Just discovered your channel and love it. You provide complex and in-depth topics, but present it in a very clear way. Wish my professor did that. Bedankt!
This video is insanely easy to understand and held my attention. This video was transformative for me on how I view money. I also appreciate your willingness to accept that there can be nuance.
I just love your channel, Marco. We have so many half-truths, fearmongering, and conspiracies whenever people discuss macroeconomy. When we have enough channels to blame problems on the Federal Reserve and whine about economic collapse all the time, your channel provides an understandable yet rational explanation about the economy we urgently need to know.
@@MoneyMacro when is it a good idea for the entity thats the most incompetent and corrup organisation in human history to steal money from the people they represent? youre a joke
@@MoneyMacro uhm... we know zimbabweans are intelligent people?? 1. why do you just make random assertions, arent we supposed to trust your comments and be able to learn about these topics? 2. we, in fact, KNOW the complete opposit... they are among the least intelligent people in the world
guys, this is MMT! the assumption that just injecting money into the economy in case of a recession will solve said recession, is an absurdity. If people are not consuming specific in case they are in a bad situation, it's because that is probably the best thing to do both individually and as a society, people don't need an incentive at all to consume, even if there is a deflation (something none of us have ever seen but ok). Injecting money in such a case creates a false sense of security on people and they spend money they don't actually have in things they don't actually need and that downwards spiral leads to a depression, through inflation. Also according to MMT, there cannot exist recession paired with inflation, but we all know that is not true
You're absolutely right. The model from this video might generate some immediate positive results, but eventually will fail and lead towards a recession. This is tantamount to gambling with society's money, it might bring economic development, but it can easily cause inflation and devalue people's savings.
when is it a good idea for the entity thats the most incompetent and corrup organisation in human history to steal money from the people they represent? this guy is a clown
Thank you again. I watch a lot of these economic and financial video's. By far yours are at the top of my list. They are understandable, balanced, present evidence, and provide opposing views.
Oh bro, I am I love with you channel. Thank you for all your effort explaining this amazing topics. I try to explain it to my team to make them understand how economic works. I think your video does mush better job.
If a country which doesn't have a solid industrial base and supply chain able to make agricultural industrial assets (tractors, harvesters, fertilizer, seeds etc) than that country would not do good to print its own currency to jump start farming, it would have to borrow money from another country that can deliver those goods and pay it back with interest? Correct?
Good point. In that case, the country should be extra careful. Printing a bit to jump start farming might be a good way to then fund a next step, which is industrialization. But yeah, the less industrialized a nation is ... the trickier it is.
@@MoneyMacro bruh i swear that for years I have been battling strangers and friends which have economics degrees, battling them over the fact that money is just paper and you just can't throw money to solve things as a central bank. Money creation has 2 sides I always told them, as per my observation, printing the money itself and the most important side "balancing" that money with services and products. If you have one without the other you run into issues. I have no economics studies, just my observations and thinking experiments, and the final argument for them was that I have no studies in this domain. I swear to God almighty that universities just kill education, common sense and ability to observe, they make a lot of people live a delusion.
@@tetrusadima yeah that final argument is an 'argument from authority' and is a well known fallacy (meaning that it is not a proper argument). In my mind it means they ran out of real arguments. Sure hope that not all universities kill education and common sense though, since I teach in one :P .
Good video! Just to add, there is money printing also for price competition. The most significant case is SNB, they "print money" to absorb euros and dollars and to not deteriorate the exchange rates. BTW, can you do a video explaining how SNB works, what it does with its giant dollar reserves and the euro-franc peg existing till 2015? Keep it up!
I like the economics of Anwar Shaikh, and they fall in line with the conclusions of this video. Shaikh argues that inflation is a factor of purchasing power and the growth utilization rate. In other words, how much money is in the system, and how much room for growth is there? Using this theory one reaches the same conclusion regarding the printing of money. As long as it is used to increase productive capacity, it will not cause inflation.
I really appreciate your factual and level-headed articles on economics and finance. There are too many misleading posts on the subject on RUclips ,intended to be sensational click-bait or serving particular Geopolitical interesrs
Bank notes created by a central bank are a liability from the bank's viewpoint because they are like promissory notes to give "real money" to the holders of these notes. Before 1971 gold reserve was this real money.
Not really. How many shipments of gold paid for anything? Explain why the value of Gold derivatives exceed the value of actual physical gold in existence?
Few points that I want to add that you missed 1) Currency should be relatively strong 2) There should be demand for currency (The above two factors give the US the advantage of printing dollars) 3) All the printing should go into productive output 4) There should be no full employment When people talk about Germany, same Germany under Hitler printed money and invested in infrastructure, with a clause that no prices or wage hikes. This example should be emphasized more. But anyway excellent explanation.
when is it a good idea for the entity thats the most incompetent and corrup organisation in human history to steal money from the people they represent? this guy is a clown
So you covered the case where money printing is inflationary, and the one where it has no effect of the money supply, but there's one more (that might be especially salient in these strange times): when can money printing be deflationary? When the assets you're buying have a higher velocity than the money you're selling! In particular, if the fed prints money in order to buy up highly-leveraged hqlas from banks, it has replaced a dollar-demoninated asset that is used in 100s or thousands of transactions a year with bank reserves that are unlikely to be used at all in today's extremely conservative lending environment
@@MoneyMacrojust feels strange to call it QE when it's tightening monetary policy :) Btw, I don't think I ever understood the line you drew between money printing and QE: QE prints MB to swap with assets not included in M3, while money printing prints M1 to do the same?
Modern Monetary Theory has been practiced for decades but no government realises it or admits it. It works for countries that issues, loans, borrows, spends and taxes in its own sovereign currency. The problem with Zimbabwe is that foreign investments and loans were in USD. So they had repay it all in a currency it did not have control.
Even if they were not, inflation will still occur if there is massive money printing that doesn't increase productivity capacity at all (or revitalises flagging demand). That is consistent with MMT right?
Imagine that Bonds were not a part of the process and the Government didn't have to pay interest on money it creates. Why would any Human, Person/Corp., System or Government want to pay for something that it can create for free itself ?
I like the clear explanation and argumentation, but I have to make a critical remark here: - There is a bit of wordplay around inflation of hyperinflation and the definition is not very clearly given in the video. As the value of all goods, services, assets etc. is expressed in the terms of money and traded using money, inflation can be seen as the increase of the amount of money in the system in comparison to the amount of value in the system. In practical terms, stuff costs more money, because there is a higher supply of money. - When using the above definition, you have not given a (true) solution to the title problem: The amount of money still increases, but instead of it just increasing the money supply, you used the money in a way (with a few assumptions) to also increase the value in the system, assumed that would be proportional, and thus nullified the effect of the money supply: No inflation. - What you have proved is that you can print money, as long as you succeed in using the printed money to increase the real productivity of the economy proportionally. - I would argue that, if you knew how to do the above reliably, you have basically solved the economy: If you can know how to put money in the right place to reliably maximise productivity, there is no more need for markets, scarce good are always at the best possible place and free choice can literally only make things worse. But I would argue that you can never know (for sure) where to put money to increase productivity, because you will always lack information
So to sum up: Money printing causes inflation. Increasing productive output causes deflation. These two things can cancel out, and you can lead with printing to try to induce growth. So is the whole spiel about liabilities even relevant?
Great video! In 4:10 you mention, that newly created money is usually used to purchase bonds. But what in case where government does not want to increase its debt. Let us assume that we create entirely new country and want to create its currency. Government sets up a central bank, but it imposes no public debt policy on itself. Central bank starts issuing notes, coins and bank reserves which land on its liabilities side, but what does it put on the asset side?
If there is a private banking sector in your hypothetical country, it might lend out these notes and coins to private banks. These private banks then can 'lend out' that money into the economy to bring it into circulation.
@@MoneyMacro In a situation like the UK were QE increased the demand for government debt and this debt was very quickly brought up by the central bank, does it not function as de facto printing? QE based liquidity swaps indirectly financed government spending on the furlough scheme during COVID.. this would seem to me to fit into the bracket of increasing the money supply to prevent a recession and a deflationary spiral. Or have I misunderstood?
