The whole process of money creation through central banking is still quite opaque to me. In particular I wonder about the following: if the Fed buys US government securities then the government needs to pay the Fed back at some point, no? If so, how does the government benefit from these transactio…

This point is often brought up by those who say that private banks having the power to issue money will ruin society, claiming that the FED pretty much owns the govnernment. To refute this, government debt at the FED is a minority of all government debt. Also, the FED is required by law to return t…

I’m pretty sure the FED is the one that issues the securities in the first place. (At least that’s what I’ve been taught). See here.

There are two reasons why the Fed would buy US gov securities. 1- Buying gov securities from the market to increase the amount of money in circulation. Think about it. The Fed has a lot of money and this secuities are just being traded in the market. The Fed thinks the economy needs more money in c…

okay, thanks for the answers so far. To be sure, my question is only about how the government profits from these deals, not so much how the Fed wants to influence the amount of money in circulation. The link in the first response addresses that question. In that thread it is stated that the Fed does…

I’m pretty sure the FED is the one that issues the securities in the first place. (At least that’s what I’ve been taught). You are right, the Fed does issue the securities through its treasury arm. Private banks then buy the securities from the Fed, with a promise that whatever was paid will be…

Okay, now I’m not understanding it anymore. the Fed creates the securities? so how or why can it buy them from the government? And how then does the Fed create money to pay back the Fed itself? sorry, I’m not understanding

The major point is that the government is pays much less than the official amount of interest they would owe if a private entity bought the same debt - the government often pays little, if any, interest. Given this, they x borrow money with y purchasing power today; and they return x money with < y …

Not quite. The fed sets the interest rate on the securities and they are loaned out through the treasury. It doesn’t buy them from the government, firms buy them from the treasury and the fed buys them back once they’ve matured. When the fed buys them back they inject the money supply with the th…

Very basic question about money creation

Economics Economics Questions

hayekianxyz October 13, 2008, 5:16pm 2

See here: Does the central bank just forgive government debt?

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Very basic question about money creation

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