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The Rise of the (Financial) Machines

Valar Re:Slaves to Debt (403 comments)

Only if they are intentionally trying to increase liquidity and decrease interest rates through an open market operation. Otherwise the bonds typically go to institutional investors who underwrite the bond issuance and turn around and sell the bonds on the open market. They get paid for in cash.

And when the Fed buys bonds, it doesn't necessarily print the money to do so, they have plenty sitting around. After all, they are the one bank in America that if they want more deposits, they can require that banks give it to them. And until very recently, when they started to implement the channel system, they didn't pay interest on reserves. This makes the Fed very profitable.

more than 5 years ago

The Rise of the (Financial) Machines

Valar Re:Slaves to Debt (403 comments)

Except that if you create more money, as you said, all money becomes worth less. This loss of value by the existing money IS the marginal cost of creating more money. This means it isn't all that tempting to print more money. Which is why our government typically doesn't use that method to pay more more spending. Instead they take out debt (a problem in and of itself), which actually has the effect of _removing_ liquidity.

more than 5 years ago


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