Part of How Money Works – FAQ
So, in the U.S., who really creates money? The Treasury or the Fed?
This is one of those “gotcha” questions as most people will say:
“The Treasury creates money!”
But those of us who are smart will say,
“No, it’s the Federal Reserve – HAH! – A Private Corporation – that creates money!”
But I digress. Back to who creates money.
Now, if you were one of the smart ones and answered “The Federal Reserve creates money!” Guess what? You’re wrong, as this question is actually a “double gotcha” question!
The Treasury creates money by paying people to do something. Build roads, build schools, hospitals, parks, companies hired to build things, and so on. That money is “printed,” created out of thin air.
When the Federal Reserve “creates money,” it doesn’t. It determines the climate whereby banks are able to LOAN people money.
The key word here is LOAN. When you BORROW money from a bank, you get cash right away, but you still have to pay that loan back. It exists as a credit and a debit on a balance sheet – they cancel each other out. So that is not money created, it is simply borrowed.
When the Treasury creates money, it does NOT borrow it from anywhere. It creates it from scratch and pays it out into the economy to stay there. The public ends up with more money circulating AND they end up with a road they can use.
So, next time someone tells you “The Fed creates money.” You can answer them calmly, and explain why that statement is incorrect.
More in How Money Works – FAQ :
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- Alan Greenspan – US Government can create all the money it wants
- Concise Summary of Money Creation
- Cool MMT Comments from Around the Web
- How the Government Deficit Helps the Economy
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- Professor Steve Keen explains why austerity economics is naive
- Professor Steven Hail explains money in a video
- The Rock-Star Appeal of Modern Monetary Theory | The Nation
- The truth is out: money is just created, and the banks are rolling in it
- Think this Money Theory is too much CONSPIRACY THEORY crap?
- To understand economics, you must understand Monetary Sovereignty. Most economists and politicians don’t
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- Who can really create money? The Treasury or the Federal Reserve?
- Is the Federal Reserve (The Fed) a private entity, not controlled by us?
- Money Summit
- Government Deficits EQUALS Private Sector Surplus
- Outside Money Resources
- Possible Ideas or Throw-Away Ideas