Trump Needs to Learn a Little About the Fed

So, Donald Trump isn’t worried about the debt because we can always “print money.”  Well, I’ve already established the fact that this New York liberal is a fool, but now I have to listen to some Trump apologist, Scottie Nell Hughes, repeat the tired old saw about Janet Yellen and the Fed “printing money.” 

            First of all, anyone who say the Fed prints money is either ignorant or nefarious.  Ignorance simply reflects a lack of knowledge.  We are all ignorant of one thing or another.  I am so notoriously ignorant of “techno” things that I assumed for years that you could play both sides of a CD.   Ignorance is a constant condition, remedied by knowledge, which is why we should all be learning new things every day.  [The man who does not read has no advantage over the man who cannot. Benjamin Franklin] 

            But what if you know the truth and deliberately misstate it?  Then you are a duplicitous, lying rat.  People who make the ridiculous statement that the Federal Reserve System prints money are always wrong.  If you are ignorant, read on and educate yourself.  If you are a liar, go off in a corner and know that you are recognized for what you are! 

            When hearing that the Fed prints money the first thing you should know is that the statement is simply incorrect on its surface.  It is not the Fed but the Treasury Department that prints our currency.  These two agencies are in no way related.  They share neither funding, responsibility nor personnel.   The Fed is a child of Congress and is responsible only to the House of Representatives.  The Treasury department, which actually prints money, is responsible to the President. 

If you want to find any connection between the two, it lies solely in the Feds destruction of paper currency. The Fed routinely destroys old, mangled, dirty or otherwise corrupted bills.  They then request the U. S. Treasury to replace that currency by printing it in the denominations needed.  The Fed must also hold, as collateral, securities (usually government bonds or gold certificates) equal to the amount of currency it has put in circulation.  This number is finite and relatively stable.

            Neither does the Fed finance governmental deficit spending by printing more money.  This is not just a case of “thou shalt not.”  It is, simply put, impossible. The Fed can purchase U. S. Treasury securities, but only from open market operations.  It is prohibited, by law, from purchasing these directly from the government.  First, the government must find a buyer for its securities in the public sector (you, me, banks, corporations, or foreign governments).  Second, the Fed must buy securities from those persons or entities that own these bonds and want to sell.  Third, the Fed creates a reserve of cash in the banks.  Fourth, the banks must choose (or not!) to lend this money.  Finally, the banks must find someone willing to take on the debt by borrowing money at whatever interest rate the bank (not the Fed) chooses. 

It is when banks lend money that revenue is generated.  And, yes, when you pay off your loan that same wealth is annihilated.  It isn’t the Fed that creates or destroys money, it is you.   

            Do you see a whole row of “7’s” that have to line up for the Fed to create anything that even acts like money?   

            I used to teach both macro- and micro-economics at the local community college.  I can not condense an entire semester into 600 words so let me condense this message into 6 words.  The Fed does not print money!  

            Learn! And keep the faith.