3 ms·

To make this more concrete, the money printer moment in the US is when the federal reserve (central bank) buys the treasury bonds. The cash spent is recorded as

To make this more concrete, the money printer moment in the US is when the federal reserve (central bank) buys the treasury bonds. The cash spent is recorded as a liability, and the bond as an asset in the balance sheet. The cash is created out thin air. It's all far more complex than needs to be, as PP says. I like to imagine some Feynman diagram situation where electrons and positrons can spontaneously emerge in pairs. The circulating money and the debt in the central bank balance sheet are the complementary pairs. The "quantity of money" is a non-concept because only the "net charge"---which is 0 (!) in theory---is preserved. ----- The older mechanism is the treasury department making coins. The treasury department doesn't have any sort of corresponding "debt" written down when it does so. This is where the "trillion dollar coins" idea comes from. I suppose the net money is not actually 0, but whatever it was when we came off the gold standard? Who knows!

cs2733 5y ago
> The cash is created out thin air. Isn't that the case with every loan?
- Ericson2314 5y ago
  Yes! There are soft-money types that criticize charlatanism for characterizing the the government as too distinct from other credit-granting institutions (descriptively, not prescriptively). That said: 1. I am unaware of any fractional reserve requirement on the Fed, at least one that matters in practice. 2. I am unaware of any time frame in which the outstanding debt needs to be paid back. All this stuff is quite confusing though, I hope to understand the epicycles here more completely someday, if only to better argue the complexity is accidental, not essential.
  - pas 5y ago
    Very oversimplified is that the Fed is basically nowadays does "NGDP targeting" with a huge emphasis on as close to full employment as possible. If the Fed would "pay back" its liabilities (loans), almost all money would disappear. (AFAIK there are some old legal tenders that are not Fed issued.) The central bank is there to supply the money needed to maintain a steady money supply. It's designed to hold that debt. The basic formula is MV=PQ (money supply * velocity of money = price * quantity). As the economy expands it's natural that it needs more money to maintain the same price level. The central bank then targets a slight increase in prices (to have the steady ~2% inflation) and issues money accordingly. The Fed transitioned to a zero fraction regime on 2020 March ( https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm ) It was an unused tool anyway. Now the Fed uses interest on reserves (IOR) and discount rate to guide the fundamental rate. (Discount rate is the rate at which the Fed gives a loan. IOR is the minimum rate, literally free money from the central bank, discount is the maximum of the range. Banks call each other up to get loans, obviously they will ask for rates above the IOR/free-money rate.) https://research.stlouisfed.org/publications/page1-econ/2020/08/03/the-feds-new-monetary-policy-tools https://research.stlouisfed.org/publications/page1-econ/2020... https://en.wikipedia.org/wiki/Money_supply#Link_with_inflation https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati...
  - pram 5y ago
    There is no required reserve for any bank as of 2020 ;D

cs2733 5y ago

> The cash is created out thin air. Isn't that the case with every loan?

Ericson2314 5y ago
Yes! There are soft-money types that criticize charlatanism for characterizing the the government as too distinct from other credit-granting institutions (descriptively, not prescriptively). That said: 1. I am unaware of any fractional reserve requirement on the Fed, at least one that matters in practice. 2. I am unaware of any time frame in which the outstanding debt needs to be paid back. All this stuff is quite confusing though, I hope to understand the epicycles here more completely someday, if only to better argue the complexity is accidental, not essential.
- pas 5y ago
  Very oversimplified is that the Fed is basically nowadays does "NGDP targeting" with a huge emphasis on as close to full employment as possible. If the Fed would "pay back" its liabilities (loans), almost all money would disappear. (AFAIK there are some old legal tenders that are not Fed issued.) The central bank is there to supply the money needed to maintain a steady money supply. It's designed to hold that debt. The basic formula is MV=PQ (money supply * velocity of money = price * quantity). As the economy expands it's natural that it needs more money to maintain the same price level. The central bank then targets a slight increase in prices (to have the steady ~2% inflation) and issues money accordingly. The Fed transitioned to a zero fraction regime on 2020 March ( https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm ) It was an unused tool anyway. Now the Fed uses interest on reserves (IOR) and discount rate to guide the fundamental rate. (Discount rate is the rate at which the Fed gives a loan. IOR is the minimum rate, literally free money from the central bank, discount is the maximum of the range. Banks call each other up to get loans, obviously they will ask for rates above the IOR/free-money rate.) https://research.stlouisfed.org/publications/page1-econ/2020/08/03/the-feds-new-monetary-policy-tools https://research.stlouisfed.org/publications/page1-econ/2020... https://en.wikipedia.org/wiki/Money_supply#Link_with_inflation https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati...
- pram 5y ago
  There is no required reserve for any bank as of 2020 ;D