Topic: How the stimulus money is created (Read 519 times)
How different is printing money from raising money by issuing non-collateral debt instrument? Treasury Department would still have liability to pay off money raised by selling IOUs. This will in turn increases the fiscal deficit. Meanwhile, low rate of fiscal deficit is good stimulus for economy but issuing such high number of IOUs in depressing economy will put the government budget into vicious circle of debt.
Of course, the Federal Reserve won't just say they printed money out of thin air. That would be a huge joke if they say that. That would make them look ridiculous.
I do accept most of the things you said here, yes they are printing money out of thin air but you need to have a check on things even when you are printing money if not you will go into inflation and then it will have a spiraling affect on the entire economy of the country and none of the government wants that to happen. These are hard times and someone of these policies will come back and bite us as the debt keeps on increasing.The FED has the power to print money out of thin air as it has the power to burn them into thin air. They increase and decrease the circulating supply as they deem necessary. Inflation is always part of the entire equation.
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My common understanding is that the state prints money using the mechanism of issuance of government debt and the purchase of corporate bonds, the purchase of investment-worthy securities in the primary and secondary markets through exchange-traded funds.My understanding is that government debts and bonds and securities and whatever they call it are not money unless bought. At the present moment, however, most investors are not attracted to buying them, prefer to hold on tightly to their cash instead, primarily because they are not even generating revenue at this time.
Here comes the FED, the mighty hero, buying unlimited amount of debts issued by the government. And just like that, problem solved! By doing so, money is now printed out of thin air.
As to whether or not this is necessary especially in times of a difficult crisis is a different story.
Of course, the Federal Reserve won't just say they printed money out of thin air. That would be a huge joke if they say that. That would make them look ridiculous.
It has to go through a lot of seemingly complicated processes that make everything look legit enough. But, essentially, what they are doing is just playing with their own set of rules. After all, they are all government bodies transferring money from one pocket to the other.
Anyway, the Fed would buy unlimited bonds from the treasury. They could buy trillions and trillions worth of bonds. Where do these trillions and trillions come from? Of course, it will be explained in a way that won't make them a laughing stock. So, instead of just printing money out of thin air, they will create new reserves.
At the end of the day, these reserves are as good as cash.
It has to go through a lot of seemingly complicated processes that make everything look legit enough. But, essentially, what they are doing is just playing with their own set of rules. After all, they are all government bodies transferring money from one pocket to the other.
Anyway, the Fed would buy unlimited bonds from the treasury. They could buy trillions and trillions worth of bonds. Where do these trillions and trillions come from? Of course, it will be explained in a way that won't make them a laughing stock. So, instead of just printing money out of thin air, they will create new reserves.
At the end of the day, these reserves are as good as cash.
My common understanding is that the state prints money using the mechanism of issuance of government debt and the purchase of corporate bonds, the purchase of investment-worthy securities in the primary and secondary markets through exchange-traded funds.
In my understanding, in fact, the FED ruled America. Because in 1913 to meet the needs of money that wanted to circulate due to America has run out of gold reserves, a group of bankers agreed to establish a bank called "The Federal Reserve Bank of New York." The situation reversed when 1932 the United States government sold all of its gold reserves which guarantee its currency to cover the budget deficit, its gold is sold to a group of bankers who founded The FED, the US went bankrupt because of not being able to pay interest and loans to the FED, as a result, the FED became the ruler of all American assets. FED and bankers Stimulus is one of the instruments used by bankers to make their wealth lasting.
Of course, the Federal Reserve won't just say they printed money out of thin air. That would be a huge joke if they say that. That would make them look ridiculous.
I do accept most of the things you said here, yes they are printing money out of thin air but you need to have a check on things even when you are printing money if not you will go into inflation and then it will have a spiraling affect on the entire economy of the country and none of the government wants that to happen. These are hard times and someone of these policies will come back and bite us as the debt keeps on increasing. 
