Money Creation In the Time of Quantitative Easing or Q.E. The political season is upon us. And with Thanksgiving just around the corner, complete with turkey, stuffing, and football, you might find yourself in the middle of a heated family debate about politics and money. One family member who is
In capitalism, the government’s role in creating new money is limited. It mostly moves around money that is already in the economy, funds itself by collecting taxes or selling government bonds, and then spends that money back into the economy. So most of the money the government touches is already in the economy.
In 1980, total debt—private, corporate, state, and federal—was 1.75 times the GDP. Today, it is around 3.8 times. Think of it this way: in 1980, we had $175,000 of debt for every $100,000 of GDP. Today $100,000 of GDP equates to $380,000 of debt.
In capitalism, private banks, through their loan-making process, produce most of the money. The government provides the currency—the dollar bills—but the only way to get them is to exchange bank money for currency.
Anyone reading today’s financial press would think the U.S. economy is accelerating—finally taking off from its post-financial crisis lackluster performance to what Tom Brokaw called “a roaring economy” on Meet the Press this past weekend.