How can a bank “create money out of thin air”? We must enter the magical kingdom of “fractional-reserve banking,” where deposits are turned into loans, loans are turned into money, and so on, to find out.
2022 was a warning sign that debunked the myth of eternal monetization of debt with low inflation. It is time to be serious. High deficit spending is not a tool for growth, but a tool for cronyism and a burden on the future.
With each iteration of the banking crisis, the Federal Reserve System and federal regulators gain in power and authority. Maybe the banking crisis isn’t an accident.
The usual suspects are "relieved" that Congress gave President Biden what he wanted on the so-called budget deal. Without sound money, however, the borrowing and spending regime will collapse sooner or later.
The problem here not that the central bank is "setting" the "wrong" interest rate. The problem is the Fed has long been relentlessly forcing down interest rates to satisfy various politically determined "needs."
The world is changing, and in the coming five years we'll see how accelerating debt, declining demand for dollars, and rising price inflation will show how deficits do matter, after all.
