Sovereign governments have the power to print their own currency. Governments authorize their Central Banks to manage their fiat currency. Central Banks have the authority to create money. Central Banks can create money that increase the money supply and money available for financial transactions.
More money in the system is inflationary in nature. Inflation is loosely, a rise in prices as the market readjusts the equilibrium of money vs the demand for products & services in the economy.
There are inflationary and deflationary forces. Inflation is the general increase in prices. The source of this rise in prices is important in identifying if it’s a monetary or a market phenomenon.
Deflation is a general reduction in prices and the increase in the buying power of the currency. Monetary deflation is due to monetary policy, the tightening of the money supply, a slowing in the growth of money, a rise in interest rates, tightening lending requirements, and generally a higher demand to hold fiat money.
Market deflation is caused by market forces that streamline productivity, lower input costs and improve output.
Inflation may occur due to excess Central Bank money creation or an unwinding of market efficiencies; like trade wars, trade disruptions, supply chain blockages, hot wars, natural disasters, or other social phenomenons that restrict the output of products and or services.
Anything that restricts or impedes output is inflationary. Anything that improves the output of products and services is deflationary.
Improved tools, new technology, free trade, new trade relations, lower taxes, additions to the work force, more people who “plug-in” to the global economy, division of labor, lower commodity prices, reduced tariffs, lower taxes, smaller government, high trust in society, rule of law, and entrepreneurship, are all deflationary inputs.
Market inefficiency causes prices to rise and is inflationary. In general, higher taxes, tariffs, larger governments, more bureaucracy, more government spending, more social welfare, more people on government programs, more dependents (off the labor force), high crime, low trust, anything that pushes back against the division of labor and free trade is inflationary.
Larger nations with stronger economies are able to print money and export their inflation to smaller trading nations. This is advantageous to stronger economies, and disadvantageous to smaller nations, “victims” of inflation who have no choice but to absorb it.
Depending on the strength of their currency and economy, sovereign powers can print money and export their inflation. If you are the reserve currency, like the United States, you have the MOST power to print, and export inflation.
Smaller, weaker nations risk currency devaluation, hyperinflation and capital flight from irresponsible money printing. Their central banks hold the currencies of stronger nations in order to bulwark their own fiat currencies.
In the United States, the Central Bank is the Federal Reserve. The Fed has the power to create money, set interest rates and guide short term rates. They set policy for bank reserves and deposit requirements.
The U.S. Treasury is in charge of issuing Treasury Bills, Notes and Bonds, providing funding to the U.S. Government for their spending purposes.
When the government spends money, they use the money in their General Account at the Federal Reserve. If they need more money, the Treasury will sell bonds to the public, banks, institutions and other nations. The government may also increase taxes to refill their General Account. The General Account is like the checking account for the US Government.
The government has two methods to raise money: 1) Sell Treasuries 2) Tax. There’s actually third revenue source. Any additional money left over from the Federal Reserve and their operations, rolls over to the US Treasury.
The Federal Reserve has one way to raise money: Create it. The Fed creates the money they need, as they need it, to pay for their general expenses, to purchase U.S. Treasuries, pay interest on bank deposit reserves (ie. Interest on Reserve Balances or IORB), lend money to banks, add liquidity to “too big to fail” institutions, and engage in other monetary transactions. The Fed can also, in theory, destroy base money, but I don’t believe there’s a record of this ever occurring.
Base Money differs from money created by banks. Only banks and the Federal Reserve (or Central Bank) can create money. Central Banks create Base Money which consists of actual coins, paper currency and digital money on the balance sheet at the Central Bank and banks create elastic money through the Fractional Reserve lending process. (To be accurate, the US Treasury is in charge of printing actual cash and minting pennys, nickels, dimes and quarters, with the money the Fed created)
To you and I, they are the same. To the broader economy, they are the same. However, Fed money doesn’t need to be unwound. Bank created money must be repaid and unwound, and eventually “closed” when loans get paid.
Banks create “Elastic Money” because eventually that money has to be unwound and paid back by the borrower. Bank created money zeroes out minus interest earned, at the end of its term. The principle disappears. Elastic money is created through the Fractional Reserve Process.
Fractional Reserve banking is a process by which banks can lend out “more” money than they’ve taken in. Depending on the requirements set by the Federal Reserve, banks are able, through their license and oversight agreements with the Federal Reserve, to create money.
