Kind of a stupid question, but why is it that every time I get cash from a bank it is in perfect condition, considering that when I deposit money into my bank account I am giving worn out dollar bills like everyone else? Is there that much new money being printed? Is that another reason that inflation is getting worse?
This is actually another function of banks that we didn't talk about. Money does degrade with use, so banks quite often will exchange bad notes with new notes. I am not sure exactly how this process happens, but it is something we take for granted. The old "used" money is destroyed, so this should not affect the money supply.