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Can anybody suggest an educational source to understand how does this US Government debt issuance work? Specifically, I am trying to understand why Treasury don

Can anybody suggest an educational source to understand how does this US Government debt issuance work? Specifically, I am trying to understand why Treasury don't just print more dollars, without issuing new debt? I get that it's bad for inflation, I am just trying to figure out the mechanics of it (not the policy implications), with the roles played by Treasury vs Fed. Is there any place where this is explained clearly?

jganetsk 4y ago
One way to think about it: the world you are proposing is equivalent to one where the central bank fully monetizes all government debt. That possibility is a strict subset of the space of possible monetary policies we have today. The Fed could decide to do that, but it would have significant implications. It would push down interest rates substantially, which would (according to conventional thinking) potentially trigger inflation and incentivize various sectors of the economy to shift their portfolios towards riskier assets in an attempt to pursue greater returns. This could have a substantially destabilizing effect. Another way of looking at the problem: generally, money is printed by banks, not by governments. The liabilities of the banking sector is precisely what we use as money. A bank is a "debt monetizer": it holds assets (often debt) on one side of the balance sheet, and balances that against money as a liability. https://nathantankus.substack.com/p/banks-as-debt-monetizers-monetary https://nathantankus.substack.com/p/banks-as-debt-monetizers... This property holds true for both central banks and private banks. They both print money that is balanced by assets on the other side of the balance sheet. There are some benefits to this worldview: - We have a unified model of banking that explains both central and private banks. "“Everyone can create money; the problem is to get it accepted“ -Hyman Minsky - In a very real sense, all money is backed by something If you just print money and use it outside of this framework, you essentially get cryptocurrency: https://www.crisesnotes.com/the-dangerous-brilliance-of-issuing-a-token-that-isnt-your-liability-an-ftx-lesson/ https://www.crisesnotes.com/the-dangerous-brilliance-of-issu...
jc_811 4y ago
As a very general high-level view: the Treasury cannot print money. This is handled by the Federal Reserve (FED) The FED creates money by Quantitative Easing (QE). However, this money goes to bank balance sheets and is not part of the "real" economy. Here is how it works: BigBank has a balance sheet with $100B of securities (such as treasury bills, mortgages, etc). What the FED does during QE is take these securities from BigBank in exchange for cash. So, just like that BigBank has $100B in new cash that has been "created" out of thin air. Congress can also create new money by deficit spending. For a much better and thorough breakdown on how this all works, here is a great reference: https://www.lynalden.com/money-printing/ https://www.lynalden.com/money-printing/
- TheCoelacanth 4y ago
  They can mint coins, though. There was a proposal a few years ago to mint a trillion dollar coin to workaround the debt ceiling.
  - landemva 4y ago
    Unlike paper dollars sold to 'federal reserve' at pennies per sheet, coin dollars are sold at face value. Since we refuse to slow down deficit spending, we can simply coin dollars to pay the bills and thus avoid interest costs on deficit spending.
  - thoughtstheseus 4y ago
    Ultra high coupon bonds are the new workaround. The debt limit is on the par value or face value of the debt. If you have a ridiculously high coupon, meaning interest payment, people will pay far above the face value.
- landemva 4y ago
  > Treasury cannot print money. This is handled by the Federal Reserve (FED) Only US goverment can print dollars. Those are then sold to 'federal reserve' in bulk at price of pennies per sheet, without regard to face values. https://www.bep.gov https://www.bep.gov They will sell sheets to public at face value + markup. https://catalog.usmint.gov/paper-currency/uncut-currency https://catalog.usmint.gov/paper-currency/uncut-currency Observe how they call the money a 'note'. Like a house mortgage or car loan, the 'note' is a financial debt instrument.
  - g42gregory 4y ago
    Ok, this is very helpful. I would love to learn more details about the mechanics of this process. Is this process written up anywhere? Like who approves the printing, how exactly it becomes the the debt to the Government, etc...? I am mostly interested in the mechanics, who approves what and when, and not so much in monetary policy implications. Is there a book that goes over this in detail, along with M1, M2, M3 creation ...?

jganetsk 4y ago

One way to think about it: the world you are proposing is equivalent to one where the central bank fully monetizes all government debt. That possibility is a strict subset of the space of possible monetary policies we have today. The Fed could decide to do that, but it would have significant implications. It would push down interest rates substantially, which would (according to conventional thinking) potentially trigger inflation and incentivize various sectors of the economy to shift their portfolios towards riskier assets in an attempt to pursue greater returns. This could have a substantially destabilizing effect. Another way of looking at the problem: generally, money is printed by banks, not by governments. The liabilities of the banking sector is precisely what we use as money. A bank is a "debt monetizer": it holds assets (often debt) on one side of the balance sheet, and balances that against money as a liability. https://nathantankus.substack.com/p/banks-as-debt-monetizers-monetary https://nathantankus.substack.com/p/banks-as-debt-monetizers... This property holds true for both central banks and private banks. They both print money that is balanced by assets on the other side of the balance sheet. There are some benefits to this worldview: - We have a unified model of banking that explains both central and private banks. "“Everyone can create money; the problem is to get it accepted“ -Hyman Minsky - In a very real sense, all money is backed by something If you just print money and use it outside of this framework, you essentially get cryptocurrency: https://www.crisesnotes.com/the-dangerous-brilliance-of-issuing-a-token-that-isnt-your-liability-an-ftx-lesson/ https://www.crisesnotes.com/the-dangerous-brilliance-of-issu...

jc_811 4y ago

As a very general high-level view: the Treasury cannot print money. This is handled by the Federal Reserve (FED) The FED creates money by Quantitative Easing (QE). However, this money goes to bank balance sheets and is not part of the "real" economy. Here is how it works: BigBank has a balance sheet with $100B of securities (such as treasury bills, mortgages, etc). What the FED does during QE is take these securities from BigBank in exchange for cash. So, just like that BigBank has $100B in new cash that has been "created" out of thin air. Congress can also create new money by deficit spending. For a much better and thorough breakdown on how this all works, here is a great reference: https://www.lynalden.com/money-printing/ https://www.lynalden.com/money-printing/

TheCoelacanth 4y ago
They can mint coins, though. There was a proposal a few years ago to mint a trillion dollar coin to workaround the debt ceiling.
- landemva 4y ago
  Unlike paper dollars sold to 'federal reserve' at pennies per sheet, coin dollars are sold at face value. Since we refuse to slow down deficit spending, we can simply coin dollars to pay the bills and thus avoid interest costs on deficit spending.
- thoughtstheseus 4y ago
  Ultra high coupon bonds are the new workaround. The debt limit is on the par value or face value of the debt. If you have a ridiculously high coupon, meaning interest payment, people will pay far above the face value.
landemva 4y ago
> Treasury cannot print money. This is handled by the Federal Reserve (FED) Only US goverment can print dollars. Those are then sold to 'federal reserve' in bulk at price of pennies per sheet, without regard to face values. https://www.bep.gov https://www.bep.gov They will sell sheets to public at face value + markup. https://catalog.usmint.gov/paper-currency/uncut-currency https://catalog.usmint.gov/paper-currency/uncut-currency Observe how they call the money a 'note'. Like a house mortgage or car loan, the 'note' is a financial debt instrument.
- g42gregory 4y ago
  Ok, this is very helpful. I would love to learn more details about the mechanics of this process. Is this process written up anywhere? Like who approves the printing, how exactly it becomes the the debt to the Government, etc...? I am mostly interested in the mechanics, who approves what and when, and not so much in monetary policy implications. Is there a book that goes over this in detail, along with M1, M2, M3 creation ...?