I was attempting to explain the creation of money by the Federal Reserve to this young person -- at least he projects youth, one can never know on the internets -- and I was having trouble, He had the idea that the only way the Federal Reserve could inject money into the economy was by borrowing it from somewhere.
I think he thought of 'money' in overly physicalist terms, like a stack of bills and/or coins.
I'll try the explanation again here.
The Federal Reserve injects money into the economy by, in essence, creating it as a matter of law.
Most money has no physical form at all. It is the set of the numbers we assign to bank accounts.
The Bureau of Engraving creates paper money, but that is only a small portion of the total supply of dollars (I've heard around 8%). But that is the tail not the dog. The dog in this situation consists of the idea of money, and numbers that are re-assigned at the tap of keys or the swipe of a plastic card from one account to another, in a closed system, and only rarely taking on physical form.
The Fed is entitled to create this money by buying Treasury bills and bonds from the open market (NOT from the US Treasury). If the Fed buys $1 billion worth of bills then -- as if by magic! -- the relevant bank accounts will show the previous owners of those bills having an aggregate of $1 billion more than they had had the day before.
Yes, I know, it can be a hard lesson to grasp. We still think of the pursuit of money as "materialism," after all: it might better be called idealism, since it is the pursuit of something that exists chiefly as an idea. An idea that can command those material goods and services.
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