You’ve likely encountered the “Money Printer Go Brrr” meme online. It typically depicts figures like Jerome Powell, the Chairman of the Federal Reserve (the Fed), seemingly operating a money printer at full speed, implying rampant money creation and imminent hyperinflation. The meme is popular, often humorous, and encapsulates a common, yet flawed, understanding of how money is created and the Fed’s role in the economy. While memes can be lighthearted fun, this one is often used to promote inaccurate financial narratives. Let’s delve into why this meme misrepresents reality.
Problem #1: Jerome Powell Doesn’t Actually Print Cash
The most immediate flaw in the “money printer go brrr” meme is its literal depiction of the Fed printing physical cash. While your dollar bills indeed say “Federal Reserve Note,” the Fed’s function isn’t directly about firing up printing presses and injecting cash into the economy as depicted.
The actual process is more nuanced and driven by the needs of private banks and their customers. Banks are the primary creators of deposits. Think of deposits as digital money in your bank account. When bank customers require physical cash, banks fulfill this demand. If a bank needs more cash on hand, it requests it from its regional Federal Reserve Bank. The Fed then relies on the US Treasury to print physical currency, which is sold to the Fed at cost. The bank then exchanges some of its reserves (funds held at the Fed) for this physical cash. Finally, the bank makes this cash available to its customers for withdrawal.
This entire process is essentially a conversion of an existing digital deposit into physical cash. No new money is created in this step. The deposit was already in existence; it was the actual creation of the deposit by the bank that initially constituted “new money.” When a customer withdraws cash, their deposit balance decreases while their cash holdings increase. The total amount of money in the economy remains largely unchanged. The Fed, in this scenario, merely facilitated an asset swap – converting deposits into cash – to meet public demand. Therefore, Jerome Powell and the Fed are not directly responsible for printing physical cash in the way the “money printer go brrr” meme suggests.
Problem #2: Jerome Powell Doesn’t Really Control the “Money Printer”
Expanding on the first point, the “money printer go brrr” meme also wrongly attributes excessive power to the Fed, particularly concerning the creation of money through tools like Quantitative Easing (QE). The 2008 Financial Crisis highlighted that the Fed’s role is more akin to a central clearinghouse for banks. Its primary function is to facilitate interbank payments and maintain stability within the banking system. Actions frequently discussed in the media, such as interest rate adjustments and QE, are secondary to this core function. The Fed achieves this by managing reserves in the interbank market, allowing banks to settle payments more smoothly.
Quantitative Easing, often misinterpreted as blatant “money printing,” is better understood as an asset swap. In a typical QE operation, a bank sells government bonds (like Treasury bonds) to the Fed. The bank receives reserves in exchange, while the Fed acquires the bonds. While it’s true that the banking sector’s reserves increase (which are technically part of the money supply), a corresponding asset – the Treasury bond – is removed from the private sector’s holdings. The bank essentially trades an interest-earning asset (the bond) for reserves, which in the current environment may earn less interest.
This is why many economists describe QE as an “asset swap” rather than outright “money printing.” It doesn’t inherently lead to a significant expansion of the overall balance sheet of the private sector. In fact, a bank might even be marginally worse off due to reduced income from the swapped bond. This perspective explains why concerns about runaway inflation following the 2008 QE programs were largely unfounded. For every dollar “printed” by the metaphorical “money printer” during QE, an equivalent value of Treasury bonds was removed from circulation.
Problem #3: The Fed Doesn’t Enable Fiscal Policy Through “Money Printing”
A common counter-argument to the above points is that the Fed indirectly enables government spending (fiscal policy) by “funding” it through QE, essentially operating a “money printer” to finance government deficits. It’s crucial to understand the distinction between monetary policy (Fed actions) and fiscal policy (government spending and taxation). Fiscal policy, particularly government spending financed by issuing new Treasury bonds, does represent a balance sheet expansion in a meaningful sense. When the US Treasury spends money and issues new bonds to finance this spending, this can be considered a form of “bond printing,” which is closer to what people mistakenly associate with the “money printer go brrr” meme.
However, the sequence of events and control are often misunderstood. The Treasury initiates fiscal policy by spending and issuing bonds. The Fed’s QE operations are a separate action, often occurring after the fact. The Treasury alters the quantity of financial assets in the economy through fiscal policy, while the Fed primarily influences the composition of those assets through monetary policy tools like QE. Many people mistakenly believe the Fed controls the quantity of money, but fiscal policy has a more direct impact on this.
Fiscal policy can be inflationary, especially if government spending significantly outpaces the economy’s productive capacity. This is why concerns about inflation were more pronounced in periods of large fiscal stimulus. However, this inflationary potential is not primarily driven by the Fed “enabling” fiscal policy through QE. The government can spend because it has the authority to tax and issue debt, not because the Fed is directly funding it.
The misconception that the Fed is enabling fiscal policy often stems from the observation of low interest rates alongside government borrowing. Some assume that low rates are solely a result of Fed bond buying (QE), keeping borrowing costs artificially low for the government. However, low interest rates can also be a consequence of low inflation and broader economic conditions. If inflation is low and interest rates are low, it suggests that rates would likely be low even without Fed intervention. Therefore, the Fed isn’t necessarily enabling fiscal policy through QE by artificially suppressing interest rates.
Problem #4: The Fed’s Power is More Limited Than the Meme Suggests
Beyond the operational inaccuracies, the “money printer go brrr” meme fundamentally misrepresents the Fed’s actual power. While the Fed is undoubtedly a powerful institution with significant influence over the economy, the meme exaggerates its control and capacity for unchecked “money printing” that leads directly to hyperinflation.
The US Treasury, through fiscal policy, is closer to the entity with the real “money printer” in terms of directly increasing the quantity of financial assets. The Fed’s actions are largely about managing the composition of those assets and influencing financial conditions through secondary channels. While the Fed can take actions that could theoretically lead to inflation, the traditional understanding of the Fed as simply turning on a “money printer” is a misleading oversimplification.
In conclusion, the “money printer go brrr” meme, while humorous, is a significant oversimplification and misrepresentation of how money is created and the Federal Reserve’s role. It’s crucial to understand the nuances of monetary and fiscal policy to move beyond simplistic memes and engage with the complexities of modern finance. While the meme may be entertaining internet fodder, relying on it for financial understanding can lead to inaccurate conclusions about the economy and the Fed’s actions.
