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Functionally there's little to no difference between what you've described and what is colloquially known as "money printing". You've essentially just redefined

Functionally there's little to no difference between what you've described and what is colloquially known as "money printing". You've essentially just redefined "money" to include U.S. treasuries and mortgage-backed securities, and then stated that it's just an asset swap and not money printing. You can use whatever terminology you want, but at the end of the day, the Federal Reserve is creating money out of thin air and using it to buy real assets. You can argue that the effect of this is not as dramatic as printing money to buy a bunch of luxury condos or sports cars, but at that point we're just debating the degree of influence. The whole point of Fed money printing is to influence the economy, so if it didn't anticipate any difference, it wouldn't be doing it.

SonOfThePlower 6y ago
No, FED does not print money - bank reserves are not legal tender. If they had printed money, inflation would have skyrocket. My only question is why banks agree to this deal: exchanging U.S. treasuries for bank reserves (which they only can use as a collateral for lending) ?
- Qasaur 6y ago
  Because they are pocketing the difference by arbitraging between the government (who issue the treasuries) and the Fed (who is the ultimate buyer) since the Fed cannot buy treasuries directly from the government. It's just a complicated way for the government to print money and hand it out and in this case banks are able to act as the middleman and earn money on the spread. It's a disgraceful system that is extremely morally questionable.
- lambdasquirrel 6y ago
  It's inflation through other means. You get asset price inflation instead of commodities / consumer goods inflation. It's a slow death rather than a quick one.
- freeone3000 6y ago
  Inflation (in the consumer goods sense) only happens when the value of money goes down for the average person. The price of lettuce isn't going to rise because the fed isn't buying lettuce with faerie money, they're buying securities. And the stock market has gone up and to the right, despite all logical indicators on the ground indicating it should go solidly opposite. Securities are hugely inflated.
  - deleted 6y ago
    [deleted]
  - jfengel 6y ago
    That turns out to be the answer I've been trying to figure out for years: regardless of the technicalities of "printing money", all this quantitative easing should have been causing inflation. And it is... in the stock market, which doesn't figure into the consumer price index. The CPI, meanwhile, has been stable, or even under the Fed's target. Presumably because those are basics, and you don't really need to buy much more of the basics just because you have more money. (The people with newfound stock wealth, that is; the people without it don't have any more money to spend in the first place.) It's still a little unclear to me why the S&P 500 has remained in the "inflated but not insane" through most of the past decade -- though for the past week or so it's trending back to "insane" (a P/E ratio well above 20). That means that earnings were coming from somewhere, and if not from core consumer products, then presumably from other things that the stock-market-wealthy were buying from each other, at presumably inflating prices, or at least quantities.
    - api 6y ago
      All the QE since 2007 has also caused massive inflation in real estate, and it's ongoing. Housing is actually rising in some markets in spite of record unemployment and a high risk of many mortgage defaults.
      - arcticbull 6y ago
