How to Print Money without Causing Inflation 

I'm glad YOU found it easy to follow...

Very happy to hear that! That is exactly why I started the channel. And I am happy to report that it is here to stay :)

@@MoneyMacro By the way your video, "The Monetary Financial System Visually Explained", is very helpful

@@MoneyMacro when is it a good idea for the entity thats the most incompetent and corrup organisation in human history to steal money from the people they represent? youre a joke

@@MoneyMacro uhm... we know zimbabweans are intelligent people?? 1. why do you just make random assertions, arent we supposed to trust your comments and be able to learn about these topics? 2. we, in fact, KNOW the complete opposit... they are among the least intelligent people in the world

Are you a communist yet?

when is it a good idea for the entity thats the most incompetent and corrup organisation in human history to steal money from the people they represent? this guy is a clown

when is it a good idea for the entity thats the most incompetent and corrup organisation in human history to steal money from the people they represent? this guy is a clown

Great!

Thanks! I appreciate it

Thanks Martinus!

Good point. In that case, the country should be extra careful. Printing a bit to jump start farming might be a good way to then fund a next step, which is industrialization. But yeah, the less industrialized a nation is ... the trickier it is.

@@MoneyMacro bruh i swear that for years I have been battling strangers and friends which have economics degrees, battling them over the fact that money is just paper and you just can't throw money to solve things as a central bank. Money creation has 2 sides I always told them, as per my observation, printing the money itself and the most important side "balancing" that money with services and products. If you have one without the other you run into issues. I have no economics studies, just my observations and thinking experiments, and the final argument for them was that I have no studies in this domain. I swear to God almighty that universities just kill education, common sense and ability to observe, they make a lot of people live a delusion.

@@tetrusadima yeah that final argument is an 'argument from authority' and is a well known fallacy (meaning that it is not a proper argument). In my mind it means they ran out of real arguments. Sure hope that not all universities kill education and common sense though, since I teach in one :P .

@@MoneyMacro if your uni is profit oriented or has a high degree of nepotism I got bad news bruh.

@@tetrusadima University of Cape Town. Pretty happy with the academic climate there. Always room for improvement of course.

Thanks Gary! Yeah, for the vast majority of countries I think you could say that the government balance sheet could also be called treasury balance sheet. Yeah, to be honest how inflation works is not fully understood by economists. Sure, we know that if you start printing a lot and your productive capacity doesn't grow you get inflation. We also know that if external costs go up or down this might cause inflation or deflation. For example, in the 70s the oil price shocks account for some (but not all) of the global inflation during that time. We also know that an economy can overheat to a certain extend and that can cause inflation. I think this is causing some 'inflation' in e.g. computer chips and other manufacturing products right now. Finally, because governments often keep money printing a secret (for obvious reasons) it's quite difficult to tell what were the strongest drivers of inflation in SA at the time. I might get back to it when I do a bit of a deepdive on SA's economy at some point... when I can travel back to Cape Town .

Even if they were not, inflation will still occur if there is massive money printing that doesn't increase productivity capacity at all (or revitalises flagging demand). That is consistent with MMT right?

@@MoneyMacro Yes it is. Inflation has to be carefully monitored. I believe it is the only limiting factor.

@@MoneyMacro yup. MMT recognizes that throw money at non productive things will cause inflation

Not really. How many shipments of gold paid for anything? Explain why the value of Gold derivatives exceed the value of actual physical gold in existence?

That is a fair way to look at it I think.

Thanks!

@@MoneyMacro km m

If there is a private banking sector in your hypothetical country, it might lend out these notes and coins to private banks. These private banks then can 'lend out' that money into the economy to bring it into circulation.

@@MoneyMacro or buy corporate bonds, like the Fed and ECB are doing now

@@FrancisBehnen that is not money printing. That is QE. See my QE video on why that is different

@@MoneyMacro In a situation like the UK were QE increased the demand for government debt and this debt was very quickly brought up by the central bank, does it not function as de facto printing? QE based liquidity swaps indirectly financed government spending on the furlough scheme during COVID.. this would seem to me to fit into the bracket of increasing the money supply to prevent a recession and a deflationary spiral. Or have I misunderstood?

@@oliverchandler2013 the guy is a clown, dont ask him tricky questions

Yes it does increase government debt. But if it is financed by money printing that debt is owned by the central bank. In turn, pieces of money paper are also a debt (of the central bank) that is held by the public.

@@MoneyMacro Thank you for your prompt reply! I see, so it is just an accounting thing, right? As the central bank will do nothing of that debt. Unless it sells it in the financial markets? Then printing money always increase your debt which you can pay back with your economic surplus, or am I missing sth?

It is still increasing your debt... it just has another form.... bank notes. Bank notes are a liability (debt) of the central bank. It is just very strange debt because it never has to be paid back. So a government could lend forever ... if it wants to from the central bank. It will still accrue debt though. Debt that never has to be repaid.... This is not a free lunch though because at some point inflation will happen.

@@MoneyMacro I see, thanks for all these explanation, the clearest I have seen!

