On Saturday Elon Musk tweeted against the US Federal Reserve.
Actually, his tweet was about a famous meme related to the game Monopoly, but Musk’s comment directly linked it to the Federal Reserve.
Summary
Elon Musk’s tweet against the US Fed
Elon Musk tweeted a photo of a meme that has been circulating for several years.
This is an image apparently taken from the rules of the Monopoly game, and it would specifically depict rule number 11.
In the official pdf of Monopoly on the Hasbro website, the manufacturer of the famous board game, that rule is not there, but there is a passage on page 2, in the chapter dedicated to the bank, which closely resembles that rule.
So the image tweeted by Musk is a meme, and it was taken from a list of Monopoly rules that is not the official one. However, it reflects a concept present in the game rules.
Musk has also explicitly compared the functioning of that rule to how the Fed works.
The Monopoly rule
On the official Hasbro PDF it says:
“The Bank never goes bankrupt. If the Bank runs out of money, it can issue as much as needed by writing on any ordinary card”.
Instead, on the meme tweeted by Musk it says:
“11. What happens if the bank runs out of money?”
Some players think that the bank will go bankrupt if it runs out of money. The bank never fails. To continue playing, use sheets of paper to keep track of the banking transactions of each player, until the bank has enough paper money to operate again. The banker can also issue “new” currency on ordinary paper notes.
In other words, this means that the Monopoly bank can issue as much paper money as it wants, if necessary, because the amount provided in the package may not be sufficient.
This means that, although there seems to be a maximum limit to the banknotes in circulation in Monopoly, in reality there is no limit because more can be created if needed.
According to Elon Musk, the Fed also acts in this way.
The problem of fiat currencies
The discussion should be extended to all the fiat currencies in the world, because it’s not just the US dollar issued by the Fed that works like this.
Furthermore, in reality the Fed has a theoretical limit: it must not let inflation rise too much.
The Fed, by statute, must try to keep the average annual inflation of prices around 2%. The fact is that if new money is created out of thin air, and distributed in the markets, such distribution generally raises prices, generating inflation.
For example, during the 2020/2021 academic year, to address the problems caused by the pandemic and lockdown, the Fed created almost five trillion dollars out of thin air, and distributed them partly in the financial markets, but also directly to US citizens.
It is worth noting that the Fed’s balance sheet went from about 4.1 trillion to over 8.9 trillion, and in the following years it has never returned below 7 trillion dollars.
Core inflation in the USA in 2020 dropped from 2.4% in February to 1.2% in May, due to the lockdown, and after starting to rise again at the end of the year, at the beginning of 2021 it returned to 1.3% still due to the lockdown that had created a demand shock.
However, starting from March 2021, more or less when the mass vaccination campaign against Covid began, with the easing of lockdowns it started to rise, reaching a peak of 6.5% in March 2022, the month after the outbreak of the war in Ukraine.
The descent began only in September 2022, when the Fed had already withdrawn almost 2,000 billion dollars issued in the previous two years.
USA: Elon Musk’s accusation against the Fed
Elon Musk is actually accusing the Fed of causing that inflation by issuing huge amounts of fiat money created out of thin air.
The biggest problem, on which Musk has already spoken several times, is that in order to lower inflation the Fed has raised interest rates to levels never seen in recent decades, and is keeping them high.
Musk has been asking for a while now that the Fed start reducing rates, even though it now seems very likely that it will not do so before September, or even November.
It should not be forgotten that the USA is in the midst of the presidential election campaign for the November elections.
The reference to Bitcoin
In Musk’s tweet there also seems to be a vague indirect reference to Bitcoin, since BTC instead has an insurmountable limit both on its maximum issuance and on the issuance rate.
It is no coincidence that his tweet was picked up by one of the most famous bitcoiners in the world, Twitter founder Jack Dorsey.
It is not certain that Musk also wanted to refer to Bitcoin, but Dorsey certainly did.
Although there doesn’t seem to be a strong connection between the former CEO of Twitter and the new owner, both are bitcoiners, as Musk also owns BTC.
Moreover, the fourth Bitcoin halving has recently taken place, halving the rate at which new BTC are issued.
It’s hard to imagine that Elon Musk didn’t have Bitcoin in mind when he posted that tweet.
