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The Fed can also reduce the reserve requirements of banks. This allows the banks to lend more money into existence and increase the overall money supply. Debt=money.
Banks are no longer reserve constrained. The limit is based more on credit worthy demand for loans. This was demonstrated at length with QE. Banks had huge excess reserves, but few qualified borrowers.
Banks are no longer reserve constrained. The limit is based more on credit worthy demand for loans. This was demonstrated at length with QE. Banks had huge excess reserves, but few qualified borrowers.
That was the case before SVB and subsequent mid-size bank failures. It spooked the Fed:
What are the pros and cons of just printing more money vs issues bond to increase the money supply?
The dollar only has value in the goods & services it can buy. With $5 get a haircut, a gallon of milk, 2 dozen eggs, maybe 2 gallons of gas. You decide.
When items are in short supply prices go up. With the same $5 can't buy as much stuff. An oversupply of cash can have the same effect. If money becomes worthless you can't buy anything with your $5.
For the government only costs the paper & the ink to "create" money by running the press. Has no relation to the cost of goods. Maybe you have more dollars in your hand but can't buy anything with it.
If the money is in short supply you don't have the cash to get your haircut. You may have to resort to a barter system where you trade something else for the haircut. Maybe you have to agree to sweep the floor. If they pay you $1/hour need to work 5 hours for the $5 haircut.
Dollar bills (Federal Reserve Notes) are not dollars. They are IOUs denominated in dollars, but have a minus value until redeemed.
Pursuant to Title 12 USC Sec. 411, dollar bills are "obligations" (debt) of the US Gubmint. To authorize issuing more notes, Congress has to have a deficit.
And this debt has an interest fee attached.
Except that the interest is never created, until more deficits are enacted.
The current national debt (33+ Trillion dollars) is impossible to repay.
Yes, it is insane. No, you cannot object. See clause 4, 14th amendment, USCON.
The End.
Well I guess money in circulation is debt. In other words the US government cannot pay off the debt because the money to lead it out is well way more.
It like you have $1 dollar bill and you come to me for $100 and I say okay, but now you have to pay me $1000 for me giving you $100.
Now you must pay debt of $1000 with $100 I gave you and the $100 I give you is not your money.
In other words the US government cannot pay of the debt ever even if it spend not even dollar in a year.
Quote:
Originally Posted by TimAZ
The Fed can also reduce the reserve requirements of banks. This allows the banks to lend more money into existence and increase the overall money supply. Debt=money.
How does the government do that? Do they lower the interest rate?
How does the government do that? Do they lower the interest rate?[/quote]
The government can regulate how much reserve the bank must have to cover deposits. Then they raise the interest rate on the money bank borrows from Federal Reserve. Real interest rate may be higher than this amount.
So the bank may borrow from FRB for 3%. Maybe go on market & borrow at 3.3%. When you get car loan you pay 6%.
How does the government do that? Do they lower the interest rate?
The government can regulate how much reserve the bank must have to cover deposits. Then they raise the interest rate on the money bank borrows from Federal Reserve. Real interest rate may be higher than this amount.
So the bank may borrow from FRB for 3%. Maybe go on market & borrow at 3.3%. When you get car loan you pay 6%.[/quote]
Actually the fed funds rate is set by the Open Market Committee.
There are several avenues for the Fed to increase the money supply but the two most easily understood are:
1. The Treasury sells bonds to the Fed who generally takes that money and pushes it out to banks as loans at low interest. The banks then lend that "new money" out or pay interest to cutomers.
2. Or, the Fed, through the Treasury, sends out checks directly to the populace. Like during the lockdowns. This has the greatest immediate effect because there is no pesky bank to have to pay interest to.
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