I think there is some good insights in this. As I see it:
FED + Banks is a system of issuing money. As economy grows it needs more money. FED decides how much money is needed and banks determine who needs it and gives it to them (getting healthy profit if they were right).
Banks found a way to circumvent FED limits on making money. They made much more money then the FED intending them to make. That money was pushed mostly to real estate market driving prices of houses up so they became completely disassociated with their real value that they may present to anyone. It was kind of spotlight hyperinflation. Each dollar was worth lower and lower fraction of average home. Money was seeping to the rest of the economy but since due to technical advancements real value of economy was growing probably faster then FED expected that inflation was not noticeable in other markets.
When credit is paid back the money that was created when credit was given is destroyed. When situation is stable and credits are paid back at predictable rate then banks just give new credit in place of old ones if they are needed and allowed by FED and everything goes just fine.
But when credit defaults money all borrowed money not paid back yet is also destroyed. If huge quantity of credit default at once huge quantity of money is destroyed. What is more it's money that belongs to bank is seriously crippled by this. Not only he didn't earned interest rate but also he has less money to give new credits and create more money to profit out of. Defaulting on massive scale is something that current system of issuing money is not protected against.
I'm not entirely sure what happens if bank needs to destroy more money for defaulting credits than it has. Bank obviously goes broke but is the rest of the money still destroyed or not?
Since a lot of money was destroyed there is possibility that there is too little money now. As far as I know there really are no good ways to estimate how much money is needed (FED and equivalents in other countries do it by more or less educated guess). Maybe issuing more money could help, maybe that is not needed. It's not that obvious as post author has stated but it may be worth a try.
Also grudge about wealthy is not very polite but it might be true that they fear inflation more then they should because of their wealth.
Disclaimer:
By 'creating money' I don't mean literally printing it, just borrowing many times over the money that bank has (or borrowed).
By destroying money I don't mean burning it but just owing people who deposited money in the bank and not having cash to give them back their money.
FED + Banks is a system of issuing money. As economy grows it needs more money. FED decides how much money is needed and banks determine who needs it and gives it to them (getting healthy profit if they were right).
Banks found a way to circumvent FED limits on making money. They made much more money then the FED intending them to make. That money was pushed mostly to real estate market driving prices of houses up so they became completely disassociated with their real value that they may present to anyone. It was kind of spotlight hyperinflation. Each dollar was worth lower and lower fraction of average home. Money was seeping to the rest of the economy but since due to technical advancements real value of economy was growing probably faster then FED expected that inflation was not noticeable in other markets.
When credit is paid back the money that was created when credit was given is destroyed. When situation is stable and credits are paid back at predictable rate then banks just give new credit in place of old ones if they are needed and allowed by FED and everything goes just fine.
But when credit defaults money all borrowed money not paid back yet is also destroyed. If huge quantity of credit default at once huge quantity of money is destroyed. What is more it's money that belongs to bank is seriously crippled by this. Not only he didn't earned interest rate but also he has less money to give new credits and create more money to profit out of. Defaulting on massive scale is something that current system of issuing money is not protected against.
I'm not entirely sure what happens if bank needs to destroy more money for defaulting credits than it has. Bank obviously goes broke but is the rest of the money still destroyed or not?
Since a lot of money was destroyed there is possibility that there is too little money now. As far as I know there really are no good ways to estimate how much money is needed (FED and equivalents in other countries do it by more or less educated guess). Maybe issuing more money could help, maybe that is not needed. It's not that obvious as post author has stated but it may be worth a try.
Also grudge about wealthy is not very polite but it might be true that they fear inflation more then they should because of their wealth.
Disclaimer: By 'creating money' I don't mean literally printing it, just borrowing many times over the money that bank has (or borrowed). By destroying money I don't mean burning it but just owing people who deposited money in the bank and not having cash to give them back their money.