For example, assuming that a bank requires 10% in reserves, when they receive a deposit of $100, they can lend out $90. They hold $10 in reserve but their accounting ledger continue to show $100 in liabilities and assets (customer deposit taken in) and $90 in assets of newly loaned out money. Their updated balance sheet becomes $190 in assets and $190 in liabilities, $90 of which is new money the bank created. This is Fractional Reserve Banking. Banks credit the borrowers account for $90. The borrower can now spend the $90. If the spent $90 gets deposited with a bank, the process can start anew.
Thus the original $100 becomes $1000 in total circulation at its maximum theoretical point. $899.XX in loans and $999.XX in total assets. Today, there is no bank reserve requirements set by the Fed, so this can theoretically go to infinity. Banks can lend (or create as much money as they want) as long as they are able to meet regulatory capital and deposit reserve requirements, fund customer withdrawals, while remaining solvent.
Fractional Reserve Money Creation at Work:
| Banks | Original Customer Deposit | Reserve Requirement of 10% | New Money Loaned Out | |
| Bank 01 | $100.0000 | $10.0000 | $90.0000 | |
| Bank 02 | $90.0000 | $9.0000 | $81.0000 | |
| Bank 03 | $81.0000 | $8.1000 | $72.9000 | |
| Bank 04 | $72.9000 | $7.2900 | $65.6100 | |
| Bank 05 | $65.6100 | $6.5610 | $59.0490 | |
| Bank 06 | $59.0490 | $5.9049 | $53.1441 | |
| Bank 07 | $53.1441 | $5.3144 | $47.8297 | |
| Bank 08 | $47.8297 | $4.7830 | $43.0467 | |
| Bank 09 | $43.0467 | $4.3047 | $38.7420 | |
| Bank 10 | $38.7420 | $3.8742 | $34.8678 | |
| Bank 11 | $34.8678 | $3.4868 | $31.3811 | |
| Bank 12 | $31.3811 | $3.1381 | $28.2430 | |
| Bank 13 | $28.2430 | $2.8243 | $25.4187 | |
| Bank 14 | $25.4187 | $2.5419 | $22.8768 | |
| Bank 15 | $22.8768 | $2.2877 | $20.5891 | |
| Bank 16 | $20.5891 | $2.0589 | $18.5302 | |
| Bank 17 | $18.5302 | $1.8530 | $16.6772 | |
| Bank 18 | $16.6772 | $1.6677 | $15.0095 | |
| Bank 19 | $15.0095 | $1.5009 | $13.5085 | |
| Bank 20 | $13.5085 | $1.3509 | $12.1577 | |
| Bank 21 | $12.1577 | $1.2158 | $10.9419 | |
| Bank 22 | $10.9419 | $1.0942 | $9.8477 | |
| Bank 23 | $9.8477 | $0.9848 | $8.8629 | |
| Bank 24 | $8.8629 | $0.8863 | $7.9766 | |
| Bank 25 | $7.9766 | $0.7977 | $7.1790 | |
| Bank 26 | $7.1790 | $0.7179 | $6.4611 | |
| Bank 27 | $6.4611 | $0.6461 | $5.8150 | |
| Bank 28 | $5.8150 | $0.5815 | $5.2335 | |
| Bank 29 | $5.2335 | $0.5233 | $4.7101 | |
| Bank 30 | $4.7101 | $0.4710 | $4.2391 | |
| Bank 31 | $4.2391 | $0.4239 | $3.8152 | |
| Bank 32 | $3.8152 | $0.3815 | $3.4337 | |
| Bank 33 | $3.4337 | $0.3434 | $3.0903 | |
| Bank 34 | $3.0903 | $0.3090 | $2.7813 | |
| Bank 35 | $2.7813 | $0.2781 | $2.5032 | |
| Bank 36 | $2.5032 | $0.2503 | $2.2528 | |
| Bank 37 | $2.2528 | $0.2253 | $2.0276 | |
| Bank 38 | $2.0276 | $0.2028 | $1.8248 | |
| Bank 39 | $1.8248 | $0.1825 | $1.6423 | |
| Bank 40 | $1.6423 | $0.1642 | $1.4781 | |
| Bank 41 | $1.4781 | $0.1478 | $1.3303 | |
| Bank 42 | $1.3303 | $0.1330 | $1.1973 | |
| Bank 43 | $1.1973 | $0.1197 | $1.0775 | |
| Bank 44 | $1.0775 | $0.1078 | $0.9698 | |
| Bank 45 | $0.9698 | $0.0970 | $0.8728 | |
| Bank 46 | $0.8728 | $0.0873 | $0.7855 | |
| Bank 47 | $0.7855 | $0.0786 | $0.7070 | |
| Bank 48 | $0.7070 | $0.0707 | $0.6363 | |
| Bank 49 | $0.6363 | $0.0636 | $0.5726 | |