        It's worth pointing out that housing costs are included in CPI (by proxy of rent). On an inflation adjusted dollars-per-square-foot basis, housing is exactly the same price as it was in the 1970s [1] -- right around $115/sqft in constant dollars. 2008 didn't actually make a big dent on average. The reason houses are more expensive today than they were in the past is that they're on average twice as big. This is due to city zoning ordinances, not inflation. Similarly house prices exploded in major metros like SF because of artificial supply constraints. The city won't allow new building -> refuses to allow smaller units -> prices go up. Again, not inflation. [1] https://fee.org/articles/new-homes-today-have-twice-the-square-feet-per-person-as-in-1973/ https://fee.org/articles/new-homes-today-have-twice-the-squa...
- User23 6y ago
  The Bureau of Printing and Engraving prints money, but Federal Reserve Notes are in fact a claim on bank reserves. It's just when you deposit them at your bank you don't get reserves, they instead create a bank deposit for you and a liability for them and then add the reserves you just gave them to THEIR account.
- CyberDildonics 6y ago
  https://fred.stlouisfed.org/series/M1REAL https://fred.stlouisfed.org/series/M1REAL
jganetsk 6y ago
No. I think what the poster is saying is that running a government deficit is printing money. Fiscal policy is money printing, not monetary policy. This is very much not what is colloquially known as money printing, rather it's the basis of modern money theory. Monetary policy is just swapping one kind of USD denominated assets for another. It doesn't really change the size of private bank balance sheets, hence it is not the printing of money. But increasing the size of the deficit does indeed increase the sizes of private bank balance sheets.
- wcoenen 6y ago
  > I think what the poster is saying is that running a government deficit is printing money. The government borrows the money from bond buyers, so that's also not printing money. (The Fed does buy these bonds, but not directly from the government because the government can't do anything with bank reserves. The Fed can only "print" bank reserves therefore it can only buy assets from banks.)
  - jganetsk 6y ago
    There exists many values of X where borrowing money from X constitutes printing money. For example, when you borrow money from a bank, the bank prints money. It credits your account with new money, it does not transfer money into your account from another account. It's fairly straightforward to prove that increasing the size of the government deficit = printing money. 1. The first step is that the government prints debt (a Treasury instrument, for example). I think we would agree on this. 2. The government then needs to monetize the debt... essentially swapping the new debt with reserves held by some bond buyer. There is no shortage of reserves (this is certainly true today. But even when there were reserve requirements, or in the time before 2008, there was still practically no shortage of reserves. I can provide a separate explanation for this). You may stop and say "but what if there is no bond buyer?" or "but what if there are bond vigilantes?" US banks will always swap excess USD reserves (where excess means beyond what is necessary for settlement) for USD treasury instruments because the latter pays higher interest. 3. The government now spends its reserves, transferring from the US Treasury to a private bank upon making purchases. This becomes new bank credit, aka freshly printed money. In other words, a private bank receives reserves via the Fed's payment system and must credit the recipient's private checking account with new money. 4. The reserves that were considered "excess reserves" in step 2 are now back in the banking system, ready to be swapped again for new debt instruments. In other words, the net impact on private bank balance sheets is, just from fiscal spending (no activity from the Fed other than as a payment/settlement system): - The assets side gains a treasury instrument - The liabilities side is credited with new money caused by purchases by the US Treasury. This is spendable US dollars. - No change is seen in the quantity of bank reserves
dogman144 6y ago
"money is a shared illusion" applies to your criticism