The fundamental equation of accounting states that Assets = Liabilities + Shareholders' Equity, not Assets = Liabilities. However it's possible that Central Banks are not supposed to have more assets than liabilities (or vice versa) since it's a quasi governmental organization.
Sorry, but no. That was not true until there was shareholders. Double entry bookkeeping was created before that, during the Renaissance in Italy. So, the basic accounting equation is Assets = liabilities. The basic firm is a Sole Trader, not a company. Companies and corporations are evolutions of that basic unit, and so, accounting practices evolved to include shareholder's equity accordingly. So, Assets always equal Liabilities. What those assets and liabilities are is a matter of further analysis and management.
Thank you for another great video! As per your balance sheets explanation, shouldn't money printing increase government debt? Meaning printing money always has a cost. Trying to wrap my head around things like where does the $1.9tn US covid relief money come from for example.
Yes it does increase government debt. But if it is financed by money printing that debt is owned by the central bank. In turn, pieces of money paper are also a debt (of the central bank) that is held by the public.
@@MoneyMacro Thank you for your prompt reply! I see, so it is just an accounting thing, right? As the central bank will do nothing of that debt. Unless it sells it in the financial markets? Then printing money always increase your debt which you can pay back with your economic surplus, or am I missing sth?
It is still increasing your debt... it just has another form.... bank notes. Bank notes are a liability (debt) of the central bank. It is just very strange debt because it never has to be paid back. So a government could lend forever ... if it wants to from the central bank. It will still accrue debt though. Debt that never has to be repaid.... This is not a free lunch though because at some point inflation will happen.
A really good explanation of basic monetary theory in that money can be anything , salt, tobacco , gold , and now bitcoin , as long as people believe it is money, it is money , thats all ., a simple belief or trust in something .( the latin word credo is where the word " credit "comes from ) I liked your accounting treatment between the central Bank and the government as each having its own set of books and how you explain why notes and coins are on the liabilities side of the balance sheet . So would the "governments books" be the so called treasury ? I learnt my economics in South Africa which had a history of inflation in the early l98o's and I suspect quite a bit of money printing was going on , but so did the UK and USA .
Thanks Gary! Yeah, for the vast majority of countries I think you could say that the government balance sheet could also be called treasury balance sheet. Yeah, to be honest how inflation works is not fully understood by economists. Sure, we know that if you start printing a lot and your productive capacity doesn't grow you get inflation. We also know that if external costs go up or down this might cause inflation or deflation. For example, in the 70s the oil price shocks account for some (but not all) of the global inflation during that time. We also know that an economy can overheat to a certain extend and that can cause inflation. I think this is causing some 'inflation' in e.g. computer chips and other manufacturing products right now. Finally, because governments often keep money printing a secret (for obvious reasons) it's quite difficult to tell what were the strongest drivers of inflation in SA at the time. I might get back to it when I do a bit of a deepdive on SA's economy at some point... when I can travel back to Cape Town .
In the USA the Federal Reserve is prohibited by law to buy government debt directly from the Treasury, unlike Zimbabwe or banana republics. I really like your videos. Could you make a video explaining how the "money" (bank reserves) created by the FED is used to purchase pre-owned government debt from member banks (quantitative easing), thus trapping this "money" inside the banking system and thus not causing inflation in the real economy. Thanks.
Good explanation of how fiat credit money we have today is created with an equal debt liability. The problem with Zimbabwe is still the government which is their politicians apply socialist based policies that are based on pandering to people's desires instead of sound policies based on an understanding of the way to grow an economy money and an understanding of the principles laid out in this video.
Yeah, and Jay Powell panders to no-one, right? It's really strange how legally depositors at SVB who had balances over the FDIC $250k limit were initially told their money was gone, and were issue with insolvency notices, meaning they would have to wait until SVB was dissolved and get a share of what was left. They would have been waiting years to get some money. But in a weekend of hammering the White House, suddenly Powell announces that ALL deposits at SVB would be insured, and all depositors could get their money on Monday morning. Even though that makes FDIC insolvent. Hmm, looks like Silicon Valley executives were pandered to, don't you think? You need to widen your political and intellectual diet, away from "Socialism bad, and Capitalism good" type analysis. You're parroting stuff you don't fully understand. And you don't fully understand your own country's politics and economy because of it. As Mark Manson states, "Priorities determine problems. If you don't like your problems, then you had better take a long hard look at the Priorities that put them there." If you want truly understand what is going on in your country, look to your government's priorities. Specifically, the Federal Reserve's priorities as expressed by Powell words and actions. You might find what you see enlightening, and to explain what what you see, you might read "The Dictator’s Handbook: Why Bad Behavior is Almost Always Good Politics by Bruce Bueno de Mesquita and Alastair Smith." You might even check out CGP Grey's two videos on it. You will discover that no state is without it's oligarchs, and that they enjoy privileges that the rest of the population do not.
Great video. Thank you. I always knew that money printing isn’t all evil, because modern industrialized economy are built on trades, trades of labor, resource and commodities. Money is like the blood of the trading process. You need enough blood cells to carry oxygen into all the cells of economy. Bigger the economy becomes, more blood cells required to remain healthy.
I think the more insidious risk over time from money printing is lack of productivity and the slow erosion of real purchasing power for wage earners...
Value unlike money can not be created in an instant, so where does value come from to improve the farms? Don't savers get to be worse off until the farms start to produce more just to get break even once they do?
Great explanation as usual. I would just add that there are implicit assets on the government's balance sheet that arise from their right to taxation. If the corporate tax rate is 30%, the government basically owns the right to 30% of all corporate profits as though they owned 30% of all those businesses. The value of this asset is equal to the present value of 30% of all those profits indefinitely into the future, including the profits of businesses not yet in existence, so you get an asset value equal to something like 30% of the total market capitalisation of all public companies in that country. And that is just the corporate taxes. So all that money the central bank prints is ultimately backed by the tax fraction of all the income of domestic companies and citizens into perpetuity
I would really like you to answer other questions: if money printing is moral at all, as it effectively steals value from people, for which they worked so hard for; and not just the easy, and artificial, and imoral, way found by the governments to deal with inflation or other economic problems, instead of addressing the issues root causes instead; and if using gold reference for instance, would be any problem nowadays. Thank you.
So if I understand correctly, printing money for developmental loans works great, but it doesn't work well in cases where it goes primarily to consumption (i.e. poorer countries) or where it goes primarily to investment (i.e. richer countries)? Also, please make a video on UBI, and how that would affect the economy. Wouldn't money printing/creation for that lead to hyperinflation as people will spend on consumption?
It's because when printing money the central bank wants to distribute money to people for them to spend and grow the economy while also increasing the economy productivity to match the printed money or else it will lead to inflation.
12:56 Can money printing be used to invest in productive capacity for long drawn-out periods of time outside of economic crises or is that incredibly dangerous?
I think that the chances of printing money are significantly lower than the risks involved. Of course it's possible to get it right if you have people who never make mistakes, but that's not the case. That's why I think it would be better not to print money and to create investments in other ways. It may take longer and be more difficult but in the long run I think it would create a healthier and more resilient economy.
11:45 seems to me that the essence of modern monetary theory is: The government invests with money borrowed from the people. As long as they make a profit it is good for the country. Am I right? But in the case of Zimbabwe: if the government would protect investors, wouldn't guys like Bill Gates love to invest in food production in Zimbabwe? They look good to the world and as long as they are protected against fraud and criminals they even make a profit while Zimbabwe gets a nice cashflow.
