4 ms·

There are easier ways to 'print money' than running the printing press. You can just sell bonds (used to pay bills) and then have your federal bank buy them

There are easier ways to 'print money' than running the printing press. You can just sell bonds (used to pay bills) and then have your federal bank buy them using computer accounts with numbers in them. In the US this trick is done first through Goldman Sacks who takes their cut for performing this sad act of inflation. As the federal bank buys the bonds, it not only floods the markets with more $$$ it also drives the interest rate down which devalues the currency as nobody wants to hold something which isn't giving them a return. This causes prices to rise as the value of your currency decreases. You have to keep doing this if you can't pay your bills (which is what the US did via QE). see here: https://research.stlouisfed.org/fred2/series/TREAST https://research.stlouisfed.org/fred2/series/TREAST

guelo 11y ago
The US has been fighting deflation not inflation. The point of QE is to solve the zero-bound interest rate problem where the central bank can't reduce rates below zero. If there ever were to be an inflation threat here (which conservative economists have been inaccurately predicting for 8 years now) there is plenty of room for the Fed to raise rates in response.
- blazespin 11y ago
  I meant sad act of MONETARY inflation. I didn't know I had to specify that.
sytelus 11y ago
But doesn't someone needs to print some money at some point? Let's say government issued $1B bonds, central bank bought it but in return there needs to be some extra cash needs to be printed and handed over to government? Government can't pay road construction crew with bonds or some credit notes, right?
- dingaling 11y ago
  No, the overwhelming majority of money is purely digital. For example in 2009 the Bank of England issued £200 billion of quantitative easing, not a single penny of which was physical. M0 is the closest economic measure of what you and I consider physical money though it does include some non-physical assets that can be quickly converted to cash. In the USA today, M0 is about 15% of the total money system.

guelo 11y ago

The US has been fighting deflation not inflation. The point of QE is to solve the zero-bound interest rate problem where the central bank can't reduce rates below zero. If there ever were to be an inflation threat here (which conservative economists have been inaccurately predicting for 8 years now) there is plenty of room for the Fed to raise rates in response.

blazespin 11y ago
I meant sad act of MONETARY inflation. I didn't know I had to specify that.

sytelus 11y ago

But doesn't someone needs to print some money at some point? Let's say government issued $1B bonds, central bank bought it but in return there needs to be some extra cash needs to be printed and handed over to government? Government can't pay road construction crew with bonds or some credit notes, right?

dingaling 11y ago
No, the overwhelming majority of money is purely digital. For example in 2009 the Bank of England issued £200 billion of quantitative easing, not a single penny of which was physical. M0 is the closest economic measure of what you and I consider physical money though it does include some non-physical assets that can be quickly converted to cash. In the USA today, M0 is about 15% of the total money system.