@@MoneyMacro But does the tech deflation force are just too great for any meaningful sustainable inflation?

Very interesting take! I didn't think about that before. Although, I would not consider that money printing but QE.

@@MoneyMacrojust feels strange to call it QE when it's tightening monetary policy :) Btw, I don't think I ever understood the line you drew between money printing and QE: QE prints MB to swap with assets not included in M3, while money printing prints M1 to do the same?

@@toatoa10 check out my video on monetary finance (which I is really close to money printing, but without the physical printing)

@@MoneyMacro thanks! I've been working my way through your videos all week since I discovered your channel!

@@toatoa10 QE prints money how? It's just a straight asset swap between bonds and reserves.

Sorry, but no. That was not true until there was shareholders. Double entry bookkeeping was created before that, during the Renaissance in Italy. So, the basic accounting equation is Assets = liabilities. The basic firm is a Sole Trader, not a company. Companies and corporations are evolutions of that basic unit, and so, accounting practices evolved to include shareholder's equity accordingly. So, Assets always equal Liabilities. What those assets and liabilities are is a matter of further analysis and management.

Not qualified to answer but from what I understood, yes it and QE can be used to ensure we don't enter a deflationary spiral, but also it can expand the capacity of the economy and utilise resources already in the economy more efficiently. Like if there are price increases caused by shortages of a good, through a bottleneck at a major port, then responsible money printing might be investing to increase the size and ability of the port to process deliveries, or building a rail network for faster transit. Resolving the bottleneck in this case is responsible money printing, as it will increase supply. Sorry if that is not relevant to your question

True or.... If supported by the state... Plateau and stay at a similar level for a long time

this is the MMT explanation, the use of bonds for government spending is just a legal restriction on the cb and treasury in the us and other sovereign currency nations. the law prohibits the cb to buy bonds directly from the treasury (issuer of bonds) and lend directly to the treasury. so when the government spends, the cb repos securities from primary dealers prior to the auction of government bonds to the dealers to ensure sufficient bank reserves for the auction. at the auction, the treasury sells bonds for bank reserves. the treasury then adds the reserve balances to its tax and loan accounts at banks. then at the cb reverses it’s repo agreement and the treasury calls in its balances from its tax and loan accounts to credit to the fed. the fed uses these funds to credit the accounts that the government spent money on. the balance sheet ends up the same as if the cb and treasury did not have these restrictions and just credited the accounts of its recipients, making bonds only a tool of monetary policy.

My best guess would be using something like the MEFO bills Nazi Germany used. They had 1:1 value with the money at the time and were basically IOUs that the central bank could determine when and how much to exchange for real money. So basically you'd give the MEFO bills to the mines and they'd pay the suppliers with them, but they couldn't be exchanged beyond that and the government would have the power to slowly redeem the MEFO bills with normal money as the investment in the mines started to pay off.

You're absolutely right. The model from this video might generate some immediate positive results, but eventually will fail and lead towards a recession. This is tantamount to gambling with society's money, it might bring economic development, but it can easily cause inflation and devalue people's savings.

Sure. I have a video on that: How Quantitative Easing Differs From Money Printing

Wow I didn't know of that difference

Ukraine Kolomoisky stole $1.8bn from IMF. How's that for brazen embezzelment.

Yeah, and Jay Powell panders to no-one, right? It's really strange how legally depositors at SVB who had balances over the FDIC $250k limit were initially told their money was gone, and were issue with insolvency notices, meaning they would have to wait until SVB was dissolved and get a share of what was left. They would have been waiting years to get some money. But in a weekend of hammering the White House, suddenly Powell announces that ALL deposits at SVB would be insured, and all depositors could get their money on Monday morning. Even though that makes FDIC insolvent. Hmm, looks like Silicon Valley executives were pandered to, don't you think? You need to widen your political and intellectual diet, away from "Socialism bad, and Capitalism good" type analysis. You're parroting stuff you don't fully understand. And you don't fully understand your own country's politics and economy because of it. As Mark Manson states, "Priorities determine problems. If you don't like your problems, then you had better take a long hard look at the Priorities that put them there." If you want truly understand what is going on in your country, look to your government's priorities. Specifically, the Federal Reserve's priorities as expressed by Powell words and actions. You might find what you see enlightening, and to explain what what you see, you might read "The Dictator’s Handbook: Why Bad Behavior is Almost Always Good Politics by Bruce Bueno de Mesquita and Alastair Smith." You might even check out CGP Grey's two videos on it. You will discover that no state is without it's oligarchs, and that they enjoy privileges that the rest of the population do not.

I think it could in theory. But, yeah it is dangerous sure. Haha sorry for not being more clear. This is a very nuanced issue :)

@@MoneyMacro No, you've been very clear in this video! Tysm.