Money printing takes value from all other currency in circulation, so the money you hold in your bank account is devalued so this debt they create through QE has value by decreasing the value of everyone else who holds the fiat currency. The dollar being the world's reserve currency can do much more money printing than everywhere else and when they print money they take from everyone who uses the dollar worldwide. The essence of it is as long as money printing is used to increase productivity within society then it is good debt, investing in public infrastructure or reducing costs of the average persons expenses like building more public housing to reduce rent and housing costs would allow more money to be spent in the general economy rather than being siphoned off into the pockets to those who are already rich. If however QE is used to pump up the markets or create debt traps through cars and housing (and if you're in america college) for example by allowing near unlimited debt (as there is almost no collateral required to leverage this debt) leveraging decades of income against something with inelastic demand that people will pay regardless of the price will eventually crash the economy. This kind of debt isn't increasing productivity or decreasing expenses on a wide scale and it eventually has to be paid back causing a recession or if wide spread enough a catastrophic depression. If for example I now have no spare cash because my debt has spiraled out of control when they increase the central bank interest rates to stop out of control inflation, my money no longer flows through the wider economy. My income that would become another person's/corporations income when I spent that money, is now spent paying off debt on what was overpriced by the creation of debt in the first place for inelastic goods and services. If you haven't seen Ray Dalios video on the economy I highly suggest it m.ruclips.net/video/PHe0bXAIuk0/видео.html
11:26 It is geometrically the same thing if you imagine the lines continue infinitely in both directions, but I think it would be a lot more intuitive if you slid the demand line up (representing a willingness to pay higher prices) instead of to the right, and still slid the supply line to the right (representing an increase in quantity of food). Also, you messed up a bit with your words when you first described the supply and demand graph.
It seems at odds with historical evidence that private credit precedes booms, not government issued money. Heck, booms and busts already happened well before central banks were established. www.nber.org/papers/w15512
@Money & Macro How is that evidence a refutation of the austrian business cycle ? The cycles could have been worse had money been printed as well ? We cannot tell that from evidence ?
@@bartvanderhaegen6073 sure. But, wouldn't the "money printing" hypothesis mean that there should be a pattern of government issued money (note that M2 is largely money issued by private banks) and then booms following them. I've never found a study that empirically showed that this is what we see throughout history. Would be happy to be recommended some.
@@MoneyMacro But that is the problem of empiricism: no single set of empirical data allows to confirm whether the boom/ bust was caused by the increase in money supply or whether another thing caused the boom/bust or another thing counteracted the boom/bust. One can only logically construct a perfect counterfactual world (where all things are taken equal except for no money printing) and deduce conclusions from the difference between both. You never have the empirical data of the counterfactual world, and yet the counterfactual world is the relevant one to compare outcomes with (and thus draw meaningful conclusions)
@@bartvanderhaegen6073 empiricism taken to the extreme is difficult in macro, sure. But this Austrian theory is posits a really strong hypothesis: government money printing --> booms & busts. If that is true, there should really be some patterns historically to show that this is true. Or at least, counterfactuals where bubbles happened in systems without a central bank should be explained.
We have already learned alot from you about the different ways Asset Bubbles can come to existentce. But what are the theoretical reasons for them to pop? Since at some point they have to burst or they would not be a true bubble right?
Hi! Any chance you might have an explanation on how the second kind of responsible money printing works? Is it simply by causing a little bit of inflation to counter deflation?
Not qualified to answer but from what I understood, yes it and QE can be used to ensure we don't enter a deflationary spiral, but also it can expand the capacity of the economy and utilise resources already in the economy more efficiently. Like if there are price increases caused by shortages of a good, through a bottleneck at a major port, then responsible money printing might be investing to increase the size and ability of the port to process deliveries, or building a rail network for faster transit. Resolving the bottleneck in this case is responsible money printing, as it will increase supply. Sorry if that is not relevant to your question
He's really attacking a straw man around the 10:30 mark. There are better, nobel-prize-winning arguments for why money creation is always a problem than he gives, which is the definition of a straw man. :) For a hint: consider the consequence of some people getting the new money (the miners or farmers) while other people (the teachers and cobblers?) do not. His examples also assume that a central bank (or a central govt) has the knowledge to correctly forecast which businesses will be profitable and which will be wasteful, and brother, that is a crazy proposition at best.
You're right. I don't care if the video creator calls an "amateur economist" for I don't even have a college degree. But these theories he's envisioning are just naive. Like you said, government doesn't have the knowledge or informations to forecast wich business will be profitable, so leave that to the free market.
9:21 developing nation : govt. print money for their citizen to buy basic goods and services developed nation : govt. print money for their citizen to invest in stock market . Why a govt. print money and told it's citizen to invest in stock market ? that's not a good reason to print money .
How dynamic of lowering labor costs work? ie EU has very low interest rates and businesses actively seek foreign labor to do same tasks and jobs with smaller cost... so amount of euros in circulation and economy is same, but services supposedly are produced with below marketrate costs... either difference of cost goes to business owner pocket and luxury consumption or other case if it erodes competitors, pricelevel of that service at least some niche sector goes down... interest rates going even further down is logical conclusion? Shouldnt logical reaction be to reduce amount of money in circulation in this case?
So money printing is used to drive demand (for goods, services &/or assets) which in turn drive the supply? If it is done right then wealth, income & productivity increases. But done badly, inflation & bubbles increases which can lead to economic collapse & recession? What's the taboo the vlogger is referring to? Social engineering or political manipulation?
Joeri has another video on how we do not have fractional reserve banking; the money creation process is much more direct in that banks can lend independently of any rigid reserve requirement and create money by doing so.
The problem is that the government debt keeps growing out of control. The same thing happens with the interests of the debt. Nowadays the US government spends more money in interest rate repayments than in federal pensions for retirees. Besides it has become impossible to reduce the debt. The problem has no solution
Are you sure it is not possible? Check out e.g. the historical graph of UK debt to GDP in the link below. www.ukpublicspending.co.uk/uk_national_debt_analysis (not saying that gov debt is never a problem by the way)
@@MoneyMacro these graphs give us some hope. However, this first time the UK reduced its debt, it used the resources generated by the industrial revolution and the conquest of India. The second time was after winning WWII and becoming the second master of the world after the US. Now the situation is different, no industrial revolution is starting for the US and there is no money for conquests.
The Zimbabwe incident is presented more complicated than it actually is IMO. The miners claim is a direct subsidy from the government. It's not a loan. That's a very important point that's kind of glossed over. Then the story stops there. If a government prints money to directly subsidize an industry, without requiring any payback scheme or liability on part of the subsidized business, it's creating money out of nothing. Thus inflation. If the government would make performing loans, then assets and liabilities are balanced on all 3 balance sheets (gov, cb, miners).
I don’t think this is correct. He’s basically claiming that as long as a gov prints money and invests it in a means of production the economy magically grows.
For productive use it's called credit money (making new loans). Money-printing in the popular sense is simply currency devaluation, and that IS inflationary, everywhere and always.
2008-2009 about $20 trillion worth of Dollars, Yen, Pounds, Euros was dumped into global circulation. Inflation globally was under 2%. Why? Baby boomers largest cohort were in 50s and China was at peal production, this kept labor demands low (lower wages) and products cheap (you could buy with low wages). Now China is falling off global market place (many reasons to long for this text) and boomers are retiring, driving prices and wages up. Throw largest land war in Europe in 75 years for flavor boom Inflation.
Could you say, very crudely, and as an "explain like I am five" explanation, that money printing (when done right), "materialises" or turns into money, untapped or potential value in an economy? Thus, the money supply should, more or less, "track" the perceived value (whatever that means) in an economy?
I don't know what you mean with that last sentence. But, I think you could say it like you said it in your first. There is a lot of untapped potential in most economies. People who could work and don't ... productivity that could be there but is lying dormant. Money printing done right (very difficult in proactive and getting more difficult as there is less dormant productivity) could activate that. Hope that makes some sense. I'm thinking of visualising this at some point to make it more clear.
Thanks for your explanation. I think your explanation of money supply is different from MMT version. Bc MMT believe govt don't need to issue bond to supply money into the economy as long as they issue their own currencies. Can you elaborate more on different or similarities between your version and MMT. Thanks
this is the MMT explanation, the use of bonds for government spending is just a legal restriction on the cb and treasury in the us and other sovereign currency nations. the law prohibits the cb to buy bonds directly from the treasury (issuer of bonds) and lend directly to the treasury. so when the government spends, the cb repos securities from primary dealers prior to the auction of government bonds to the dealers to ensure sufficient bank reserves for the auction. at the auction, the treasury sells bonds for bank reserves. the treasury then adds the reserve balances to its tax and loan accounts at banks. then at the cb reverses it’s repo agreement and the treasury calls in its balances from its tax and loan accounts to credit to the fed. the fed uses these funds to credit the accounts that the government spent money on. the balance sheet ends up the same as if the cb and treasury did not have these restrictions and just credited the accounts of its recipients, making bonds only a tool of monetary policy.
