IF I ask you what money is, you will say the paper money we spend or the coins we spend around. Well, it is a good response as that is what we grew up to know as money, our parents were paid in that and we were thought to save with that, so we loved it real well and we can do anything to earn it but the government only created this money so the banks can have fiats to give to the general public else, people will believe that the government are not being sincere. The coins and paper money being printed by the bank may make up about 10% of the economy. Never forget that the amount required to print money is a tiny fraction of what the money is worth but since it is cheap to print out money, why don’t the government keep printing out money? The government will not keep printing money because it will cause the money to be devalued thereby causing hyperinflation. With inflation, there will be so much money in circulation far beyond expected and when this happens, the money at hand will be worth less.
Debt money, this is another type of money still the same value as the first one but in this case, they are made by private banks. This money is often associated with loans and borrows, as banks are responsible for this. I can called this screen money with the promise of paying back with interest. With the banks giving out debt as money, it means that money is debt or vice versa, and it is an asset to the bank or lender and a liability to the borrower. When people deposit money to a bank, the bank is liable to keep 10% of the money in case of other withdrawal while the bank can loan out 90% of the total money deposited. Deposit are the records of banks debt to the public. When a bank is in debt, the central bank can always come to their rescue with the Central bank’s infinite power to create money.
Quantitative Easing is the type of money that Central Banks creates so as to release money to private owned banks, the public, and large corporations. The central banks of so many countries printed out billions and trillions of dollars during the pandemic and this is a very good example of Quantitative Easing. This money is pumped into the economy when there extreme events that affects the finance of the country. Central banks just buy up government bonds which are debt, they just go buy up debt with their unlimited ability to print money but yet the central bank can’t go bankrupt.
The money we spend in our world is basically debt money, the money with no debt is lower than expected and like I said, could give it about 10%. If you are spending money, be sure that you are spending debt, but are you spending your personal debt or a government debt which you will require to pay back through tax.
You can read more about money and the economy below
Thanks a lot for the explicit explanation, money cannot be printed as a lot of people wish because it is definitely going to devalue the economy.
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Thanks for the response.
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This reminds me so much about the common phrase that the whole world is in debt, but who are we exactly indebted to? is the question I have been asking for sometime now, appreciate the clarification through your post.
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Thank you, I am happy you found clarification through this post.
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