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0 pointsjsmith997y ago0 comments

Dumping money in people's bank accounts would be a process called helicopter money, named after the suggestion that central banks could stimulate the economy by printing new money and scattering it out of helicopters. Sadly the Fed hasn't tried that yet.

What central banks are doing is buying bonds and other assets from the private sector, and paying for them by creating new money. In the past they might have created new money by ordering a truckload of new $100 bills to be printed, but now they can do it simply by changing the central bank balance of whoever they are buying the bonds from.

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8 comments · 2 top-level

umanwizard7y ago· 4 in thread

Those bonds do still have to be paid back. The fed is creating money and loaning it to people, which sounds a lot less dramatic.

jondubois7y ago

If all the money ever created in the US comes from Fed loans (using US dollars which the Fed created out of thin air), then logically, the only way to fully pay back those loans plus interest is by borrowing more new money from the Fed - This is because no other entity except the Fed has the power to create the USD necessary to cover the interest on the loans it makes.

If the government can keep accumulating debt forever without limits, is it actually debt? If someone kept loaning you more money every year and they let you use some of the money from your new loan to pay back all of your old loan... and they let you keep doing this forever; is it actually a loan?

UncleEntity7y ago

They pay them back to...themselves.

jondubois7y ago

Yes, the government cannot die in theory so the government debt can keep going up forever... Which is what seems to be happening. In order to pay back its old debts, the government takes out new, bigger debts (from the Fed mostly) and uses the new debt to pay off the old debts (again, to the Fed mostly; via open market operations).

This activity inflates the money supply. Because big government susidies, policies and overall spending tend to go to big corporations; much of that new government bond money ends up going into speculative investments like the stock markets, financial corporations and cryptocurrencies.

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umanwizard7y ago

What do you mean?

philwelch7y ago· 2 in thread

> What central banks are doing is buying bonds and other assets from the private sector, and paying for them by creating new money.

That’s called “quantitative easing” and was a temporary reaction to the global economic crisis. There were only a few rounds of that, the last of which was years ago.

jsmith99OP7y ago

What other 'massive streams of money' has the Fed dumped since then?

philwelch7y ago

That's the thing, I don't think it's fair to characterize it that way. Aside from QE, there's no real sign that "massive streams of money" were "dumped in" at all, outside of the three QE rounds. Here's a graph from the FED where the three rounds of QE are highly visible spikes: https://fred.stlouisfed.org/series/BASE

A weird, philosophical skepticism towards fiat currency and an irrational belief in high rates of inflation even without any evidence for it has been a common folk belief amongst goldbugs for decades. (Side note: what's the cryptocurrency equivalent of a goldbug? A bitbug?)

The general mechanism for the FED to influence the money supply is by borrowing and lending money with commercial banks. QE is only really used as a last resort.

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8 comments · 2 top-level

umanwizard7y ago· 4 in thread

Those bonds do still have to be paid back. The fed is creating money and loaning it to people, which sounds a lot less dramatic.

jondubois7y ago

UncleEntity7y ago

They pay them back to...themselves.

jondubois7y ago

1 more reply

umanwizard7y ago

What do you mean?

philwelch7y ago· 2 in thread

> What central banks are doing is buying bonds and other assets from the private sector, and paying for them by creating new money.

That’s called “quantitative easing” and was a temporary reaction to the global economic crisis. There were only a few rounds of that, the last of which was years ago.

jsmith99OP7y ago

What other 'massive streams of money' has the Fed dumped since then?

philwelch7y ago

The general mechanism for the FED to influence the money supply is by borrowing and lending money with commercial banks. QE is only really used as a last resort.

j / k navigate · click thread line to collapse