"There is no free lunch" is like one of those religious quotes that can mean anything and its opposite.
What does "unwound all the extra money" mean? They didn't run surpluses, which means more money circulated out of the economy than in. That's why they were less reserved, this time, creating more of the stuff. They realised that it doesn't have to be paid back.
There is no free lunch. Printing more dollars doesn’t mean you have more money. Lowering interest rates so it’s cheaper to borrow doesn’t mean you have more money. The government buying up bad assets doesn’t mean those assets suddenly have a higher value.
There is no free lunch. Eventually asset prices reflect underlying value - not too many dollars chasing too few assets. Eventually inflations forces higher interest rates and the value inflation disappears. Eventually bad assets are correctly priced and value disappears.
It’s like the financial crisis in 2008. You can go years with increasing prices, but if it based off false premises and not a true increase in productivity, then that value eventually disappears. If it happens suddenly it has massive ripple effects through the economy.
> Printing more dollars doesn’t mean you have more money.
Often it does, because “printing money” avoids a cascading effect of negative feedback.
Imagine in the days before FDIC insurance that due to a sudden asset depreciation or error, a large bank does not have cash on hand to meet customer withdrawals today. Because of uncertainty, other banks are not willing to lend to the troubled bank on short notice.
If the Fed does nothing, customers will panic. They will sell their stocks, and withdraw money from other banks. Now the market is crashing and other banks are running low on reserves. Credit tightens up and interest rates rise. Businesses stop investing, consumers stop spending, and unemployment starts rising. This is a vicious negative feedback loop.
Instead, if the Fed had stepped in and simply materialized cash out of nowhere, and assured the public that they would guarantee all deposits no matter the cost, the entire crisis would be averted. When negative feedback cycles are so destructive, merely instilling confidence is about as close to a free lunch as you can get.
I’m not arguing it’s not a useful tool. I’m arguing it has an eventual cost that has to be paid.
If my wages suddenly get reduced by 20% so I start borrowing against the equity in my home that solves the immediate problem but also creates another problem.
What does "unwound all the extra money" mean? They didn't run surpluses, which means more money circulated out of the economy than in. That's why they were less reserved, this time, creating more of the stuff. They realised that it doesn't have to be paid back.