Where does the money come from?

Economics Economics Questions
1

Really do not know much about economics but would like your help on the following question. As our government spends another trillion where does that money come from? I understand that, for the most part, it will eventually come from the taxpayer but what does it mean to buy back toxic debit and how does the government use bonds to create money? I am willing to read more about it if you have a link to follow.

Thanks

2

Why from here of course…

Seriously though, the central bank prints money and uses it to purchase government bonds in what’s called open market operations. Or the government could always borrow it from China!

The government can only get its money three ways: by printing, borrowing or stealing.

3

Correct me if I’m wrong, but I’m pretty certain the money is digitally created via computer by the Federal Reserve for the United States Government. The U.S. Government issues “promise to pay by taxpayers” bonds for the total amount of money borrowed. So yeah, when the Government isn’t borrowing money from other countries or raising taxes to bring in more revenues, it’s creating money out of thin air by asking the Fed to borrow it, which will in turn make the already circulating money in the economy worth less and less. The more you have of something the more it becomes worth less.

Hope that helps a bit.

4

If you don’t know much about economics getting into the details of monetary creation isn’t a good place to start in my opinion. It’d be like me saying I don’t know much about physical science, but would like to know the specifics of string theory.

Here is a good reading list if you want to start at the beginning, courtesy of Giles.

For economics, read the following books in this order:

  1. David Gordon, An Introduction to Economic Reasoning (here),
  2. Gene Callahan, Economics for Real People (here),
  3. Henry Hazliit, Economics in One Lesson (here),
  4. Carl Menger, Principles of Economics (here)
  5. Hans-Hermann Hoppe, Economic Science and the Austrian Method (here),
  6. Murray Rothbard, Man, Economy and State (here)
  7. Jesus Huerta de Soto, Money, Bank Credit and Economic Cycles (here)
  8. Friedrich Hayek, The Pure Theory of Capital
  9. Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (here)
  10. Ludwig von Mises, Socialism (here)
5

These lectures may help you quickly grasp something about money creation:

http://www.chrismartenson.com/crashcourse/chapter-6-what-money

http://www.chrismartenson.com/crashcourse/chapter-7-money-creation

http://www.chrismartenson.com/crashcourse/chapter-8-fed-money-creation

6

In a nutshell, money is created by the central bank out of “thin air”. As far as where the federal government gets the trillions of dollars it spends, it is not just printing fiat money. Usually, foreign central banks buy U.S. tresuary securities/bonds which fund the federal government’s operations. In return for the securites the federal government agrees to pay back the principal value of the bond plus intrest. This means that the state is throwing billions of borrowed dollars around and stickcing taxpayers with the impossible task of paying the bill. When the cost of the federal government’s operation become to costly that they cannot be covered by the sale of treasury securities alone, the state sells other bonds and yes, runs the printing press. Any operation in which the federal government acquires money is disastarous in the end (even if we arent sure when “the end” is.)

Again, this is just the situation in a nutshell.

7

It comes from force. The government forces people to accept its money.

8

Thanks everyone for the very helpful information.

Lots to learn on my part and lots of great reading ahead of me from all of you.

Very impressed.

9

it can come from anything people choose as a medium of exchange.

right now there are many types of money grouped in m1 m2 m3 and they all come from the fed’s printing press.

10

Actually, much of those figures do not actually physically exist. They have yet to be printed.