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How does the FRB "prints" new money?

Gosha
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8/5/2017 1:16:01 AM
Posted: 3 months ago
Hi, I'm trying to understand the way in which Federal Reserve Bank injects new money into the circulation.
From my understanding what the FRB does, it is buying government bonds that are being held by private sector.
So my question is why does the FRB chooses to inject money particularly this way, and not any other? I mean in order to lure private individuals to sell their bonds, the FRB must has to offer more money for the bonds than their market value, so it's kinda a free ride for some individuals.
dc0404
Posts: 287
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8/5/2017 4:38:48 AM
Posted: 3 months ago
At 8/5/2017 1:16:01 AM, Gosha wrote:
Hi, I'm trying to understand the way in which Federal Reserve Bank injects new money into the circulation.
From my understanding what the FRB does, it is buying government bonds that are being held by private sector.
So my question is why does the FRB chooses to inject money particularly this way, and not any other? I mean in order to lure private individuals to sell their bonds, the FRB must has to offer more money for the bonds than their market value, so it's kinda a free ride for some individuals.

This is really fun stuff.... think about it, The Fed is trying to increase the money supply, yet before they do so, they buy bonds through OMO (open market operations). What do they buy the bonds with? If they buy the bonds with cash, then aren't they decreasing the very cash they are printing to inject into the economy? Part of the answer is they do NOT buy the bonds with cash. Also, a central bank can legally create "something out nothing". They issue credit, "from thin air" to banks that hold US treasury bonds (or debt). In turn, the Fed now holds these bonds on their balance sheet, thus boosting the asset side of their balance sheet. Now they have sufficient assets, in the form of Treasury bonds in order to legitimize the printing and injecting extra cash into the system.

But remember, it all started from NOTHING. It was the Fed issuing credit to bond holders, ultimately so they could inject cash back to these bond holder banks to monetize the country. This is also why too much QE is not sustainable. In fact, the Fed recently announced they may start QT, which is quantitative tightening. This means they will start reducing the assets on their balance sheet by selling the bonds they previously purchased. Just make sure you sell yours first because the price will drop after the Fed dump, if they do QT.

DC
John_C_1812
Posts: 793
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8/5/2017 1:57:19 PM
Posted: 3 months ago
At 8/5/2017 1:16:01 AM, Gosha wrote:
Hi, I'm trying to understand the way in which Federal Reserve Bank injects new money into the circulation.
From my understanding what the FRB does, it is buying government bonds that are being held by private sector.
So my question is why does the FRB chooses to inject money particularly this way, and not any other? I mean in order to lure private individuals to sell their bonds, the FRB must has to offer more money for the bonds than their market value, so it's kinda a free ride for some individuals.

First the Federal Reserve Bank issues Promissory Notes. The Federal Reserve note is in essence a receipt placed on many possible things including debt. What you consider money is really an imperial receipt printed by a central bank. After printing the note can be used as a form of non biased exchange with a self-regulating value and standard cost.

The so called new money is only money that would exceed the money already in circulation. The Federal Reserve Bank is providing a form of public Capital in the form of registered, valued, receipt it is a good placed in an economy for a service.

United States savings Bonds are also a form of registered, valued, receipt produced by a competitor though the bonds come in a variety of partial or biased forms both public and private.

The major difference is the Federal Reserve Note can be regulated to lower its own cost created by demands placed upon it by the general public as a receipt issued to them by a central bank. A Federal Note is not a Free Note it has a axiom of GOD which describes it as self-regulating. Provided you are capable to hold yourself impartial to public influence of belief.
dc0404
Posts: 287
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8/5/2017 2:01:15 PM
Posted: 3 months ago
At 8/5/2017 1:16:01 AM, Gosha wrote:
Hi, I'm trying to understand the way in which Federal Reserve Bank injects new money into the circulation.
From my understanding what the FRB does, it is buying government bonds that are being held by private sector.
So my question is why does the FRB chooses to inject money particularly this way, and not any other? I mean in order to lure private individuals to sell their bonds, the FRB must has to offer more money for the bonds than their market value, so it's kinda a free ride for some individuals.

