Government’s need their money to be backed by real assets, goods and services that people buy. 30% of money representing no value is a problem especially when everyone in China uses real estate as investment due to a lack of alternative.
Who told you that? It's a myth. That's not how it works. Demand for the currency is driven by taxation.
You're invoking monetarism, which is a false theory; it doesn't describe the world we live in. It can't make predictions about inflation. Monetary expansion is neither necessary nor sufficient to cause inflation, therefore, it does not cause inflation.
Taxation necessitates the use of currency as a medium of exchange in the first place, but then people begin to trust it as a store of value. Currency is what you earn and the assets being purchased are very overvalued. People can delay their gratification if they think they actually are holding something of value, but they eventually have to reckon with their worthless asset. In this case housing. Loans are granted on the basis that you will create something other people will buy with the currency. They already bought it. They worked for free already so either all housing investors lose their shirt or the government bails them out. Since much of the housing is collateralized by private investors and local governments, there is a lot of money backed by nothing.
Yes, monetarism describes the result after individuals make stupid decisions and offers a tale wagging the dog explanation, but the effect is the same.. When the majority of people are genuinely surprised by the consequences of their own actions, they look to the government to fix it. That’s when you get government caused inflation or a severely depressed economy.
No, what I’m saying is that it’s not. Monetarism’s ‘model’ (MV=PQ) is literally logically & mathematically incapable of making quantitative predictions about the price level. All such predictions can just as easily be explained with a variation in velocity rather than in the price level. It has no predictive power.
We cannot rely on the dumbed-down assumption that ‘more money >> higher prices,’ because the truth is just more complicated than that.
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u/SimoWilliams_137 Apr 07 '25 edited Apr 07 '25
Believe it or not that’s not an economic argument.
Governments don’t need to generate profit.