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> Secondly, they can literally print money. This keeps getting repeated all over the internet... but the FED doesn't just "print" money. It creates money, loan

by csomar 4y ago

> Secondly, they can literally print money. This keeps getting repeated all over the internet... but the FED doesn't just "print" money. It creates money, loan it to some counter-party, and that counter-party has to return it. If the counter-party doesn't return the money, the FED losses money. They can print money to themselves, but that doesn't offset the losses.

gruez 4y ago
>This keeps getting repeated all over the internet... but the FED doesn't just "print" money. It creates money, loan it to some counter-party, and that counter-party has to return it. That sounds like a pointless nitpick to me "ackshually the fed doesn't print money because everything is done digitally and no printing is actually done". What you described can be pretty much summed as "the fed prints money which it then uses to buy assets".
- SllX 4y ago
  He doesn’t mean digitally in lieu of printing notes. Banks create money by accepting deposits and making loans. Here is a more detailed explanation of the process: http://www2.harpercollege.edu/mhealy/eco212i/lectures/ch13-17 http://www2.harpercollege.edu/mhealy/eco212i/lectures/ch13-1...
  - Scarblac 4y ago
    But printing it is also creating it? I don't see the difference in meaning you suggest.
    - SllX 4y ago
      I provided the link with minimal commentary because the concept of money is one of those black magic things that is difficult for me to explain because it does put me out of my depth trying to keep the technical jargon straight and I’m never 100% sure about my own grasp; but making my best effort in good faith to try and explain it and keeping it as simple as is possible for me: a printed dollar is just a representation of $1, specifically it is a $1 Federal Reserve bank note documenting a dollar that is backed by the financial assets that are pledged as collateral by the Fed’s owners. Wikipedia says this is mostly Treasury Notes (debt instruments of the US government) and mortgage agency securities (relying on Wikipedia again, these are securities issued by Ginnie Mae, Fannie Mae, Freddie Mac or the Federal Home Loan banks). What’s important to understand to make any sense of this is that when the bank issues you a loan, that sits on their Balance Sheet as an asset, and on your balance sheet as a liability, so when the bank issues you say $50K in the form of a Loan so you can buy a car and it is deposited into your account, USD$50,000.00 was created as money, but that doesn’t mean $50K of notes was printed. What changed is the following: the Bank’s assets increased by $50K balanced against its liability accounts, and your liabilities increased by $50K balanced against your asset accounts until you pay the money back. There’s a lot more money than there is currency in circulation, and currency represents one type of money. It’s not a difference of one being physical and one being digital because all of it is documented somewhere whether it’s a PDF of a loan agreement and resulting statements or the cocaine-coated bills and coins in your pocket; they’re subtly distinct concepts of put another way, money is intangible but can be created and bank notes and promissory notes are tangible forms of it documenting money and can be printed. Taking it back to the Fed, actual paper money in circulation is considered a liability against the Fed’s assets which are other people’s (well, institution’s really) debts to the Federal reserve, and I think this is the point where I have to stop because I’m already out of my depth and taking it much further will put me way out into the deep end. Corrections and expansions from others welcome. Also note that somebody replied to me above with a link to the Bank of England talking about money creation. I haven’t had the chance to read it, but it’s probably worth checking out as well.
    - notahacker 4y ago
      Well as a simple matter of fact, banks don't have the right to print banknotes, they merely create electronic deposits and then if someone wants to turn those into banknotes the banks have to borrow them from the Fed (or local equivalent). The more important difference this represents is that money is "created" as loans, with the bank's profit being the difference between the total amount that gets repaid to the bank by some creditworthy private person or organization and the amount the bank owes the Fed. So (i) the bank doesn't get to spend the money it "creates", it's actually reserves the bank owes to whoever's deposit account the money ends up in and (ii) it's a market-driven process where the bank is only incentivised to create money if prospective borrowers are demanding loans and the bank believes they will be able to repay them. (And the Fed in turn, "creates" and "destroys" money to the extent necessary to ensure the market interest rate is at a desired level, not to make profits or pay bills) The uninformed school of internet libertarianism likes to conflate this process of credit creation with the practice of unstable governments realising they'll never be able to raise enough money from taxes or oil sales to pay for the mansions and five star generals they'd like to buy and so printing some more banknotes (not owed to anyone) to be a bit richer.
