No, the Federal Reserve does not "print money" or "create money out of thin air"

You mad, bro?

When it comes to handing it over to other countries, it sure seems like it does. Print it, bundle it up, and give it away.

What does this have to do with running anyway, you sphincter ?

Yes, but their quantitative easement programs were a step away from printing money, so the ignorant majority like you doesn't think they actually printed money.

You are a moron.

To create money - M1 - the Fed buys government bonds, and then creates a credit in the US Treasury account. This money can then be spent by USG. The Fed does not have to, "pay" for these bonds. They merely create a credit, and viola, money is created.

Banks also create money - they decide to lend to a customer, credit his/her account, and then issue bonds/borrow if their reserves are inadequate.

So... Bob takes out a mortgage to buy a house; the government buys his mortgage from the bank. What does the government use to "pay" the bank?

To finance deficit spending, the Treasury sells bonds to investors (taking in cash); the Fed, in turn, buys those bonds back from investors, typically at a higher price than they would otherwise receive (which is why investors are willing to sell). How does the Fed pay for those bonds? How does the Fed make up the difference, if one exists.

If the Treasury were to sell bonds *directly* to the Fed, where did the government get the cash to pay itself?

Barrett 82 wrote:

They merely create a credit, and viola, money is created.

What's viola money? Is that similar to cello money?

Awaiting illlumination.

it depends how you define "money" (tricker than it seems)

but for our purposes, the Fed does create money, to buy bonds.

Ben Bernanke wrote:

Let's get something straight. The Federal Reserve does not "print money" or "create money out of thin air"eral Reserve does not "create money out of thin air" like the Ron Paul bots think it does. Let me explain what the Fed actually does:

* Makes sure that the banks have sufficient monetary reserves to cover any run on the banks

* Buys government bonds

* Expands credit

* Provides monetary stimulus

We need the gold standard! That + free market = all problems solved!

Some offbeat prizes wrote:

If the Treasury were to sell bonds *directly* to the Fed, where did the government get the cash to pay itself?

The Fed created it. It pays for the bonds with a credit in the Treasury's Fed account. UST can then withdraw this cash and spend it.

This is how the Fed manage the money supply. To reduce the money supply, it sells bonds (drives up rates) and takes back the cash.

Some offbeat prizes wrote:

So... Bob takes out a mortgage to buy a house; the government buys his mortgage from the bank. What does the government use to "pay" the bank?

To finance deficit spending, the Treasury sells bonds to investors (taking in cash); the Fed, in turn, buys those bonds back from investors, typically at a higher price than they would otherwise receive (which is why investors are willing to sell). How does the Fed pay for those bonds? How does the Fed make up the difference, if one exists.

If the Treasury were to sell bonds *directly* to the Fed, where did the government get the cash to pay itself?

The whole scheme would be hilarious if it wasn't all so tragic. What's even funnier is that the largest single holder of U.S. Treasury bonds is the Social Security Trust Fund.

What's so funny about the Social Security fund holding US Treasury bonds?

SS has brought in more cash than it has paid out.

The cash then can be used to pay other federal obligations while they record the net amount owed to SS.

It's like a business that uses profits from one business unit to pay debts of another business unit and tracks the activity on an inter-company general ledger account.

Some offbeat prizes wrote:

If the Treasury were to sell bonds *directly* to the Fed, where did the government get the cash to pay itself?

And the Fed is not USG. It is an independent bank established by Congress (damn you Obama!)

Some offbeat prizes wrote:

So... Bob takes out a mortgage to buy a house; the government buys his mortgage from the bank. What does the government use to "pay" the bank?

To finance deficit spending, the Treasury sells bonds to investors (taking in cash); the Fed, in turn, buys those bonds back from investors, typically at a higher price than they would otherwise receive (which is why investors are willing to sell). How does the Fed pay for those bonds? How does the Fed make up the difference, if one exists.

If the Treasury were to sell bonds *directly* to the Fed, where did the government get the cash to pay itself?

Is that like a Zen koan?

The thing I can't get my head around is:

1) the fed buys much US government debt.

2)They do so with money created out of thin air.

3)The Fed sends all the profits back to the US treasury.

It's nuts. People and institutions with actual skin in the game should buy the US debt with real money and keep or spend the proceeds.

This fantasy circular money stuff is kooky.

agip wrote:

It's nuts. People and institutions with actual skin in the game should buy the US debt with real money and keep or spend the proceeds.

.

Oh, the Chinese are much in agreement.

agip wrote:

3)The Fed sends all the profits back to the US treasury.

The idea that the US government can sell bonds to itself and make a profit by doing so is crazy.

X-Runner wrote:

What's so funny about the Social Security fund holding US Treasury bonds?

SS has brought in more cash than it has paid out.

The cash then can be used to pay other federal obligations while they record the net amount owed to SS.

It's like a business that uses profits from one business unit to pay debts of another business unit and tracks the activity on an inter-company general ledger account.

I just find it comical that the U.S. uses Treasuries as a liability by one department and an asset by another. It's a bit of a shell game. It's more like taking money out of your right pocket and then putting it in your left pocket.

Let's say the U.S. defaulted on its debt. How would that work? Technically, they would have to liquidate or restructure to pay the debt, right? So the U.S. would simultaneously by a creditor and debtor to itself.

You realize that Treasuries are backed by the gubmint's ability to tax, right?

Where does the gubmint, ultimately, get ANY of its monies?

Ben Bernanke wrote:

Let's get something straight. The Federal Reserve does not "print money" or "create money out of thin air"eral Reserve does not "create money out of thin air" like the Ron Paul bots think it does.

Let me explain what the Fed actually does:

* Makes sure that the banks have sufficient monetary reserves to cover any run on the banks

* Buys government bonds

* Expands credit

* Provides monetary stimulus

.

Yes, all via the printing of money created out of thin air. How does it buy govt bonds or expand credit without doing so? They call it quantitative easing. It is just printing money