Is money printing set to explode? The short answer is yes. I don't even think most people understand the magnitude of how much it's going to explode.
But, what I find is most people really don't understand what money printing actually is. They really don't even understand money, loans, QE, helicopter money with non-banks, nor helicopter money with banks, which I explain in this series.
So before you can figure out how money printing is going to affect your financial future, you have to understand how helicopter money with banks works.
I'll explain it to you in seven simple steps in the form of a series of articles named: Is money printing set to explode? This is part 6 of 7.
Helicopter Money With The Banking System
Ok, let's get our heads around money printing…
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What is it?
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How does it work?
Look at my whiteboard. The example starts off with the Fed having $100 in bank reserves in the accounts of the commercial banking system.
Remember, the commercial banks and the Treasury have an account with the Fed, just like you have an account with Wells Fargo or BofA, and, the Government has $0 bank reserves, nada.
If you look at the commercial banking system right in the middle, you can see they start with some bank reserves, the same $100 that are liable to the Fed, some assets on their balance sheet alone, treasuries, and three deposit accounts.
The deposit accounts are a liability to the commercial banking system, assets for the individuals like the average Joe, Jane, and everyone's favorite, Moody the Millennial.
Yet… your drunk insolvent uncle Sam needs to buy some votes, so he wants to send a stimulus check to Moody the Millennial, but he doesn't have anything in his account, so he needs to sell a Treasury.
In this case, he sells it to the banking system, so Jaime Demon, the guy with the hat in the middle, which is, I believe Jamie's Mexican cousin and a fat cat bankster from Mexico for sure, says, “Sam, I will buy your Treasury.”
Sam says, “Jaime, we do business together. This is the Cantillon effect in its purest form right here, so, I will sell you the Treasury.”
The Treasury goes on to the balance sheet of Jaime, and Jaime sends the bank reserves to the Treasury general account.
As you can see on the left, the Fed's balance sheet starts at $100 on the top and changes to $0 on the bottom because those bank reserves go into the TGA. Now, Jaime has $0 bank reserves, and the TGA has $100.
But your drunk, insolvent Uncle Sam sends that $100 check to buy Moody's vote. When that happens, the bank reserves go from the TGA back into the commercial banking system.
You may be saying to yourself, “Well, George, this is giving them free money because they already have the $100 Treasury. Now, they're getting their original bank reserves back.”
But remember, when Moody deposits its check with the bank, that creates an additional liability for the banking system. The balance sheets have the liability, but they have a corresponding asset.
Look at the balance sheets one more time to make sure it is clear. The Fed starts with $100 of the commercial bank's accounts, and zero in the Treasury General Account (TGA).
Then, you're drunk insolvent uncle Sam sells the treasury to Jaime, the bankster, and Jaime transfers his bank reserves to the TGA.
Your drunk, insolvent uncle Sam then sends Moody the check for $100. Therefore, he has to send the bank reserves back into the commercial banking system's account held at the Fed.
The Fed's balance sheet ends up the exact same as where it started, and the commercial banking system's balance sheet ends up a little different.
They started with a bank reserve, but that went into the TGA. The government gave them a Treasury to replace the bank reserves.
But, your drunk, insolvent uncle Sam spent the money into the economy by giving the check to Moody the Millennial, and that created an additional deposit or an additional liability for the commercial banking system.
So the government has to transfer their bank reserves back into the account of Jaime Demon. Therefore, Jaime's balance sheet starts with reserves, loans, treasuries, and three deposits, but ends up with an additional Treasury, the same bank reserves, and four deposits.
To answer the question, is this money printing?
I would say yes.
Why?
Because we've created additional deposits or additional liabilities of the commercial banking system.
In other words, more currency units are chasing the same amount of cattle, corn, wheat, goods and services in the real economy.
In technical terms, broad money or money supply increases, base money stays the exact same, the balance sheets in the private sector increases, and the debt on the balance sheet of your drunk insolvent uncle Sam, as always, goes up.