Hi Joeri. Thanks for the amazing content. I have a question. If the Zimbabwean government wanted to stimulate gold mining but without causing the massive inflation, what tools did they have? Evidently money printing wouldn’t work in this case.
My best guess would be using something like the MEFO bills Nazi Germany used. They had 1:1 value with the money at the time and were basically IOUs that the central bank could determine when and how much to exchange for real money. So basically you'd give the MEFO bills to the mines and they'd pay the suppliers with them, but they couldn't be exchanged beyond that and the government would have the power to slowly redeem the MEFO bills with normal money as the investment in the mines started to pay off.
I don't dismiss money printing, however the root of the problem is the fact the newly created money flows to the rich. Also, besides the central bank printing, they also allow banks to print loan money, which once again the rich are the main beneficiaries of. I'm not even saying the rich are bad, here. But they already have the basic expenses of life covered, so their money will be invested in speculative assets, instead of real world benefit. The problem here is that investment expects a return… and this cycle cannot continue forever.
if the people in the devoloped world will spend the newly printed money n investments, how do you explaine the rise of amazon after the pandemic stimulus????
A basic assumption here is that the supply/demand are elastic, which is not true for a lot of the assets, especially in the short term. It also may not be true even for stocks in the short term. Therefore, money printing will always cause asset bubbles. And this becomes even more true when the economy is flooded with credits where there's no more productive area to invest in or if the country is not competitive enough regardless how much you invest in it.
I think you are taking about QE (asset buying) here whereas this video is about old school money printing (i.e. monetary financing government deficits).... In other words the supply and demand of gov bonds are extremely elastic because gov is willing to spend more (supply of bonds) and CB to buy (demand for bonds)
I wish my South African government could watch this video. They could borrow Eskom money to build power stations. This will create jobs instead of fighting inflation caused by regular power cuts.
Money is extremely weird. Just look at Bitcoin. A currency that is scarce by design but there is a form of money creation called the "block reward" which pays miners with Bitcoin. You see, barely anyone uses Bitcoin for payments. Yet Bitcoin is entirely dependent on a class of "workers" who are getting paid through money creation. It's basically a parody of the USD and other fiat currencies. If I had to summarize the problem it would be: "People stop working when the economy runs out of money," At a first glance it makes no sense yet for some strange reason it keeps happening over and over again.
Money printing devalues purchasing power and asset value (unless you can con some rubes into thinking its worth the same). And it gets more devalued the further down the food chain we go. So don't bother saving, just chase the shrinking investments propped up by the fresh cash. What could go wrong?
@@MoneyMacro I watched your video twice and I think you are wrong from 10:20 onward. There is no way to target an increase in production in a specific sector of the economy through money printing without causing general price inflation. Giving Zimbabwe farmers money would not result in an immediate increase in the supply of the things farmers spend money on: farm machinery, seeds, labor, jeans, and alcohol. What good does it do to give farmers more money to buy more farm equipment, seeds, and labor, when every other farmer is doing the exact same thing with the same increase in money to do it, while the supply of those inputs has not increased? It's just going to drive the prices of those inputs up without resulting in an increase in said inputs in the hands of farmers, which means no increase in production. And if you increase their input costs, they are going to pass that along to the consumer. Those farm equipment manufacturers are now going to have more money to spend on their inputs, like steel and labor and ... food. Best case scenario, giving farmers money pulls productive capacity away from other sectors and shifts it toward farmers. With a higher offer of wages, construction workers might become farm workers, and that might increase production in the farming sector, but it subtracts production from the construction sector. As for printing money to prop up prices when demand is falling, that's just going to keep the economy in a zombie state, where it is too sick for optimal growth. Prices of things where demand has been over saturated have to fall to the market clearing price in order for growth to resume. If home builders produce more houses than for which demand exists, some of those builders should go bankrupt and the cost of housing should be allowed to fall until buyers step in. That allows the resources of the bankrupt home builders to be salvaged and used in more productive ways. Propping up the price of their inventory and handing out cash so that more people can consume them is just encouraging a poor allocation of resources. There is no such thing as a free lunch.
I just love these "Just So" stories that macro economists tell themselves and folks who want to hear fairy tales. They are like telling a guy without a girl friend that he can get one by being 5 percent nicer or more charming or more confident. Or that if you are unemployed you can get a job by being willing to take a job for 5% less. Supply and Demand is a general trend, but hardly a law of physics.
Hang on a minute! Isn't the biggest part of the cause of inflation in Zimbabwe missing here? The part about the massive restriction of goods caused by the theft of farms by the govt (which then became very, very unproductive, thus plummeting supply of food), and other policies which led to a massive restriction in supply, and then the Govt created new money in response (instead of fixing the lack of supply of goods)?? And wouldn't it be better for new money supply to be spent into the economy by the Govt into socially useful things, instead of Commercial Banks creating money to exclusively go towards asset bubbles, esp making housing unaffordable for next generation? An elected Govt Issuing & Taxing Currency in & out of the economy is SURELY a better thing than Commercial Banks creating currency? (Since Commerical Bank Debt & Currency is used the same way in the economy).
Governments also don't have a perfect record when it comes to asset bubbles. E.g. the Dutch and Danish governments encouraged mortgage lending. Also, many of the property bubbles in Chinese provinces have been funded by state owned banks. The one big advantage of the bank-based system is that it allows local banks to service local demand. Its very difficult for a central government to direct credit to its most productive purposes locally.
Just discovered your channel and love it. You provide complex and in-depth topics, but present it in a very clear way. Wish my professor did that. Bedankt!
This video is insanely easy to understand and held my attention. This video was transformative for me on how I view money. I also appreciate your willingness to accept that there can be nuance.
I'm glad YOU found it easy to follow...
I just love your channel, Marco. We have so many half-truths, fearmongering, and conspiracies whenever people discuss macroeconomy. When we have enough channels to blame problems on the Federal Reserve and whine about economic collapse all the time, your channel provides an understandable yet rational explanation about the economy we urgently need to know.
Very happy to hear that! That is exactly why I started the channel. And I am happy to report that it is here to stay :)
@@MoneyMacro By the way your video, "The Monetary Financial System Visually Explained", is very helpful
@@MoneyMacro when is it a good idea for the entity thats the most incompetent and corrup organisation in human history to steal money from the people they represent?
youre a joke
@@MoneyMacro uhm... we know zimbabweans are intelligent people??
1. why do you just make random assertions, arent we supposed to trust your comments and be able to learn about these topics?
2. we, in fact, KNOW the complete opposit... they are among the least intelligent people in the world
guys, this is MMT! the assumption that just injecting money into the economy in case of a recession will solve said recession, is an absurdity. If people are not consuming specific in case they are in a bad situation, it's because that is probably the best thing to do both individually and as a society, people don't need an incentive at all to consume, even if there is a deflation (something none of us have ever seen but ok). Injecting money in such a case creates a false sense of security on people and they spend money they don't actually have in things they don't actually need and that downwards spiral leads to a depression, through inflation. Also according to MMT, there cannot exist recession paired with inflation, but we all know that is not true
You're absolutely right. The model from this video might generate some immediate positive results, but eventually will fail and lead towards a recession. This is tantamount to gambling with society's money, it might bring economic development, but it can easily cause inflation and devalue people's savings.
Thanks for this nuanced take on the subject!
This is what MMT talks about. You explained it great as usual. Gezellig!
when is it a good idea for the entity thats the most incompetent and corrup organisation in human history to steal money from the people they represent?
this guy is a clown
Your choice of stock footage is really really really good. And your explanations are very helpful!
5:10 "'Please, can you print me some new money', they asked... forcefully" 😂 this was gold
I'm going to start my Masters in Economics soon, and this channel just increased my interest in these topics! Thank you!
Are you a communist yet?
Thank you again. I watch a lot of these economic and financial video's. By far yours are at the top of my list. They are understandable, balanced, present evidence, and provide opposing views.
Very happy to hear that!
Oh bro, I am I love with you channel. Thank you for all your effort explaining this amazing topics. I try to explain it to my team to make them understand how economic works. I think your video does mush better job.
If a country which doesn't have a solid industrial base and supply chain able to make agricultural industrial assets (tractors, harvesters, fertilizer, seeds etc) than that country would not do good to print its own currency to jump start farming, it would have to borrow money from another country that can deliver those goods and pay it back with interest? Correct?
