debt is paid back, the private banks keep the interest, adding the interest to their reserves and deleting the principle. You can check Wikipedia to find out how much revenue this creates for the banks. The banks create and collect interest nine times over. The banks typically keep expanding money supply so they can continue to expand and earn interest nine times on what they have in reserves.
The commercial banks love fractional reserve banking, whether they’re fractionalizing gold reserves or debt paper. The wealthy interests also love when government engages in wasteful deficit spending because it means the government can collect income taxes and hand it over to the wealthy as interest on national debt. It is welfare for the rich. It is socialism for the rich. And at current debt levels it is quickly approaching one trillion dollars paid annually to the world’s wealthiest. Private commercial banking is not capitalism, it is fascism, communism, and socialism for the rich. The power and profit of private commercial banking and their trillion dollar welfare program will not be easy to defeat. It would require a French Revolution or a well-educated population to take away that profit and power from commercial banking by using non-profit banks, such as credit unions.
However, the banks also love to watch the economy collapse because it is then they can consolidate, eliminate competition, and acquire real assets for pennies on the dollar. It is also a good way for them to push for new “regulations” which favor the big banks. The banks simply stop loaning money, collapsing the money supply.
That is what we have now. The problem started when Bill Clinton and Newt Gingrich deregulated financial derivatives. Add in loose lending practices and an oil price surge, the economy and money supply was set to collapse.
With less money in circulation, the money increases in value. I find it funny when people claim the dollar is being made worthless. That is not true. The first prices to collapse were land values. If you can buy the same land for less money, the land hasn’t dropped in value — the money has increased in value. During the current economic depression and previous economic depressions, including the Great Depression, the money supply shrank and money increased in value. I should remind the goldbugs that during the Great Depression, we were on a fractionalized gold standard, and the dollar increased in value.
In addition, instead of prices dropping because the dollar has increased in value due to decreased money supply, people are laid off. People are pushed out of the economy so that prices can be maintained for those who still have wealth and jobs. Unemployment is hidden deflation. Combine the unemployment and drop in land values, we are experiencing a large-scale deflationary depression because the private banks are mismanaging the money supply — because the private banks have ceased loaning money as they try to pass off their toxic financial derivatives to the tax payer, the same ones that once brought in huge profit.
Even when the Federal Reserve talks of quantitative easing, what they’re talking about is loaning banks the tax payer’s money at low interest so the banks can pay out huge bonuses and get rid of their toxic debt. Quantitative easing in theory is suppose to increase the reserves of the banks so they’ll fractionalize the reserves and create money. However, they aren’t doing that because loaning money in a deflationary depression carries high risk.
Even when the Federal Reserve buys their own bonds, the Federal Reserve is still collecting a dividend by having those bonds on the books from the tax payer. Eventually, those bonds will mature and eventually get sold as interest-bearing debt for which the tax payer will be obligated to pay to some trillionaire welfare queen, though they probably don’t have a problem just keeping them on the books for the Federal Reserve to collect a small dividend and keep the Ponzi scheme operating.
The government doesn’t print money. The private banks print the money. It is called fractional reserve banking and is the central cause of inflation, deflation, wasteful government spending, and economic recessions. It is the core of the problem. Until you get that the government doesn’t print money, you’ll never be able to solve the problem with your inflation phobia and government printing press hysteria.