The central bank has unlimited money available, but what does that mean for you?

Thousands of billions are needed to save the economy, but where do they come from? “The European Central Bank cannot go bankrupt or run out of money,” said President Christine Lagarde recently. In the US, the US central bank also appeared to have an “infinite amount of money” earlier this year . If you want to understand Bitcoin, you first have to understand what is wrong with the current money system.

Money in unlimited amounts. Crazy really, isn’t it? Normally politicians get in each other’s hair over a few million, but the European Central Bank (ECB) says they have unlimited money available.

This year, the ECB has already pulled ??1,350 billion out of the top hat. That is probably far from enough and it is possible that another ???????800 billion will be added. And maybe even more. In the United States, a $2 trillion bailout package has been made available and there is now talk of another $1,000 to $2,000 billion. Neil Kashkari of the US central bank also indicated earlier this year that they have ‘infinite money’ .

Magic. At least that’s how it seems, because all those billions weren’t sitting unused somewhere in a piggy bank ‘just in case’. It is new money that, like magic, is added at the touch of a button.

That seems useful, but it also raises questions. If they can just conjure up thousands of unlimited billions out of nothing, why don’t we actually solve all the major problems in the world with it?
Poverty, hunger, the climate – and so on. And why do we pay taxes at all? Can’t they just conjure up a few more billion and pay the civil servants with that?

Fiat money

It’s weird, but still true. Money used to be tied to a gold standard, which meant that for every amount of money there was a little gold in the central bank’s vault. The convertibility of money for gold gave security and it limited the amount of money a central bank could create to the amount of gold it had.

Since the release of the gold standard, this restriction no longer applies. Since then, the money has not been backed by anything except trust. This is also called fiat money or fiduciary money . Central banks can, in principle, circulate as much money as they deem necessary.

Money creation

So a central bank cannot go bankrupt, because it can always create more money to pay all the bills. In principle in unlimited quantities, although there are usually rules to prevent it from getting out of hand.

Money creation, or monetary inflation , is controversial and not without risk. Because money is no longer backed by anything, money markets, like other markets, operate on the basis of supply and demand. If the money supply of a currency grows and as a result there is more supply on the market, the price can fall. The money will then be worth less.

This often happens gradually and to most people it seems as if everything is slowly becoming more expensive, but in fact money devaluation takes place. This is why we talk about price inflation.

When a central bank creates money, it can use it to buy government debt securities. For example, the government can finance all kinds of government initiatives and the circulating money supply increases, as does the mountain of debt and the interest we pay on it. Subsequently, inflation reduces the spending power of the existing money in the hands of citizens.

Thus, new money is created with the creation of money, but the value it represents is actually extracted from the money of the people in a roundabout way.


In principle, money creation should not be applied lightly, but that is not easy in practice. After all, there are always urgent matters and governments are always short of money.

Normally, governments finance expenditures from tax revenue, but politicians who sell bitter medicines such as tax increases or austerity are not popular with voters. Through the much more opaque process of money creation, the money tap can still open and since most people are not aware of the economic effects, people are generally happy that something is happening.

The fact that for us as a society it is a kind of wealth-redistributing cigar from our own box is hardly talked about and from the next election period it will be someone else’s problem anyway.

Moreover, it often concerns important matters. More money for care, education, the elderly, development aid and against poverty and crime – almost everyone wants that in principle. And to save the climate, to help those affected by the COVID crisis and sometimes money is also needed in the event of disaster or war. More money is always needed everywhere, never less and it is all important.

Therein lies the danger: the power to create money is so seductive that we cannot stop ourselves from using it. It’s addictive and we need more and more. And like any addiction, this is not a healthy one either.

The downside of money creation

There is no such thing as free money. Or as the economist Milton Friedman once said: ‘There is no such thing as a free lunch’ . Left or right there is always someone who pays for the costs. You can create money, but you do not create new value with it. It only moves through a kind of waterbed effect from one group of people to another group. Largely outside the Democratic voting process.

Sometimes that works well, but often it is inefficient. And sometimes it leads to situations where banks, airlines or other large companies receive many billions because they are ‘too big to fail’ , not paid from taxes but financed with the wealth that has been extracted from your euros in an intransparent way through inflation.

Money creation has a dark side: that is how wars are financed. After all, governments generally do not have a few hundred billion savings for that. It is no coincidence that many countries abandoned the gold standard in 1914 during the First World War, and it was not for nothing that Nixon unilaterally disconnected the dollar from the gold standard in 1971, during the Vietnam War.

Since then, the dollar is no longer backed by gold, but people sometimes speak of a ‘petrodollar’ and most wars take place in the Middle East. Money creation is also how dictators stay in power, because it allows them to endlessly pay their troops even though the country is in ruins.