To add, and answer your question more specifically... why doesn't the Fed choose another way? The answers is there is NO legitimate way for anyone to do this, other than increased production, output, and trade exports. Outside of that, the only tool the Fed has (which is the only entity that can do this) is direct market manipulation. So again, there is NO legitimate way for an entity like the Fed to inject cash into the economy. Just because it is legal what they do doesn't make it legitimate. And, it is only legal because they say it is legal, whereas for anyone else to print money, it is illegal. Since there is no legitimate way to do this, they have to start somewhere, and where they start is issuing "Credit from thin air" to the bond holding banks. Once something exists (the credit), then it is all legitimate from there, it is just the magically appearing credit that is illegitimate, but legal apparently for the Fed.

DC
John_C_1812
Posts: 793
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8/5/2017 2:14:17 PM
Posted: 3 months ago
At 8/5/2017 1:16:01 AM, Gosha wrote:
Hi, I'm trying to understand the way in which Federal Reserve Bank injects new money into the circulation.
From my understanding what the FRB does, it is buying government bonds that are being held by private sector.
So my question is why does the FRB chooses to inject money particularly this way, and not any other? I mean in order to lure private individuals to sell their bonds, the FRB must has to offer more money for the bonds than their market value, so it's kinda a free ride for some individuals.

The Federal Reserve Bank Prints only new Money when the printing and registration process is greater that the lost, damage, repair, and replacement process. This number is never know precisely by the Federal Reserve as the cash receipt can be publicly horded and hidden away privately.
John_C_1812
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8/5/2017 2:27:14 PM
Posted: 3 months ago
At 8/5/2017 2:01:15 PM, dc0404 wrote:
At 8/5/2017 1:16:01 AM, Gosha wrote:
Hi, I'm trying to understand the way in which Federal Reserve Bank injects new money into the circulation.
From my understanding what the FRB does, it is buying government bonds that are being held by private sector.
So my question is why does the FRB chooses to inject money particularly this way, and not any other? I mean in order to lure private individuals to sell their bonds, the FRB must has to offer more money for the bonds than their market value, so it's kinda a free ride for some individuals.

To add, and answer your question more specifically... why doesn't the Fed choose another way? The answers is there is NO legitimate way for anyone to do this, other than increased production, output, and trade exports.

There are many ways to do this. The way that it is done is to insure political names are attached to representation of the Federal receipts issued as notes publicly. As banking is private industry it insures a governing over spending and who is spending. Also keep in mind any one is allowed to print registered receipts. It is Plagiarizing the Federal Reserve Note on paper which becomes described as a form of counterfeiting.
dc0404
Posts: 287
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8/5/2017 3:02:56 PM
Posted: 3 months ago
At 8/5/2017 2:27:14 PM, John_C_1812 wrote:
At 8/5/2017 2:01:15 PM, dc0404 wrote:
At 8/5/2017 1:16:01 AM, Gosha wrote:
Hi, I'm trying to understand the way in which Federal Reserve Bank injects new money into the circulation.
From my understanding what the FRB does, it is buying government bonds that are being held by private sector.
So my question is why does the FRB chooses to inject money particularly this way, and not any other? I mean in order to lure private individuals to sell their bonds, the FRB must has to offer more money for the bonds than their market value, so it's kinda a free ride for some individuals.

To add, and answer your question more specifically... why doesn't the Fed choose another way? The answers is there is NO legitimate way for anyone to do this, other than increased production, output, and trade exports.

There are many ways to do this. The way that it is done is to insure political names are attached to representation of the Federal receipts issued as notes publicly. As banking is private industry it insures a governing over spending and who is spending. Also keep in mind any one is allowed to print registered receipts. It is Plagiarizing the Federal Reserve Note on paper which becomes described as a form of counterfeiting.

Sure, I suppose one could dream up any numbers of ways to do this, or manufacture other ways of doing this, but there is only one way that it is actually being done, that being quantitative easing through the issuing of credit from thin air. And the real point is it is "manufactured" from nothing, and any other way that you would dream up, would also come from nothing, other then a trade surplus.

DC
Gosha
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8/6/2017 1:17:56 AM
Posted: 3 months ago
Thanks to everyone for answering. I'm in a stage where I'm trying to wrap my mind around how this system works, how big is the role of FRB in US economics and what effects it has.
According to the data I found on the net, there are 13 trillion dollars out there(M2), and in the period 2008-14 the FRB had added 4 trillion dollars. That means almost 33 percent of dollars we have today were added in the last 6 years. That's quite significant amount I would say.

