The Lessons from 1923 for the Euro Area

[@timpellemeier587]

Basically a central bank can increase the money supply, but at the same time (by doing this) it makes money more scarce, because this newly created money will be needed to pay back the central bank. And that's why there is demand for this currency. Banks don't hoard this money for the day when they will have to pay back the central bank, they trust that they will be able to get it either through cash flow when it's needed or that they will then be credible enough to (again) borrow it, when it is due. The trust (of the lending commercial bank) that there will be enough cash flow or that they will be credit-worthy when the amount is due, allows investments to be made. That's why inflation (to a certain extend) depends on the amount of circulating money, because banks will be brave enough to work with this money. That's also the reason why there is such a big credit crunch, when confidence in banks is lost, with devastating results for the economy, as demand then drops dramatically. Money isn't created out of nothing (thin air) by commercial banks, it is created out of creditworthiness. Of course, it is easy to be creditworthy when you are backed by a lender of last resort and a Federal Deposit Insurance. That doesn't mean that a bank (like the Silicon Valley Bank) cannot go bankrupt, though, and then of course lose its creditworthiness.

[@cuzmariosaidso]

@17:21

[@dr.zornicelvis6882]

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