> Printing more dollars doesn’t mean you have more money.
Often it does, because “printing money” avoids a cascading effect of negative feedback.
Imagine in the days before FDIC insurance that due to a sudden asset depreciation or error, a large bank does not have cash on hand to meet customer withdrawals today. Because of uncertainty, other banks are not willing to lend to the troubled bank on short notice.
If the Fed does nothing, customers will panic. They will sell their stocks, and withdraw money from other banks. Now the market is crashing and other banks are running low on reserves. Credit tightens up and interest rates rise. Businesses stop investing, consumers stop spending, and unemployment starts rising. This is a vicious negative feedback loop.
Instead, if the Fed had stepped in and simply materialized cash out of nowhere, and assured the public that they would guarantee all deposits no matter the cost, the entire crisis would be averted. When negative feedback cycles are so destructive, merely instilling confidence is about as close to a free lunch as you can get.
