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«The Fed creates dollars»

Exactly what the parent said.

The fact it is used to buy TBills is irrelevant: the Fed creates money out of thin air. Period.

I think the reason the system has evolved this way is because politically it is hard for the treasury to "print" money, even though they have the legal right to.

Having the Fed inject money into the system is a dodge, but effectively the same thing. It gets the treasury off the hook, because they can say they are "borrowing" rather than "printing" money.

It's unclear to me why this bothers people so much?

Replace TBills with gold - is it still being created out of thin air?

The point is it’s backed by an asset

Did the fed dig out the gold nugget? If not, there is now more dollars chasing the same amount of goods.

Yes it's still backed but less than before, i.e., devalued.

"Yes it's still backed but less than before, i.e., devalued."


1 Trillion in Assets = 1 Trillion in Currency.

1 Trillion + 1 dollar in Assets = 1 Trillion + 1 Dollar in currency.

No dilution by the Fed.

(Fractional lending notwithstanding - that's another can of worms)

You do realize that you are backing a dollar with a dollar?

But you cannot eat a dollar or play games on a dollar or drive with it. In and of itself a dollar is just a piece of paper and has an intrinsic value of say 1ct.

So adding a paper note to the economy increases the backing by 1ct and the currency by 1$. Adding an iPhone increases the assets by say 100$ (just made that up by taking 500$ cost - 400$ used materials) and leaves the currency as it is.

Hmm, now that I think of it: Are you maybe talking about accounting?

"The fact it is used to buy TBills is irrelevant:"

Heyzeus its extremely relevant.

HNers are having conspiracy issues with this.

* Obviously if there is going to be more money in circulation, it needs be 'created' somehow *

But that it is traded for a specific asset, which is kept on a balance sheet - and the 'reverse' can be done to pull the currency out of circulation - is * hugely relevant *.

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