The gap between rich and poor

Meanwhile, a coffee in the Netherlands now costs ???????6 euros and a house in Amsterdam costs half a million. The latter is mainly because people who understand the game store their wealth in everything but money: houses, stocks, gold, art. And nowadays also bitcoin. Basically anything whose supply is limited, so that it retains value compared to the continuously depreciating money. Even in the best-case scenario, central banks aim to devalue money by 2% annually.

Above: Interview with Charlie Munger, Warren Buffett and Bill Gates. Even the very wealthiest agree: money creation only makes the rich richer.

So house prices and share prices are rising not only because money is worth less, but also because people use it as an economic haven to escape the effects of inflation. Much of the newly created money therefore flows directly there. This created price bubbles and everyone with possessions became rich while sleeping. Did you know, for example, that the average wealth of Dutch households increased by more than 30% last year because house prices have risen?

Perhaps it is therefore not surprising that the gap between rich and poor is widening. People with less prosperity, who only have an income and no possessions or houses, are already 2-0 behind in this system. With them nothing is in the plus and they always have head wind. Getting out of the downward spiral is becoming increasingly difficult, because prices are now so high that you can only afford them if you are already wealthy.

The COVID crisis puts the finger on the sore spot: millions of people lost their jobs and income completely, while the richest on earth gained more than ?? 500 billion. All over the world, the economy is at a standstill, but the stock market is still breaking record after record.

Eventually, all that fresh wealth may trickle down to the rest of the economy as it is spent, but by then the economic effects of monetary inflation have already taken place and are of little use to normal citizens. The cigar from its own box turns out to be a dead sparrow. This is called the Cantillon effect, named after the Irish-French economist Richard Cantillon.

The system hangs

Above: Someone made a meme with all of Neil Kashkari’s startling comments

The European Central Bank “cannot go bankrupt or run out of money,” said Christine Lagarde. ?ǣWe have an infinite amount of money at the central bank ,?ǥ said Neil Kashkari of the Minneapolis Federal Reserve. They don’t exaggerate. In principle, any kind of unsecured money can be spent indefinitely by the issuer as long as the money is worth more than the production costs. They probably say it to inspire confidence, but whether that has the intended effect is still the question.

In Venezuela, the central bank has had unlimited money available for years, which is why most Venezuelans are now poverty-stricken millionaires. Zimbabwe too. For years, the Venezuelan and Zimbabwean stock markets rose about as fast as money lost value. Everyone seems rich on paper, but reality tells a different story.

Fortunately, we haven’t reached that point yet, but there is still cause for concern. The crashing financial system is widely acknowledged and today world leaders are calling for a ‘Great Reset’ and ‘a new Bretton-Woods moment’ . Proponents of the increasingly popular Modern Money Theory (MMT) believe that the system can be saved by creating even more money and simply spending it smarter.

Opt out with Bitcoin

It is a complex problem and no one really knows what the right solution is. Maybe there isn’t. But maybe it can be done differently.

Bitcoin is another, alternative system. A new global economy in which the problems of money creation are impossible because the network is decentralized and no one has power over it. Unlike central bank money, bitcoins are not available indefinitely; there will only be a maximum of 21 million bitcoins and never more.

In contrast to an inflation-based system, Bitcoin’s monetary policy and design is geared towards preserving value. Bitcoin has the same positive properties that make assets stable in value, while at the same time being as liquid as money. It is digital like non-cash bank money, but still as it were cash like cash. Bitcoins can be divided to eight decimal places, so you can also purchase very small amounts and it is accessible to everyone. Bitcoins are unforgeable.

The Bitcoin economy is an open infrastructure in which everyone can participate and where the playing field between rich and poor is level and no one has advantages or disadvantages over another. Abuse of power and censorship are not possible. Bitcoin is independent of any country and government.

Proponents believe that Bitcoin’s monetary properties and decentralized nature will, over time, mean that more and more people will use it to store their wealth and that the price will therefore be higher in the future. Skeptics still believe it is a new tulip mania, the house of cards of which could collapse at any moment. Meanwhile, the money press continues to print happily.

You decide

You will have to decide for yourself which system suits you best. You don’t have to make a black and white choice in this. You ultimately decide for yourself what money you use and to what extent, what you believe and what risks you are willing to accept. However, if you want to protect (part of) your wealth against inflation, or for other reasons simply no longer want to participate in the old financial system, you can do so with bitcoin.

In any case, invest wisely, not too much and never with money that you might need for something else. If you want to get started with Bitcoin, we have a quick starter guide here.

s: European Central Bank, license CC BY-NC-ND 2.0

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