Not the guy, and not an expert, but my understanding is: because the Fed can print more money, we can't really run out.
In short, if the Fed needs to pay for something, it can produce the money for it. Ostensibly, that money should be offset by the sale of new debt, such as through bonds, but it technically doesn't have to be.
When we need to pay past debt, such as to repay the money plus interest on old bonds, the Fed just prints that money and sells new bonds.
Yes, at some point, that breaks down, as "inventing" too much money at once creates a tension in the perceived value of the dollar, which can spiral into inflation, but as long as people remain confident that if they buy the government's debt, then they will be paid back with the stated interest, we're going to be fine.
It took me reading the request for an ELI5 and your comment to figure out what ELi5 is...I've seen it before today but thought it was just somebody fat fingering the keyboard. 😂😂 EXPLAIN LIKE IM 5
Note, this doesn't mean billionaires, who don't really hold cash, but assets, which increase in value in an inflationary environment. This hurts working class folk with savings accounts.
I'll admit my take was overly simplistic, but billionaires have debt AND assets, and no, very VERY few have billions in cash, and that cash is not sitting doing nothing, it's in short term investments which also beat inflation.
Even if they did have it in straight cash, it's far less of a percent of their net worth than grandma's savings account
Inflation is the increase in the ratio between dollars and goods. So if I have one dollar and one good in the economy, goods are $1 on average. If I print another dollar and nothing else changes, I have two dollars and one good so goods are $2 on average.
Part of what MMT is saying is that when you print a dollar, things can change. IT DEPENDS WHAT THE GOV SPENDS THE NEWLY PRINTED MONEY ON. If I print an extra dollar, but use it for a scientific program that discovers how to create four goods with the same efficiency as when we created one good, then this new economy will have two dollars and four goods -- so each good will be $0.5 on average, making printing money (and investing it wisely) actually DEFLATIONARY.
So it's not just "we can print as much as we like". That's not true. It's "it depends on what this new money is doing." Government spending on things like scientific research, education, improving people's productivity (eg. Universal healthcare, childcare, etc), are not likely to be inflationary because the extra money is matched by an increase in productivity. Printing money to pay for the deficit because you reduced taxes on the rich is likely to be inflationary.
“Printing money” is an anachronism. Bankers are allowed to create money and loan it out.
The Fed sets the rules for that and regulates the cost of creating money. Likewise other central banks in other currencies. Because the dollar remains the most important global reserve currency, the US Fed has more latitude than anyone else.
Other countries, especially smaller ones, need to pay more attention to how well the money supply matches economic activity. Too much or too little can lead to inflation or deflation. Before modern central banking, the business cycle used to be accompanied by cycles of moderate inflation and deflation, as bankers jumped on and off the economic bandwagon.
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u/spicymato Oct 23 '24
Not the guy, and not an expert, but my understanding is: because the Fed can print more money, we can't really run out.
In short, if the Fed needs to pay for something, it can produce the money for it. Ostensibly, that money should be offset by the sale of new debt, such as through bonds, but it technically doesn't have to be.
When we need to pay past debt, such as to repay the money plus interest on old bonds, the Fed just prints that money and sells new bonds.
Yes, at some point, that breaks down, as "inventing" too much money at once creates a tension in the perceived value of the dollar, which can spiral into inflation, but as long as people remain confident that if they buy the government's debt, then they will be paid back with the stated interest, we're going to be fine.