  - neilwilson 4y ago
    That's not the process. The process is that loans create deposits. This is the process. From an actual central bank [0] [0]:https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
- BuyMyBitcoins 4y ago
  The most pedantic rebuttal I’ve encountered online when I mentioned that “The Fed prints money” was “No, the Bureau of Engraving and Printing prints money”.
BLKNSLVR 4y ago
> the FED doesn't just "print" money. It creates money ... Accuse me of cherry picking or paraphrasing to miss the subtlety of the distinction, but the subtlety makes little overall difference, as far as my, admittedly limited, understanding goes. And that snippet just ... works so well.
- BigCryo 4y ago
  Is is like something a character in Seinfeld would say.. it's not a lie if you believe it ... Or they just write it off
JumpCrisscross 4y ago
> the counter-party doesn't return the money, the FED losses money Fed loans are collateralized. So the counterparty has to not return the money and the collateral has to lose more money than the bank has reserves. This would be a credit loss, and the law requires the Fed to avoid it. (It has.) This article is about something else.
jongjong 4y ago
This is not correct. They distribute interest to 'depositors'. See reverse repo market. They're printing citizens' money and giving it to rich people just for being rich. Also, if banks go bankrupt and then the individuals and businesses which they made loans to go bankrupt (which is actually not that uncommon; see SVB), the Fed cannot get that money back, the average citizen is the loser again... So as you can see, the money is not always paid back. The Fed just prints money, that's a fact. The "it's just loans" narrative is false rhetoric. If there was no such thing as bankruptcy and debts were always passed on to borrowers' children and the government couldn't just keep taking out bigger loans to pay back their old loans and give huge contracts to big corporations ad-infinitum, then we could talk. Anything other than that and we have money printing going on; paid for by regular, honest, hard-working citizens through inflation and taxes.
- JumpCrisscross 4y ago
  > distribute interest to 'depositors'. See reverse repo market You're thinking of interest on excess reserves (IOER): interest paid to banks (as the Fed's depositors) to encourage them to hold excess reserves and not lend them out. Reverse repos are open-market operations; they're the Fed borrowing money against its collateral, thereby sucking liquidity from the system.
  - jongjong 4y ago
    How does that change fundamentals? The banks get free money from the Fed which gives them more money which they can use to pass on the interest payments to their own rich depositors. It also allows wealthy people to borrow more money against their substantial collateral to further prop up the value of their assets. Then when the bank goes bankrupt and a bunch of shell startups which it loaned money to go bankrupt, their failure and fat severance packages have been paid for by the people through cost of living increases. Let's not forget that some of these bankrupt startups were basically tossing suitcases of advertising money at big tech prior to their bankruptcies. This is the people's money they were tossing at Big Tech. Then if they avoid jail (common), the founders of these failed startups will go on to get more funding 'a second chance', then a 'third chance', etc.. from the big VCs as a thank you for propping up their corporate stocks with 'borrowed' money which was never repaid.
phendrenad2 4y ago
The FED does not loan money. It gives it away. That's what QE is: The Fed buys bonds for more than they're worth on the open market. This disparity creates excess money in the system that wasn't there before.
- emkemp 4y ago
  "The FED does not loan money." This is quite wrong. https://www.federalreserve.gov/monetarypolicy/discountrate.htm https://www.federalreserve.gov/monetarypolicy/discountrate.h... https://www.federalreserve.gov/monetarypolicy/standing-overnight-repurchase-agreement-facility.htm https://www.federalreserve.gov/monetarypolicy/standing-overn... https://www.federalreserve.gov/monetarypolicy/bank-term-funding-program.htm https://www.federalreserve.gov/monetarypolicy/bank-term-fund... In addition, the Fed also borrows money. https://www.federalreserve.gov/monetarypolicy/overnight-reverse-repurchase-agreements.htm https://www.federalreserve.gov/monetarypolicy/overnight-reve...

