This podcast discusses whether quantitative easing is equivalent to money printing, the decline in fertility rates, recent movements in the dollar, Chinese yuan, US 10-year yield, and oil prices. It also explores if the Federal Reserve prints money and its implications, as well as the relationship between money supply, velocity of money, and GDP.
The Federal Reserve does not physically print money but can increase liabilities to any extent needed, as determined by its balance sheet and the money multiplier.
Quantitative easing (QE) is seen as an asset swap and not actual money printing, raising questions about its effectiveness in boosting lending and the economy.
Deep dives
Summary of Main Ideas and Key Points
The podcast episode covers a discussion about whether the Federal Reserve prints money. The speaker mentions a study funded by Wright Patman, a critic of the Federal Reserve, which concluded that the Fed does not physically print money but can increase liabilities to any extent needed. The money supply is determined by the Fed's balance sheet and the money multiplier, which is an endogenous variable not controlled by policymakers. The effectiveness of quantitative easing (QE) in boosting lending and the economy is questioned, as QE is seen as an asset swap and not actual money printing. Additionally, the speaker highlights the role of reserves and the decline in the money multiplier, as well as the impact of diminishing returns on the velocity of money.
Impact of Reserve Requirements and Demographics on Money Supply
The podcast episode explores the effects of reserve requirements on the money supply. It is mentioned that reserve requirements used to be tied to the money multiplier concept, with a 10% requirement allowing for a 10-fold increase in the money supply. However, the money multiplier is found to decrease during periods of economic contagion and increasing indebtedness. The speaker disputes the notion that QE is effective in boosting the money multiplier, emphasizing the importance of reserves and the limitations of QE in stimulating lending. Furthermore, the speaker suggests a correlation between declining velocity of money and diminishing returns, especially in highly indebted economies.
The Federal Reserve's Role in Currency Creation and Hyperinflation
The podcast episode discusses the distinction between the Federal Reserve's ability to print money versus its creation of liabilities. It is clarified that the Fed does not physically print currency, but rather increases liabilities that are not directly fungible with dollars. The speaker highlights the significance of making the Fed's liabilities legal tender for hyperinflation to occur, as seen in cases like Argentina. The importance of the money supply being a medium of exchange, a store of value, and a unit of account is emphasized, suggesting that the Fed's liabilities do not fulfill these criteria. The role of the money multiplier, the Fed's balance sheet, and the velocity of money in determining the money supply and GDP is also discussed.