Good point. In that case, the country should be extra careful. Printing a bit to jump start farming might be a good way to then fund a next step, which is industrialization. But yeah, the less industrialized a nation is ... the trickier it is.
@@MoneyMacro bruh i swear that for years I have been battling strangers and friends which have economics degrees, battling them over the fact that money is just paper and you just can't throw money to solve things as a central bank. Money creation has 2 sides I always told them, as per my observation, printing the money itself and the most important side "balancing" that money with services and products. If you have one without the other you run into issues. I have no economics studies, just my observations and thinking experiments, and the final argument for them was that I have no studies in this domain. I swear to God almighty that universities just kill education, common sense and ability to observe, they make a lot of people live a delusion.
@@tetrusadima yeah that final argument is an 'argument from authority' and is a well known fallacy (meaning that it is not a proper argument). In my mind it means they ran out of real arguments.
Sure hope that not all universities kill education and common sense though, since I teach in one :P .
@@MoneyMacro if your uni is profit oriented or has a high degree of nepotism I got bad news bruh.
@@tetrusadima University of Cape Town. Pretty happy with the academic climate there. Always room for improvement of course.
The title sounds somewhat like downloading more RAM.
Commenting for the algorithm. You are a very underrated creator.
Thanks! I appreciate it
Good video!
Just to add, there is money printing also for price competition. The most significant case is SNB, they "print money" to absorb euros and dollars and to not deteriorate the exchange rates.
BTW, can you do a video explaining how SNB works, what it does with its giant dollar reserves and the euro-franc peg existing till 2015?
Keep it up!
I like the economics of Anwar Shaikh, and they fall in line with the conclusions of this video. Shaikh argues that inflation is a factor of purchasing power and the growth utilization rate. In other words, how much money is in the system, and how much room for growth is there? Using this theory one reaches the same conclusion regarding the printing of money. As long as it is used to increase productive capacity, it will not cause inflation.
I really appreciate your factual and level-headed articles on economics and finance.
There are too many misleading posts on the subject on RUclips ,intended to be sensational click-bait or serving particular Geopolitical interesrs
Bank notes created by a central bank are a liability from the bank's viewpoint because they are like promissory notes to give "real money" to the holders of these notes. Before 1971 gold reserve was this real money.
Not really. How many shipments of gold paid for anything? Explain why the value of Gold derivatives exceed the value of actual physical gold in existence?
Few points that I want to add that you missed
1) Currency should be relatively strong
2) There should be demand for currency (The above two factors give the US the advantage of printing dollars)
3) All the printing should go into productive output
4) There should be no full employment
When people talk about Germany, same Germany under Hitler printed money and invested in infrastructure, with a clause that no prices or wage hikes. This example should be emphasized more.
But anyway excellent explanation.
Wonderful content! Not too many people think of these scenarios/perspectives. More governments need to consider these strategies.
when is it a good idea for the entity thats the most incompetent and corrup organisation in human history to steal money from the people they represent?
this guy is a clown
So you covered the case where money printing is inflationary, and the one where it has no effect of the money supply, but there's one more (that might be especially salient in these strange times): when can money printing be deflationary?
When the assets you're buying have a higher velocity than the money you're selling! In particular, if the fed prints money in order to buy up highly-leveraged hqlas from banks, it has replaced a dollar-demoninated asset that is used in 100s or thousands of transactions a year with bank reserves that are unlikely to be used at all in today's extremely conservative lending environment
Very interesting take! I didn't think about that before. Although, I would not consider that money printing but QE.
@@MoneyMacrojust feels strange to call it QE when it's tightening monetary policy :)
Btw, I don't think I ever understood the line you drew between money printing and QE: QE prints MB to swap with assets not included in M3, while money printing prints M1 to do the same?
@@toatoa10 check out my video on monetary finance (which I is really close to money printing, but without the physical printing)
@@MoneyMacro thanks! I've been working my way through your videos all week since I discovered your channel!
@@toatoa10 QE prints money how? It's just a straight asset swap between bonds and reserves.
Modern Monetary Theory has been practiced for decades but no government realises it or admits it. It works for countries that issues, loans, borrows, spends and taxes in its own sovereign currency. The problem with Zimbabwe is that foreign investments and loans were in USD. So they had repay it all in a currency it did not have control.
Even if they were not, inflation will still occur if there is massive money printing that doesn't increase productivity capacity at all (or revitalises flagging demand). That is consistent with MMT right?
@@MoneyMacro Yes it is. Inflation has to be carefully monitored. I believe it is the only limiting factor.
@@MoneyMacro yup. MMT recognizes that throw money at non productive things will cause inflation
@georgeemil3618: Very good point you made.
Imagine that Bonds were not a part of the process and the Government didn't have to pay interest on money it creates.
Why would any Human, Person/Corp., System or Government want to pay for something that it can create for free itself ?
This important for avoiding the Vuvuzela phenomenon.
Interesting subject, clearly explained !
Thanks Martinus!
I like the clear explanation and argumentation, but I have to make a critical remark here:
- There is a bit of wordplay around inflation of hyperinflation and the definition is not very clearly given in the video. As the value of all goods, services, assets etc. is expressed in the terms of money and traded using money, inflation can be seen as the increase of the amount of money in the system in comparison to the amount of value in the system. In practical terms, stuff costs more money, because there is a higher supply of money.
- When using the above definition, you have not given a (true) solution to the title problem: The amount of money still increases, but instead of it just increasing the money supply, you used the money in a way (with a few assumptions) to also increase the value in the system, assumed that would be proportional, and thus nullified the effect of the money supply: No inflation.
- What you have proved is that you can print money, as long as you succeed in using the printed money to increase the real productivity of the economy proportionally.
- I would argue that, if you knew how to do the above reliably, you have basically solved the economy: If you can know how to put money in the right place to reliably maximise productivity, there is no more need for markets, scarce good are always at the best possible place and free choice can literally only make things worse. But I would argue that you can never know (for sure) where to put money to increase productivity, because you will always lack information
I extremely love this video! Great information and a new insight on money printing! This gives me new ideas regarding political reforms.
So to sum up:
Money printing causes inflation.
Increasing productive output causes deflation.
These two things can cancel out, and you can lead with printing to try to induce growth.
So is the whole spiel about liabilities even relevant?
Great video! In 4:10 you mention, that newly created money is usually used to purchase bonds. But what in case where government does not want to increase its debt. Let us assume that we create entirely new country and want to create its currency. Government sets up a central bank, but it imposes no public debt policy on itself. Central bank starts issuing notes, coins and bank reserves which land on its liabilities side, but what does it put on the asset side?
If there is a private banking sector in your hypothetical country, it might lend out these notes and coins to private banks. These private banks then can 'lend out' that money into the economy to bring it into circulation.
@@MoneyMacro or buy corporate bonds, like the Fed and ECB are doing now
@@FrancisBehnen that is not money printing. That is QE. See my QE video on why that is different
@@MoneyMacro In a situation like the UK were QE increased the demand for government debt and this debt was very quickly brought up by the central bank, does it not function as de facto printing? QE based liquidity swaps indirectly financed government spending on the furlough scheme during COVID.. this would seem to me to fit into the bracket of increasing the money supply to prevent a recession and a deflationary spiral. Or have I misunderstood?
@@oliverchandler2013 the guy is a clown, dont ask him tricky questions
The fundamental equation of accounting states that Assets = Liabilities + Shareholders' Equity, not Assets = Liabilities.
However it's possible that Central Banks are not supposed to have more assets than liabilities (or vice versa) since it's a quasi governmental organization.
Sorry, but no. That was not true until there was shareholders. Double entry bookkeeping was created before that, during the Renaissance in Italy. So, the basic accounting equation is Assets = liabilities. The basic firm is a Sole Trader, not a company. Companies and corporations are evolutions of that basic unit, and so, accounting practices evolved to include shareholder's equity accordingly. So, Assets always equal Liabilities. What those assets and liabilities are is a matter of further analysis and management.
Thank you for another great video! As per your balance sheets explanation, shouldn't money printing increase government debt? Meaning printing money always has a cost. Trying to wrap my head around things like where does the $1.9tn US covid relief money come from for example.
