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economics mythbuster post

Ever read in the financial news that dollars are “printed”? Here’s an example:
More Money PrintingBy fitsnews • on August 23, 2012 “a central component of the Federal Reserve’s “stimulus” plan has been to print trillions of dollars out of thin air”

Or this one:

Will All the Money Printing Lead to Hyperinflation? CNBC guest blog 27 Jun 2012 “As central banks print more and more money…”

Much of today’s financial press hotly discusses, back and forth, whether adding money to world markets is going to kill or save the economies of nations.

MYTH: The only thing that can save us from higher taxes and a melt-down of the economy is additional money-printing by the central banks.

The US government has had to borrow everything it spends beyond what it takes in through Federal taxes. Additional quantities of dollars are actually reckoned at the instant of loaning by the banking system.

What about the Printing?

Our current Federal Reserve Note bills ($1-$100) are printed by the Bureau of Printing and Engraving. Did you think these were Dollars? Actually, these Federal Reserve “Notes” are just Debt Transfer Scrip. The US Govt cannot spend these directly. What really happens (and they will tell you this on the Tour) is the Bureau prints them for-, and is paid by– the Federal Reserve, upon their order.

FedCentral NY, placed the order, paid the 6-20 cents-per-bill that covers the expenses of printing, then “sells” them to the regional branches to distribute to member banks. As they move the physical notes into the possession of the member bank, the bank’s “account” with the Regional Branch is debited for the dollars represented. Dollars move from Bank to Fed Regional. FRN’s move from Fed Regional to Bank.

Notice, no new dollars are created, only generic, paper claim-checks on bank debt. Whichever bank you surrender it to has agreed to say that they owe you that many more dollars in an account — and to transfer that debt to a 3rd party upon your authorization. All the government “got” out of this deal, is not the spending power of those FRN’s, but a modest operating profit on printing the special pieces of “paper” for their main customer, The Fed.

At the end of the wear-out life-cycle of the Federal Reserve Note, the bank sends it back to the Fed in exchange for credit on their account and the physical bill is destroyed. Dollars move from Fed to Bank, FRN’s move from Bank to Fed. Probably, a few bills never make it back because people lose them or destroy them in the rigors of life — in which case the Fed gets to keep the dollars credited to its account.

From the other angle, did you think the new $16 trillion (2011 see Bloomberg lawsuit/Bernie Sanders) that the Fed added to the money supply recently to lend to American and European banks – was all printed up by the Bureau of Printing and Engraving? It helps to know that, back around 2005, they used to say there was about $15 trillion in the entire world, of which paper-bills represented about $900 million (70% of which was held outside US borders).

Yet, who knew? Bloomberg had to sue them to even find out about it.

What about “US Govt”?

So, we see it is not the US Govt that is increasing dollar quantities, even though it is one of their agencies who is printing the paper. It is really the banks who are increasing dollar quantities. Why else would the Banks be needing the US Govt to borrow more from the banks so that they can bail out the banks because the banks are bankrupt?

What about “Less Federal Taxes”?

Not less, but More. Do the math.

If the US Govt had printed these dollars and possessed the ownership to spend them, they could have completely paid off the generally-recognized Federal Debt (under 15 trillion at the time), or made a modest partial-payment toward paying back some of the Social Security Trust Fund. Of course, that didn’t happen, but if it had, these so-called “Federal taxes” would still be paid, but not by tax-payers. It would have been paid by all the dollar-holders in the world who would have lost purchasing power of their dollars because of the increase in quantities of dollars relative to the stuff dollars are traded for.

Instead of relieving us from any of our obligation to pay tax, our government will just keep on with its net borrowing each year of a trillion-dollars plus, and paying more and more interest to the bankers who reckon this money into existence. This computes to increasing the Federal taxes that would have to be paid if we are ever going to pay back the National Debt. There is widespread doubt that more taxes can ever again be collected that will surpass what the US Govt spends every year.

If we cannot practically raise taxes above what they are, and if the Govt cannot create money on its own, then it must just keep borrowing until it no one will loan it any more. Beyond that (and some say this is already happening) our Federal Reserve Central Banking system will just reckon more new dollars into existence to loan to the US Govt.

We can summarize it this way: The US Govt currently collects enough Federal taxes to pay about 60% of what it spends (this doesn’t even take into account its future liabilities). Unless it starts taxing us more to close this gap, it will have to borrow and borrowing increases how much it has to borrow because of the additional interest on what it borrows. Because the banks can create all the dollars they need by lending, they can keep interest rates low (they don’t have to pay depositors to borrow their money). No matter who creates additional quantities of dollars, the increase in dollar quantities decreases the trade-value of all dollars held by dollar-owners all over the world.

The “good” news is that a lot of your “inflation tax” is paid by Chinese, Japanese, Brits, Germans, and Russians — whoever loaned us money. The dollars they get back will not buy as much as their dollars we spent when we borrowed them. Their loss is your gain. Your kids supposedly won’t have to pay so much tax because these “non-tax-payers” will be paying through the global inflation of dollar quantities.

The “bad” news is that other nations will eventually get so mad at losing value in their held or loaned dollars, that they will stop trading in them. If they won’t loan us dollars, we can’t afford a military to keep making them loan us dollars. If they stop loaning us dollars, our Central Bank will have to create/loan more and more dollars which, when combined with the dollars other nations are desperately trying to get rid of/spend back into our marketplace — is going to threaten an inflationary pressure.

Case Closed: US Govt printing doesn’t increase dollars, central banks reckon then into pretended existence. Printing dollars doesn’t ease the burden of Federal taxes, it just shifts it to others, many of them non-tax-payers. Government deficit spending and borrowing will either precipitate an inflationary crash, or the crisis will be leveraged into coercing a unified global, money-issuing bank and a puppet government to force people into using a new mandated money.