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by WalterBright
1359 days ago
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> They don't print money. Oh, absolutely they do. That's why currency is called "banknotes". The banks printed them. Each bank printed their own banknotes. You can find their images in numismatics books. In 1914, the government took over the function of printing banknotes. But the banks still print money. We just call them "cashier's checks", "money orders" and "travelers' checks". But more normally, they simply credit your account with created money. > If stuff is harder to make or is more rare, prices will go up irrespective of money supply. That isn't inflation, because extra dollars are not being created. For example, tomatoes going up in price in the store because of crop failure isn't inflation, because more money doesn't appear in your pocket to pay the premium. What happens is you wind up with fewer dollars in your pocket, meaning you buy less of other things, and with the annoying Law of Supply and Demand, the prices of those other things drop. |
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That banks used to print notes in the past is not relevant in this discussion, when we talk about 'printing money' what we are referring to is how money comes into circulation. Physical bank notes are barely relevant to the equation as it makes up a tiny portion of the money supply, and of course, they are only printed by the Central Bank.
Money comes into circulation when the Central Bank 'buys' TBills off the free market. That's when the Central Bank 'creates' money.
Then, through fractional lending, a considerably larger amount of money ends up getting into the system by way of accounting.
Finally, the 'credit market' - which is really 10x bigger than even money in circulation, and which is the real thing that matters in business, develops like a bubble on top of that.
"That isn't inflation, because extra dollars are not being created."
Yes - it is 100% inflation and you are absolutely spreading false information at that point.
The 'result' could be as simple as 'less of that product is bought' - meaning, we use 'less gas' when gas prices rise - while every other aspect of the economy remains mostly the same. That is 100% inflation.
Aside from 'buying less of the product with price increase' or 'buying less of other stuff' we can also borrow, use savings, buy on credit etc. to adjust for the price inflation - so it's not going to necessarily work out to be some kind of net price levelling in the economy.
Increasing prices = inflation [1]. That's it. It's not necessarily related to money supply.
And finally - as the economy expands, more money needs to be introduced into the system just to keep prices even. This is an example of where there is more money supply and it does not change prices.
[1] https://en.wikipedia.org/wiki/Inflation