No. I think what the poster is saying is that running a government deficit is printing money. Fiscal policy is money printing, not monetary policy. This is very much not what is colloquially known as money printing, rather it's the basis of modern money theory.

Monetary policy is just swapping one kind of USD denominated assets for another. It doesn't really change the size of private bank balance sheets, hence it is not the printing of money. But increasing the size of the deficit does indeed increase the sizes of private bank balance sheets.

When the government borrows money like the US does, then it is setting itself up to either run a hefty surplus or go with money printing. Both of those are pretty unpleasant for someone (either borrowers or savers). So yes, fiscal policy is where the eventual pain is locked in.

But, and I feel there is being something lost to semantics in this thread, we have an article reporting "the U.S. money supply has grown 20%". Given that the US economy has been partially shut down for most of that time it is hard to see what that can be described as except money printing. The alternatives are polite euphemisms for money printing or appeals to it all somehow being so complicated a measured >20% change doesn't count.

I still don't understand why people are so keen to let the government go unchecked (we don't send our best & brightest to be politicians) and to keep kicking salary earners to the benefit of asset earners (pretty sure we all earn a salary).

I'm not saying that we didn't print money this year. I'm arguing over how we measure the quantity of the money supply. I am saying that government debt = the quantity of money.

"The federal government ran a budget deficit of $3.1 trillion in fiscal year 2020, CBO estimates, more than triple the shortfall recorded in 2019"

By my definition, we did print $3.1 trillion of money this year.

I don't go by the size of the Fed balance sheet as money supply. There are many reasons for this, and plenty of people on this thread are trying to explain this view point.

> I think what the poster is saying is that running a government deficit is printing money.

The government borrows the money from bond buyers, so that's also not printing money. (The Fed does buy these bonds, but not directly from the government because the government can't do anything with bank reserves. The Fed can only "print" bank reserves therefore it can only buy assets from banks.)

There exists many values of X where borrowing money from X constitutes printing money. For example, when you borrow money from a bank, the bank prints money. It credits your account with new money, it does not transfer money into your account from another account.

It's fairly straightforward to prove that increasing the size of the government deficit = printing money.

1. The first step is that the government prints debt (a Treasury instrument, for example). I think we would agree on this.

2. The government then needs to monetize the debt... essentially swapping the new debt with reserves held by some bond buyer. There is no shortage of reserves (this is certainly true today. But even when there were reserve requirements, or in the time before 2008, there was still practically no shortage of reserves. I can provide a separate explanation for this). You may stop and say "but what if there is no bond buyer?" or "but what if there are bond vigilantes?" US banks will always swap excess USD reserves (where excess means beyond what is necessary for settlement) for USD treasury instruments because the latter pays higher interest.

3. The government now spends its reserves, transferring from the US Treasury to a private bank upon making purchases. This becomes new bank credit, aka freshly printed money. In other words, a private bank receives reserves via the Fed's payment system and must credit the recipient's private checking account with new money.

4. The reserves that were considered "excess reserves" in step 2 are now back in the banking system, ready to be swapped again for new debt instruments.

In other words, the net impact on private bank balance sheets is, just from fiscal spending (no activity from the Fed other than as a payment/settlement system):

- The assets side gains a treasury instrument

- The liabilities side is credited with new money caused by purchases by the US Treasury. This is spendable US dollars.

- No change is seen in the quantity of bank reserves

The Treasury simply issues the bonds. It isn't analogous to borrowing money, as there is no collateral to put up and no other entity in the economic system needs to have any savings in order for the US Treasury to issue the bonds. The bonds are traded one-to-one for reserves at the maturity dollar value, so this is not borrowing. It is a swap.

Merely having a different purchase value from maturity value is not enough to qualify a bond purchase as borrowing either, because Bond issuing is not restricted by any economic opportunity cost. The amount of Bonds issued is an simply edict by Congress, when it passes a Budget resolution.

"money is a shared illusion" applies to your criticism

No, FED does not print money - bank reserves are not legal tender. If they had printed money, inflation would have skyrocket.

My only question is why banks agree to this deal: exchanging U.S. treasuries for bank reserves (which they only can use as a collateral for lending) ?

Inflation (in the consumer goods sense) only happens when the value of money goes down for the average person. The price of lettuce isn't going to rise because the fed isn't buying lettuce with faerie money, they're buying securities. And the stock market has gone up and to the right, despite all logical indicators on the ground indicating it should go solidly opposite. Securities are hugely inflated.

That turns out to be the answer I've been trying to figure out for years: regardless of the technicalities of "printing money", all this quantitative easing should have been causing inflation. And it is... in the stock market, which doesn't figure into the consumer price index.

The CPI, meanwhile, has been stable, or even under the Fed's target. Presumably because those are basics, and you don't really need to buy much more of the basics just because you have more money. (The people with newfound stock wealth, that is; the people without it don't have any more money to spend in the first place.)

It's still a little unclear to me why the S&P 500 has remained in the "inflated but not insane" through most of the past decade -- though for the past week or so it's trending back to "insane" (a P/E ratio well above 20). That means that earnings were coming from somewhere, and if not from core consumer products, then presumably from other things that the stock-market-wealthy were buying from each other, at presumably inflating prices, or at least quantities.