| Bank 50 | $0.5726 | $0.0573 | $0.5154 | |
| Bank 51 | $0.5154 | $0.0515 | $0.4638 | |
| Bank 52 | $0.4638 | $0.0464 | $0.4175 | |
| Bank 53 | $0.4175 | $0.0417 | $0.3757 | |
| Bank 54 | $0.3757 | $0.0376 | $0.3381 | |
| Bank 55 | $0.3381 | $0.0338 | $0.3043 | |
| Bank 56 | $0.3043 | $0.0304 | $0.2739 | |
| Bank 57 | $0.2739 | $0.0274 | $0.2465 | |
| Bank 58 | $0.2465 | $0.0247 | $0.2219 | |
| Bank 59 | $0.2219 | $0.0222 | $0.1997 | |
| Bank 60 | $0.1997 | $0.0200 | $0.1797 | |
| Bank 61 | $0.1797 | $0.0180 | $0.1617 | |
| Bank 62 | $0.1617 | $0.0162 | $0.1456 | |
| Bank 63 | $0.1456 | $0.0146 | $0.1310 | |
| Bank 64 | $0.1310 | $0.0131 | $0.1179 | |
| Bank 65 | $0.1179 | $0.0118 | $0.1061 | |
| Bank 66 | $0.1061 | $0.0106 | $0.0955 | |
| Bank 67 | $0.0955 | $0.0096 | $0.0860 | |
| Bank 68 | $0.0860 | $0.0086 | $0.0774 | |
| Bank 69 | $0.0774 | $0.0077 | $0.0696 | |
| Bank 70 | $0.0696 | $0.0070 | $0.0627 | |
| Bank 71 | $0.0627 | $0.0063 | $0.0564 | |
| Bank 72 | $0.0564 | $0.0056 | $0.0508 | |
| Bank 73 | $0.0508 | $0.0051 | $0.0457 | |
| Bank 74 | $0.0457 | $0.0046 | $0.0411 | |
| Bank 75 | $0.0411 | $0.0041 | $0.0370 | |
| Total | $999.6300 | $99.9630 | $899.6670 |
(This is after 75 bank loan iterations. In theory, we could continue further)
Let’s take a look at the balance sheet of a typical business vs a bank.
Non-Bank/Business that starts out with the founder adding $100 of his capital. It now has $100 in cash assets and $100 in cash owner’s equity and no debt.
Founding Assets
Assets – Cash $100
Owner’s Equity – Cash $100
Liablities – $0
Total Assets – $100
The business does a business transaction by providing a service for $100 and bills the customer Net 30. Receivables on the asset side increases by $100 and owner’s equity also increases by $100 as a receivable. Total assets are $200. Cash remains at $100 on the asset side and the owner’s equity side.
Business Transaction 1
Assets – Cash $100
– Receivables $100
Owner’s Equity – Cash $100
– Receivables $100
Liablities – $0
Total Assets – $200
The business offers a loan to a customer for $90. Cash will get reduced $90, receivables will increase by $90. Total assets remains the same at $200
Business Transaction 2
Assets – Cash $10
– Receivables $100
– Loan Receivables $90
Owner’s Equity – Cash $10
– Receivables $100
– Loan Receivables $90
Liablities – $0
Total Assets – $200
Let’s review the balance sheet and transactions of a Bank. Bank is founded with investors adding $100 of capital. It now has $100 in cash assets and $100 in cash owner’s equity and no debt.
Founding Assets
Assets – Cash $100
Owner’s Equity – Cash $100
Liablities – $0
Total Assets – $100
Bank gets a new customer and the customer opens a checking account and deposits $100. Assets grow to $200 and liabilities are now $100, owner’s equity remains the same at $100
1st Customer Deposit
Assets – Cash $100
– Customer Deposit $100
Owner’s Equity – Cash $100
Liablities – Customer Deposit $100
Total Assets – $200
Bank makes a loan for $90. Bank adds $90 to a new customer’s account for loan provided. Cash asset remains at $100, customer deposit remains at $100 and loan receivables is now at $90. Owner’s equity remains at $100, new loan liability is now $90 and total assets is now $290. $90 of new fractional reserve money was created. The $90 will cancel out on both sides of the ledger after the loan is paid back.
