Debt Monetization And Money Printing

Central Banks around the world have indulged in massive spending to recover from the crisis triggered by the novel coronavirus pandemic.

Ever wondered from where the money comes from?

Well, data from the International Monetary Fund gives insights. The chart below is from the "Fiscal Monitor" October 2020. It gives the central bank purchase (as a percentage of the total) of government debt since February 2020.

The Central Bank of Japan has purchased 75% of the debt issued by the government. The European Central Bank is not far behind with 71%.

The Federal Reserve has also purchased 57% of the debt issued by the government.

This is a simple process of money creation. Where the central bank purchases government debt and an equal amount of money is printed.

As government debt increases globally, more debt monetization is likely. Why would anyone else want to purchase government debt for a country or countries that are massively leveraged.

The end result of debt monetization is inflation.

Investors might question - Where is inflation in Japan?

It's worth noting that Tokyo is the most expensive city in the world. Inflation will manifest itself in some form or the other.

As the world heads for higher inflation, investors need to remain invested in gold and silver.

Additionally, cryptocurrencies will do well as the trust in fiat money declines on a relative basis in the coming years.