Also dc0404 u seem as one of those people that tend to portrait the government in a negative way, always suspicious of some conspiracy or a scam. The government is authorised to print money as it wishes, nothing wrong with that. So of cause it's legitimate, and it's OK that it is from "thin air", from where else could it be?
But it's another way to question the method that it chooses to do so. I mean as far as I understand, the government is covering its budget deficit by selling bonds to the public, later the FRB buys these same bonds when they decide to inject money into the market... but why can't the government just sell these bonds directly to FBR and skip the middleman private sector?

Now there is another thing that been bothering me. Why do they say that banks make money by loaning their deposits to thr public? For example person A deposits 100 dollars in the bank, and the bank loans part of this money (90 dollars ) to person B, so they claim that now there is 190 dollars out there and that the bank have created an additional 90 dollars... but why?
Imagine my friend have asked me to watch his apartment while he will be gone abroad for some long period , so he asks me to feed his cat and water the flowers and whatever... now after a while suddenly I think of an idea of renting the apartment out while my friend is abroad, without ever telling him. So now I have rented out the apartment, would u say that I had like "created" a new apartment? Don't think so... there is still only one apartment, not two. Of cause my friend is not aware that the apartment is now rented, and he thinks that it's available for him to come back any time he wishes, while another person is living there, but there is still only one apartment, not two... I haven't created another apartment.
Same with money... so the person-A thinks that his deposit of 100 dollars is laying in the bank while it is actually being loaned out to person B, but it is still only 100 dollars and not 190. It's not like there are goods being purchased with a sum of 190 dollars, no, it's still only 100 dollars no matter how u look at it... So why are they keep saying that banks create money by giving away loans?
dc0404
Posts: 287
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8/6/2017 3:49:18 AM
Posted: 3 months ago
At 8/6/2017 1:17:56 AM, Gosha wrote:
Thanks to everyone for answering. I'm in a stage where I'm trying to wrap my mind around how this system works, how big is the role of FRB in US economics and what effects it has.
According to the data I found on the net, there are 13 trillion dollars out there(M2), and in the period 2008-14 the FRB had added 4 trillion dollars. That means almost 33 percent of dollars we have today were added in the last 6 years. That's quite significant amount I would say.

Also dc0404 u seem as one of those people that tend to portrait the government in a negative way, always suspicious of some conspiracy or a scam. The government is authorised to print money as it wishes, nothing wrong with that. So of cause it's legitimate, and it's OK that it is from "thin air", from where else could it be?
But it's another way to question the method that it chooses to do so. I mean as far as I understand, the government is covering its budget deficit by selling bonds to the public, later the FRB buys these same bonds when they decide to inject money into the market... but why can't the government just sell these bonds directly to FBR and skip the middleman private sector?

Now there is another thing that been bothering me. Why do they say that banks make money by loaning their deposits to thr public? For example person A deposits 100 dollars in the bank, and the bank loans part of this money (90 dollars ) to person B, so they claim that now there is 190 dollars out there and that the bank have created an additional 90 dollars... but why?
Imagine my friend have asked me to watch his apartment while he will be gone abroad for some long period , so he asks me to feed his cat and water the flowers and whatever... now after a while suddenly I think of an idea of renting the apartment out while my friend is abroad, without ever telling him. So now I have rented out the apartment, would u say that I had like "created" a new apartment? Don't think so... there is still only one apartment, not two. Of cause my friend is not aware that the apartment is now rented, and he thinks that it's available for him to come back any time he wishes, while another person is living there, but there is still only one apartment, not two... I haven't created another apartment.
Same with money... so the person-A thinks that his deposit of 100 dollars is laying in the bank while it is actually being loaned out to person B, but it is still only 100 dollars and not 190. It's not like there are goods being purchased with a sum of 190 dollars, no, it's still only 100 dollars no matter how u look at it... So why are they keep saying that banks create money by giving away loans?

I said it comes from thin air, I did not say it came from anywhere else, I very clearly stated it came from "nothing", I was implying nothing else, so not sure where you got that from. And yes, I do think mostly what the government does has negative consequences on the people, I would be happy to debate this with you. Generally speaking, the government is very bad at legislating and regulating any specific industry in the US. Back to money printing, legally they can print money because they said it is legal for them to do so, but that doesn"t mean it is good. Wouldn"t it be better to focus on productive growth that grows GDP and increases the money supply, such as trade surplus" but we are far from that now.

