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155 comments on DrumBeat: August 11, 2007

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drwater on August 11, 2007 - 12:48pm Permalink | Subthread | Parent | Comments top

True that the central banks generally don't "print" money to increase money supply, but they buy treasury and mortgage securities from other banks using electronic money created out of thin air in a process known as monetization of debt.

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Darwinian on August 11, 2007 - 2:01pm Permalink | Subthread | Parent | Comments top

Yes, that was my point all along. Banks create money from debt, they do not print money. And money created by monetization is a little like the "will of the wisp". Just as it was created out of thin air it can disappear the same way. Printed money does not disappear. It may inflate but it never just goes away.

Since October 1, 1877, all U.S. currency has been printed by the Bureau of Engraving and Printing, which started out as a six person operation using steam powered presses in the basement of the Department of Treasury. Now, 2,300 Bureau employees occupy twenty-five acres of floor space in two Washington, D.C. buildings. The Treasury also operates a satellite printing plant in Ft. Worth, Texas.
http://www.frbsf.org/federalreserve/money/funfacts.html

Ron Patterson

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wstephens on August 12, 2007 - 7:57am Permalink | Subthread | Parent | Comments top

"monetization of debt"

During times like this when the Fed is temporarily (again, temporarily) exchanging cash for debt, it is highly unlikely that the cash will be re-leveraged by the bank that receives it -- see "repurchase agreement" on wikipedia. Secondly, the debt in question still requires interest payments to be made.

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