Thread by @DeficitOwls

Most people think that "printing money" causes inflation while government "borrowing" does not. But they're wrong. They both can cause inflation, and by the same amount. Let's see why. (Thread)

People think this because "printing money" increases the money supply, while "borrowing" does not, it just shifts money around. But that's not really how prices work. Inflation happens when people try to buy more goods/services than the economy can produce. (2/)

If the car-makers can only produce 100 cars, but buyers are trying to purchase 1,000 cars...then they're going to raise the price. It's less about how much money there is, and more about what people are doing with their money. Not buying anything = no inflation. (3/)

When the government "prints money," they just give money to somebody. When the government "borrows", they still give money to somebody, but also sell a Treasury Bond to somebody else, taking their money away. (4/)

Treasury Bonds normally have a Maturity Date, the day the gov will redeem the bond into money. But suppose it didn't. Suppose instead that it was redeemable on demand. That is, you could take it to the Treasury any time you wanted, and get the money instantly. (5/)

Hopefully it's pretty clear that in this case, there's no difference between "printing money" and "borrowing." Yes, the gov took money away from somebody - but that person can get it back literally any time they want to, and then use it to buy cars or whatever. (6/)

In that case, a Treasury Bond would be basically equivalent to money, it's just that you have to jump through an extra hoop (taking it to the Treasury for redemption) before you can spend that money. (7/)

In real life not all Treasury Bonds are like that, but we have other institutions that create the same result: markets and banks. In the market, there are Dealers who stand ready to buy and sell Treasury Bonds on demand, so that if you have one but decide (8/)

that you'd rather buy a car instead, you can sell it and they'll get you money. Or, you can go to a bank and use a Treasury Bond as collateral to get a loan, and then spend money that way. Because of these institutions, real-life Treasury Bonds are also basically money, (9/)

which you just have to jump through an extra hoop (selling to a dealer or offering as collateral to a bank) in order to spend. (And if you care to count Treasury Bonds as "money" in this way, then both "printing money" and "borrowing" create the same amount of money.) (10/)

So, hopefully this helps you to be a little less scared about "printing money." As far as the inflationary impact, we already potentially face that, whenever the government runs a deficit. (Fine)

P.S., if you'd like to know why I used scare-quotes around "printing money" and "borrowing" every time, you'll just have to #LearnMMT! (Fine for real)