Home > Macro/Monetary Theory, Politics, Things to be Outraged by > The Power of the Printing Press

The Power of the Printing Press

I said recently that the Fed has the ability to buy whatever they want.  I just want to explain that for people who may not have noticed this fact.  Regardless of what you think about the economic implications of monetary policy, this much is basically indisputable.  When you give some entity the power to print money you hand over control of essentially all of the real assets in the economy to that entity.  The reason for this is simple.  That entity can buy whatever they want.  There is no budget constraint for a printer of money.  If they want your house they can print money and buy it from you, just name your price.  They don’t have to create anything of equal value to trade.

Given this fact, the position of most “practical” people seems to be that for some reason we can trust them to only use this power in ways that benefit all of us, and that such a way exists.  My point is that even if such a way exists (and I don’t think it does), it’s irresponsible to just give this power to a private institution (or a public one for that matter) and hope that they don’t use it to screw us over.  That argument I think is pretty simple and it’s astonishing how reluctant people who believe, seemingly for no particular reason, that bankers acting in a free market with no special powers are evil and will surely fleece the public are to admit that giving a handful of the most powerful of these evil bankers special monopoly power to print money and buy whatever they want and to regulate all of their competition is a bad idea.

But it’s even worse than that.  The system works in a way that leaves us begging for them to print money and buy our stuff.  To keep inflation going at expected (promised) levels the money supply must continue to grow.  The normal way you grow the money supply is to expand credit by lending to banks who then lend to the public.  Unfortunately there is a limit to how much the public is willing to borrow (this is a topic of debate despite the obvious  evidence).  When this happens the government can borrow.  But what if the public gets fed up with constantly increasing government deficits?  You have to get the money out there somehow.  Well you can always just start buying things.  But don’t call it that, it might give people the wrong (read: “right”) idea.  Give it a name that most people won’t really understand like “quantitative easing….”


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