4 ms·

So when you go to the bank and borrow money with either your personal credit or with your house as collateral, is the bank creating money "out of thin air"?

• missedthecue 5y ago
  They take money from depositors to originate the loan. But I'm not talking about the money multiplier effect of fractional reserve banking. I'm talking about when the US Treasury needs to quickly sell several trillion dollars worth of bonds to fund things like stimulus checks, covid tests, etc..., and the Fed buys most of it (in order to keep interest rates from skyrocketing) they are doing so by creating new money. The fed doesn't have $4 trillion in cash deposits to loan out to the treasury, especially while they are cutting reserve requirements. They do not take that money from someone else. They do not sell a product to get revenue. They mark up the accounts at the Fed and spend trillions of dollars that didn't previously exist on government bonds. The Treasury takes that money and spends it on govt programs. Again, where do you think the Fed gets new cash to buy bonds with?
  • mohanmcgeek 5y ago
    The government is monetizing it's credit just like how you are monetising your personal credit when you take a loan. When normal banks give you loan, do the deposit holders also not "have" the money? The banks create money, just not out of thin air: there's something of equal value exchanged in return