by csomar 4y ago

gruez 4y ago

>This keeps getting repeated all over the internet... but the FED doesn't just "print" money. It creates money, loan it to some counter-party, and that counter-party has to return it. That sounds like a pointless nitpick to me "ackshually the fed doesn't print money because everything is done digitally and no printing is actually done". What you described can be pretty much summed as "the fed prints money which it then uses to buy assets".

SllX 4y ago
He doesn’t mean digitally in lieu of printing notes. Banks create money by accepting deposits and making loans. Here is a more detailed explanation of the process: http://www2.harpercollege.edu/mhealy/eco212i/lectures/ch13-17 http://www2.harpercollege.edu/mhealy/eco212i/lectures/ch13-1...
- Scarblac 4y ago
  But printing it is also creating it? I don't see the difference in meaning you suggest.
  - SllX 4y ago
    I provided the link with minimal commentary because the concept of money is one of those black magic things that is difficult for me to explain because it does put me out of my depth trying to keep the technical jargon straight and I’m never 100% sure about my own grasp; but making my best effort in good faith to try and explain it and keeping it as simple as is possible for me: a printed dollar is just a representation of $1, specifically it is a $1 Federal Reserve bank note documenting a dollar that is backed by the financial assets that are pledged as collateral by the Fed’s owners. Wikipedia says this is mostly Treasury Notes (debt instruments of the US government) and mortgage agency securities (relying on Wikipedia again, these are securities issued by Ginnie Mae, Fannie Mae, Freddie Mac or the Federal Home Loan banks). What’s important to understand to make any sense of this is that when the bank issues you a loan, that sits on their Balance Sheet as an asset, and on your balance sheet as a liability, so when the bank issues you say $50K in the form of a Loan so you can buy a car and it is deposited into your account, USD$50,000.00 was created as money, but that doesn’t mean $50K of notes was printed. What changed is the following: the Bank’s assets increased by $50K balanced against its liability accounts, and your liabilities increased by $50K balanced against your asset accounts until you pay the money back. There’s a lot more money than there is currency in circulation, and currency represents one type of money. It’s not a difference of one being physical and one being digital because all of it is documented somewhere whether it’s a PDF of a loan agreement and resulting statements or the cocaine-coated bills and coins in your pocket; they’re subtly distinct concepts of put another way, money is intangible but can be created and bank notes and promissory notes are tangible forms of it documenting money and can be printed. Taking it back to the Fed, actual paper money in circulation is considered a liability against the Fed’s assets which are other people’s (well, institution’s really) debts to the Federal reserve, and I think this is the point where I have to stop because I’m already out of my depth and taking it much further will put me way out into the deep end. Corrections and expansions from others welcome. Also note that somebody replied to me above with a link to the Bank of England talking about money creation. I haven’t had the chance to read it, but it’s probably worth checking out as well.
  - notahacker 4y ago
    Well as a simple matter of fact, banks don't have the right to print banknotes, they merely create electronic deposits and then if someone wants to turn those into banknotes the banks have to borrow them from the Fed (or local equivalent). The more important difference this represents is that money is "created" as loans, with the bank's profit being the difference between the total amount that gets repaid to the bank by some creditworthy private person or organization and the amount the bank owes the Fed. So (i) the bank doesn't get to spend the money it "creates", it's actually reserves the bank owes to whoever's deposit account the money ends up in and (ii) it's a market-driven process where the bank is only incentivised to create money if prospective borrowers are demanding loans and the bank believes they will be able to repay them. (And the Fed in turn, "creates" and "destroys" money to the extent necessary to ensure the market interest rate is at a desired level, not to make profits or pay bills) The uninformed school of internet libertarianism likes to conflate this process of credit creation with the practice of unstable governments realising they'll never be able to raise enough money from taxes or oil sales to pay for the mansions and five star generals they'd like to buy and so printing some more banknotes (not owed to anyone) to be a bit richer.
- neilwilson 4y ago
  That's not the process. The process is that loans create deposits. This is the process. From an actual central bank [0] [0]:https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
BuyMyBitcoins 4y ago
The most pedantic rebuttal I’ve encountered online when I mentioned that “The Fed prints money” was “No, the Bureau of Engraving and Printing prints money”.

