Newly Created Money

[EmbraceLiberty]

@MMMark

The government borrows money, by selling Treasury Bills (T-Bills), in an amount at least equal to its budgetary deficit plus expected interest. The Federal Reserve (the Fed) buys a significantly large quantity of government T-Bills on a regular basis (see Open Market Operations). Where does the Fed get the money to buy these T-Bills? By simply crediting their own account. This is new money. Every budgetary deficit represents an equivalent amount of additional new money that will be created. Since the government budget always contains a deficit, new money is always being created.

But, because the Fed gets this money back with interest doesn’t that cause deflation?