Banks Makes a Loan for $90
Assets – Cash $100
– Customer Deposit $100
– Customer Loan Receivable $90
Owner’s Equity – Cash $100
Liablities – Customer Deposit $100
– New Loan $90
Total Assets – $290
Banks can exponentially grow and expand Federal Reserve Base Money by 10X, 20X etc… (depending on Fed requirements) through the lending process (Fractional Reserve Banking).
This is Elastic Money, loans will eventualy have to be paid back by the borrower and the principle zeroed out. The bank profits from the interest. Elastic money stretches back to base (unwinds).
In the case of a loan default, banks must pay with their profits, owner’s equity, and bank assets. The entire loan amount. This is the risk to banks. Banks set lending requirements to reduce risk and loan losses.
When banks can’t find good borrowers, they keep their money with the Federal Reserve. The Fed pays interest on bank deposits, slightly higher than most money market rates. This is called the Interest on Reserve Balances or IORB rate. The Fed pays the IORB rate for banks to keep their money wit the Fed, the banks pay you a slightly lower rate to keep your money with the bank.
Banks aren’t incentivized to lend and take on default risk if the reward doesn’t exceed the risk-free return of parking their money with the Fed. Large regional and national banks tend to pay almost zero interest for checking and savings accounts while earning a nice rate from the Federal Reserve.
In economies where cash is heavily used (ie. paper currency and coins), there is less leverage for fractional reserve lending because “cash” is outside this purview. The trend towards reduced cash transactions increases bank leverage and the power to enable more elastic money creation. Cash circulation in the U.S. continues to drop from about 15% in 1980 to 7% in 2024. The potential for further fractional reserve lending increases.
When banks are unable to meet Federal Reserve capital requirements, they borrow reserves from other banks, from the Federal Home Loan Bank, or the Federal Reserve. The FHLB was established in the 1930’s by large regional banks to provide assistance to its members, including providing short term loans.
There are markets established by the Federal Reserve, banks, broker-dealers, and other financial institutions, for short term and overnight lending and borrowing of money, US Govt Treasury securities, agency securities (Government Sponsored Enterprises – GSEs such as Fannie Mae, Freddie Mac, Ginnie Mae, Sallie Mae), mortgage back securities and corporate bonds. Banks charge interest and fees to each other.
There is the Repo and Reverse Repo market (Repurchase Agreements) where banks sell short term Treasuries for cash and cash for short term treasuries. The Fed is also active in these markets to control the money supply and liquidity. The Federal Reserve closely monitors these markets. The financial markets are hyper complex.
Banks can get funding through various venues; other banks, the FHLB, directly from the Federal Reserve, business deposits, retail deposits.
Customer deposits are the cheapest way to get funding. Banks will compete for customer deposits by offering checking and savings accounts, certificates of deposits (CDs) and other services. Longer term deposits are preferred, thus penalties for early CD withdrawals.
The idea that banks can lend as much as they want, ie. create as much money as they wish and “find” the reserve requirements they need is true to an extent. Their sourcing for reserves must have a lower cost compared to their loans. There has to be a reasonable spread. If banks make a 5% loan, their funding should be lower than 5%. So to the extent that they can “source” cheaper funding, they can loan as much money as they choose, assuming these customers are safe credit risks.
There is a fallacy that big banks don’t need customer deposits and don’t want the annoyance of managing small accounts. The misunderstanding was that banks provided checking and savings accounts to small account holders due to regulation and not for zero to low cost funding sources.
Fractional Reserve Banking was also said to be obsolete and no longer applied in modern banking. Banks could lend without limits, create money out of nothing and source the reserves they needed ad hoc. The reality is more complicated.
The specific details of the bookkeeping and regulation behind Fractional Reserve Lending is unclear. Exactly which financial institutions are allowed to lend using these parameters; large national banks, regional banks, local banks, small savings and loans, online banks, neobanks, etc.. is ambiguous.
When the Federal Reserve raises interest rates, they also raise the interest paid to banks for their Fed deposits (Interest on Reserve Balances or IORB Rate). In the same way that retail savings and money market rates would rise, banks also get a higher rate on their IORB. The Federal Reserve is the Supreme Bank for banks.
