FEBRUARY 6
The Problem With Unlimited Money
When There Are No Brakes
The Signal
When money has no hard limit, every crisis creates pressure to create more of it.
The Reading
Imagine owning a credit card with no spending limit. Every unexpected expense could be solved with another swipe. There would be no difficult decisions, no need to cut back and no moment where you had to say, “We can’t afford it.”
Now imagine running a country. A financial crisis threatens the banking system. A war needs funding. A recession arrives. A pandemic spreads across the world. Every emergency demands enormous amounts of money. If there is no hard limit on creating it, creating more quickly becomes the easiest option.
History shows this pattern repeatedly. After the gold link ended in 1971, governments and central banks gained far greater flexibility to expand the money supply. During the 2008 Global Financial Crisis, unprecedented monetary measures were introduced to stabilise the financial system. During the COVID-19 pandemic, governments and central banks again expanded spending and the money supply on an extraordinary scale. Throughout history, wars have also been financed through combinations of taxation, borrowing and monetary expansion when governments faced costs they could not otherwise meet.
The problem is not that every crisis is the same. The problem is that every crisis creates the same temptation. When there are no brakes, someone will eventually keep pressing the accelerator.
First Principles
A hard limit forces difficult financial decisions.
Without a hard limit, creating more money becomes an available option in every crisis.
The easier it is to expand the money supply, the greater the risk that each unit of money will lose purchasing power over time.
Today’s Challenge
Imagine you own a magical cookie jar. Whenever you reach inside, you can pull out as much money as you want. Every time you do, your own financial problem is solved immediately.
There is just one catch. Each time you take money from the jar, every member of your extended family finds that their own money buys a little less than it did yesterday. Their groceries become slightly more expensive. Their fuel costs a little more. Their rent, insurance and everyday living costs quietly rise.
Nobody knows you are taking the money. Nobody votes on it. Nobody gives permission. Only you know where the extra money came from.
How tempting would it become to reach into that jar the next time a problem appeared?
Tomorrow’s Signal
Confidence Is Not Scarcity