Everything Wrong With The “Money Printer Go Brrrr” Meme

You’ve probably seen some version of the following meme in the last few years. In case you haven’t, it’s generally used to infer that Jerome Powell is printing money and hyperinflation is coming. I love a good meme and few things make me happier than hilarious nonsense on the internet. So I feel bad debunking this meme because it’s kind of funny and memes are mostly harmless, but this is one of those memes used by people who want you to believe something that isn’t right. Anyhow, let’s get into it.

Problem #1 – Jerome Powell Doesn’t actually Print Cash

Let’s start with a really basic problem in this meme – the Fed firing cash out of the money printer….

That cash that Jerome is firing out of the money printer isn’t really in his control. Technically, the cash in your wallet says “Federal Reserve Note”. But the cash in the system isn’t really a function of Fed policy. It’s controlled primarily by private banks and the demand for cash from their customers. The basic way to think about this is that banks create deposits. And banks allow the rest of us to withdraw some deposits and convert them into cash. So, when a bank has customers that need cash (assuming the bank doesn’t have any yet) they call on their local Fed Bank to issue them some cash. And the Fed relies on the US Treasury to print up some physical notes and sell them to the Fed at cost. And then the bank swaps some reserves for physical cash. And then the bank makes the cash available to the customer.

All this exchanging of money really only did one thing though – it helped a bank customer convert AN EXISTING deposit into a cash note. The new cash wasn’t new money. After all, the deposit was already there. The deposit was the new money in the first instance when the bank created it. So, when that bank customer withdraws the money their deposit balance goes down and their cash balance goes up. The Fed didn’t create new money when they issued the cash to the bank. They simply created a new asset that allowed a bank customer to swap deposits for cash. And when the customer ends up with the cash there are now FEWER deposits in the system and more cash. But the quantity of assets and liabilities remain the same. The Fed helped change the composition of assets, but they didn’t change the quantity of the assets.

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Disclaimer: The content in this article is provided as general information only and should not be taken as investment advice. Article content shall not be construed as a recommendation ...

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