• Delta_V@lemmy.world
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    5 months ago

    The government printing money is only a tiny fraction of new currency generated. Most new money is created by private banks issuing loans to other private entities - its mostly not created by the government:

    https://en.wikipedia.org/wiki/Fractional-reserve_banking

    As banks hold in reserve less than the amount of their deposit liabilities, and because the deposit liabilities are considered money in their own right (see commercial bank money), fractional-reserve banking permits the money supply to grow beyond the amount of the underlying base money originally created by the central bank.

    For example, if banking regulators set the ‘reserve ratio’ at 1:10, and you deposit $1,000 at your bank, then your bank would be able to give out loans worth $10,000. The effect on the volume of currency that exists is the same as if the US Mint printed an additional $9,000.

    One problem with that system is that big loans - i.e. new currency entering the system - take time for their full inflationary effects to be felt. The “people” who get the big loans can spend the new currency at its full value, but by doing so they put enough new currency into circulation to devalue it via inflation, so the next people who receive that money get less purchasing power from it. Its a positive feedback loop leading to system instability.

    Another problem with that system is that all existing money is debt which is owed back to the bank plus interest. However, there’s not actually enough currency in existence to pay back all the loans & interest - there’s exactly enough to cover the principal - so the banks inevitably get to confiscate people’s property when they default on loans. Remember that the banks invented that money from thin air via fractional reserve lending . . . now they’ve turned that thin air into physical, tangible wealth - repossessed houses and such - at no cost or meaningful risk to them.

    One of the consequences of the fractional reserve lending system is that increasing the ‘reserve ratio’ will decrease the rate of inflation. Less new loans are issued, so less new currency enters the system. The banking lobby does not want this to become common knowledge, for obvious reasons. Federal taxes can be eliminated entirely, and the mitigating influence those taxes would have on inflation can be replicated by slowing down the rate at which private banks “print money”.

    https://en.wikipedia.org/wiki/Modern_monetary_theory