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Quantitative easing is when the Federal Reserve buys U.S. treasuries with bank reserves. Both U.S. treasuries and bank reserves are “money”, just different type
by thoughtstheseus 4y ago
Quantitative easing is when the Federal Reserve buys U.S. treasuries with bank reserves. Both U.S. treasuries and bank reserves are “money”, just different types.
Anyone can hold u.s. treasuries but only banks can hold reserves. Banks are highly regulated in how they can spend their money and the assets they need to hold. Hence- stuffing banks full of reserves does not hit the real economy. They can’t spend it.
When the government issues debt they are creating new money. Debt = money. More debt = more money. This is why banks are regulated, they create debt(money).
The inverse here is taxes. Taxes take money OUT of the economy. More taxes = less money.
- airza 4y agoTaxes don’t just go into a black hole though. They are used to pay people who work for the government or who sell things to the government.
- xyzzy123 4y agoHypothetically, you can imagine the government setting all tax income on fire and just printing new money to do the stuff it wants (however much they need). It's valid to argue that dollars are fungible and it's all how you choose to account it, and that's my point. They don't need you to pay them taxes to get schools and roads, but there does need to be enough productive capacity available in the economy to supply those things, and the government needs to be able to command their production without causing major problems. Paying say, 40% tax "sort of" reserves 40% of production for government use, but it's complicated.
- landemva 4y agoIn USA, roads are funded by tax on fuel collected by the fuel filling stations. Income taxes are not the road taxes. https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/22/fact-sheet-president-biden-calls-for-a-three-month-federal-gas-tax-holiday/ https://www.whitehouse.gov/briefing-room/statements-releases...
- ShivShankaran 4y agoNot technically. Taxes are the waste that must be disposed off to reduce the government debt. If the economy was a swimming pool, taxes are the drain while the fresh water flowing in is the QE/loans etc
- thoughtstheseus 4y agoYeah tax revenues go into the Treasury General Account. Hence it reduces the money supply. Only when the government spends money from its Treasury General Account does the money go back into the market. They re-fill the treasury general account with new debt proceeds + taxes.
- deleted 4y ago[deleted]