Yes it does increase government debt. But if it is financed by money printing that debt is owned by the central bank. In turn, pieces of money paper are also a debt (of the central bank) that is held by the public.
@@MoneyMacro Thank you for your prompt reply! I see, so it is just an accounting thing, right? As the central bank will do nothing of that debt. Unless it sells it in the financial markets? Then printing money always increase your debt which you can pay back with your economic surplus, or am I missing sth?
It is still increasing your debt... it just has another form.... bank notes. Bank notes are a liability (debt) of the central bank. It is just very strange debt because it never has to be paid back. So a government could lend forever ... if it wants to from the central bank. It will still accrue debt though. Debt that never has to be repaid.... This is not a free lunch though because at some point inflation will happen.
@@MoneyMacro I see, thanks for all these explanation, the clearest I have seen!
@@MoneyMacro But does the tech deflation force are just too great for any meaningful sustainable inflation?
A really good explanation of basic monetary theory in that money can be anything , salt, tobacco , gold , and now bitcoin , as long as people believe it is money, it is money , thats all ., a simple belief or trust in something .( the latin word credo is where the word " credit "comes from ) I liked your accounting treatment between the central Bank and the government as each having its own set of books and how you explain why notes and coins are on the liabilities side of the balance sheet . So would the "governments books" be the so called treasury ? I learnt my economics in South Africa which had a history of inflation in the early l98o's and I suspect quite a bit of money printing was going on , but so did the UK and USA .
Thanks Gary! Yeah, for the vast majority of countries I think you could say that the government balance sheet could also be called treasury balance sheet.
Yeah, to be honest how inflation works is not fully understood by economists. Sure, we know that if you start printing a lot and your productive capacity doesn't grow you get inflation. We also know that if external costs go up or down this might cause inflation or deflation. For example, in the 70s the oil price shocks account for some (but not all) of the global inflation during that time. We also know that an economy can overheat to a certain extend and that can cause inflation. I think this is causing some 'inflation' in e.g. computer chips and other manufacturing products right now. Finally, because governments often keep money printing a secret (for obvious reasons) it's quite difficult to tell what were the strongest drivers of inflation in SA at the time. I might get back to it when I do a bit of a deepdive on SA's economy at some point... when I can travel back to Cape Town .
In the USA the Federal Reserve is prohibited by law to buy government debt directly from the Treasury, unlike Zimbabwe or banana republics. I really like your videos. Could you make a video explaining how the "money" (bank reserves) created by the FED is used to purchase pre-owned government debt from member banks (quantitative easing), thus trapping this "money" inside the banking system and thus not causing inflation in the real economy. Thanks.
Sure. I have a video on that: How Quantitative Easing Differs From Money Printing
Wow I didn't know of that difference
Ukraine Kolomoisky stole $1.8bn from IMF. How's that for brazen embezzelment.
Very well explained,and easy to understand for average Joes like me. thanks
Great!
do you think MMT will work ?
The 3blue1brown of economics. Thank you!
Good explanation of how fiat credit money we have today is created with an equal debt liability.
The problem with Zimbabwe is still the government which is their politicians apply socialist based policies that are based on pandering to people's desires instead of sound policies based on an understanding of the way to grow an economy money and an understanding of the principles laid out in this video.
Yeah, and Jay Powell panders to no-one, right?
It's really strange how legally depositors at SVB who had balances over the FDIC $250k limit were initially told their money was gone, and were issue with insolvency notices, meaning they would have to wait until SVB was dissolved and get a share of what was left. They would have been waiting years to get some money. But in a weekend of hammering the White House, suddenly Powell announces that ALL deposits at SVB would be insured, and all depositors could get their money on Monday morning. Even though that makes FDIC insolvent.
Hmm, looks like Silicon Valley executives were pandered to, don't you think?
You need to widen your political and intellectual diet, away from "Socialism bad, and Capitalism good" type analysis. You're parroting stuff you don't fully understand. And you don't fully understand your own country's politics and economy because of it. As Mark Manson states, "Priorities determine problems. If you don't like your problems, then you had better take a long hard look at the Priorities that put them there." If you want truly understand what is going on in your country, look to your government's priorities. Specifically, the Federal Reserve's priorities as expressed by Powell words and actions. You might find what you see enlightening, and to explain what what you see, you might read "The Dictator’s Handbook: Why Bad Behavior is Almost Always Good Politics by Bruce Bueno de Mesquita and Alastair Smith." You might even check out CGP Grey's two videos on it. You will discover that no state is without it's oligarchs, and that they enjoy privileges that the rest of the population do not.
Great video. Thank you.
I always knew that money printing isn’t all evil, because modern industrialized economy are built on trades, trades of labor, resource and commodities. Money is like the blood of the trading process.
You need enough blood cells to carry oxygen into all the cells of economy. Bigger the economy becomes, more blood cells required to remain healthy.
Is there a example where money printing went ok as a way to deal with retrieving demand?
I think the more insidious risk over time from money printing is lack of productivity and the slow erosion of real purchasing power for wage earners...
Nice explanation 👍🏼👍🏼
Thanks!
@@MoneyMacro km m
Does printing money always devaluates existing money?
Value unlike money can not be created in an instant, so where does value come from to improve the farms? Don't savers get to be worse off until the farms start to produce more just to get break even once they do?
@07:53 biggest problem in current economists and governments is, that it is catch-22: they measure amount of services and goods in that same currency!
You're an oasis in the desert of simplistic youtube economics
Great explanation as usual. I would just add that there are implicit assets on the government's balance sheet that arise from their right to taxation. If the corporate tax rate is 30%, the government basically owns the right to 30% of all corporate profits as though they owned 30% of all those businesses. The value of this asset is equal to the present value of 30% of all those profits indefinitely into the future, including the profits of businesses not yet in existence, so you get an asset value equal to something like 30% of the total market capitalisation of all public companies in that country. And that is just the corporate taxes. So all that money the central bank prints is ultimately backed by the tax fraction of all the income of domestic companies and citizens into perpetuity
That is a fair way to look at it I think.
*_"Too big too fail."_*
I would say it takes 6 months to the trickle down from money printing on Wall St to pain on Main St.
@11:20 Is money ever printed for startups in general, meaning globally in both industrial & developing countries?
I would really like you to answer other questions: if money printing is moral at all, as it effectively steals value from people, for which they worked so hard for; and not just the easy, and artificial, and imoral, way found by the governments to deal with inflation or other economic problems, instead of addressing the issues root causes instead; and if using gold reference for instance, would be any problem nowadays. Thank you.
So if I understand correctly, printing money for developmental loans works great, but it doesn't work well in cases where it goes primarily to consumption (i.e. poorer countries) or where it goes primarily to investment (i.e. richer countries)?
Also, please make a video on UBI, and how that would affect the economy. Wouldn't money printing/creation for that lead to hyperinflation as people will spend on consumption?
It's because when printing money the central bank wants to distribute money to people for them to spend and grow the economy while also increasing the economy productivity to match the printed money or else it will lead to inflation.
Printing for consumption leads to Inflation while printing for investment leads to deflation
Printing for something like a mega factory ensures people get money to spend and increases the economic output
12:56 Can money printing be used to invest in productive capacity for long drawn-out periods of time outside of economic crises or is that incredibly dangerous?
I think it could in theory. But, yeah it is dangerous sure. Haha sorry for not being more clear. This is a very nuanced issue :)
@@MoneyMacro No, you've been very clear in this video! Tysm.
So in short increase industrial output to reduce inflation right?
Incredible video 🙏🤯 please make such videos more
So, its basically like a loan, whether u use it responsibly or drown it debt depends on how u use it.
I think that the chances of printing money are significantly lower than the risks involved.
Of course it's possible to get it right if you have people who never make mistakes, but that's not the case.
That's why I think it would be better not to print money and to create investments in other ways.
It may take longer and be more difficult but in the long run I think it would create a healthier and more resilient economy.
11:45 seems to me that the essence of modern monetary theory is: The government invests with money borrowed from the people. As long as they make a profit it is good for the country.
Am I right?
But in the case of Zimbabwe: if the government would protect investors, wouldn't guys like Bill Gates love to invest in food production in Zimbabwe? They look good to the world and as long as they are protected against fraud and criminals they even make a profit while Zimbabwe gets a nice cashflow.
