Creating Money From Nothing

Fitch Ratings estimates that the world’s central banks will create a total of $6 trillion this year.

Of course, they won’t literally be printing the money – that would be physically impossible.  You’d have to stack $100 bills 630 miles high before you had $1 trillion. At that height, you’d have to worry about satellites knocking your money pile over. By comparison, $1 billion would be roughly the height of the world’s tallest building, and $1 million only the height of a chair.

In our modern financial system, money is created from nothing all the time. For example – you decide to borrow $100 and the bank agrees to loan it to you.  They’re not taking that $100 out of someone’s bank account and lending it to you – that $100 appears from nowhere – before you borrowed it, it didn’t exist.   When you pay it back the money simply disappears just like it never existed.  Our financial system is not set up to cope well with that and the widespread destruction of money quickly causes major problems.

That’s why the Federal Reserve, along with other central banks, stepped in to save the day.  If banks were causing problems for the economy by destroying money, maybe the Fed could fix that problem by creating money, even though that has long been taboo.  It’s similar to government’s printing money and spending it – a policy that has led to total economic collapse time and time again.

Naturally, the central banking elites argued that since banks had stopped creating money, they could step in and do it on a temporary basis which wasn’t dangerous at all.  So the world embarked cautiously on a new money printing scheme called Quantitative Easing (QE).

Instead of creating money out of thin air and handing to the government to spent, QE allowed central banks to create money out of thin air to purchase government debt and assets from banks.  Of course they also promised to sell the government bonds and then destroy the money they created. 

Twelve years into the scheme all is not lost – our currency is not worthless – yet even though most of that newly created money has never been destroyed. So now central banks are much more comfortable creating money out of thin air.  In March they announced they would inject $1.5 trillion into the repo market which is basically where all banks go to borrow money.

We now live in a world where central banks own huge portions of government debt. The Bank of England owns about a third of the British government’s debt.  Even before coronavirus,  the Bank of Japan owned over 40% of its government debt, the Federal Reserve more than 10%  of our government debt, and the Eurozone central banks owned 15% to 20% their governments’ debts.

This has kept interests rates low, enabling our governments to borrow sums unprecedented in peacetime, while avoiding crippling interest payments.  The problem is, however, we’re playing with fire. 

Creating money has proved incredibly destructive in the past because it doesn’t actually increase the amount of resources in an economy and can lead to hyperinflation.   In the 1920’s the German government printed money to pay its debts. The result was that it took a wheelbarrow full of cash to buy a loaf of bread. Zimbabwe tried it and the result was $100 trillion bank notes. More recently, Venezuela saw inflation of over 1 million percent.  

If you believe the American “experts” there is no need to panic right now.  Oil is so cheap that refineries literally can’t give it away. The economy is shut down—so you don’t have too much money chasing too few goods. There’s not much money moving at all.  So we’re unlikely to face hyperinflation tomorrow. 

What happens in the long run? When people go back to work? When economies wake up?   The economists don’t know. We’ve never done anything like this before.

The foundations of our economy are much more fragile than most people understand. Your bank account is a flimsy thing to trust in.  Even your local bank branch can now create vast sums from nothing. Are they someday going to wipe out your savings?  

Hyperinflation and a collapse of the dollar would create a crisis so big that even a gold reserve wouldn’t keep you safe.

“Economists claiming that the U.S. economy is in good shape now said the same thing just before the 2008 financial crisis. They’re wrong again. The reason we had a crisis was because the economy was actually a disaster waiting to happen.   Today we are awaiting an even bigger disaster!”  Peter Schiff

Source:  Do You Realize How Much Money Is Being Printed Right Now?  by Richard Palmer , the Trumpet;  Fed Doubles Up Stealth QE as US Spirals Toward Recession, Money & Markets

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