The reason the government (and by government you actually mean the US Treasury) cannot sell these bonds to the Fed is because the Fed has no money to buy them. So, instead, as I said previously they legally issue credit from thin air in order to buy the bonds, because they deemed it legal for them to do so.

I will have to stew a bit on your last question.

DC
dc0404
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8/6/2017 4:12:17 AM
Posted: 3 months ago
Now there is another thing that been bothering me. Why do they say that banks make money by loaning their deposits to thr public? For example person A deposits 100 dollars in the bank, and the bank loans part of this money (90 dollars ) to person B, so they claim that now there is 190 dollars out there and that the bank have created an additional 90 dollars... but why?

What you identified here is part of the potential fragile state of the banking system. As long as everyone doesn't come and redeem their deposits at once, or even 10% of depositors do not redeem at once, the system keeps going. You identified some of this in the different levels of money supply such as M0, M1, M2, etc. Some of these money supply levels include the credit markets that people are treating as money, but really are not, it is credit, and of course this is why people go bankrupt, as do business, and governments. There is simply NOT enough dollars in the system, not even close, to cover all of the depositors money, and that is scary. And whatever you do, do not count on the FDIC 250k sign you see in banks. You have to keep money in banks, don't get me wrong, but you do not have to keep all of your assets there.

The $100 you deposit shows up as both an asset and liability on the the bank balance sheet. When they loan out $90 to someone else, since it is not specifically your $100, this $90 loan also shows up as an asset on their balance sheet, thus $190 in assets on their balance sheet. This would be my best answer... there is no doubt in my mind the original $100 they claim as an asset and the loan that is now due to them is also an asset. What banks sometimes do however, is they "understate" their liabilities, and in essence could be insolvent, and in some rare cases they are, and they fail.

DC
John_C_1812
Posts: 793
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8/6/2017 2:36:08 PM
Posted: 3 months ago
At 8/6/2017 1:17:56 AM, Gosha wrote:
The government is authorised to print money as it wishes, nothing wrong with that. So of cause it's legitimate, and it's OK that it is from "thin air", from where else could it be?

Gosha,
The Federal Reserve Bank cannot print money as it wishes. The United States Treasury cannot print money as it wishes. Congress can not print money as it wishes. It at minimum needs to secure funding for the necessary cost of registration of the serial numbers of notes that are made public.
Gosha
Posts: 4
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8/6/2017 3:06:20 PM
Posted: 3 months ago
At 8/6/2017 2:36:08 PM, John_C_1812 wrote:
At 8/6/2017 1:17:56 AM, Gosha wrote:
The government is authorised to print money as it wishes, nothing wrong with that. So of cause it's legitimate, and it's OK that it is from "thin air", from where else could it be?

Gosha,
The Federal Reserve Bank cannot print money as it wishes. The United States Treasury cannot print money as it wishes. Congress can not print money as it wishes. It at minimum needs to secure funding for the necessary cost of registration of the serial numbers of notes that are made public.

Yeah... also u forgot paper and ink.
John_C_1812
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8/6/2017 3:19:49 PM
Posted: 3 months ago
At 8/6/2017 3:06:20 PM, Gosha wrote:
At 8/6/2017 2:36:08 PM, John_C_1812 wrote:
At 8/6/2017 1:17:56 AM, Gosha wrote:
The government is authorised to print money as it wishes, nothing wrong with that. So of cause it's legitimate, and it's OK that it is from "thin air", from where else could it be?

Gosha,
The Federal Reserve Bank cannot print money as it wishes. The United States Treasury cannot print money as it wishes. Congress can not print money as it wishes. It at minimum needs to secure funding for the necessary cost of registration of the serial numbers of notes that are made public.

Yeah... also u forgot paper and ink.

It really does not need paper and ink. The dollar simply must have a registered independent serial number fix to the face value of the Federal Note. As this single action is to insure it is a receipt and that its value must be changed in multiple places of established record.

Ink and paper are a cost facture only. Along with axiom numerical array. The legal problem is created in displaying or not displaying the serial number to those who hold the notes.
Gosha
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8/6/2017 3:22:30 PM
Posted: 3 months ago
The reason the government (and by government you actually mean the US Treasury) cannot sell these bonds to the Fed is because the Fed has no money to buy them. So, instead, as I said previously they legally issue credit from thin air in order to buy the bonds, because they deemed it legal for them to do so.

