CHANCE wrote on Wed, 01 July 2009 01:21 |
He also raised a question. Why does the US government borrow money from the fed reserve (with interest) when they could print the money themselves just like the fed reserve does.
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The answer to that is simple, they don't.
It's a complete misunderstanding of how the system works.
The government doesn't borrow money from the Fed, it actually can't, by law, because the government borrows money by selling Treasury Securities, which the Fed is not legally allowed to buy directly from the government.
The Fed does hold government securities, but it bought those through its open market operations, the government does pay the fed interest on those, but
a) They only amount to a fraction of the total debt outstanding.
b) The fed's profits belong to the treasury, for example in 2007 the fed's earnings on treasury securities was 40 billion, they paid 35 billion to the treasury (and let's not get into audits of the fed, I think the treasury would have noticed if those two numbers were wrong).
The creation of currency is a seperate thing, incidentally the fed doesn't print money, the Treasury does, they then sell it to the fed at cost, who then distribute it to bodies that require currency for their transactions at face value, profiting by the difference, which is called seignorage... but then we're back to the point that fed profits are the property of the treasury.
I don't know why people find it so hard to get these details right, they're readily available to anyone who takes time to look. There's plenty of scope for conspiracy theories about the fed without having to ignore the facts to make them work.
Edit: mistyped when I said the fed's profits belonged to the fed!!