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Money Supply & Inflation
We can measure the supply of money that exists in the market with main metrics:
- M1 money supply includes liquid money aka cash.
- M2 (which includes M1) includes loans, deposits & market funds. This is mainly made up money.
As the chart shows the US (and all other countries with central banks) have most of the monetary mass made up. An influx of money causes inflation and this is exactly what during the last decades.
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Fractional Reserve & Money Supply
Banks loan money they don't have. Most hold a limited reserve to serve the few who decide to make redraws. When the majority decides to liquidate their bank accounts we have what is called a bank run.
In order to protect the banks, central banks were created to provide a gu...
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We print money digitally. As a central bank, we have the ability to create money. And we do that by buying bonds for other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Rese...
JAY POWELL, CHIEF OF FEDERAL RESERVE
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Fiat money
Fiat money is a government-issued currency that is not backed by a commodity such as gold. Most paper notes started as being backed by a reserve of valuable commodities, usually gold (the "Gold Standard"). Tying a currency to gold limits inflation and money suppl...
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A history of the US fiat currency
1933 - President Franklin D. Roosevelt had gold confiscated and people were forced to accept paper money for their gold. The government needed people to adopt the inflated paper and they used force.
1940s ...
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Fractional Reserve & Money Supply
Banks loan money they don't have. Most hold a limited reserve to serve the few who decide to make redraws. When the majority decides to liquidate their bank accounts we have what is called a bank run.
In order to protect the banks, central banks were created to provide a gu...
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