Money printing takes value from all other currency in circulation, so the money you hold in your bank account is devalued so this debt they create through QE has value by decreasing the value of everyone else who holds the fiat currency. The dollar being the world's reserve currency can do much more money printing than everywhere else and when they print money they take from everyone who uses the dollar worldwide.
The essence of it is as long as money printing is used to increase productivity within society then it is good debt, investing in public infrastructure or reducing costs of the average persons expenses like building more public housing to reduce rent and housing costs would allow more money to be spent in the general economy rather than being siphoned off into the pockets to those who are already rich.
If however QE is used to pump up the markets or create debt traps through cars and housing (and if you're in america college) for example by allowing near unlimited debt (as there is almost no collateral required to leverage this debt) leveraging decades of income against something with inelastic demand that people will pay regardless of the price will eventually crash the economy.
This kind of debt isn't increasing productivity or decreasing expenses on a wide scale and it eventually has to be paid back causing a recession or if wide spread enough a catastrophic depression.
If for example I now have no spare cash because my debt has spiraled out of control when they increase the central bank interest rates to stop out of control inflation, my money no longer flows through the wider economy.
My income that would become another person's/corporations income when I spent that money, is now spent paying off debt on what was overpriced by the creation of debt in the first place for inelastic goods and services.
If you haven't seen Ray Dalios video on the economy I highly suggest it
m.ruclips.net/video/PHe0bXAIuk0/видео.html
11:26 It is geometrically the same thing if you imagine the lines continue infinitely in both directions, but I think it would be a lot more intuitive if you slid the demand line up (representing a willingness to pay higher prices) instead of to the right, and still slid the supply line to the right (representing an increase in quantity of food). Also, you messed up a bit with your words when you first described the supply and demand graph.
What about money printing causing the boom bust cycle according to austrian economic theory ? (and thus also in developed economies)
It seems at odds with historical evidence that private credit precedes booms, not government issued money. Heck, booms and busts already happened well before central banks were established.
www.nber.org/papers/w15512
@Money & Macro How is that evidence a refutation of the austrian business cycle ? The cycles could have been worse had money been printed as well ? We cannot tell that from evidence ?
@@bartvanderhaegen6073 sure. But, wouldn't the "money printing" hypothesis mean that there should be a pattern of government issued money (note that M2 is largely money issued by private banks) and then booms following them. I've never found a study that empirically showed that this is what we see throughout history. Would be happy to be recommended some.
@@MoneyMacro But that is the problem of empiricism: no single set of empirical data allows to confirm whether the boom/ bust was caused by the increase in money supply or whether another thing caused the boom/bust or another thing counteracted the boom/bust. One can only logically construct a perfect counterfactual world (where all things are taken equal except for no money printing) and deduce conclusions from the difference between both. You never have the empirical data of the counterfactual world, and yet the counterfactual world is the relevant one to compare outcomes with (and thus draw meaningful conclusions)
@@bartvanderhaegen6073 empiricism taken to the extreme is difficult in macro, sure. But this Austrian theory is posits a really strong hypothesis: government money printing --> booms & busts. If that is true, there should really be some patterns historically to show that this is true. Or at least, counterfactuals where bubbles happened in systems without a central bank should be explained.
We have already learned alot from you about the different ways Asset Bubbles can come to existentce. But what are the theoretical reasons for them to pop? Since at some point they have to burst or they would not be a true bubble right?
True or.... If supported by the state... Plateau and stay at a similar level for a long time
Even better example of hyper inflation was Yugoslavia in '93, when German Mark was de facto main currency and denominator of value.
How to print money without inflation, how to turn iron into gold
Hi! Any chance you might have an explanation on how the second kind of responsible money printing works? Is it simply by causing a little bit of inflation to counter deflation?
Not qualified to answer but from what I understood, yes it and QE can be used to ensure we don't enter a deflationary spiral, but also it can expand the capacity of the economy and utilise resources already in the economy more efficiently. Like if there are price increases caused by shortages of a good, through a bottleneck at a major port, then responsible money printing might be investing to increase the size and ability of the port to process deliveries, or building a rail network for faster transit. Resolving the bottleneck in this case is responsible money printing, as it will increase supply. Sorry if that is not relevant to your question
But if we assume you already have inflation like now? Is printing money today the solution?
He's really attacking a straw man around the 10:30 mark. There are better, nobel-prize-winning arguments for why money creation is always a problem than he gives, which is the definition of a straw man. :) For a hint: consider the consequence of some people getting the new money (the miners or farmers) while other people (the teachers and cobblers?) do not.
His examples also assume that a central bank (or a central govt) has the knowledge to correctly forecast which businesses will be profitable and which will be wasteful, and brother, that is a crazy proposition at best.
Are you saying that central planning doesn't work?
You're right. I don't care if the video creator calls an "amateur economist" for I don't even have a college degree. But these theories he's envisioning are just naive. Like you said, government doesn't have the knowledge or informations to forecast wich business will be profitable, so leave that to the free market.
9:21
developing nation : govt. print money for their citizen to buy basic goods and services
developed nation : govt. print money for their citizen to invest in stock market .
Why a govt. print money and told it's citizen to invest in stock market ? that's not a good reason to print money .
Does an asset purchased by a central, such as government bond, get canceled after its purchase?
How dynamic of lowering labor costs work? ie EU has very low interest rates and businesses actively seek foreign labor to do same tasks and jobs with smaller cost... so amount of euros in circulation and economy is same, but services supposedly are produced with below marketrate costs... either difference of cost goes to business owner pocket and luxury consumption or other case if it erodes competitors, pricelevel of that service at least some niche sector goes down... interest rates going even further down is logical conclusion? Shouldnt logical reaction be to reduce amount of money in circulation in this case?
really good content. thank you!
So money printing is used to drive demand (for goods, services &/or assets) which in turn drive the supply? If it is done right then wealth, income & productivity increases. But done badly, inflation & bubbles increases which can lead to economic collapse & recession?
What's the taboo the vlogger is referring to? Social engineering or political manipulation?
Love it!😊
Fractional reserve banking is equivalent to printing money. They could easily manipulate the fraction in order to manipulate inflation.
Joeri has another video on how we do not have fractional reserve banking; the money creation process is much more direct in that banks can lend independently of any rigid reserve requirement and create money by doing so.
Regarding Zimbabwe's economy, is there anything to do with China investment flows?
your old vids are getting recommended. Looks like your growth is gonne explode soon
The problem is that the government debt keeps growing out of control. The same thing happens with the interests of the debt. Nowadays the US government spends more money in interest rate repayments than in federal pensions for retirees. Besides it has become impossible to reduce the debt. The problem has no solution
Are you sure it is not possible? Check out e.g. the historical graph of UK debt to GDP in the link below.
www.ukpublicspending.co.uk/uk_national_debt_analysis
(not saying that gov debt is never a problem by the way)
@@MoneyMacro these graphs give us some hope. However, this first time the UK reduced its debt, it used the resources generated by the industrial revolution and the conquest of India. The second time was after winning WWII and becoming the second master of the world after the US. Now the situation is different, no industrial revolution is starting for the US and there is no money for conquests.
The Zimbabwe incident is presented more complicated than it actually is IMO.
The miners claim is a direct subsidy from the government. It's not a loan. That's a very important point that's kind of glossed over.
Then the story stops there. If a government prints money to directly subsidize an industry, without requiring any payback scheme or liability on part of the subsidized business, it's creating money out of nothing. Thus inflation.
If the government would make performing loans, then assets and liabilities are balanced on all 3 balance sheets (gov, cb, miners).
Money printing to macroeconomics is like the insanity defense to law. They exist but they are remembered for completely wrong reasons.
I don’t think this is correct. He’s basically claiming that as long as a gov prints money and invests it in a means of production the economy magically grows.
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Could you please provide some examples of when massive money printing DIDN’T cause inflation?
For productive use it's called credit money (making new loans). Money-printing in the popular sense is simply currency devaluation, and that IS inflationary, everywhere and always.
