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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 (
by 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 agoThey 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 agoUnlike 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 agoUltra 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 agoOk, 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 ...?