Money printing takes value from all other currency in circulation, so the money you hold in your bank account is devalued so this debt they create through QE has value by decreasing the value of everyone else who holds the fiat currency. The dollar being the world's reserve currency can do much more money printing than everywhere else and when they print money they take from everyone who uses the dollar worldwide. The essence of it is as long as money printing is used to increase productivity within society then it is good debt, investing in public infrastructure or reducing costs of the average persons expenses like building more public housing to reduce rent and housing costs would allow more money to be spent in the general economy rather than being siphoned off into the pockets to those who are already rich. If however QE is used to pump up the markets or create debt traps through cars and housing (and if you're in america college) for example by allowing near unlimited debt (as there is almost no collateral required to leverage this debt) leveraging decades of income against something with inelastic demand that people will pay regardless of the price will eventually crash the economy. This kind of debt isn't increasing productivity or decreasing expenses on a wide scale and it eventually has to be paid back causing a recession or if wide spread enough a catastrophic depression. If for example I now have no spare cash because my debt has spiraled out of control when they increase the central bank interest rates to stop out of control inflation, my money no longer flows through the wider economy. My income that would become another person's/corporations income when I spent that money, is now spent paying off debt on what was overpriced by the creation of debt in the first place for inelastic goods and services. If you haven't seen Ray Dalios video on the economy I highly suggest it m.ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-PHe0bXAIuk0.html

I don't know what you mean with that last sentence. But, I think you could say it like you said it in your first. There is a lot of untapped potential in most economies. People who could work and don't ... productivity that could be there but is lying dormant. Money printing done right (very difficult in proactive and getting more difficult as there is less dormant productivity) could activate that. Hope that makes some sense. I'm thinking of visualising this at some point to make it more clear.

@@MoneyMacro I understand! Thank you for your response. And yeah the last sentence was just a rephrase of the first sentence haha.

@Hakim Habib are you saying the bond market controls the money supply?

Are you sure it is not possible? Check out e.g. the historical graph of UK debt to GDP in the link below. www.ukpublicspending.co.uk/uk_national_debt_analysis (not saying that gov debt is never a problem by the way)

@@MoneyMacro these graphs give us some hope. However, this first time the UK reduced its debt, it used the resources generated by the industrial revolution and the conquest of India. The second time was after winning WWII and becoming the second master of the world after the US. Now the situation is different, no industrial revolution is starting for the US and there is no money for conquests.

They provide tax credits instead. Far less risky.

It seems at odds with historical evidence that private credit precedes booms, not government issued money. Heck, booms and busts already happened well before central banks were established. www.nber.org/papers/w15512

@Money & Macro How is that evidence a refutation of the austrian business cycle ? The cycles could have been worse had money been printed as well ? We cannot tell that from evidence ?

@@bartvanderhaegen6073 sure. But, wouldn't the "money printing" hypothesis mean that there should be a pattern of government issued money (note that M2 is largely money issued by private banks) and then booms following them. I've never found a study that empirically showed that this is what we see throughout history. Would be happy to be recommended some.

@@MoneyMacro But that is the problem of empiricism: no single set of empirical data allows to confirm whether the boom/ bust was caused by the increase in money supply or whether another thing caused the boom/bust or another thing counteracted the boom/bust. One can only logically construct a perfect counterfactual world (where all things are taken equal except for no money printing) and deduce conclusions from the difference between both. You never have the empirical data of the counterfactual world, and yet the counterfactual world is the relevant one to compare outcomes with (and thus draw meaningful conclusions)

@@bartvanderhaegen6073 empiricism taken to the extreme is difficult in macro, sure. But this Austrian theory is posits a really strong hypothesis: government money printing --> booms & busts. If that is true, there should really be some patterns historically to show that this is true. Or at least, counterfactuals where bubbles happened in systems without a central bank should be explained.

That is not the definition economists and the general public use. But, if you prefer your own definition. Fine by me.

Yeah, you rube, you should learn the newspeak definition of inflation.

@@rutessian you mean the new speak of definition of inflation which keeps changing how we measure cpi? Like how we twist the meaning of recession?

@@fgfgdgdfgdfgiidfgdfgdfgdfgdfgd Hey, trust the science! Even when it's dismal.

Joeri has another video on how we do not have fractional reserve banking; the money creation process is much more direct in that banks can lend independently of any rigid reserve requirement and create money by doing so.

Are you saying that central planning doesn't work?

You're right. I don't care if the video creator calls an "amateur economist" for I don't even have a college degree. But these theories he's envisioning are just naive. Like you said, government doesn't have the knowledge or informations to forecast wich business will be profitable, so leave that to the free market.

Didn't I mention the supply shock?

Governments also don't have a perfect record when it comes to asset bubbles. E.g. the Dutch and Danish governments encouraged mortgage lending. Also, many of the property bubbles in Chinese provinces have been funded by state owned banks. The one big advantage of the bank-based system is that it allows local banks to service local demand. Its very difficult for a central government to direct credit to its most productive purposes locally.

I think you are taking about QE (asset buying) here whereas this video is about old school money printing (i.e. monetary financing government deficits).... In other words the supply and demand of gov bonds are extremely elastic because gov is willing to spend more (supply of bonds) and CB to buy (demand for bonds)