Wait... The Fed does have the money to buy bonds. The Fed doesn't get bonds by issuing credit (giving loand), but by buying the bonds with money.
John_C_1812
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8/6/2017 3:25:09 PM
Posted: 3 months ago
I have to say I do agree with Dc_0404

However; I would consider the issue he describes as a conflict of interest as it is publicly describing how a plagiarizing is taking place.
dc0404
Posts: 287
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8/6/2017 3:58:37 PM
Posted: 3 months ago
At 8/6/2017 3:22:30 PM, Gosha wrote:
The reason the government (and by government you actually mean the US Treasury) cannot sell these bonds to the Fed is because the Fed has no money to buy them. So, instead, as I said previously they legally issue credit from thin air in order to buy the bonds, because they deemed it legal for them to do so.

Wait... The Fed does have the money to buy bonds. The Fed doesn't get bonds by issuing credit (giving loand), but by buying the bonds with money.

No, they do not buy with money (meaning dollars). They issue credit to bond holding banks, and remember the bonds are really debt. So they are essentially buying the debt (or bonds) by issuing credit to member banks. The mistake people make is they confuse credit for dollars, credit is not dollars although you could argue credit is still money, but it is not dollars. That is my point. The credit they issue is where it starts, which comes from nothing, and credit is NOT dollars, but is it money? Sure, I will give you that. It is just that credit is not as much a sound type of money as dollars are, and this is why QE is not sustainable because it is not created through dollar holdings but by issuing more credit.

DC
John_C_1812
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8/6/2017 10:19:41 PM
Posted: 3 months ago
At 8/6/2017 3:22:30 PM, Gosha wrote:
The reason the government (and by government you actually mean the US Treasury) cannot sell these bonds to the Fed is because the Fed has no money to buy them. So, instead, as I said previously they legally issue credit from thin air in order to buy the bonds, because they deemed it legal for them to do so.

Wait... The Fed does have the money to buy bonds. The Fed doesn't get bonds by issuing credit (giving loand), but by buying the bonds with money.

I do not question the purchase of United States Savings Bond. It is a point a governing Treasury is selling United States Bonds to the Federal Reserve Bank while the Federal Reserve note has power of self-regulation. Meaning it can dictate its own cost without effecting the public value it sets by quantity of serial numbers can simply shift value on the impartial receipts that hold the public displayed value.

Meaning notes that had once been 10.00 dollar notes can become 100.00 notes over night. While treasury Bonds cannot. this serves a point of conflict and concern of public savings in the name of TRUST.

Unlike DC-0404 is see the U.S.Treasury as loaning itself money while being able to associate with congress who spends money and write laws regarding market lending.
John_C_1812
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8/7/2017 5:57:21 PM
Posted: 3 months ago
At 8/6/2017 3:58:37 PM, dc0404 wrote:
At 8/6/2017 3:22:30 PM, Gosha wrote:
The reason the government (and by government you actually mean the US Treasury) cannot sell these bonds to the Fed is because the Fed has no money to buy them. So, instead, as I said previously they legally issue credit from thin air in order to buy the bonds, because they deemed it legal for them to do so.

Wait... The Fed does have the money to buy bonds. The Fed doesn't get bonds by issuing credit (giving loand), but by buying the bonds with money.

No, they do not buy with money (meaning dollars). They issue credit to bond holding banks, and remember the bonds are really debt. So they are essentially buying the debt (or bonds) by issuing credit to member banks. The mistake people make is they confuse credit for dollars, credit is not dollars although you could argue credit is still money, but it is not dollars. That is my point. The credit they issue is where it starts, which comes from nothing, and credit is NOT dollars, but is it money? Sure, I will give you that. It is just that credit is not as much a sound type of money as dollars are, and this is why QE is not sustainable because it is not created through dollar holdings but by issuing more credit.

DC

I am going to try an explain this as simply as I can DC_04
The Federal Note is self-regulating the Treasure bond is not self-regulating. Yet both are set in a scale of Dollar value. If the Reserve prints money to flood numerical denomination in the United States Currency stream with higher value Note, under what was once lower value serial numbers set for destruction. It can hedged a cost of dollars on the volume of dept. to spike better yield of the Treasury bond.

This possibility is what makes this a conflict of interest.