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Ok. So in that case, you're not counting bonds as "money". In that case, you can't count the stimulus as new money because that was funded by bonds. I emphasiz

by Aunche 4y ago

Ok. So in that case, you're not counting bonds as "money". In that case, you can't count the stimulus as new money because that was funded by bonds. I emphasize that this isn't a great interpretation because the root of the problem lies with Congress's inability to balance a budget, not the Fed. If our budget were balanced, then the Fed would instead raise interest rates by selling more bonds, which destroys more money. Because we're already issuing so many new bonds already, the Fed doesn't have to sell as many.

refurb 4y ago
Bonds aren’t money any more than stocks are. If the fed buys with new money, it expands the supply, whatever they buy. If someone issues debt and exchanges existing money for bonds, there is no change to the money supply.
- Aunche 4y ago
  There are several definitions of what you can consider money. Physical cash is M0. Including money in your bank accounts gives you M1. In the modern age of electronic banking, M1 is what people broadly think of as money. Treasury bonds are considered M4 money. It's not as liquid as M1, but so long as if you don't want to liquidate it, it isn't much different from M1. >If someone issues debt and exchanges existing money for bonds, there is no change to the money supply. I'm not sure what you mean by this. Issuing debt is creating money. This is true for commercial banks as well. When a bank issues lends you $10k to buy a car, that's money that had never existed before. You receive $10k from the bank. Meanwhile, the bank's depositors are still entitled to withdrawal the full amount they deposited in the bank.
  - refurb 4y ago
    Yes, lenders can create money because they only need to hold a small reserve should the loan default. But that monetary inflation multiplier is stable if the money supply is stable. When the fed buys up assets using new dollars that expands the money supply, which can then be multiplied through lending.

by Aunche 4y ago

refurb 4y ago

Bonds aren’t money any more than stocks are. If the fed buys with new money, it expands the supply, whatever they buy. If someone issues debt and exchanges existing money for bonds, there is no change to the money supply.

Aunche 4y ago
There are several definitions of what you can consider money. Physical cash is M0. Including money in your bank accounts gives you M1. In the modern age of electronic banking, M1 is what people broadly think of as money. Treasury bonds are considered M4 money. It's not as liquid as M1, but so long as if you don't want to liquidate it, it isn't much different from M1. >If someone issues debt and exchanges existing money for bonds, there is no change to the money supply. I'm not sure what you mean by this. Issuing debt is creating money. This is true for commercial banks as well. When a bank issues lends you $10k to buy a car, that's money that had never existed before. You receive $10k from the bank. Meanwhile, the bank's depositors are still entitled to withdrawal the full amount they deposited in the bank.
- refurb 4y ago
  Yes, lenders can create money because they only need to hold a small reserve should the loan default. But that monetary inflation multiplier is stable if the money supply is stable. When the fed buys up assets using new dollars that expands the money supply, which can then be multiplied through lending.