All the QE since 2007 has also caused massive inflation in real estate, and it's ongoing. Housing is actually rising in some markets in spite of record unemployment and a high risk of many mortgage defaults.

It's worth pointing out that housing costs are included in CPI (by proxy of rent).

On an inflation adjusted dollars-per-square-foot basis, housing is exactly the same price as it was in the 1970s [1] -- right around $115/sqft in constant dollars. 2008 didn't actually make a big dent on average.

The reason houses are more expensive today than they were in the past is that they're on average twice as big. This is due to city zoning ordinances, not inflation.

Similarly house prices exploded in major metros like SF because of artificial supply constraints. The city won't allow new building -> refuses to allow smaller units -> prices go up. Again, not inflation.

[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...

>> It's worth pointing out that housing costs are included in CPI (by proxy of rent).

I think that is the reason CPI hasn't increased. CPI only accounts for rent and not the cost of actually buying the house. There are definitely highly inflated price to rent ratios particularly in land constrained urban areas.

I think a better way to put it is that there is low/no Consumer Price Inflation but there is tremendous Asset Inflation (in stuff that wealthy people buy).

And perhaps if there did need to be inflation, then perhaps this is better than the reverse (i.e. high CPI inflation which would impact people's ability to buy the basics)?

> There are definitely highly inflated price to rent ratios particularly in land constrained urban areas.

The point I was making was that the price of housing on average ($/sqft) is the same as it has always been. Since we know major metros have gone up it likely means that tier-2 and below cities have actually gone down.

Further, it might be nuanced, but major urban areas aren't land-constrained. They are constrained by their city councils staunch refusal to permit new, tall construction to the benefit of existing landowners and at the detriment of renters. This is not an inflation-linked issue however but a city policy issue. It's strictly supply and demand.

You could say that houses are twice as big because nowadays you have the dual-income family, and a family pays more for one house because the amount of money on the supply side has increased, so prices on the demand side have caught up. The fact that now there is twice as much enclosed space is immaterial, a family needs a house to live in.

I suspect families were actually larger in the past than they are today, as evidenced by the rapidly declining fertility rate. In the 1970s there was an average of 2.48 births per woman, and today it's 1.77. My unsubstantiated opinion is that folks were willing to make do with less in the past, and again, city councils have forbidden building smaller buildings forcing the real costs up -- not through $/sqft but rather mandatory minimum sqft if you will.

==That means that earnings were coming from somewhere, and if not from core consumer products, then presumably from other things that the stock-market-wealthy were buying from each other, at presumably inflating prices, or at least quantities.==

It isn’t a given that you need to increase earnings to increase your P/E ratio. The “E” is your Earning Per Share. Buying back shares lowers your denominator and magically increases EPS, which drives the price higher.

> Buying back shares lowers your denominator and magically increases EPS, which drives the price higher.

It also lowers your P, so the net effect should be 0, no?

It's been a hot, hot minute from my econ degree, but here goes...

I believe the big question of "Where is the inflation" has to do with lending excess reserves. The amount banks have to keep in reserve is set, but it changes. They can lend the balance after that, although there's a rate set by the fed that also works as a lending/holding incentive too.

"Excess reserves are capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors or internal controls. For commercial banks, excess reserves are measured against standard reserve requirement amounts set by central banking authorities"

So, this money actually hasn't really hit circulation. It doesn't really explain what's up with the SP (perhaps: credit based on reserve holdings, to hand wave a ton of complexity...), but it explains why there's no direct pipeline from Fed money prints -> my wallet -> CPI.

Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves

By Standard and Poor's

https://www.kreditordnung.info/docs/S_and_P__Repeat_After_Me...

FED buys MBSes and bonds. FED does not buy neither lettuce nor stocks.

The Fed has already been buying ETFs, which is about a hair’s breadth away from buying stocks. I don’t doubt that they’ll buy stocks to prop up investors if the current stimulus proves ineffective.

Confirming story: https://www.marketwatch.com/story/the-fed-has-been-buying-et...

The possibly essential caveat being that the ETF's being purchased are (as far as publicly known) all bond ETF's.

Barely. They are only buying corporate bonds and the sum total of "Includes non-marketable U.S. Treasury securities, supranationals, corporate bonds, asset-backed securities, and commercial paper at face value" is 85.274 billion or a max of 1.2% of their asset sheet [0].

[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm

There are some rumors this happened at the bottom of the '07/'08 crashes. A few traders swear something held the bottom.

I'm sure their canteen buys lettuce, and as it happens they've been getting quite adventurous with what else they're prepared to buy recently.

Well, lettuce has not been inflated by FED (yet), why would stocks have been?

Because they are pocketing the difference by arbitraging between the government (who issue the treasuries) and the Fed (who is the ultimate buyer) since the Fed cannot buy treasuries directly from the government. It's just a complicated way for the government to print money and hand it out and in this case banks are able to act as the middleman and earn money on the spread.

It's a disgraceful system that is extremely morally questionable.

It's inflation through other means. You get asset price inflation instead of commodities / consumer goods inflation. It's a slow death rather than a quick one.

The Bureau of Printing and Engraving prints money, but Federal Reserve Notes are in fact a claim on bank reserves. It's just when you deposit them at your bank you don't get reserves, they instead create a bank deposit for you and a liability for them and then add the reserves you just gave them to THEIR account.