How is new money created in the economy?

[Dr.Know]

The Treasury PULLS MONEY OUT OF THE ECONOMY BY SELLING TREASURIES ( people hand the fed cash for the bonds)

The Treasury INJECTS MONEY INTO THE ECONOMY BY BUYING TREASURIES. ( fed buys bonds which gives money to investors ).

 

[frigidweirdo]

They increase and decrease the money supply as needed to keep the economy on an even keel

They do that by increasing and decreasing the interest rate they charge on the money they lend out (create)

Yes, someone decides how much physical cash there is. But physical cash isn't all the amount of money there is. In theory the "amount of money" that exists is dependent upon other more complex things, such as production.

They do all sorts of things because they've figured out that if they do this, it has this certain impact on the economy, they study it. They don't quite understand it, there are theories and not everyone is in agreement.

 

[frigidweirdo]

Nothing you're saying outlines a scenario where an economy gains new money. Only one where the same money moves around through the economy.

Let's go really simple, back to the days of subsistence farming.

I have my farm. I grow enough food to feed me and my family.
You have a farm, and you grow only enough to feed you and your family.

Everyone is involved in the farming process. Which means nobody is making anything else.

Or then we put a lord in charge of everything, so they have to produce more than they need and have to give it to their lord so he can live it up big time.

Now, if everyone managed to produce enough food for themselves, enough food for their taxes, and enough food to sell to people, then other people could buy this food in exchange for things.

So maybe they swap food for a new chair, or someone to make them a new roof, or something else to make their life a little better.

The people who make chairs are literally working on the basis that they make something in exchange for food. They have time to make things, they have time to chop trees down, to process them and make a chair. How much is the chair worth? It's worth whatever the farmer is willing to give in food.

Then the dude making the chairs has more than enough food. He doesn't want more food for more chairs. He could swap his chairs for other goods. But over time it gets a little annoying, so they make money.

The money is based on all the production of food, the swapping of food for something, instead of a useful item it becomes for a coin or coins which are then considered to be worth the same.

I have an old English two pence coin, it's huge, weighs a lot, weighs the amount that the copper was worth. But then this became silly. Imagine how big coins would be if you were swapping the amount of copper for a Ferrari, for example.

So, coins suddenly became worth something of an abstract value, rather than their actual worth in the metal. Which is where we're at today.

How much are all the coins and bills worth? Less than the amount the economy is worth, because people don't always use physical money now, sometimes it's just numbers moving from one place to another.

 

[Dragonlady]

So you have no idea what creates new money?

First there are products that are made that people want, so a price is paid for said product.
Then there is labor required to make that product so people earn the wages for the creation of that product.

This is how the government can figure out the GDP. Right now the money printed greatly outweighs the earned money. That is because people on welfare who get free shit, never earned that money so there is nothing backing that dollar. Do you understand? When the dollar was bound by the ounce of gold, the government couldnt print more than it had in the depository....

Gross Domestic Product.

126.23%
The U.S. debt to GDP ratio is a measure of how much the federal government owes compared to the size of the economy. In 2020, the U.S. debt to GDP ratio was 126.23%, meaning that the government debt was larger than the annual economic output1. This was a significant increase from 2019, when the ratio was 100.81%1. Another way to measure the U.S. debt is to include all types of debt, such as household, business, and state and local government debt. In this case, the U.S. total debt to GDP ratio was 895.4% in 2020, the highest level ever recorded2.

Your knowledge of how the money supply works is laughable.

"The first way the Federal Reserve can increase the money supply is by creating more dollars. It’s not as simple as them printing dollar bills then throwing them out of a helicopter, though."

How Does the Federal Reserve Create Money?

From January 2020 to January 2022, the money supply increased from $15.4 trillion to $21.6 trillion. That’s a 40% increase in the money supply—unprecedented in recent US history. So how did the Fed do it?

fee.org

 

[Harpy Eagle]

It’s relevant in the fact that you can no longer exchange your currency for gold like you used to be able to, which means we are pretty much stuck exchanging our labor for a fiat currency that can be manipulated by governments, by the world economy, and by events that are completely out of our control.

gold and silver and any other commodity can be manipulated as well.

 

[expat_panama]

The Treasury PULLS MONEY OUT OF THE ECONOMY BY SELLING TREASURIES ( people hand the fed cash for the bonds)

The Treasury INJECTS MONEY INTO THE ECONOMY BY BUYING TREASURIES. ( fed buys bonds which gives money to investors ).

When the U.S. Treasury sells bonds it is CREATING dollars. It is loaning money that increases the money supply. When a bank loans money or a person buys a T-bill, the goal is to hold an asset that's has value. When you go to a bank and you see the gold lettering on the door ($33million in assets) that's not the money the bank has but rather the money the bank has loaned out.

The person (or government) that borrows gets cash/money to spend. This is the increase in the money supply. Money is not the same as an asset.

 

[Harpy Eagle]

No, you can’t “exchange” it for gold, not like you used to. Used to be you could take a $100 bill and exchange it for $100 worth of gold.

and who decided how much gold was 100 dollars worth?

