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Need to KnowPhD14 m+170 XP
How money actually works
Central banks, interest rates, inflation mechanics & why currencies live or die
Banks don't lend out deposits — they create money through lending. When a bank issues a $100,000 mortgage, it creates $100,000 in new money. The central bank (Federal Reserve, ECB, etc.) controls the money supply by setting the interest rate at which banks borrow from each other overnight. Lower rates = cheaper borrowing = more money created = inflation. Higher rates = more expensive borrowing = less money created = disinflation. The 2020-2022 inflation was the predictable result of $5 trillion in new money creation against a supply-constrained economy.
Key Points
- ▸Banks create money through lending — not lending out deposits
- ▸Central banks control rates, not the money printer directly
- ▸Inflation = too much money chasing too few goods
- ▸Currency value = relative confidence in that country's institutions