2008-2009 about $20 trillion worth of Dollars, Yen, Pounds, Euros was dumped into global circulation. Inflation globally was under 2%. Why? Baby boomers largest cohort were in 50s and China was at peal production, this kept labor demands low (lower wages) and products cheap (you could buy with low wages). Now China is falling off global market place (many reasons to long for this text) and boomers are retiring, driving prices and wages up. Throw largest land war in Europe in 75 years for flavor boom Inflation.
Could you say, very crudely, and as an "explain like I am five" explanation, that money printing (when done right), "materialises" or turns into money, untapped or potential value in an economy? Thus, the money supply should, more or less, "track" the perceived value (whatever that means) in an economy?
I don't know what you mean with that last sentence. But, I think you could say it like you said it in your first. There is a lot of untapped potential in most economies. People who could work and don't ... productivity that could be there but is lying dormant. Money printing done right (very difficult in proactive and getting more difficult as there is less dormant productivity) could activate that. Hope that makes some sense. I'm thinking of visualising this at some point to make it more clear.
@@MoneyMacro I understand! Thank you for your response.
And yeah the last sentence was just a rephrase of the first sentence haha.
@Hakim Habib are you saying the bond market controls the money supply?
Thanks for your explanation. I think your explanation of money supply is different from MMT version. Bc MMT believe govt don't need to issue bond to supply money into the economy as long as they issue their own currencies. Can you elaborate more on different or similarities between your version and MMT. Thanks
this is the MMT explanation, the use of bonds for government spending is just a legal restriction on the cb and treasury in the us and other sovereign currency nations. the law prohibits the cb to buy bonds directly from the treasury (issuer of bonds) and lend directly to the treasury. so when the government spends, the cb repos securities from primary dealers prior to the auction of government bonds to the dealers to ensure sufficient bank reserves for the auction. at the auction, the treasury sells bonds for bank reserves. the treasury then adds the reserve balances to its tax and loan accounts at banks. then at the cb reverses it’s repo agreement and the treasury calls in its balances from its tax and loan accounts to credit to the fed. the fed uses these funds to credit the accounts that the government spent money on. the balance sheet ends up the same as if the cb and treasury did not have these restrictions and just credited the accounts of its recipients, making bonds only a tool of monetary policy.
Hi Joeri. Thanks for the amazing content.
I have a question. If the Zimbabwean government wanted to stimulate gold mining but without causing the massive inflation, what tools did they have? Evidently money printing wouldn’t work in this case.
My best guess would be using something like the MEFO bills Nazi Germany used. They had 1:1 value with the money at the time and were basically IOUs that the central bank could determine when and how much to exchange for real money. So basically you'd give the MEFO bills to the mines and they'd pay the suppliers with them, but they couldn't be exchanged beyond that and the government would have the power to slowly redeem the MEFO bills with normal money as the investment in the mines started to pay off.
How about trying to go a bit behind GDP 🤔
Why don't even industrialised nations use money-printing to invest in startups?
They provide tax credits instead. Far less risky.
I don't dismiss money printing, however the root of the problem is the fact the newly created money flows to the rich. Also, besides the central bank printing, they also allow banks to print loan money, which once again the rich are the main beneficiaries of.
I'm not even saying the rich are bad, here. But they already have the basic expenses of life covered, so their money will be invested in speculative assets, instead of real world benefit. The problem here is that investment expects a return… and this cycle cannot continue forever.
if the people in the devoloped world will spend the newly printed money n investments,
how do you explaine the rise of amazon after the pandemic stimulus????
Can you do a Great Depression video series ?
A basic assumption here is that the supply/demand are elastic, which is not true for a lot of the assets, especially in the short term. It also may not be true even for stocks in the short term. Therefore, money printing will always cause asset bubbles. And this becomes even more true when the economy is flooded with credits where there's no more productive area to invest in or if the country is not competitive enough regardless how much you invest in it.
I think you are taking about QE (asset buying) here whereas this video is about old school money printing (i.e. monetary financing government deficits).... In other words the supply and demand of gov bonds are extremely elastic because gov is willing to spend more (supply of bonds) and CB to buy (demand for bonds)
I wish my South African government could watch this video. They could borrow Eskom money to build power stations. This will create jobs instead of fighting inflation caused by regular power cuts.
Thank you :)
Money is extremely weird. Just look at Bitcoin. A currency that is scarce by design but there is a form of money creation called the "block reward" which pays miners with Bitcoin. You see, barely anyone uses Bitcoin for payments. Yet Bitcoin is entirely dependent on a class of "workers" who are getting paid through money creation. It's basically a parody of the USD and other fiat currencies.
If I had to summarize the problem it would be: "People stop working when the economy runs out of money," At a first glance it makes no sense yet for some strange reason it keeps happening over and over again.
13:23 "you all are responsible economists"
I assure you, I am not.
Money printing devalues purchasing power and asset value (unless you can con some rubes into thinking its worth the same).
And it gets more devalued the further down the food chain we go.
So don't bother saving, just chase the shrinking investments propped up by the fresh cash. What could go wrong?
And yet, every successful nation has printed money.....
why hasn’t japan or the us economy failed?
@@MoneyMacro So has every failed country.
@@MrAnarchocapitalist hence there is nuance to the subject ;)
@@MoneyMacro I watched your video twice and I think you are wrong from 10:20 onward. There is no way to target an increase in production in a specific sector of the economy through money printing without causing general price inflation. Giving Zimbabwe farmers money would not result in an immediate increase in the supply of the things farmers spend money on: farm machinery, seeds, labor, jeans, and alcohol. What good does it do to give farmers more money to buy more farm equipment, seeds, and labor, when every other farmer is doing the exact same thing with the same increase in money to do it, while the supply of those inputs has not increased? It's just going to drive the prices of those inputs up without resulting in an increase in said inputs in the hands of farmers, which means no increase in production. And if you increase their input costs, they are going to pass that along to the consumer. Those farm equipment manufacturers are now going to have more money to spend on their inputs, like steel and labor and ... food. Best case scenario, giving farmers money pulls productive capacity away from other sectors and shifts it toward farmers. With a higher offer of wages, construction workers might become farm workers, and that might increase production in the farming sector, but it subtracts production from the construction sector.
As for printing money to prop up prices when demand is falling, that's just going to keep the economy in a zombie state, where it is too sick for optimal growth. Prices of things where demand has been over saturated have to fall to the market clearing price in order for growth to resume. If home builders produce more houses than for which demand exists, some of those builders should go bankrupt and the cost of housing should be allowed to fall until buyers step in. That allows the resources of the bankrupt home builders to be salvaged and used in more productive ways. Propping up the price of their inventory and handing out cash so that more people can consume them is just encouraging a poor allocation of resources.
There is no such thing as a free lunch.
I just love these "Just So" stories that macro economists tell themselves and folks who want to hear fairy tales. They are like telling a guy without a girl friend that he can get one by being 5 percent nicer or more charming or more confident. Or that if you are unemployed you can get a job by being willing to take a job for 5% less. Supply and Demand is a general trend, but hardly a law of physics.
Zimbabwe and Weimar Germany both owed _foreign_ debts. They could not print foreign currency.
Our Central Bank CREATEs money, but it does NOT "print money". All printed money in this country is printed by the Treasury Dept.
Hang on a minute! Isn't the biggest part of the cause of inflation in Zimbabwe missing here? The part about the massive restriction of goods caused by the theft of farms by the govt (which then became very, very unproductive, thus plummeting supply of food), and other policies which led to a massive restriction in supply, and then the Govt created new money in response (instead of fixing the lack of supply of goods)??
And wouldn't it be better for new money supply to be spent into the economy by the Govt into socially useful things, instead of Commercial Banks creating money to exclusively go towards asset bubbles, esp making housing unaffordable for next generation?
An elected Govt Issuing & Taxing Currency in & out of the economy is SURELY a better thing than Commercial Banks creating currency?
(Since Commerical Bank Debt & Currency is used the same way in the economy).
Didn't I mention the supply shock?
Governments also don't have a perfect record when it comes to asset bubbles. E.g. the Dutch and Danish governments encouraged mortgage lending. Also, many of the property bubbles in Chinese provinces have been funded by state owned banks.
The one big advantage of the bank-based system is that it allows local banks to service local demand. Its very difficult for a central government to direct credit to its most productive purposes locally.
At this point I just assume all the debt the US government has will be paid of by printing money either now or some time in the future.