 

[Harpy Eagle]

So, I guess the answer to this situation is that, our way of life is a facade, built on nothing, backed on nothing. I guess that’s why other countries are trying to get away from the dollar

what countries are still on the gold standard?

 

[Natural Citizen]

The Federal Reserve does not buy bonds from Treasury, it conducts the auctions for new Treasury bonds.

The banks that show up at those bond auctions turn around and sell those bonds to the Fed for a profit through a shell game called ''open market operations.''

The Fed buys them with what is effectively a hot check. They're basically committing fraud here.

For reference...

''When you or I write a check, there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check, there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.'' - Boston Federal Reserve's ''Putting it Simply"

And they're creating currency here. Not money. Money has to be a store of value to actually be money. Currency is just a claim check on an IOU. They're creating ''credit.''

The entire process is quite easily explained and not difficult to understand. And there's much more to it than open market operations. But it's been done many times over already. Now it is just a waste of time. The country is 34 trillion dollars in debt. The rest of the world is gradually moving away from the dollar. And the central bankers are already making moves to implement digital central currencies because they think that it will free them from using slower, clumsier means of manipulating these types of value. And, of course, it will, in theory, allow them to walk away from their generational crime and fraud at the convenience of a push of a button. That whole ''great reset'' bullshit. lol.

 

[rampart]

This is the kind of thing that tends to be tossed around a lot around here, but new people seem to address at its roots. So let's talk about it.

so far about 1/5 getting it wrong. better than expected. i'll just drop the quote and run

"The process by which banks create money is so simple that the mind is repelled."

John Kenneth Galbraith

 

[Mikeoxenormous]

Your knowledge of how the money supply works is laughable.

"The first way the Federal Reserve can increase the money supply is by creating more dollars. It’s not as simple as them printing dollar bills then throwing them out of a helicopter, though."

How Does the Federal Reserve Create Money?

From January 2020 to January 2022, the money supply increased from $15.4 trillion to $21.6 trillion. That’s a 40% increase in the money supply—unprecedented in recent US history. So how did the Fed do it?

fee.org

I am talking about what is needed to back the money, so those dollars dont get inflated, which thanks to Joe Biteme's greenback give away to every illegal and lazy marxist asshat, there aint much left to the George Washington.

 

[Lesh]

I am talking about what is needed to back the money, so those dollars dont get inflated, which thanks to Joe Biteme's greenback give away to every illegal and lazy marxist asshat, there aint much left to the George Washington.

Thanks for that uneducated word salad

 

[Natural Citizen]

Looks lik they're consolidating the banks, predictably...

Jerome Turned On the Printer and Nobody Noticed

The Bank Term Funding Program Just Got Silently Supercharged

www.fxhedgers.com

 

[Stormy Daniels]

Let's go really simple, back to the days of subsistence farming.

Let's not. Because, at best, you'd be referring to a commodity money system. So what your saying would be out of date.

 

[sparky]

Looks lik they're consolidating the banks, predictably...

Jerome Turned On the Printer and Nobody Noticed

The Bank Term Funding Program Just Got Silently Supercharged

www.fxhedgers.com

The Fed is offering loans at rates below what it pays to banks who park money in its vaults. A financial institution can theoretically borrow from the Fed at 4.94% as of Friday, January 5, and then earn interest on that money from the same Fed at 5.40%.

am i reading .46% thin air Natty?

~S~

 

[Dragonlady]

I am talking about what is needed to back the money, so those dollars dont get inflated, which thanks to Joe Biteme's greenback give away to every illegal and lazy marxist asshat, there aint much left to the George Washington.

You talked about how goods are produced and GDP is calculated. You said NOTHING about backing the dollar or how money is produced at all.

And now you're posting more bullshit lies about inflation being caused by social programs. This is why Republicans get away with crashing the economy every time they're in the White House. Their voters are economic idiots who believe their bullshit lies.

Inflation was caused by the profiteering and price gouging of American corporations, and not by anything Biden did. But you're prepared to blame Biden for it because you're just that STUPID.

U.S. companies posted record profits in 2021, jacking up prices as inflation surged

U.S. companies' pre-tax profits surged in 2021 to $2.81 trillion.

fortune.com

Revealed: top US corporations raising prices on Americans even as profits surge

A Guardian analysis uncovers how companies enriched themselves and their investors while boasting about jacking up prices

www.theguardian.com

 

[Natural Citizen]

The Fed is offering loans at rates below what it pays to banks who park money in its vaults. A financial institution can theoretically borrow from the Fed at 4.94% as of Friday, January 5, and then earn interest on that money from the same Fed at 5.40%.

am i reading .46% thin air Natty?

~S~

Somewhere in the ballpark of 40 some odd points. The banks could do that by parking and collateralizing their tanked assets.

It was supposed to be a temporary measure that was supposed ot end in March of this year. But there's a lot of banks in trouble. Depending on how bad their balance sheets are, the ones in really bad shape are not likely, in my view, to take that risk with their assets, even if they aren't worth much more than a bucket of piss.

