pull down to refresh
0 sats \ 4 replies \ @21millioins 27 Feb \ parent \ on: Argentina Cut Spending and Posted a Budget Surplus. Why Can’t America? econ
can you elaborate a bit more on this please?
if the money is not injected in the economy, then how can that had any effect? isn't it the same as not being created at all?
and if the money did end up in the economy and distributed unevenly, how could that not end up in a wealth redistribution via Cantillion effect?
Essentially money is created through borrowing and lending.
Central banks encourage banks to do more of it by injecting liquidity, most often through bank reserves.
Bank reserves can't be used in the economy, so it is more of a monopoly money within the banking system. That means this won’t have direct impact on inflation.
whether inflation can be caused by liquidity injection, is entirely dependent on whether banks do more lending and burrowing.
If the real reason why there's such a low lending and burrowing isn't related to liquidity issue, eg the risk/reward just isn’t there, then it doesn’t matter how much bank reserves they get.
This is also known as liquidity trap, where QE pretty much has no influence on Money supply at all and is extremely challenging for central banks.
What would cause inflation, is a direct stimulus cheques to the public, that is a direct increase in money supply.
I haven’t done econ in a few years, but you can read up velocity of money, Lyn Alden would definitely be a good economist to listen to as well