Economists like to equate the Federal Reserve’s massive easing operation since the financial crisis with "printing money."
Figuratively, that’s true, as the Fed has injected more than $2 trillion of liquidity into the financial system. But in a literal sense, it’s not.
Government printing of cash plunged to a modern low last year, The New York Times reports. Production of $5 bills sank to a 30-year low, and for the first time during that period, the government didn’t print $10 bills.
All this has nothing to do with the Fed tightening monetary policy. The central bank remains in all-out easing mode, even with the end of its most recent quantitative easing program (QE2).
What’s happening is that people are using their credit and debit cards in replacement of cash to the extent that less paper money is needed. Some retailers, such as airlines selling food and drinks, won’t even accept cash as payment.
In 1970, when credit card usage began, currency in domestic circulation totaled about 5 percent of GDP, The Times reports. But last year that figure had dropped by half – to 2.5 percent.
As for the Fed, don’t expect it to begin a tightening policy anytime soon.
At its meeting last month, the Federal Open Market Committee declared, “The Committee continues to anticipate that economic conditions … are likely to warrant exceptionally low levels for the federal funds rate for an extended period.”
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