U.S. one hundred dollar bills are being shown in this picture illustration taken in Buenos Aires, Argentina, on December 15, 2023. (Photo by Matias Baglietto/NurPhoto via Getty Images)
NurPhoto via Getty Images
Even beggars turned up their noses to the German mark in the 1920s. It’s true. While wheel barrows full of marks continue to animate simplistic economic history, the reality is that the marks in the barrows were trash, and treated as such by merchants and – yes – bums.
The truth about the circulation of so-called “printed” money comes to mind while assessing Kevin Warsh’s latest audition for Fed Chairman. Warsh should withdraw his candidacy with his good name top of mind. But for now, he’s still making his case.
Which is the problem. To make a case for Fed Chair under Trump, would-be nominees are required to write things they wouldn’t otherwise write. Warsh writes that “Inflation is caused when government spends too much and prints too much.” No, that’s not true.
Governments can only spend in large amounts insofar as they have taxable access to productive private economic activity. In other words, the more the private sector grows the more governments have to spend. And since the tax on investment that is inflation is a barrier to economic growth, inflation if anything restrains government waste.
Warsh knows all this simply because he knows that government spending in the U.S. has soared over the last 45 years, but inflation hasn’t always soared with the government spending. That’s because government spending has nothing to do with inflation, which is a shrinkage of the unit of measure, in our case the dollar.
Warsh adds that inflation is also caused when government “prints too much.” The speculation here is that Warsh could probably be convinced that the so-called printing is what happens after the shrinkage of the unit, but an effort will first be made to convince him government spending and money printing contradict each other.
To see why, what’s true must be said: there’s no consumption without production. None. Thought of while thinking about money printing, if it ever became apparent to the markets that Treasury were even contemplating printing dollars to pay debts not payable with tax collections, the dollar would plummet (and Treasury yields would soar) well ahead of the firing up of the printer itself. Markets anticipate, which helps explain why so-called “money printing” occurs after the inflation.
Still, imagine the impact on government spending if the government were printing to pay its bills. If so, government spending would decline in short order as would government borrowing. Which should be a statement of obvious. Not only does production always and everywhere precede consumption, no one buys with dollars as much as they buy with money that was attained via productive work. Products buy products, nothing else.
Which means governments can print or they can spend, but they can’t do both simply because production buys goods, services, and labor, not printed money. Markets are wise.
That’s why there’s little to Warsh’s line that followed the one about spending and money printing. Warsh writes that inflation also rears its head when “Money on Wall Street is too easy, and credit on Main Street too tight.” No. The alleged “ease” with which money circulates on Wall Street is an effect of how well the businesses started on or near Main Street are doing. In other words, Wall Street’s health is a direct effect of Main Street health without which there’s nothing for Wall Street to finance.
As before, Warsh knows all this. Which means he’s writing to please his would-be masters, not to achieve policy truth. Unknown is why he’d want to be Fed Chair if he ascending to the top spot requires shrinking his own currency and character in the process.
Source: https://www.forbes.com/sites/johntamny/2025/11/23/if-governments-are-printing-money-then-theyre-not-spending-it/