When the Fed raises the rate paid to banks, banks also tighten lending standards to their customers, making it more difficult to get new loans. Interest rates also rise, discouraging many customers to hold off on taking on new debt. Elastic bank money grows at a slower rate. The economy slows. This isn’t implicitly bad, especially if “easy money” propped up countless zombie companies, encouraged irresponsible spending, and discouraged savings.
When the Federal Reserve raises interest rates, investors are more inclined to invest in higher paying Bonds and Treasuries vs buying common stocks. Banks are also more inclined to deposit their money (reserves) with the Fed, earn a guaranteed rate (IORB) vs create new loans and take on risk.
Higher Fed rates also means higher rates charged between banks for overnight bank loans and higher rates charged by the Federal Home Loan Bank.
Bank created Elastic Money is said to be 10X to 100X larger than the base money created by the Federal Reserve or by Central Banks. The financial system is highly leveraged.
Elastic money created by banks represents the quantity of future base money. Too much bank elastic money makes the financial system systemically unstable (leverage).
The obligations of bank created money can only be met if the Fed creates more base money to cover the interest on the loans. In the short term, bank loans can be repaid with new bank loans. The rubber band can continue to stretch.
Loans are paid back with principle and interest. The interest portion must come from new money created by banks or the Fed. In theory, if bank elastic money is 10x to 100x larger than base Fed money, it’s impossible for every loan to get paid with interest, unless base money expands. Intermediately, bank elastic money is playing musical chairs.
In the end, unless some loans default, all future interest obligations must be paid back with new base money created by the Fed. Some loans will default, but this isn’t a zero sum game. We have the dynamics of banks creating new loans (new elastic money) and the Fed adding new base money, increasing overall total liquidity.
Theoretically, if every loan was called at once and banks stopped making new loans, then we’d only be left with Base Money. Imagine the deflationary effects.
If banks, for whatever reason, refused to make new loans, the Fed would be forced to pump trillions into the system to make up the difference.
When banks stop lending (ie. fractional reserve money creation), then the marginal growth of money begins to slow. This could be highly problematic. As the future growth of the economy no longer meets projections, bank loans will default and a domino crash ensues. This is usually when the Fed steps in, creates more base money, and bails out banks.
It is interesting to note that Elastic Money must match future projected base money. Because bank money is elastic and must be unwound and go back to “base”, the only way bank loans can be repaid with interest is from new money created by the Fed.
Well, not exactly, because banks can continue to create new Elastic Money, but without the Fed creating new Base Money, this rubberband can’t expand forever. We could face slight deflation (good for savers) or massive monetary deflation of the bad kind (terrible for everyone). Without “new money’ from the Fed, it would be impossible for all banks to get their money back with interest. Unless the total size of the “money pie” grows, loans can’t get paid back with interest. The interest portion is new money. New money the Fed (or banks) have to create.
Bank losses must be paid back from existing assets or future profits. If banks are unable to pay for these losses or remain solvent, they will go into conservatorship and get assumed by the FDIC.
Central Banks can create new Base Money. Base money is forever money unless it’s retired or destroyed by the Fed, which never happens.
The Federal Reserve is the bank for banks. Banks have an account with the Fed. Through Open Market Operations, the Fed purchases Treasuries, T-Bills, Notes and Bonds from major regional and national banks.
Regional and National banks are required to participate in the purchase of Treasuries, Notes and Bonds. The Federal Reserve can create money digitally by crediting the accounts of financial institutions.
Congress authorizes the US Treasury to issue new Treasuries, Bills, Notes, and Bonds to raise money for the government. The Debt Ceiling is frequently raised as the government budget only goes up. To pay for government debt and obligations, they collect taxes and sell bonds.
The Federal Reserve sell bonds to participating banks and credits the General Account of the US Treasury, ie. their spending account held at the Fed. The US Treasury then uses these proceeds along with tax receipts to pay for government expenditures and bond interest payments.
We hear concerns about rising government debt and the increasing obligations on interest payments. As the quantity of bonds on the market continues to grow, yes, the interest on Treasuries, Notes and Bonds continue to rise as a total percentage of the government budget.
How does the government pay for its budget? – Tax and sell bonds. In order to pay interest on the bonds, tax more and sell more bonds. The government can print money, they don’t need constraints in spending where expenses must be lower than revenues. Government spending is always higher than revenues. They print the difference.