It is still "printing" money. Sometimes they actually do end up printing money and not like this but when they do this, they are not actually doing it like crypto currencies and ICO but usually more like USDT where they give out these IOU's and tell you that your money is still money and you bought it and that's it, usually worths around the same with small interest rate (very tiny) as well.
At least that is like that in my nation and I don't know USA but that is still "printing money" just not with machines but more digital. That still causes inflation and that still hurts the economy. What hurts even more is to give 500 billion to people but giving 500 billion to companies, companies are not humans, they do not need money to stay alive because they are just things, they can go bankrupt and that is fine, if you do not give it to humans they will literally die, there is a big difference between death and bankruptcy.
At least that is like that in my nation and I don't know USA but that is still "printing money" just not with machines but more digital. That still causes inflation and that still hurts the economy. What hurts even more is to give 500 billion to people but giving 500 billion to companies, companies are not humans, they do not need money to stay alive because they are just things, they can go bankrupt and that is fine, if you do not give it to humans they will literally die, there is a big difference between death and bankruptcy.
It might sound good in paper but if you think about any country having debt in general is a bad idea even if the money belongs to a department within their government. Why? They are technically borrowing money and in turn they have to bigger than what they owe and bet that the money they have borrowed will help the economy going. One of the bad things they did right now is US as of right now is the biggest country to have external debts on, aside from borrowing money on their own they decided to borrow money from other countries just so they have this "stimulus money" yet did it help prevent a recession from happening? Or did it just made the position of the U.S. worst? I think it's the latter since with what's happening with the US right now from the pandemic to protests about George Floyd do you think it is helping their economy to pay back the debt they owe internationally?
FED is the biggest buyer of U.S. Treasury securities, and does so by literally printing money, both digitally and physically. So the effect on inflation and money supply is the same.
The WSJ video briefly mentions it, it was omitted from your OP, this article can also elaborate better on why it's the equivalent of printing money:
https://www.nytimes.com/2020/04/15/business/coronavirus-stimulus-money.html
Basically FED injects cash to the Treasury which is then spent for the stimulus packages...
FED also has a legal obligation to pay back all of its profits to the Treasury, so US Treasury is effectively borrowing money to make more money on the interest on it later, it sounds insane, but such is the nature of the fiat money game since decades.
Why this doesn't devalue USD globally would be the topic of a completely different thread...
The WSJ video briefly mentions it, it was omitted from your OP, this article can also elaborate better on why it's the equivalent of printing money:
https://www.nytimes.com/2020/04/15/business/coronavirus-stimulus-money.html
Basically FED injects cash to the Treasury which is then spent for the stimulus packages...
FED also has a legal obligation to pay back all of its profits to the Treasury, so US Treasury is effectively borrowing money to make more money on the interest on it later, it sounds insane, but such is the nature of the fiat money game since decades.
Why this doesn't devalue USD globally would be the topic of a completely different thread...
Quote
Steps
So the Treasury Department issues IOU's(these are the same as of the ICO happening in the crypto sector) and give those IOU to these 3 kinds of investors in exchange of money.
Now the money they get by selling these IOU is given to the people of US as stimulus money
They in turn spend the money and it goes to the companies creating a positive economy
And then the companies buy more IOU if they want to
This cycle continues...
So the Treasury Department issues IOU's(these are the same as of the ICO happening in the crypto sector) and give those IOU to these 3 kinds of investors in exchange of money.
Now the money they get by selling these IOU is given to the people of US as stimulus money
They in turn spend the money and it goes to the companies creating a positive economy
And then the companies buy more IOU if they want to
This cycle continues...
So it's like a Bond based loans. Goverment is creating bonds/treasury papers out of thin air and selling that to the investors with a specific interest rate for a specific time period.
Investors are buying this from the government so that government can have money.
Now government is spending this money on US citizens.
These citizens are spending that money in the market and governments are getting back taxes from various levels.
Now government is paying back the bond holders with interest once the time period is over.
That makes sense but don't you think 2 trillion usd is bit too much for such bond based loans? This is the usual cycle for any government who wants to raise money but there are several shortfalls that may occur during repayment which would lead the government to print money out of thin air.
