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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

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
- petrocrat 6y ago
  The Treasury simply issues the bonds. It isn't analogous to borrowing money, as there is no collateral to put up and no other entity in the economic system needs to have any savings in order for the US Treasury to issue the bonds. The bonds are traded one-to-one for reserves at the maturity dollar value, so this is not borrowing. It is a swap. Merely having a different purchase value from maturity value is not enough to qualify a bond purchase as borrowing either, because Bond issuing is not restricted by any economic opportunity cost. The amount of Bonds issued is an simply edict by Congress, when it passes a Budget resolution.
roenxi 6y ago
When the government borrows money like the US does, then it is setting itself up to either run a hefty surplus or go with money printing. Both of those are pretty unpleasant for someone (either borrowers or savers). So yes, fiscal policy is where the eventual pain is locked in. But, and I feel there is being something lost to semantics in this thread, we have an article reporting "the U.S. money supply has grown 20%". Given that the US economy has been partially shut down for most of that time it is hard to see what that can be described as except money printing. The alternatives are polite euphemisms for money printing or appeals to it all somehow being so complicated a measured >20% change doesn't count. I still don't understand why people are so keen to let the government go unchecked (we don't send our best & brightest to be politicians) and to keep kicking salary earners to the benefit of asset earners (pretty sure we all earn a salary).
- jganetsk 6y ago
  I'm not saying that we didn't print money this year. I'm arguing over how we measure the quantity of the money supply. I am saying that government debt = the quantity of money. "The federal government ran a budget deficit of $3.1 trillion in fiscal year 2020, CBO estimates, more than triple the shortfall recorded in 2019" By my definition, we did print $3.1 trillion of money this year. I don't go by the size of the Fed balance sheet as money supply. There are many reasons for this, and plenty of people on this thread are trying to explain this view point.

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
petrocrat 6y ago
The Treasury simply issues the bonds. It isn't analogous to borrowing money, as there is no collateral to put up and no other entity in the economic system needs to have any savings in order for the US Treasury to issue the bonds. The bonds are traded one-to-one for reserves at the maturity dollar value, so this is not borrowing. It is a swap. Merely having a different purchase value from maturity value is not enough to qualify a bond purchase as borrowing either, because Bond issuing is not restricted by any economic opportunity cost. The amount of Bonds issued is an simply edict by Congress, when it passes a Budget resolution.

roenxi 6y ago

When the government borrows money like the US does, then it is setting itself up to either run a hefty surplus or go with money printing. Both of those are pretty unpleasant for someone (either borrowers or savers). So yes, fiscal policy is where the eventual pain is locked in. But, and I feel there is being something lost to semantics in this thread, we have an article reporting "the U.S. money supply has grown 20%". Given that the US economy has been partially shut down for most of that time it is hard to see what that can be described as except money printing. The alternatives are polite euphemisms for money printing or appeals to it all somehow being so complicated a measured >20% change doesn't count. I still don't understand why people are so keen to let the government go unchecked (we don't send our best & brightest to be politicians) and to keep kicking salary earners to the benefit of asset earners (pretty sure we all earn a salary).

jganetsk 6y ago
I'm not saying that we didn't print money this year. I'm arguing over how we measure the quantity of the money supply. I am saying that government debt = the quantity of money. "The federal government ran a budget deficit of $3.1 trillion in fiscal year 2020, CBO estimates, more than triple the shortfall recorded in 2019" By my definition, we did print $3.1 trillion of money this year. I don't go by the size of the Fed balance sheet as money supply. There are many reasons for this, and plenty of people on this thread are trying to explain this view point.