Making Money Out Of Thin Air

You hear weird stuff when you listen to podcasts in your room in the dark at 2 am. The UFO stuff I usually enjoy when it's not too far out. But this January 15 Radiolab podcast is definitely pushing the outer limits. According to their bubbly young reporter (I am sorry to say I could never catch her name), whenever the government wants to jazz up the economy (or otherwise help out people in need because of Covid) all it has to do is go to a room in the Fed, open a spreadsheet, a spreadsheet and create a couple of trillion dollars out of thin air.

Now this isn't borrowed money that will add to the national debt, says Radiolab, it is created money. There is a quirk in our laws that allows the Mint to create platinum coins in any denomination that it wants (trillions for example) and sell them to the Fed, which then creates the money in its computer spreadsheet so it can be used by central banks.

Now, won't this just create massive inflation, the Radiolab host asks the bubbly reporter, as they have in Venezuela (inflation of 300,000 to 400,000 percent with a single roll of toilet paper now costing as much as some people get from their monthly pension)?

Not necessarily, answers the reporter. The Fed created money out of thin air back in 2007 when we had the big mortgage crisis and the result was the US suffered no inflation at all. Inflation, the reporter quotes an economist as saying, is simply a matter of expectations. If people don't expect prices to increase they probably won't, especially if the new money is used simply to meet normal demands like rent, food, and small business payrolls.

Can this be true? When the government needs money to give to people who are hurting because of the Covid pandemic all it needs to do is get the Fed to go to its computer spreadsheet and type in say, two trillion, and the presses start printing checks and pretty soon $1400 arrives in the mail to tide us all over for the next six months?

Sounds wonderful. And also unbelievable. Life is not that easy. Inflation is out there waiting, if not staglation too. I wish it were otherwise but I can't help but feeling that six months or a year down the road the Jimmy Carter economy will stir in its coffin, climb out of its grave and stagger out of the cemetery to mug us in the streets.

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