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Comment by ajross | Hacker News Reader

> We literally just handed out trillions minted out of thin air.

It's so weird to see memes like this persist. No, no we didn't.

Those spending bills were financed via deficit spending: they were loans. All spending bills are loans. The treasury department raises money by selling bonds. Every deficit dollar the government spends is a dollar it takes in from some investor somewhere who wanted to park money in US treasuries.

Now, that comes with interest obligations. It's not "free". If the money gets spent rapidly vs. being left in a money market fund or whatever, then it can be a Keynsian growth stimulus or an inflationary pressure (which are pretty much the same thing).

But it's not just printing money! That doesn't happen. People need to stop saying that. Why do people keep repeating something that is so clearly incorrect?

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Obviously* it's not printing money literally. But it's increasing the money supply. When governments deficit spend, they deposit money in private sector banks, increasing their balance sheet. The net result of this is more dollars in and flowing through the economy.

Which is... printing money, pretty much. The idea that it's some kind of moral failing or inherently irresponsible is silly, but the description isn't some crazy conspiracy theory.

* I'm sure some people have the idea that Jerome Powell is walking up to a printing press, turning a crank, and literally printing money. But I'm also pretty sure that no one here is under that misconception.

> But I'm also pretty sure that no one here is under that misconception.

I'm a little less sure every time I read one of these threads.

You call it printing but it happened in response to the private sector desiring to increase its net savings which can only happen if another party goes into further debt. By this logic, saving money is printing money because the money in your bank account is taken out of circulation and stagnates on your bank account, that stagnant money is added on top of the usual supply needed to keep the economy running. This is quite literally a conspiracy theory. Don't you see how ridiculous this framing is?

> People need to stop saying that. Why do people keep repeating something that is so clearly incorrect?

Because they have a better understanding of it than you do.

The Fed buys government bonds, aka "Quantitative Easing." That is printing money. They started doing that after the 2007-8 recession, because just lowering the interest rate to zero wasn't doing enough (in their view). They didn't want to have negative interest rates like some countries did, so QE was the only choice.

QE isn't printing money, it is a way to blend treasuries into a finely chopped liquid so that your bank can keep the asset side of its balance sheet just as liquid as it's deposits. Due to liquidity preferences people prefer liquid assets over illiquid assets and therefore demand compensation to give up liquidity. Since the yield on capital is falling, people prefer holding straight up money over investing it themselves in risk bearing assets, this means banks are being flooded with short term demand deposits that can be pulled out at any time. What QE does is effectively make all banks hold treasuries collectively. If one bank sends $1000 to another bank it doesn't have to sell treasuries at the current market rate and instead they just transfer the bank reserves which are a claim on $1000 worth of treasuries. As demand deposits become a greater share of financial capital, the risk of a bank run on a specific bank becomes higher and higher. Basically any bank is at risk of becoming instantly insolvent. The problem here is keeping excessive savings in money instead of capital.

I hate to resort to cliche, but it's just so apropos here:

You are missing the forest for the trees. You know all the details but none of the big picture.

QE is increasing the money supply. Since you object to the pejorative "printing money" we can stop using that phrase. It's increasing the money supply.

> QE is increasing the money supply.

So are home mortgages. So is giving your brother $200 to make rent. So is buying the AR-15 you've been saving for. The money supply is elastic, and responds to economic activity. Harnessing that truth as an engine of growth is the fundamental insight of modern economics.[1]

The contention upthread was some ridiculous hyperbole about "minting dollars out of thin air", and the truth is that... nothing of the sort is happening. At all.

[1] And by extension, arguing against it piecewise like this is tantamount to demanding we all go back to a barter economy backed by hoarded treasure.

.. and I suppose you're an adherent of MMT? [1]

Unfortunately for you, "printing money" is a meme that sticks.

[1] Magical Monetary Thinking

Because when the Federal Reserve buys those treasuries, you're creating money out of thin air (QE).

