How does new money get into the public money supply and stay there?

1. 67

   hardlymovingposted 10 years ago

   How does new money get into the public money supply and stay there?
   
   I understand that the Federal Reserve (FEDS) controls the money supply and interest rates.  Whatever new money enters our economy, it is done through money transfers to member banks who in turn make the new money available to businesses and individuals in the form of loans.   But when the loans are paid off, I assume the money then goes back to the FEDS.   Therefore, how has new money been entered into the private sector if the new money made a round trip back to the FEDS?

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2. 68

   claptonaposted 10 years ago

   If the Fed buys back issued securities (such as Treasury bills) from large banks and securities dealers, it increases the money supply in the hands of the public. Conversely, the money supply decreases when the Fed sells a security.
   In other words, the government issues debt - a treasury note. (We'll make it simple - note is for $1,000 and pays .025% interest rate
   A  Bank buys that treasury note. In a year, they'll get $1,002.50 from the government. Th banks capital is tied to that note, and it cannot loan money on that note.
   When the FED buys that note from the Bank - lets say they pay $1,003 for the note, that increases the money supply - because the bank now has cash that it can loan and has made a profit when it sold the note to the FED.
   Similar to money for nothing and your chicks for free.
   (Prostitutes and gals that were working at strip clubs suffered financial losses during the great recession, because the bankers stopped going to the clubs and hiring the prostitutes.)
   America is great, isn't it?
   Do nothing but make a profit by buying from the government, then selling to the FED at a profit.
   Not allowed by u.s. citizens, but a con that Mr. Ponzi would have loved

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   1. 67

      hardlymovingposted 10 years agoin reply to this

      I'm still confused.  I thought the FEDS increases the money supply by ordering the Treasury to "print money"  so to speak.  The money becomes a IOU owed by the citizens of the US in the form of treasury notes or bonds ?

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