Ansuz07 t1_j2e0gee wrote
They can. The US government basically did this during the financial crisis to create money to loan to banks. They just made trillions of dollars appear in government accounts, and then loaned that money out.
The problem is that injecting huge amounts of money into an economy will cause massive inflation. The supply of goods available for sale doesn't change, so people who suddenly have large amounts of cash will simply pay more for the scarce goods that exist. Case in point, the recent inflation struggles are partly (not entirely) due to the relief funds given to people and businesses during COVID.
808RedDevils t1_j2e5zfq wrote
Yeah, those stimulus payments that the government sent out were poorly done. I realize some people needed them and those are the people which should have received them but me and my wife received thousands of dollars automatically even though we were both still working through the entire pandemic. They really needed more of a surgical approach instead of blanket payments.
Ansuz07 t1_j2e6kvh wrote
That's somewhat easy to say in hindsight when we don't have the ill effects of a more surgical program to compare. Its the key problem in economics - true experiments with control groups are incredibly rare, so we can rarely say which option was "best" with certainty.
A surgical program would have likely stemmed the inflation issue, but would also have likely taken much longer to execute, leaving people who needed funds without them for potentially months. It also would have "false negatives" - denying money entirely due to bureaucratic errors.
Whether or not that would have been worse than the partial impact it had on inflation is impossible to say.
MyFavDinoIsDrinker t1_j2ebxe2 wrote
That's not entirely accurate. Technically speaking, the US government doesn't create money at all.
What happens is the Federal Reserve adjusts the base lending rate, which adjusts how quickly banks are giving out loans. And every time a bank gives out a loan, it is effectively creating new money since it also holds on to the original money that loan was based on.
It is called "fractional reserve banking" and it is how almost all countries do it. Very few countries actually create money anymore.
Ansuz07 t1_j2ecbu5 wrote
While this is true, they used a different technique during the financial crisis.
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