Then why tax at all? Why doesn’t the government print all the money they need and eliminate taxation? Very good question and nobody seems to know.
The enforcement of taxation is a huge burden on society. It requires an army of government officials, tax consultants, advisors, and professionals. A massive resource drain.
Taxation is a historical legacy practice that has yet to be eliminated in a modern financial system. It is obsolete in a modern free society.
The only reason a government would enforce taxation is “control”. Not a bad reason, if you’re a bureacrat and want to continue the legacy of a large inefficient central government that enriches kleptocrats in a kakistocracy.
Taxation forces the use of a nation’s fiat currency on the people. ie. Force citizens to pay taxes in the fiat currency of the country. If not, people could use another medium of exchange (eg. gold, IOUs, diamonds, crypto, other) and crowd out government money, effectively making it unnecessary.
To control public behavior; By giving tax incentives to government approved conduct, they motivate pro-action. Whether it’s to consume more vegetables, buy American made goods, buy homes, go to college, install solar panels or buy electric vehicles. Tax incentives tilt behaviour. Sin taxes punish politically undesirable human action like purchasing cigarettes, gasoline, alcohol, or luxury goods.
The Federal Reserve is not allowed to buy bonds and treasuries directly from the US Treasury. They circuitously buy them from banks and other institutions after they’ve made their bond/treasury purchases from the US Treasury. This is called Open Market Operations and more specifically, Quantitative Easing (QE).
For the Federal Reserve to buy Treasuries and Bonds, they first create money, credit the banks for the purchases and then add the assets to their balance sheet. This adds liquidity to the economy, ie new base money.
The Fed has been known to also purchase mortgage back securities, corporate bonds and common stocks.
The Fed creates money to pay for Treasuries and Bonds and pay interest on bank reserves held at the Fed by member banks. The Fed creates money to pay for Federal Reserve expenses, salaries and other overhead costs which likely is approaching $7 Billion dollars annually. All new Base Money.
The primary method for the Federal Reserve to create new base money is through Open Market Operations, ie. The purchase of Treasuries, Notes, Bonds, and other assets in the economy. Digitally create the money, credit member bank balances at the Fed, add the asset to the Fed balance sheet.
Ironically, the US Treasury must continue to pay interest on the treasuries, notes and bonds owned by the Federal Reserve. The Fed books these as profits and later returns them to the Treasury. These are accounting tricks and effectively, the Treasury is getting an interest free loan on any bonds held by the Fed. Any interest paid will be returned.
The Fed can also engage in Open Market Operations where they are the seller of assets. By selling Treasuries and Bonds, they receive “security proceeds” aka money to the rest of us, for selling assets to banks and institutions.
Money or “security proceeds” are added to Fed assets and later transferred to the US Treasury. This process, arguably, is a double payment to the US Treasury for the original sale of bonds.
The US Treasury got paid initially from the initial sale of treasuries and bonds to member banks, institutions and foreign nations.
When the Fed engages in QE, they purchase bonds from the open market by printing new base money. Later when the Fed sells the same bonds off their balance sheet, they receive “security proceeds” or money for the sale, and then transfers the proceeds to the US Treasury. The US Treasury (arguably) got paid twice for the original sale of bonds.
You can assert that T-Bills, Notes and Bonds are effectively money. They can be traded, saved and used to purchase assets. They are fully guaranteed by the US Government and pays interest, in fact, better than cash, which pays nothing. Thus, when the US Treasury issues new bonds, they are in effect adding liquidity to the economic system. When the government (US Treasury) pays interest on outstanding treasuries, notes and bonds to the public, banks, institutions and sovereign nations, they are adding liquidity.
It’s debatable what the excess leverage and money creation does to the economy. Ultimately the question is, does it create value or devalue those who actually work and save? Inflation is one result of excess money creation, as well as asset inflation, inflated home prices, higher equity prices, higher prices on speculative investments.
Stock prices have a strong correlation with monetary liquidity, which means that excess money floats into stocks and inflates equity prices. One could argue that over valued equity prices artificially enriches those who own common stocks, removes labor from the work force, creates income imbalances, and distributes wealth to the very top.
The modern economic system is complex and adaptive, far from perfect, ridden with inefficiencies and bad actors, but (so far) robust and highly functional.
The End
6/29/2023
