Megan McArdle on Venezuelan inflation:
It's a bit of a mystery why this is happening. No, right, don't tell me: The government is printing too much money! Indeed. As Milton Friedman famously said, "Inflation is always and everywhere a monetary phenomenon." When too much money is chasing too few goods, prices rise. And the most common source of "too much money" is government printing presses.
But I'm not asking for the mechanism; I'm asking for the reason. Why is the Venezuelan government resorting to the printing press?One of McArdle's commenters:
Money • an hour ago
Another writer who has no idea who prints money in modern economies. 97% of the money in modern economies comes from banks creating deposits when they make loans.
Also, Friedman's views on money disapproved every day. He believed that the Fed could create inflation with QE; However, he failed to understand that reserves are trapped in the banking system.
Venezuela is a failed state. That is why they have inflation.She thinks "printing money" is literally printing money. Hahahaha!
I know next to nothing about monetary policy. McArdle knows even less. Every person who reads this post probably knows more about it than the two of us. But McArdle is paid six figures to discuss it.
The primary tool of monetary policy is open market operations. This entails managing the quantity of money in circulation through the buying and selling of various financial instruments, such as treasury bills, company bonds, or foreign currencies. All of these purchases or sales result in more or less base currency entering or leaving market circulation.
Added: This is the third day in a row that McArdle posted early in the day. Did an editor crack the whip at our heroine? Or did the news that Bloomberg will lay off political and government writers put the burr under her saddle?