Why the dollar "printing press" broke

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

Regularly, almost every day, one hears statements about Americans “They have a printing press, they will print money for themselves, as much as they need” … Oh, that's it! This is said by people who do not understand anything about economics. This is the deepest delusion.

To understand this, you need to know two things:

- what is the FRS;

- what is "fiat money".

The Federal Reserve System (FRS) is not a government agency, but a private office. The purpose of which is not to ensure the prosperity of the American economy, but profit.

That is why, for example, I do not believe in the inflationary scenario of the US exit from the debt crisis. On the balance sheet of the Fed is now the debt obligations of the US Treasury (US Treasuries) for almost $ 4.5 trillion, and to devalue them for the Fed is to rob itself.

For several years (since 2008) they have received very low profits, "having entered the situation in connection with the crisis", but recently it was decided that it would be enough to endure - and the interest rate began to rise. There have already been two promotions, and two more are planned. This is the main source of profit (and in general the raison d'être) of the Fed and its owners.

Plus, during the time that “quantitative easing” was going on, the banking multiplier in the United States fell from 17 to 4, and it is simply impossible to further reduce it - this threatens to collapse all the banking system. And without that, in the ten largest banks in the world, the first four places last year were taken by the Chinese.

This is the first reason why you can no longer print dollars out of control. But there is also a second one. Let's turn to the definition.

Fiat (from the Latin "fiat" - decree) money - symbolic paper, credit, unsecured money - money unsecured with gold and other precious metals, the nominal value of which is set and guaranteed by the state, regardless of the cost of the material used for their manufacture. As a rule, they cannot be exchanged for gold or silver.

Oftentimes, fiat money functions as a means of payment based on government laws requiring it to be accepted at par. The value of fiat (another name for "fiduciary") money is supported by people's belief that they can exchange it for something of value. The decline in the authority of state power leads to a decrease in the purchasing power of fiduciary money, inflation, "flight from money" (attempts to preserve their purchasing power through investments), etc.

So, to put it simply, in order to print a million dollars, you need to simultaneously increase the US national debt by the same amount.

Literally: the Fed prints a million dollars, at the same time the State Treasury prints a million treasuries, and they exchange these pieces of paper. The Treasury directs the printed dollars to the US budget (and then arbitrarily), and the FRS sells the received Treasuries on the stock markets.

One of the problems is that in recent years the Treasury's reliability rating has dropped significantly - from the highest AAA reliability level, it has dropped to BBB +.

Accordingly, in terms of the ratio of "profit to risk" a huge number of securities turned out to be more attractive than American "treasures". And the number of people willing to buy them has significantly decreased. That is why, by the way, the Fed has accumulated 4.5 trillion Treasuries on its balance sheet - no one wants to buy them from them.

If no one wants to buy US debt, it becomes impossible to issue new dollars.

Plus, the Americans have driven themselves into a trap: each new dollar printed automatically increases the national debt. This means that it increases the cost of debt service. It is a self-inflating bubble with a geometric progression of inflation.

As explained in the movie "Zeitgeist", in such a system there is always more debts than money to pay them off. The problem has no solution (except for the collapse of the system).

And then more and more countries are abandoning the dollar when paying for oil, and the Russians dumped half of their treasury stock in April. Where else is there to print dollars ?!

As you can see, the system contains a number of internal rigid restrictions that do not allow “just taking and printing the required amount”. So please don't ever repeat this misconception again.