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Pool of Funding the Heart of Economic Growth

Most experts are of the view that massive monetary pumping by the US central bank, the Fed, during the 2008 financial crisis saved the US and the World from another Great Depression.

If increases in money supply is an important catalyst for economic growth then the World poverty should have been eliminated a long time ago! Most countries have central banks that know how to print money – why then the World poverty still exists?

We suggest that at no stage increases in money supply can be an important driving factor of economic growth.

Some experts do not agree with this. Following the logic that monetary spending by one individual becomes an income of another individual and the spending of another individual becomes an income of the first individual, they hold that this raises the economy’s overall income and in turn overall economic growth.

Note that in this way of thinking, money stimulates consumer outlays, which in turn strengthens overall income and overall economic activity i.e. demand creates supply.

In this way of thinking what funds i.e. provides support to economic growth is the increase in money supply.

We suggest that individuals, which are engaged in the various stages of production, in order to support their lives and wellbeing, require an access to final consumer goods and not money as such.

At any point in time, there is a finite pool of final consumer goods. Hence, the early recipients of a newly created money are going to benefit from the increase in money supply at the expense of the late recipients or no recipients at all of the newly created money.

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