I have yet to understand this term. Is new money really being created off the press? Or is the fed simply buying tbills? Please Advise.
hey buy tbills by with newly printed money
“printing money” is a metaphor used to mean that the gov’t can deal with some of its problems by increasing the money supply and thus causing inflation. In the extreme case, printing money is literally getting out the printing press and printing paper currency to pay obligations of the gov’t (usually salaries of soldiers or similar). This is hyperinflationary and is a very serious economic problem - think post WW I Hungary, Weimar, etc . Next up the food chain is rolling short term govt debt into even more short term govt debt to finance govt operations. This isn’t exactly printing money but short term govt debt is really close to money and causes the same monetary effect when they can’t print or sell anymore of it. This is Russia, 1998. Then there’s the US in the next 30 years. If we have gov’t debt outstanding and huge social security obligations we can’t pay we can essentially repudiate the debt by increasing the money supply so that inflation east away at the debt. If the debt is paying 5%, but inflation is running at 10% then without doing anything we are reducing the national debt by 5%/year. That’s the usual “printing money” metaphor.
Thank Joey! That cleared this up for me.
joey, good answer… i understood the term “printing press”, in fact i’m using it in a write-up (put it in before seeing this thread)… but most of us don’t understand the actual mechanics of getting the money out there. an expert told me that the government can pretty much buy any property it wants with the bew money. can they pay salaries with it? or is there technically some interim step to get the money out of the treasury?? if you want to sound really informed, mention “helicopter ben”. the thought being that bernanke will be basically distributing money from a helicopter if things get bad enough. thanks for any follow-up!!
I wish I could print money…
westbruin Wrote: ------------------------------------------------------- > joey, good answer… i understood the term > “printing press”, in fact i’m using it in a > write-up (put it in before seeing this > thread)… but most of us don’t understand > the actual mechanics of getting the money out > there. an expert told me that the government can > pretty much buy any property it wants with the bew > money. can they pay salaries with it? or is there > technically some interim step to get the money out > of the treasury?? > > if you want to sound really informed, mention > “helicopter ben”. the thought being that bernanke > will be basically distributing money from a > helicopter if things get bad enough. > > thanks for any follow-up!! In the US, currency is distributed through Federal Reserve banks. Each bank needs to hold collateral at least equal to the currency it gets. Then the Federal Reserve banks distribute them to other banks as the banks need them (of course, this is sending them paper for electronic deposits and loans). The collateral that needs to be held by Federal Reserve banks includes the usual gold, SDR’s, etc and also Treasury bonds. So we are in this messed up situation in which the gov’t can issue an IOU to itself and then call that collateral for paper money. Some of the hard money folks on AF probably object to that. The interesting thing about all that is that the national debt has become the primary tool for controlling the money supply. Imagine if we paid it all off and then the Fed would need hard assets to issue more paper currency and couldn’t do open market operations.