The Magic Coin
A Dark Meeting in a DARK ROOM
Chapter 6
A DARK MEETING IN A DARK ROOM
Lily found herself behind a desk in a dark room. She saw a group of well-dressed men sitting at a conference table.
“What are they talking about?” Lily asked.
Newton whispered, “These men are politicians and bankers. They are deciding to work together to try to solve the bank-run problem we just saw.”
“Oh, good. So, they are agreeing to keep enough gold to avoid a bank run?”
“Unfortunately, no. They are trying to make it so they can expand their loans together and make it difficult for people to withdraw their gold.”
Lily was confused. “How are they going to do that?”
“By creating a central bank. It will be a bank for the banks and for the government. If any bank gets into trouble, the central bank will bail them out. It will also buy the government’s debt to help them spend as much as they want.”
“But where does the central bank get its money?”
“Excellent question, Lily. It just prints it up.”
“How would more paper fix the problem of too much paper?”
“It doesn’t, but it helps the banks and the government hide their own problems and pass the costs of their mistakes on to ordinary people. Nobody likes paying taxes, but with a central bank, the government can sneakily tax people with inflation.”
“HOW TERRIBLE!“ Lily gasped. A man at the end of the table closest to Lily and Newton quickly turned toward them. Lily ducked behind the desk just in time and Newton transported them out of the dark room.