This comment highlights the most crucial insight on QE: it is a relatively novel monetary policy innovation that was implemented as an emergency response to the 2008 crisis on a very large scale and, as such, we had no experience using it. 14 years later, we’re finding out what it means for an economy to have the Federal Reserve buy a large amount of US debt.

QE isn't novel by any stretch, even in 2008. The Federal Reserve had a similar program back in 1930s around the Great Depression and the Bank of Japan has had a full-swing QE program since like 2001.

It wasn't that long ago the USA confiscated gold from its citizens via President Roosevelt's Executive Order 6102 in 1933.

I don't think we are finding out that much. Most other countries are experiencing the same inflation we are and not all of them deficit spent a lot during the pandemic. Nor do most even have that power.

Surely some of the inflation and really low unemployment is due to QE. But it's likely a lot more of it is due to an economy growing while the active workforce is shrinking and external factors like the pandemic and war in Ukraine causing supply issues.

Notably, it's a temporary creation. As those bonds get paid off, along with interest, the fed must either roll that money over to buy more, or simply disappear it off their balance sheet. Which is part of what they are doing now with Quantitative Tightening or QT.

The COVID relief bills were actually a one-time exception to a 100 year old reality.

1) Congress directly modified the Federal Reserve's charter to give money directly to private persons.

2) There were also payments directly from the US Treasury.

3) There were also things that involved that traditional convoluted process of the Treasury selling more bonds to the international market and pretending not to know that the Federal Reserve is the biggest buyer showing up.

In this case, because of 1), we really did create several trillion out of thin air, from the Federal Reserve itself. Basically Congress always could, but didn't. Easiest way to accumulate dollars is to scare people into believing dollars won't be relevant.

Although the US otherwise doesn't simply dilute the money supply with direct issuances for nothing, opting to primarily create dollars in exchange for corporate bonds and treasuries, there is a market tolerance and demand enough for dollars to support a much greater level of it. Disclaimer: I'm not advocating for anything.

What individuals did the fed give money too? The stimulus payments were paid through the US Treasury like any other congressional spending bill.

Stop that, you are breaking the illusion. People want a petty conspiracy theory.

People approximate this and think they can just reduce it to one government office when the truth is that literally every single participant in the economy is responsible. If I had to dumb it down I would say that the economy tries to be in balance. If the government appears to be doing one thing, it isn't alone, there are private companies and private individuals doing the complement.

In macro economy it is quite common to split an economy into two asymmetric entities. You, and the rest of the economy. If you earn, they spend, if they spend you earn.

If you borrow (known as printing in conspiracy theory jargon), they save (in aggregate), if they save, you borrow. Of course I am assuming that the balance is being maintained. If someone spends less than they earn, they save but if there is no net borrowing the balance is being disrupted. What happens then is deflation but that implies that the economy is in disequilibrium and must shake off some of the people earning more than they spend. It is kind of ironic that savers want deflation because in a perfect market they would get fired and wouldn't be allowed to work more which prevents them building up more savings.

Mention the Federal Reserve once and someone thinks you are talking about a conspiracy theory.

In any case, I think I was incorrect about the nature of the direct lending program, here is the report from Congress about the CARES Act (the first pandemic relief bill) and how its "expanding the Fed’s traditional role beyond lender of last resort to the banking system and even beyond the more expansive role it took in the 2007-2009 financial crisis"

Its really not a simple "treasury does this, federal reserve does that"

https://crsreports.congress.gov/product/pdf/R/R46329

I believe the direct lending program consists mostly of the Fed buying corporate bonds, which is loaning money to private corporations. There is also a component where they can loan to small businesses (notably a business with 200 employees is generally considered "small".

These programs are not handouts, they are loans. The Fed did this in 2008 when they bought bonds and even stock in some big companies.

Overall, the Fed made a big profit on all of that when the bonds were paid back with interest and the stock was sold back in tranches over time as the market recovered.

>> The COVID relief bills were actually a one-time exception to a 100 year old reality.

Disagree that QE-2020 was a "one-time event." I can think back 13 years to 2009 and recall both monetary and fiscal stimulus to provide post-2008 relief.

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