Recently, I saw the chair of the U.S. Economic Advisory Council explaining the national debt issue, and the more he explained, the more confusing it became. In fact, the underlying logic of money printing involved here seems simple but confounds many people, including decision-makers themselves.

Have you ever wondered, since the Federal Reserve can directly print more dollars, why does it still bother to sell bonds to the public? That’s a good question, but the answer requires some critical thinking.

Let's start with the basics of money supply. M0 is the narrowest measure, including only cash in circulation and bank reserves. One level up is M1, which adds demand deposits and traveler's checks. Further up is M2, which includes money market deposits, time deposits, and so on. Looking at historical data, you can see how exaggerated the growth of M1 and M2 has been since 2020—that’s a direct reflection of money printing.

So, how is money printed? It involves quantitative easing (QE). During financial crises, the Federal Reserve buys large amounts of government bonds and mortgage-backed securities through QE. During the 2008 financial crisis, it purchased over $1.5 trillion in assets, and by 2020, amid the pandemic shock, it added over $5 trillion in just two years. The scale is astonishing—comparing it makes it clear.

As a central bank, the Fed has a unique ability to create money. When executing QE, it essentially creates bank reserves out of thin air—that’s purely a digital process. Primary dealers act as intermediaries; the Fed credits their reserve accounts with the newly created money and simultaneously adds the government bonds to its own balance sheet. It’s like in Monopoly, where someone suddenly comes in with new money, directly changing the entire game's money supply.

But why not just print money directly to cover deficits? If they did, the U.S. would become a so-called "banana republic." Unlimited money printing would lead to hyperinflation, with prices skyrocketing exponentially, and confidence in the dollar as a store of value and medium of exchange would collapse. Just look at Venezuela and Lebanon—those are the kinds of scenarios—streets full of paper money, buying requires a cartful, and prices change every minute.

Therefore, the Fed and the Treasury must create a complex system to hide the truth of money printing. They sell bonds, sometimes even buy them back themselves. This signals to the public, “We are borrowing money, not printing infinitely,” and also achieves monetary expansion goals. Currently, U.S. public debt has reached $34.6 trillion—who is buying these bonds? Individual IRAs, 401(k)s, banks, foreign central banks, and even the Fed itself.

The Cantillon effect explains why these newly printed dollars first flow to financial institutions and the government, then gradually seep into ordinary people's accounts. Those who receive the new funds first benefit the most, while others experience a lag effect, ultimately bearing the decline in purchasing power caused by inflation.

If even the country’s chief economist is confused by this system, ordinary people are even more easily misled. But once you understand the mechanism behind money printing, you can see clearly why asset prices soar, why some people's wealth inflates, and why others’ purchasing power shrinks. This show will keep going as long as most people don’t grasp the underlying logic.