Inflation
The Cantillon effect is the idea that as the monetary supply expands, those closest to the source benefit while those furthest away do not. This is essentially a regressive tax. Banks and corporations are able to line their pockets (ahem stock buybacks with 0% interest credit)... Meanwhile the plebs among us have to pay 22-28% on our credit cards. And we'll not even get into the criminally predatory payday loans 💀.
We live in a world where the government is able to print unlimited amounts of their own currency. Physically in the form of coins (U.S. Mint) and paper (U.S. Treasury’s Bureau of Engraving and Printing) and digitally by the Fed to their constituent banks.
The Federal Reserve (Fed) does not actually print or produce money in any form.1 However, when the Fed decides to stimulate the economy by pouring more money into the system, it electronically transfers additional credits to the deposits of its member banks.2
This has serious effects.
Inflation is one.
Most people think the CPI (Consumer Price Index) measures inflation. This is wrong. It measures symptoms of inflation. It's also easily manipulated.
E.g.: If people are eating steak for lunch, and steak becomes too expensive, that could be swapped out for a hamburger. If housing or college tuition becomes too expensive, it can just be removed from the CPI altogether. These tricks help keep the CPI (nominally known as inflation among most) artificially low.
However inflation is simply the amount of new money entering the system annually.
The supply of USD in the system has swollen to an inordinate size. The mechanism for this is often quantitative easing or "QE". Where central banks buy debt (i.e. bonds) from the government and recently during the COVID pandemic, corporations.
Quantitative easing—QE for short—is a monetary policy strategy used by central banks like the Federal Reserve. With QE, a central bank purchases securities in an attempt to reduce interest rates, increase the supply of money and drive more lending to consumers and businesses. The goal is to stimulate economic activity during a financial crisis and keep credit flowing.3
The money supply (M2 - Cash, deposits and CDs) over time:
| 2005 | 2010 | 2015 | 2020 | Today |
|---|---|---|---|---|
| ≈5 T | ≈8 T | ≈12 T | ≈15 T | ≈21 T |
This has a direct impact on your ability to buy a house, rent a car, or buy groceries. And it impacts the poor disproportionately as they're not buying assets like real estate and stocks that are expanding with the expanding monetary supply. They're living off of stagnant wages and wondering how they're going to fill their tank with gas or buy milk, bread and eggs for their family.
[1] - https://www.stlouisfed.org/open-vault/2017/november/does-federal-reserve-print-money
[3] - https://www.forbes.com/advisor/investing/quantitative-easing-qe/
[4] - https://tradingeconomics.com/united-states/money-supply-m2