IMPORTANT QUESTION: “Why does the government borrow the money that it prints?”

Jared Bernstein, Chair of Council of Economic Advisers to Joe Biden: “I don’t get it”

➡️ Thought so, they don’t get it … LMAO

Fact. By law, the US Treasury cannot issue dollars, it can only mint coins. When the Federal Reserve (which is a consortium of private banks) wants to create money and put it into the system, it does so through banks lending money to the government. Treasury bonds are IOUs that the government issues in exchange for a loan. You, or the bank, buy a bond with cash today and the government promises to pay you back with interest in the future.

Banks like to hold treasury bonds because they’re viewed as low risk—it’s unlikely the US government will default on debt (any time soon at least). Treasury bonds also have the advantage that they’re relatively easy to sell to someone else to get cash. Economists call this ease of converting an asset into money liquidity.

When the Federal Reserve buys bonds, they have an advantage you and I don’t. They are allowed to print new money (in fact only FED is allowed to print dollars) to buy the bonds. It’s more likely that the money will be digitally created than literally printed, but the form of the money doesn’t make a difference.

Now, it is common to hear people say the Fed prints money.

That’s not technically correct. The Bureau of Engraving and Printing, an agency of the U.S. Treasury, does the printing. The Fed, for its part, purchases cash (dollars)  from the bureau at cost (which is pennies to the dollar) and then puts it in circulation.

A debt based monetary system is when money creation is issued as debt from commercial banks (primarily). The more money is created the more debt for the government.