The following is a chart I grabbed from the St. Louis Federal Reserve website. It more or less explains why we are experiencing runaway inflation now, and why it may not easily go away.

The chart shows the total M1 money supply. Note that as recently as 2012, the total money supply was just over $2T, but now, only ten years later, it is over $20T. That’s a ten-fold increase. The majority of this increase came during the Pandemic when within a few short months, the money supply increased from $4T to 16T. 

Only after March of this year, when it became clear that inflation is not “transitory,” did that money supply begin to taper off slightly. It does not look like it will ever go back to the level it was at prior to 2020, though.

How does the Fed create the money (supply)?
With a click of a button, the Fed can create money out of thin air, then use that money to buy mostly (but not limited to) Treasuries – this term refers to debts issued by the federal government.

Who gets to use the newly created money?
First and foremost it is used by the federal government.  It can issue debts, and sell these debts to the Fed for money. Other than the federal government, the second beneficiary is major financial institutions (prime brokers), which can sell Treasuries on their books to the Fed for money. 

Do ordinary folks (or businesses) like us get to use the money?
Yes, but only through fiscal policies like the PPP (Paycheck Protection Program) loans extended to businesses that they don’t have to pay back, and the three pandemic relief checks sent to individuals. Without these explicit policies, ordinary folks (and businesses) are not likely to benefit from the newly created money. 

Are there any costs of creating money like this?
Don’t get me started, just look at your grocery bills. 

Who is bearing the cost of money creation?
Everyone is other than the political and financial elites who benefit first and foremost from money creation. Inflation is taxation. 8.5% inflation means the money you earn just lost 8.5% of its purchasing power.

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