The coronavirus pandemic has thrown our world into a nearly unprecedented reality. The fact that we are in a global economic recession due to a health crisis has never been seen before on such a massive scale. To help the country cope with this crisis, lawmakers have had to take corresponding extraordinary steps to ensure Americans are fed and businesses remain operational, all while working to stop the virus from spreading even further than it already has.
Over the last several weeks, Congress has passed massive economic stimulus bills to the tune of roughly $3 trillion, with more financial assistance expected to come. This number is staggering. While the level of U.S. debt was already a concern for many, the new reality that our country is facing $30 trillion in post-pandemic debt is certainly startling.
With this concern over the government’s funding situation comes the inevitable question, “Where is all the money coming from?” It makes a lot of sense – if the government did not have this money before, where is it getting it now? This is a great question with a surprisingly simple answer.
In reality, the government does not have troves of cash reserves stored in vaults. When it decides to stimulate the economy and distribute loans, as it is doing now, the Federal Reserve digitally adds money to other banks’ or businesses’ accounts by merely typing the numbers into the computer. It can be thought of as “the power of the keyboard.”
This “power” means the government doesn’t need to have cash on hand to boost the economy during times of economic crisis, like the one we are currently experiencing. It is also the central tenet of an idea called Modern Monetary Theory, an economic philosophy that governments with their own currencies can “print” or “coin” money to support full employment or any other government initiative. The main threat to this system is inflation, but this is controlled by removing excess money from the economy through taxes. While the merits of this theory are hotly debated, being called the “Magic Money Tree Theory” by critics, one thing about it is true. Both in the past and today, the government has used this concept of stimulating the economy through massive deficit spending to meaningfully bring back jobs and financial security for its citizens.
While it remains to be seen how much more government spending is needed to successfully restore the economy in the post-pandemic world, it is likely that Modern Monetary Theory will receive more significant consideration than it has in the past.
The moral of the story is that the stimulus funding that we are all receiving, either as individuals or businesses, is what is desperately needed right now. We can take solace in the fact that we live in a country that is able to provide this with a limited risk of collapse, as so many others do not.