BLKNSLVR 4y ago

> the FED doesn't just "print" money. It creates money ... Accuse me of cherry picking or paraphrasing to miss the subtlety of the distinction, but the subtlety makes little overall difference, as far as my, admittedly limited, understanding goes. And that snippet just ... works so well.

BigCryo 4y ago
Is is like something a character in Seinfeld would say.. it's not a lie if you believe it ... Or they just write it off

JumpCrisscross 4y ago

> the counter-party doesn't return the money, the FED losses money Fed loans are collateralized. So the counterparty has to not return the money and the collateral has to lose more money than the bank has reserves. This would be a credit loss, and the law requires the Fed to avoid it. (It has.) This article is about something else.

jongjong 4y ago

This is not correct. They distribute interest to 'depositors'. See reverse repo market. They're printing citizens' money and giving it to rich people just for being rich. Also, if banks go bankrupt and then the individuals and businesses which they made loans to go bankrupt (which is actually not that uncommon; see SVB), the Fed cannot get that money back, the average citizen is the loser again... So as you can see, the money is not always paid back. The Fed just prints money, that's a fact. The "it's just loans" narrative is false rhetoric. If there was no such thing as bankruptcy and debts were always passed on to borrowers' children and the government couldn't just keep taking out bigger loans to pay back their old loans and give huge contracts to big corporations ad-infinitum, then we could talk. Anything other than that and we have money printing going on; paid for by regular, honest, hard-working citizens through inflation and taxes.

JumpCrisscross 4y ago
> distribute interest to 'depositors'. See reverse repo market You're thinking of interest on excess reserves (IOER): interest paid to banks (as the Fed's depositors) to encourage them to hold excess reserves and not lend them out. Reverse repos are open-market operations; they're the Fed borrowing money against its collateral, thereby sucking liquidity from the system.
- jongjong 4y ago
  How does that change fundamentals? The banks get free money from the Fed which gives them more money which they can use to pass on the interest payments to their own rich depositors. It also allows wealthy people to borrow more money against their substantial collateral to further prop up the value of their assets. Then when the bank goes bankrupt and a bunch of shell startups which it loaned money to go bankrupt, their failure and fat severance packages have been paid for by the people through cost of living increases. Let's not forget that some of these bankrupt startups were basically tossing suitcases of advertising money at big tech prior to their bankruptcies. This is the people's money they were tossing at Big Tech. Then if they avoid jail (common), the founders of these failed startups will go on to get more funding 'a second chance', then a 'third chance', etc.. from the big VCs as a thank you for propping up their corporate stocks with 'borrowed' money which was never repaid.

phendrenad2 4y ago

The FED does not loan money. It gives it away. That's what QE is: The Fed buys bonds for more than they're worth on the open market. This disparity creates excess money in the system that wasn't there before.

emkemp 4y ago
"The FED does not loan money." This is quite wrong. https://www.federalreserve.gov/monetarypolicy/discountrate.htm https://www.federalreserve.gov/monetarypolicy/discountrate.h... https://www.federalreserve.gov/monetarypolicy/standing-overnight-repurchase-agreement-facility.htm https://www.federalreserve.gov/monetarypolicy/standing-overn... https://www.federalreserve.gov/monetarypolicy/bank-term-funding-program.htm https://www.federalreserve.gov/monetarypolicy/bank-term-fund... In addition, the Fed also borrows money. https://www.federalreserve.gov/monetarypolicy/overnight-reverse-repurchase-agreements.htm https://www.federalreserve.gov/monetarypolicy/overnight-reve...