Basically this is just another attempt at paving a little bit more road to kick the can down.

 

[Stormy Daniels]

All I know is that gold was used as money thousands of years ago and was used up until governments started switching to currency. Gold has some kind if value because it’s a tangible asset that has use, be it whatever that use is, and it has desirability as a precious metal.

The first problem here is that your obsession with gold reveals a separation for the full historical facts. The second problem is that you are making assumptions based on those incomplete facts.

Yes, usefulness is the basis for commodity money. Yes, desirability is the basis for gold's usefulness. But you are assuming (and really, doing so on your own stated basis of not knowing anything else) that this implies some kind of inherent and objective value for gold.

The earliest known version of money was barley, used in ancient Sumer. Another early form was livestock. These had a certain inherent value because they were food. Sumer had a free market economy, and it was in the market that gold attained any value. Throughout history, many other desirables have been used as money. Bronze, silver, copper, shells, spices, tea, silk, furs, tobacco...all have been used as money. In modern times cigarettes are still the primary form of money in prison systems. It has always been in an open market that any desirable has achieved value. Not because of any inherent value.

Currency has no value, it’s just paper, it’s not backed by anything, it’s not based on anything.

So, I guess the answer to this situation is that, our way of life is a facade, built on nothing, backed on nothing. I guess that’s why other countries are trying to get away from the dollar

You are entirely wrong here. First, fiat money wasn't invented in the 20th century. As I mentioned before, ancient Sparta used iron as fiat money. The iron itself had little intrinsic value, but it was minted into currency whose value was based only on the government's declaration. The Chinese pioneered the use of paper fiat currency by the 12th century. Europe's first fiat money was made by Sweden in the 1700s, and around the same time Canada accidentally developed fiat money when money shortages prompted the government to issue paper notes that were intended to be a temporary solution, but which quickly began being accepted by everyone due to the coin shortage.

Second, it's not a facade that it's built on, it's agreement. This is also the basis of the value of commodity money. A great many aspects of human society are based on agreement. Language is an example. All commerce is based on agreement. The value of any commodity money, including gold, is based on agreement.

Finally, it's entirely untrue to suggest that countries are "trying to get away from the dollar" as if they are looking for a return to commodity money. Other countries use foreign money as a reserve currency. It's a way to provide stability to their own economies, and the practice goes back centuries, even when commodity money was the main form of money through the world. The US dollar is the most common form of foreign reserve currency in the world. The reason other countries are relying on the US dollar less and less is because we've introduced more chaos into our economy, repeatedly taking ourselves to the brink (and sometimes crossing the threshold) of government shutdowns and credit defaults.

 

[Oddball]

The banks that show up at those bond auctions turn around and sell those bonds to the Fed for a profit through a shell game called ''open market operations.''

The Fed buys them with what is effectively a hot check. They're basically committing fraud here.

For reference...

''When you or I write a check, there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check, there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.'' - Boston Federal Reserve's ''Putting it Simply"

And they're creating currency here. Not money. Money has to be a store of value to actually be money. Currency is just a claim check on an IOU. They're creating ''credit.''

The entire process is quite easily explained and not difficult to understand. And there's much more to it than open market operations. But it's been done many times over already. Now it is just a waste of time. The country is 34 trillion dollars in debt. The rest of the world is gradually moving away from the dollar. And the central bankers are already making moves to implement digital central currencies because they think that it will free them from using slower, clumsier means of manipulating these types of value. And, of course, it will, in theory, allow them to walk away from their generational crime and fraud at the convenience of a push of a button. That whole ''great reset'' bullshit. lol.

As Ed Griffin says; they have a big checkbook with no actual checking account.

 

[Stormy Daniels]

The banks that show up at those bond auctions turn around and sell those bonds to the Fed for a profit through a shell game called ''open market operations.''

The Fed buys them with what is effectively a hot check. They're basically committing fraud here.

No, that's not what happens. Banks buy Treasury bonds or the same reason they loan money to you and me. They generate profit through the collection of interest. Banks buy and sell debts as part of the normal course of business. When banks buy debts, they gain profit (so long as the debt payments are made). When banks sell debts they gain cash on hand that they can then potentially loan out again, or use for other methods of investment. In short, banks are constantly buying and selling assets, all part of their complex methods of trying to maximize their profits and staying solvent.

Banks also borrow money. The Federal Reserve is the lender of last resort from whom banks may borrow in their desperate hour of need in order to remain solvent.

When banks sell Treasury bonds, they do so on the open market. The Federal Reserve, through its normal operations, buys bonds on the open market. The Federal Reserve achieves profits from its operations, but since it's a non-profit entity those profits have to either be spent at the end of the year, or dumped into the Treasury at the end of the year. When the Federal Reserve buys Treasury bonds on the open market, the interest on those bonds then goes to the Federal Reserve. While this may mean that that interest makes it back into the Treasury when the Fed remits its profits, all that means is that the federal government is able to leverage careful and skillful securities trading to minimize the actual amount of interest that is paid out on the public debt.