4 ms·

If the fed doesn't buy more bonds, what does it do with the money to "destroy it"? Light it on fire in the parking lot?

by candiddevmike 3y ago

BurningFrog 3y ago
The Fed can create and destroy any amount of US dollars with a simple database transaction.
- DirectorKrennic 3y ago
  sudo rm -rf M1 M2
- bubbleRefuge 3y ago
  yeah. so should the treasury. the fact that is must fund itself with bonds is an operational relic.
cs702 3y ago
Money is just debits and credits, not paper bills. A $1 dollar bill is a legal document that gives the holder a credit of $1 with the US Treasury.
srj 3y ago
Any loan getting repaid technically "destroys" the money unless new replacement lending is made. It's because the money was created when it was lent out, i.e. banks are allowed to lend money they don't have up to a point (called the reserve ratio). When it's repaid the interest is kept by the bank but the principal goes back to their balance sheet as money they can lend. For central banks this is taken to the next level as I'm not sure they do anything with interest.
- dfxm12 3y ago
  This is important. I think this is not well understood and these misunderstandings lead to misplaced anger about things like "government spending" and "student loan forgiveness" or government fiscal responsibility in general.
  - emaginniss 3y ago
    The money the government spends or forgives still goes on the balance sheet and will either come due at some point, or will result in the default of the US Treasury. That would be like me saying that spending crazy amounts of money on a new sports car doesn't matter because I have a huge line of credit. Eventually, that money for the car needs to be repaid. You can absolutely see examples of this in city and state governments in the US that have failed to make pension payments. Kicking the can down the road will eventually catch up with someone. https://www.detroitnews.com/story/news/local/detroit-city/2018/07/18/detroit-bankruptcy-retirees-reaction/783828002/ https://www.detroitnews.com/story/news/local/detroit-city/20...
thatguy0900 3y ago
Its all digital money, if they just wrote it off the books it's gone

If the fed doesn't buy more bonds, what does it do with the money to "destroy it"? Light it on fire in the parking lot?

BurningFrog 3y ago

The Fed can create and destroy any amount of US dollars with a simple database transaction.

DirectorKrennic 3y ago
sudo rm -rf M1 M2
bubbleRefuge 3y ago
yeah. so should the treasury. the fact that is must fund itself with bonds is an operational relic.

cs702 3y ago

Money is just debits and credits, not paper bills. A $1 dollar bill is a legal document that gives the holder a credit of $1 with the US Treasury.

srj 3y ago

Any loan getting repaid technically "destroys" the money unless new replacement lending is made. It's because the money was created when it was lent out, i.e. banks are allowed to lend money they don't have up to a point (called the reserve ratio). When it's repaid the interest is kept by the bank but the principal goes back to their balance sheet as money they can lend. For central banks this is taken to the next level as I'm not sure they do anything with interest.

dfxm12 3y ago
This is important. I think this is not well understood and these misunderstandings lead to misplaced anger about things like "government spending" and "student loan forgiveness" or government fiscal responsibility in general.
- emaginniss 3y ago
  The money the government spends or forgives still goes on the balance sheet and will either come due at some point, or will result in the default of the US Treasury. That would be like me saying that spending crazy amounts of money on a new sports car doesn't matter because I have a huge line of credit. Eventually, that money for the car needs to be repaid. You can absolutely see examples of this in city and state governments in the US that have failed to make pension payments. Kicking the can down the road will eventually catch up with someone. https://www.detroitnews.com/story/news/local/detroit-city/2018/07/18/detroit-bankruptcy-retirees-reaction/783828002/ https://www.detroitnews.com/story/news/local/detroit-city/20...

thatguy0900 3y ago

Its all digital money, if they just wrote it off the books it's gone