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The Fed can't print money without devaluing the money already in print. The federal government can make money off a transaction and use it is as additional reve

The Fed can't print money without devaluing the money already in print. The federal government can make money off a transaction and use it is as additional revenue. Not really arguing "should" here, nor am I arguing that the supposed profits were real. Just pointing out a big difference between the federal government generating revenue and the federal reserve printing more money. If this were not true, then why would would have taxes? The Fed could just print money any time the government needed to spend it.

neilwilson 9y ago
"The Fed can't print money without devaluing the money already in print. " Yes it can. Banks do that all the time. Money grows and shrinks to ensure all the transactions that are worth completing gets completed. It's a dynamic system. "If this were not true, then why would would have taxes?" You have taxes, so you have to create output and hand it over for the currency the taxes are denominated in. That's how output is transferred to the public sector. The public sector then creates the money necessary for you (and everybody else transitively) to pay those tax demands. When government spends it will create the taxation that balances that spend to the penny for any positive transaction. It's a simple geometric progression. Unless somebody in the chain decides not to spend all their income. We call that saving. The maths is straightforward... https://medium.com/modern-money-matters/the-function-of-government-spending-9123e71737c1 https://medium.com/modern-money-matters/the-function-of-gove...
- dredmorbius 9y ago
  This answer ... misses some critical points, and skews pedantic. The Fed cannot net print money without devaluing what's in circulation. Inflation is literally the fact of more money chasing fewer goods. More money => more inflation. The question then becomes "how might money leave the system?" There are several ways. Taxation, if you subscribe to MMT, is money leaving the system. (Government spending is, as with Fed policy, creating money.) Increasing or decreasing the overall amount of consumer and business debt increases or decreases the money supply. Increasing or decreasing the overall value of financial assets -- stocks, bonds, derivatives, real estate, commodities -- by increasing or decreasing collateral and balance sheets, increases and decreases the money supply. Money going into savings, particularly off-shore accounts (where it's not otherwise available to the financial system) is effectively withdrawn, through the mechanism of reducing the velocity of money. Other factors effecting money velocity do likewise. (This is, essentially, how often a given dollar is transacted.) The more accurate answer would be that: "The Fed can't print money without devaluing the money already in circulations, unless there are offsetting withdrawals to they money supply".
AnimalMuppet 9y ago
> The Fed can't print money without devaluing the money already in print. Well, the way this actually happened is that a few trillion dollars simply evaporated in 2008. The Fed "printed" a few trillion dollars to keep the few trillion that evaporated from destroying the whole system. That few trillion that the Fed created didn't devalue the money already in print; instead, it kept things the same. Now, you could argue that the few trillion needed to be destroyed to undo the devaluation that had happened by its creation. That's a reasonable argument. But doing it very fast can cause a lot more damage than doing it slowly.
- dredmorbius 9y ago
  The trillions evaporating decreased the money supply, which would have a deflationary effect. The Fed's action countered that. Inflation would have been negative in the absence. The Fed increased inflation relative to the non-intervention case.
  - AnimalMuppet 9y ago
    You sound like you think you're disagreeing with me. But what you're saying is what I was trying to say as well.
    - dredmorbius 9y ago
      It was not clear to me that that was your message. Perhaps I said it more clearly and in fewer words?

neilwilson 9y ago

"The Fed can't print money without devaluing the money already in print. " Yes it can. Banks do that all the time. Money grows and shrinks to ensure all the transactions that are worth completing gets completed. It's a dynamic system. "If this were not true, then why would would have taxes?" You have taxes, so you have to create output and hand it over for the currency the taxes are denominated in. That's how output is transferred to the public sector. The public sector then creates the money necessary for you (and everybody else transitively) to pay those tax demands. When government spends it will create the taxation that balances that spend to the penny for any positive transaction. It's a simple geometric progression. Unless somebody in the chain decides not to spend all their income. We call that saving. The maths is straightforward... https://medium.com/modern-money-matters/the-function-of-government-spending-9123e71737c1 https://medium.com/modern-money-matters/the-function-of-gove...

dredmorbius 9y ago
This answer ... misses some critical points, and skews pedantic. The Fed cannot net print money without devaluing what's in circulation. Inflation is literally the fact of more money chasing fewer goods. More money => more inflation. The question then becomes "how might money leave the system?" There are several ways. Taxation, if you subscribe to MMT, is money leaving the system. (Government spending is, as with Fed policy, creating money.) Increasing or decreasing the overall amount of consumer and business debt increases or decreases the money supply. Increasing or decreasing the overall value of financial assets -- stocks, bonds, derivatives, real estate, commodities -- by increasing or decreasing collateral and balance sheets, increases and decreases the money supply. Money going into savings, particularly off-shore accounts (where it's not otherwise available to the financial system) is effectively withdrawn, through the mechanism of reducing the velocity of money. Other factors effecting money velocity do likewise. (This is, essentially, how often a given dollar is transacted.) The more accurate answer would be that: "The Fed can't print money without devaluing the money already in circulations, unless there are offsetting withdrawals to they money supply".

AnimalMuppet 9y ago

> The Fed can't print money without devaluing the money already in print. Well, the way this actually happened is that a few trillion dollars simply evaporated in 2008. The Fed "printed" a few trillion dollars to keep the few trillion that evaporated from destroying the whole system. That few trillion that the Fed created didn't devalue the money already in print; instead, it kept things the same. Now, you could argue that the few trillion needed to be destroyed to undo the devaluation that had happened by its creation. That's a reasonable argument. But doing it very fast can cause a lot more damage than doing it slowly.

dredmorbius 9y ago
The trillions evaporating decreased the money supply, which would have a deflationary effect. The Fed's action countered that. Inflation would have been negative in the absence. The Fed increased inflation relative to the non-intervention case.
- AnimalMuppet 9y ago
  You sound like you think you're disagreeing with me. But what you're saying is what I was trying to say as well.
  - dredmorbius 9y ago
    It was not clear to me that that was your message. Perhaps I said it more clearly and in fewer words?