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Comment by lxgr | Hacker News Reader

> Maybe it's easy for the Fed to acquire more cash as long as it's guaranteed not to be spent.

The Fed doesn't acquire cash, it creates it. USD banknotes are liabilities of the Fed, but that concept only makes sense when somebody other than itself owns them.

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No. We have a double accounting system. For every $1 it creates, it has to create an equivalent liability.

And when something is budgeted for $1 Million, it is $1m nothing more nothing less

Not sure when exactly the Fed accounts for USD printed – i.e. only once distributed to somebody else, or as soon as they're printed and still owned by the Fed – but even in the latter case, asset and liability work out to exactly zero.

So this million USD might or might not have been accounted for, but it definitely does not need to be budgeted for.

I mean, that's a very corporate accounting way of looking at it. But countries are not corporations, or even banks, and the abstraction is so leaky it's pretty much never worth using.

Even for corporations and individuals it works that way. If you write a check to yourself, it represents both an asset and a liability whose effects on your equity exactly cancel out.

Double entry accounting has properties that allow it to track the flow of money, not just its state (current balance), so it useful for countries as well as corporations.

Does the USG not use quad entry?

So, in your mind, when the Federal Reserve prints a dollar bill - what's happening in accounting terms? I don't think your understanding of the way this works is consistent with the concept of money supply.

Not your parent but in my mind, when the Fed prints $1 million to replace old bills they take out of circulation and give then to people to stuff into a cube then in accounting terms basically nothing happens at all.

To be precise, the treasury prints the bills, not the federal reserve. The federal reserve balances what money is in circulation by selling or buying bonds. When they issue a bond, someone buys it, so money is removed from circulation. When they buy a bond, money is injected into circulation.

It’s the other way around. The treasury issues bonds; the Fed buys (or repos) them in exchange for newly issued USD.

Oh whoops, you're right!

I'm not really familiar with accounting in English but is it really a liability in double-entry accounting? Wouldn't generating money basically be income? So if you sell $1000 worth of stuff, you credit the sales account for $1000 and debit your cash/bank account for $1000, and the account's basically a bottomless pit where you can draw as long as you're generating income.

> I'm not really familiar with accounting in English but is it really a liability in double-entry accounting?

Only if you're the central bank, but for them, it really is, yes. For everybody else, money held is an asset, since it's somebody else's (in this case, the central bank's) liability to them.

Yes, but the liability account in the Fed's case is /dev/null, isn't it?

For the Fed though that liability is just a line in a spreadsheet.

Yes the Fed creates an entry in the balance sheet by convention but it’s basically just a formality to the currency creator.

I’m certain there’s policy that allows for national mint to create non-spendable exemplars of currency in a way that does not count as cash.

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