Decoding Money Printing: It’s Not What You Think! – A 2-Minute Explainer
(Imagine a warm, slightly accented Italian voice)
Buongiorno! Let’s talk about money printing – because everyone gets it wrong. There’s massive confusion, even in university textbooks – a scandal, really! It’s crucial to understand how it actually works, especially now, with all the talk of economic stimulus and inflation.This impacts everyone – from Martine and Alex to Alpha, and all of us listeners – because it dictates the value of yoru savings, your investments, and frankly, your future.
In today’s fiat monetary system, there are two distinct forms of money. The first is the “inflationary money” – the cash we all use to buy our espresso and pay the bills. Then there’s a separate beast: bank reserves,what many call “liquidity.” This money only banks can spend. You and I? Forget about it. it’s locked away,inaccessible. And here’s the kicker: these two forms of money don’t interact. They live in separate worlds.
let’s look at Japan. They started quantitative easing – pumping liquidity into the system – way back in the 1990s, continuing for 25 years! the amount of bank reserves exploded. But, surprisingly, the amount of spendable money in the Japanese economy decreased. This is why Japan saw virtually no inflation or economic growth despite all that QE.
So, what does this mean? Simply put, increasing bank reserves doesn’t automatically translate to more money circulating in the real economy. It’s a critical distinction. Understanding this separation is the first step to understanding what’s really happening with our money. Ciao!
