TEMPLE, Texas — We keep hearing that inflation is so high because the government has been printing so much money, but are they really printing it? Or is there something else going on?
As of Nov. 1, there was a range of between 5.3 billion and 6.9 billion American dollar bills in circulation, and more are always needing to be printed to account for lost, damaged and hidden away bills.
So, are we really printing more money? On this Money Talks, we have the answer.
"When you hear about the Fed or the government printing money, they don't actually print physical bills these days," said certified financial planner Neil Vannoy. "The most common way the Fed adjusts the amount of money in the economy is by buying or selling treasuries. This is known as 'open market operations.'"
Does that mean dollars are just investments being bought and sold?
"The Fed buys treasuries to put money into the economy, and it will sell treasuries as a way to take money out of the economy," Vannoy explained. "Creating money by buying and selling securities has the same effect as printing bills would have, but it's much more efficient."
So, has a lot been "virtually printed,” or bought by the Fed lately?
"Unfortunately, adding too much money to the system can create or add to inflation whether it's in the form of physical bills or done digitally," said Vannoy.
That is where we are now. So what does that mean for the average hard-working American?
“The Fed creating money won't have a direct effect on your savings, meaning that your money won't automatically be worth less if there's more money in circulation," Vannoy told 6 News. "That said, any inflation caused by Fed actions will indirectly cause your money to be worth less over time."
That dollar you had in 2019 is now worth .86 cents due to the recent inflation.
"Inflation – whether or not it's caused by the government printing money – is one of the main reasons individuals need to invest in assets like stocks, real estate and other assets that have the potential to outpace inflation over time," said Vannoy.
Remember, we are always fighting inflation. If you were to save a million dollars under your mattress by age 25, by the time you retired 50 years later, that purchasing power of that cash would only be 600,000 dollars. So, inflation is a hidden tax that we all must deal with!
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