Explaining The Fed with a Hammer | Money & Inflation

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Money is a dominant force in the economy. It is a medium of exchange and solves the double coincidence of wants. A double coincidence of wants is an extreme barrier to the size and scope of the market. “What advantage does he derive from the system of book-keeping by double entry? It is among the finest inventions of the human mind.” Goethe recognize the extraordinary benefits of money 100s of years ago.

When banking is honest, there are two types: demand and time. A demand deposit is simply money that can be withdrawn without notice, or it can be withdrawn on demand of the depositor, this does not earn interest. A time deposit can only be withdrawn at a certain date, or it can be withdrawn at a certain time by the depositor, this does earn interest. It is the time deposits which are used for loans. The more money in time deposits, the lower the interest rates will be. For this, you will pay a monthly fee for your bank account, which is much cheaper than we pay in inflation.

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