Still, having come to power promising to restore affordability, the new crop of Democrats are soon to discover that there is not much they can do over the next couple of years to alleviate angry voters’ stress over pricey gas and groceries, exorbitant mortgages and unaffordable healthcare.
Democrats would do well to recall that the affordability strains that helped deliver them to power are not dissimilar to those that delivered the presidency to Trump two years ago. And they could again quickly become their enemy.
Ever heard about inflation?
I have, yes. Money creation itself doesn’t cause inflation. Prices go up when the demand for products and services exceeds the supply. Typically the more money there is in the money supply the higher demand will be, as any money people can get their hands on will likely be spent. So it is important to manage the amount of money in the money supply. During periods of deflation, more money creation may be appropriate and during periods of inflation money would need to be taken out of the money supply. Income taxes are one method for taking money out of the money supply during periods of high inflation.
One of the reasons we have persistent inflation today is that all money creation currently happens with offsetting debt that has to be repaid at interest. So when a bank creates a $1M business loan, for instance, it isn’t only the original $1M that needs to be repaid, it’s the original $1M plus a significant amount of money in interest. This necessitates more money creation, and leads to our persistent inflation and to our ever increasing debt load, as all new money that’s created has its own, new associated debt.
So we can’t just create an infinite amount of money? We actually have to manage it in a way that prevents inflation?
You’re right, I shouldn’t have said we can create an infinite amount of money. I should have said we can create as much money as we need, or as much as is appropriate.