So, I understand that the US Government nearly always spends more than it takes in. I also understand that the government makes up the difference by borrowing from the Federal Reserve, who in turn may choose to sell the debt as US Government bonds. The part I don’t understand is… where does printin…

Banks have accounts with the fed and the fed can add zero’s to the money in those accounts they can also add zeros to the money in their own accounts and go and buy stuff with that. What is the check on the system that prevents the government from printing as much money as it wants? Good questi…

Ok, let me know if I’ve got this right: The Federal Reserve can create money ex nihilo (out of nothing) in order to loan it to the US Government or to loan it to member banks at a discount rate. Member banks can borrow 10x the amount of money that they have in deposits from the Fed at very low int…

@Chris : The details are a lot more complex than that but you have the basic idea. Importantly, the Fed is not the only customer of US government debt. This is an important part of the justifications that economists give for the Federal Reserve’s actions. Essentially, the reasoning is that if the Fed…

Chris, The U.S. Government borrows money from the treasury market, ie, from the private sector, foreign governments and foreign central banks. It does not borrow directly from the U.S. central bank (Federal Reserve) under “normal” conditions. (using “normal”, “central bank” and “U.S. Government” i…

The US government sells bonds. The bond dealers buy them and then subsequently sell some to the Federal Reserve Bank. The Fed creates the money from nothing to buy these bonds. So the Federal government does not create money, only the fractional reserve banks do that with the Federal Reserve Bank be…

What is the check on the system that prevents the government from printing as much money as it wants? There is none.

At the end of the day, somebody has to get paid in actual folding green. I understand that money is actually printed at the Buearu of Printing and Engraving, but how does it make its way to the Fed? How is the money created by the Fed through it’s fancy checkbook tricks realized as actual cash? I …

Chris, You are focusing on the “folding green”, but that is an insignificant part of the money creation process. And, actual currency (“folding green”) is not a significant part of the overall money supply. It is the creation of demand deposits that is the key. But, to address your question: A ban…

I’ve been out of this thread for a while, but I wanted to thank everyone for their great responses. Per chloe732’s remark, I did some reading about demand deposits, and I think that I have a better understanding. It seems as though the actual cash kept on hand at the banks is merely a fraction of th…

How the Federal Reserve Works

Economics Economics Questions

Think_Blue August 28, 2010, 9:27pm 3

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[url]Question about open market operations - #4 by Think_Blue]

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How the Federal Reserve Works

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