Anyway, the Fed would buy unlimited bonds from the treasury. They could buy trillions and trillions worth of bonds. Where do these trillions and trillions come from? Of course, it will be explained in a way that won't make them a laughing stock. So, instead of just printing money out of thin air, they will create new reserves.
At the end of the day, these reserves are as good as cash.
This is how most reasonable government organize its affairs. Even if money is physically printed, it won't be thrown to the public like that, it goes through different processes including high loan fees to public and bond selling too can help generate finance to the government.
Of course, the Federal Reserve won't just say they printed money out of thin air. That would be a huge joke if they say that. That would make them look ridiculous.
It has to go through a lot of seemingly complicated processes that make everything look legit enough. But, essentially, what they are doing is just playing with their own set of rules. After all, they are all government bodies transferring money from one pocket to the other.
Anyway, the Fed would buy unlimited bonds from the treasury. They could buy trillions and trillions worth of bonds. Where do these trillions and trillions come from? Of course, it will be explained in a way that won't make them a laughing stock. So, instead of just printing money out of thin air, they will create new reserves.
At the end of the day, these reserves are as good as cash.
It has to go through a lot of seemingly complicated processes that make everything look legit enough. But, essentially, what they are doing is just playing with their own set of rules. After all, they are all government bodies transferring money from one pocket to the other.
Anyway, the Fed would buy unlimited bonds from the treasury. They could buy trillions and trillions worth of bonds. Where do these trillions and trillions come from? Of course, it will be explained in a way that won't make them a laughing stock. So, instead of just printing money out of thin air, they will create new reserves.
At the end of the day, these reserves are as good as cash.
There are three sources of getting the stimulus money by the Treasury Department
You forget the 4th source: the Federal Reserve.- Public Sector
Like other parts of the government
- Private Sector
- Foreign Investors
It's likely the sources you mention cannot absorb the securities, therefore the Fed has to "print money" via Open Market Operations (OMO) and buy it.
https://www.investopedia.com/terms/o/openmarketoperations.asp
It's recommended to watch the video till the end, both for OP and the doomsayers here to know what the "printing money" is all about.
I guess the companies are in the "essential sector" or are they companies that produce things that are in high demand?
And will the money be paid back by the people?
Well, I think what matters (which some are worried about) is handing people too much money than they work for. That could also create inflation if care is not taken. If the companies are not producing and delivering things faster, inflation could still hit.
Besides, not really a good idea to hand people too much money for too long while they remain unproductive or unprofitable.
And will the money be paid back by the people?
Well, I think what matters (which some are worried about) is handing people too much money than they work for. That could also create inflation if care is not taken. If the companies are not producing and delivering things faster, inflation could still hit.
Besides, not really a good idea to hand people too much money for too long while they remain unproductive or unprofitable.
A lot of people are thinking that the stimulus money is printed freshly by the government and this can lead to inflation and that it is the end of the USD as a world reserve currency. But this isn't the fact, actually no new money is being printed by the Federal Reserve.
Here is the explanation of what's happening behind the scene:-
There are three sources of getting the stimulus money by the Treasury Department
So now it will be clear that the USD is still going to be the same that we used to know before the Lockdown.
Source: https://www.youtube.com/watch?v=PZpYgQiZXhI
Here is the explanation of what's happening behind the scene:-
There are three sources of getting the stimulus money by the Treasury Department
- Public Sector
Like other parts of the government
- Private Sector
- Foreign Investors
- Steps
- So the Treasury Department issues IOU's(these are the same as of the ICO happening in the crypto sector) and give those IOU to these 3 kinds of investors in exchange of money.
- Now the money they get by selling these IOU is given to the people of US as stimulus money
- They in turn spend the money and it goes to the companies creating a positive economy
- And then the companies buy more IOU if they want to
- This cycle continues
So now it will be clear that the USD is still going to be the same that we used to know before the Lockdown.
Source: https://www.youtube.com/watch?v=PZpYgQiZXhI
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