Does the government print money?

in money •  2 months ago


    Source

    The government doesn't print money to finance their government spending. They borrow money by selling bonds to the open market.

    If bonds are sold to non-bank entities, there is no new money created. In fact, in that isolated transaction, broad money supply actually decreases as money is taken from bank reserves and placed in the Treasury General Account. But the reason bonds were sold in the first place is that the government needs money to fund their programs, so it won't sit in the TGA for long. When the government then spends that money on whatever government program, there is still no new money created. Because the money already existed in the system it was borrowed from. This kind of spending does not expand the money supply, although it might lead to price increases depending on how it is spent.

    However, if the government sells bonds to a bank, then broad money is not affected as money is transferred to the TGA because banks print money out of nothing when they lend. And when the government then spends that money into the economy, broad money supply increases because that money didn't exist in the economy until it was created by the banks and then spent by the government. terracore

    The banks print money. Not the government.

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