SonOfThePlower 6y ago

No, FED does not print money - bank reserves are not legal tender. If they had printed money, inflation would have skyrocket. My only question is why banks agree to this deal: exchanging U.S. treasuries for bank reserves (which they only can use as a collateral for lending) ?

Qasaur 6y ago
Because they are pocketing the difference by arbitraging between the government (who issue the treasuries) and the Fed (who is the ultimate buyer) since the Fed cannot buy treasuries directly from the government. It's just a complicated way for the government to print money and hand it out and in this case banks are able to act as the middleman and earn money on the spread. It's a disgraceful system that is extremely morally questionable.
lambdasquirrel 6y ago
It's inflation through other means. You get asset price inflation instead of commodities / consumer goods inflation. It's a slow death rather than a quick one.
freeone3000 6y ago
Inflation (in the consumer goods sense) only happens when the value of money goes down for the average person. The price of lettuce isn't going to rise because the fed isn't buying lettuce with faerie money, they're buying securities. And the stock market has gone up and to the right, despite all logical indicators on the ground indicating it should go solidly opposite. Securities are hugely inflated.
- deleted 6y ago
  [deleted]
- jfengel 6y ago
  That turns out to be the answer I've been trying to figure out for years: regardless of the technicalities of "printing money", all this quantitative easing should have been causing inflation. And it is... in the stock market, which doesn't figure into the consumer price index. The CPI, meanwhile, has been stable, or even under the Fed's target. Presumably because those are basics, and you don't really need to buy much more of the basics just because you have more money. (The people with newfound stock wealth, that is; the people without it don't have any more money to spend in the first place.) It's still a little unclear to me why the S&P 500 has remained in the "inflated but not insane" through most of the past decade -- though for the past week or so it's trending back to "insane" (a P/E ratio well above 20). That means that earnings were coming from somewhere, and if not from core consumer products, then presumably from other things that the stock-market-wealthy were buying from each other, at presumably inflating prices, or at least quantities.
  - api 6y ago
    All the QE since 2007 has also caused massive inflation in real estate, and it's ongoing. Housing is actually rising in some markets in spite of record unemployment and a high risk of many mortgage defaults.
    - arcticbull 6y ago
      It's worth pointing out that housing costs are included in CPI (by proxy of rent). On an inflation adjusted dollars-per-square-foot basis, housing is exactly the same price as it was in the 1970s [1] -- right around $115/sqft in constant dollars. 2008 didn't actually make a big dent on average. The reason houses are more expensive today than they were in the past is that they're on average twice as big. This is due to city zoning ordinances, not inflation. Similarly house prices exploded in major metros like SF because of artificial supply constraints. The city won't allow new building -> refuses to allow smaller units -> prices go up. Again, not inflation. [1] https://fee.org/articles/new-homes-today-have-twice-the-square-feet-per-person-as-in-1973/ https://fee.org/articles/new-homes-today-have-twice-the-squa...
User23 6y ago
The Bureau of Printing and Engraving prints money, but Federal Reserve Notes are in fact a claim on bank reserves. It's just when you deposit them at your bank you don't get reserves, they instead create a bank deposit for you and a liability for them and then add the reserves you just gave them to THEIR account.
CyberDildonics 6y ago
https://fred.stlouisfed.org/series/M1REAL https://fred.stlouisfed.org/series/M1REAL

jganetsk 6y ago

No. I think what the poster is saying is that running a government deficit is printing money. Fiscal policy is money printing, not monetary policy. This is very much not what is colloquially known as money printing, rather it's the basis of modern money theory. Monetary policy is just swapping one kind of USD denominated assets for another. It doesn't really change the size of private bank balance sheets, hence it is not the printing of money. But increasing the size of the deficit does indeed increase the sizes of private bank balance sheets.

wcoenen 6y ago
> I think what the poster is saying is that running a government deficit is printing money. The government borrows the money from bond buyers, so that's also not printing money. (The Fed does buy these bonds, but not directly from the government because the government can't do anything with bank reserves. The Fed can only "print" bank reserves therefore it can only buy assets from banks.)
- jganetsk 6y ago
  There exists many values of X where borrowing money from X constitutes printing money. For example, when you borrow money from a bank, the bank prints money. It credits your account with new money, it does not transfer money into your account from another account. It's fairly straightforward to prove that increasing the size of the government deficit = printing money. 1. The first step is that the government prints debt (a Treasury instrument, for example). I think we would agree on this. 2. The government then needs to monetize the debt... essentially swapping the new debt with reserves held by some bond buyer. There is no shortage of reserves (this is certainly true today. But even when there were reserve requirements, or in the time before 2008, there was still practically no shortage of reserves. I can provide a separate explanation for this). You may stop and say "but what if there is no bond buyer?" or "but what if there are bond vigilantes?" US banks will always swap excess USD reserves (where excess means beyond what is necessary for settlement) for USD treasury instruments because the latter pays higher interest. 3. The government now spends its reserves, transferring from the US Treasury to a private bank upon making purchases. This becomes new bank credit, aka freshly printed money. In other words, a private bank receives reserves via the Fed's payment system and must credit the recipient's private checking account with new money. 4. The reserves that were considered "excess reserves" in step 2 are now back in the banking system, ready to be swapped again for new debt instruments. In other words, the net impact on private bank balance sheets is, just from fiscal spending (no activity from the Fed other than as a payment/settlement system): - The assets side gains a treasury instrument - The liabilities side is credited with new money caused by purchases by the US Treasury. This is spendable US dollars. - No change is seen in the quantity of bank reserves

dogman144 6y ago

"money is a shared illusion" applies to your criticism