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If money can be created from thin air, the opposite is also true:
it can be destroyed as well.
Usually it is the Federal Reserve System that does the creating, but the destruction comes by other means.
Bear Stearns’ hedge fund investors have found this out the hard way. Two of its funds recently went belly up, taking 100% of investors’ capital with them.
One of the funds, the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage fund, reported $638 million of investor capital in the first quarter. Today nothing remains.
How can money so quickly and effectively be destroyed?
To understand this, we have to understand how the money was created in the first place.
by Michael Nystrom, MBA
July 20, 2007
The Federal Reserve System has systematically inflated the money supply since 1987, causing tremendous inflation. Along the way, money has also been destroyed, most memorably during the dot.com collapse of 2000-2003. This process of destruction is part of the reason why the economy has not experienced true hyperinflation.