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What happens when the money printer is switched off?

September 8, 2020

The bills fall from the sky like tropical rain. I am obviously referring to the monetary incentives provided by the United States Federal Reserve. These stimulus packages were implemented specifically to reactivate the economy. The coronavirus crisis has resulted in a dramatic drop in demand, and these emergency liquidity injections are designed to increase that demand. You are not an irresponsible fad. What is sought here is the common good. It’s strategy. In other words, the unemployment rate should be reduced. However, “money pressure” is a measure that is heavily criticized by Something. Why are so many people outraged? And what happens when the printer is turned off?

The term “money printer” alone shows a tendency. Imagine a gang of criminals printing money out of nowhere for personal gain. It sounds like a crime. At best a very immoral arbitrariness. In fact, the entire tale about money printing seems to be a conspiracy theory. It’s a vulgar scam. The government is cheating on its own people by printing paper of no real value. All of this, of course, inevitably brings us to the question of government. Because the government is a public body.

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What happens when the money printer is switched off?What happens when the money printer is switched off?

It is clear that when the government is spoken of as the enemy, one might assume that the citizens in question do not trust the government they officially represent. People who trust their own government rarely talk about money printing. Instead, the term fiscal and monetary policy is used. It’s a much more neutral formulation. Or you could say that it is a more institutional formulation. Public unity means the people, the people and the people. So there is none against us here. There are no cheaters and cheaters. There are only citizens, institutions and a fiscal and monetary policy. At least in theory.

When we say that a central bank prints money out of nowhere, we are actually using the term with poetic license. First of all, we must remember that the central banks are regulated by law. You are legally required to serve the public. That is, there is a regulation that specifies their functions and their limits. In other words, they cannot make their free profit.

On the other hand, there are two very important elements in the whole equation. National production and taxes. Like it or not, there is a contract between the citizens and their government. The government is imposing local law on everyone on behalf of the group, and citizens must pay taxes to fund the facility. You could say that the government has that right. Understanding this is important when it comes to money. We pay taxes with the legal tender. Uncle Sam, for example, accepts dollars. Can you see where i’m going with this Taxes are tied to the production of goods and services, and the government has the right to levy taxes on their operations. If the government is printing money and using it in their payments, then that printing is legitimate because of taxes.

Of course it is simply said, but in practice it is not. There is a budget and a range of taxes. But how much money does it have to print for the number to add up? There is no other choice but to use the data. Inflation is probably the most relevant data when it comes to money printing. The price is defined according to the relationship that exists between the supply of money and the goods available. When prices go up, there is a lot of money around. When prices are falling, there is very little money around. It’s about stability.

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The US Federal Reserve is responsible for managing the money supply in the economy. More than printing money out of nowhere. Basically, the real economy is reflected with the topic of money. In other words, the monetary liquidity required for the production of goods and services at the moment is made available. So it is essentially printed with production as the reference base. It is not made of “nothing”. Society as a whole produces and one institution provides the necessary tools. Money is an instrument. It is a tool that facilitates commercial exchanges within a society. Not everyone can print money. The company then delegates this function to a public body.

You could say this is all a big farce because the people in the government are bandits who don’t represent the people’s interests. However, this is already a political debate. And here we are talking about the monetary system. So, so as not to make this a disaster. It is imperative that we adhere to the strictly economic, which corresponds to the monetary authority, its functions and its mechanisms.

The coronavirus destroyed demand and triggered a deflationary crisis. The economy has run out of liquidity and it is the responsibility of the local monetary authority to provide that liquidity. The fall in demand lowers prices and leads to unemployment. It is the job of the Federal Reserve to drive the currency equilibrium towards economic recovery. We call these stimulus packages.

However, the matter is more complicated than it seems. The Federal Reserve cannot legally spend money. You can only define the interest rate for bank loans and only buy financial instruments. The problem with credit is that during a crisis like the current one, many people refuse to apply for credit due to fear and uncertainty, despite low interest rates. In many cases, the debt is so high and the collateral has depreciated so much that the interest rates (fiscal policy) are no longer useful or relevant. That is, it ceases to have an effect.

The option that remains is the acquisition of financial assets. That is buying government bonds and corporate bonds. This increases the prices of financial assets. But it doesn’t always help the real economy. The problem is the speed of money. That is, the new money usually remains stagnant in the financial markets and doesn’t reach the economy because nobody wants to spend it. This generally creates a financial bubble in the markets and increases inequality. Because the owners of the assets benefit most. This is paradoxical as these “public” funds are released to save the entire economy but ultimately benefit some rich men.

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In an ideal world, the solution lies in government. Because unlike central banks, the government can spend money. In theory, the Federal Reserve could buy government bonds. The government could use this money to increase its spending on aid, investments, and purchases. At the same time, taxes could be increased in the sectors least affected by the crisis. In this way the economy is reactivated without creating inequality. This has been done in the past and has produced excellent results.

It’s different now. Uncle Sam doesn’t want to raise taxes or significantly increase expenses. In addition, the level of debt is so high that increasing spending means an even bigger deficit. And for political reasons, a small government is wanted, although in practice the strategy means a large deficit and a large inequality.

The money printer shuts down when inflation and employment rise. When the impetus ceases, the financial markets are the first to be hit. Wall Street, gold, bitcoin, crypto. It’s that simple. The financial bubble that has formed since the March crash has been mainly driven by acquisitions of the Federal Reserve as part of the stimulus package. It would be very reasonable to assume that stopping these measures would dry up the source of bonanza for the markets. If the rain stops we will have a drought.

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