4 ms·

Have they been printing money? Has more USD been created, physically or virtually? This is something I don't understand, I'm hoping someone here can explain it.

by mwfunk 6y ago

Have they been printing money? Has more USD been created, physically or virtually? This is something I don't understand, I'm hoping someone here can explain it. I was under the impression the last 40 years of US deficit spending has been mostly financed by selling US bonds to China, Japan, etc., while counting on growth and inflation to take the edge off when they come due. And selling more bonds instead of defaulting, so the debt just keeps growing. Printing money causes inflation but not deficits or lingering debt. I don't know though, I'm not an expert. I would appreciate any corrections or clarifications from anyone.

pas 6y ago
Generally lowering the interest rate causes inflation only if the economy is already at capacity. Printing money to keep up with economic growth is also an important function of central banks. Deficit spending is ultimately simply financed by paying off the debt in the future via taxes. (And the growing economy and the stable but low inflation helps with this.)
svachalek 6y ago
At a large scale, the question "what is money" actually gets pretty complicated. This may help: https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/ap-financial-sector/definition-measurement-and-functions-of-money-ap/v/money-supply-m0-m1-and-m2 https://www.khanacademy.org/economics-finance-domain/ap-macr...
frandroid 6y ago
Look up Quantitative Easing, since 2008
msteffen 6y ago
Yes--see https://www.investopedia.com/ask/answers/082515/who-decides-when-print-money-us.asp https://www.investopedia.com/ask/answers/082515/who-decides-... under "How the Fed Creates Money With QE": "The Fed can indeed create money "out of thin air." To be more precise, it does so with keystrokes on a computer. This was illustrated with its QE program, also known as open market operations. That's when the Fed buys an asset from a financial institution and pays for it with money it simply creates."
- thorwasdfasdf 6y ago
  and i know this is technically fully legal. but conceptually, it seems like fraud. I mean, they're just creating money at will and buying up assets. if anyone else did that, they'd be in jail.
  - lumost 6y ago
    The Fed is playing off the same dynamics as fractional reserve banking. This has been the standard form of banking for ~2-3k years, and allows a bank operating in its own currency (Bank Notes) to create arbitrary amounts of money. This is the same process by which loans are generated. https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
    - brobdingnagians 6y ago
      It is wealth transfer from the people to the government; the Romans did it, until their economy collapsed from the strain of perpetual warfare and government spending [1] [1] https://en.wikipedia.org/wiki/Roman_currency#Debasement https://en.wikipedia.org/wiki/Roman_currency#Debasement
  - mrep 6y ago
    Most of those assets they are buying are just our own government's debt and the profits they make from it (100 billion dollars in 2015 for example) go right back to our government reducing our budget deficit. I don't understand why people get so upset about this especially considering basically every country is doing this.
  - pas 6y ago
    but it's not anyone else, it's the central bank of the USA, as mandated by Congress. they provide price stability (by keeping the money supply corresponding to the demand) and they try to maximize employment (by helping the economy through providing liquidity, every central bank is the "lender of last resort" but that's for emergencies, usually they operate simply by providing forward guidance and conducting open market operations to keep the interbank interest rate close to the target rate). don't think of them like just a bank, it's more like the Mint, combined with an expert panel that tries to smooth out the fluctuations of the economy ( https://en.wikipedia.org/wiki/Real_business-cycle_theory https://en.wikipedia.org/wiki/Real_business-cycle_theory ) Also, as long as they don't try to get clever - like the Bank of Japan did with strategic loans ("window guidance" back in the 80s).

by mwfunk 6y ago

pas 6y ago

Generally lowering the interest rate causes inflation only if the economy is already at capacity. Printing money to keep up with economic growth is also an important function of central banks. Deficit spending is ultimately simply financed by paying off the debt in the future via taxes. (And the growing economy and the stable but low inflation helps with this.)

svachalek 6y ago

At a large scale, the question "what is money" actually gets pretty complicated. This may help: https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/ap-financial-sector/definition-measurement-and-functions-of-money-ap/v/money-supply-m0-m1-and-m2 https://www.khanacademy.org/economics-finance-domain/ap-macr...

frandroid 6y ago

Look up Quantitative Easing, since 2008

msteffen 6y ago

Yes--see https://www.investopedia.com/ask/answers/082515/who-decides-when-print-money-us.asp https://www.investopedia.com/ask/answers/082515/who-decides-... under "How the Fed Creates Money With QE": "The Fed can indeed create money "out of thin air." To be more precise, it does so with keystrokes on a computer. This was illustrated with its QE program, also known as open market operations. That's when the Fed buys an asset from a financial institution and pays for it with money it simply creates."

thorwasdfasdf 6y ago
and i know this is technically fully legal. but conceptually, it seems like fraud. I mean, they're just creating money at will and buying up assets. if anyone else did that, they'd be in jail.
- lumost 6y ago
  The Fed is playing off the same dynamics as fractional reserve banking. This has been the standard form of banking for ~2-3k years, and allows a bank operating in its own currency (Bank Notes) to create arbitrary amounts of money. This is the same process by which loans are generated. https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
  - brobdingnagians 6y ago
    It is wealth transfer from the people to the government; the Romans did it, until their economy collapsed from the strain of perpetual warfare and government spending [1] [1] https://en.wikipedia.org/wiki/Roman_currency#Debasement https://en.wikipedia.org/wiki/Roman_currency#Debasement
- mrep 6y ago
  Most of those assets they are buying are just our own government's debt and the profits they make from it (100 billion dollars in 2015 for example) go right back to our government reducing our budget deficit. I don't understand why people get so upset about this especially considering basically every country is doing this.
- pas 6y ago
  but it's not anyone else, it's the central bank of the USA, as mandated by Congress. they provide price stability (by keeping the money supply corresponding to the demand) and they try to maximize employment (by helping the economy through providing liquidity, every central bank is the "lender of last resort" but that's for emergencies, usually they operate simply by providing forward guidance and conducting open market operations to keep the interbank interest rate close to the target rate). don't think of them like just a bank, it's more like the Mint, combined with an expert panel that tries to smooth out the fluctuations of the economy ( https://en.wikipedia.org/wiki/Real_business-cycle_theory https://en.wikipedia.org/wiki/Real_business-cycle_theory ) Also, as long as they don't try to get clever - like the Bank of Japan did with strategic loans ("window guidance" back in the 80s).