Where money comes from

The Fed does target 2%. The case for it is serious: a small, steady rise in prices leaves the Fed room to cut rates in a downturn, lets wages adjust without pay cuts, and keeps the economy a safe distance from falling prices. Falling prices, which the country suffered in the early 1930s, can be more destructive than rising ones, because debts stay fixed while incomes shrink. The gold era had panics of its own, and most historians judge that rigid gold rules made the Depression worse. This chapter has not argued for that.

Its claim is narrower. The 2% target is a choice made by a committee, and it compounds: at 2% a year, a dollar loses half its buying power in about 35 years. That loss falls hardest on people who hold cash or live on fixed incomes. It falls lightest on people who own assets, like stocks and homes, and on those closest to where new money enters: banks, large investors, and the government itself, which owes trillions of dollars and repays them in dollars’ worth less. Researchers who study who gets new money first find a clearer effect on asset prices than on wages. To be fair, the same low rates that lifted stocks after 2008 also brought unemployment down, which helped low-wage workers most. Whether that trade is worth it is a fair debate, and most people were never told the terms. A saver can beat the slow loss by moving cash into Treasury bills, I bonds, or other inflation-protected bonds, at the cost of paying attention. Treasury money market funds paid 4 to 5% from 2023 to 2025, more than inflation, and I bonds paid 9.62% for six months in 2022. The chapter’s point is about cash, and about who was ever told. Bitcoin’s answer is simple: money whose supply is set by a rule, not by a committee. Chapter 1 described that rule. Chapter 7 is plain about what Bitcoin gives up to keep it. You may read both and decide the trade is not worth it. That is allowed.