They literally cannot. Central bank reserves aren't money in the sense of legal tender. Only borrowers can "create" money and they create an equal debt in the process which means all money in existence will have to disappear one day. Money has zero value throughout the entire process, the provider of value is the borrower, human being made out of flesh and blood.
It's like matter and anti matter that balance each other out.
Ditto the core team raising the supply cap.
Ditto the US initiating a nuclear missile strike on Iowa.
They could, but there's many reasons not to.
You agree they can service an unlimited amount of debt (with consequences), but you refuted that they can create unlimited money. But they're the same operation.
Fiat is by definition not based on gold.
The term is [...] usually reserved for legal-tender paper money or coins that have face values far exceeding their commodity values and are not redeemable in gold or silver. [1]
What you're describing is at most - at most - a default on the government's obligations 89 years ago. Not a Ponzi scheme lol. Everything folks are suspicious of is a Ponzi scheme these days.
> Central banks can create infinite units arbitrarily.
Central banks do not create money. They at most indirectly affect the money supply via adjustment of interest rates and reserve requirements. [2] However their mandate under which they operate is to maintain low, predictable medium-term inflation targets and maximize employment.
This is like saying "well, actually, the Bitcoin core team can adjust the 21M coin limit up to an arbitrary value!" They could, technically, but there's a ton of reasons they won't.
> "Enforced by the legal system" perhaps means controlled by the FOMC.
No it does not. When you borrow money from a retail bank, say to purchase a house, they create new money that enters the system, paired with a negative balance on their books. The new money is backed by the demand of the issuer to re-pay that loan. As the loan is re-paid the new money is destroyed and leaves the system. The legal system enforces payments in these contracts.
> ...a dozen central bankers who make decisions behind close doors, nominated and chosen by congress I believe.
They are nominated by the president and appointed by congress. The Federal Reserve is an independent organization explicitly to separate capricious fiscal policy from the kind of stable monetary policy necessary for businesses to plan into the future.
They were created by an act of congress and can be repealed by act of congress. They act on behalf of the American people and are accountable to the American people. All decisions are published and documented along with full audits. Like the post office.
There's nothing more sinister or shady about the Fed than there is about the USPS.
Sure does spook people though.
[1] https://www.britannica.com/topic/fiat-money
[2] https://en.wikipedia.org/wiki/Money_creation#Central_banks
QE is not carried out by creating money. It's carried out by creating bank reserves and exchanging them for assets at primary dealers, increasing liquidity. That article you linked elides a number of key intermediate steps. QE indirectly increases the money supply as I explained to you. Not directly as you seem to continue to imply. [1]
[1] https://www.forbes.com/advisor/investing/quantitative-easing...
If the fed wants to buy $100b of assets tomorrow, it can do so, despite not having that money. The interbank mechanics are unimportant, the point is the value is created at will, creating inflation, and is a decision of a few powerful individuals.
Bank reserves are not circulating money because they cannot be spent. [1]
> The interbank mechanics are unimportant...
They are literally the only important thing. That's all we've been talking about.
The bank having these reserves frees up room for the bank to lower their interest rates and in turn create more loans. See, it's this lending process that creates new circulating money. The Fed issuing 100T of reserves and giving it to BoA would not change the circulating supply one iota in and of itself.
> ... the point is the value is created at will ...
Again, no, no value is created by this operation. It's entirely neutral. What happens is these lower-interest rate loans (coupled with the obligation to repay same) increase the viability of business models, fund productive activities in the economy and back the newly created money. This is where new value is generated. Not in creating reserves.
> ... creating inflation ...
Again, no. Inflation is a measured effect. It has nothing to do with supply per se in the federal reserve model. Just ask Japan. They went absolutely ham on QE since the 1980s and they haven't seen inflation since 1995. [2] So much so it's actually been very problematic for them.
> ... is a decision of a few powerful individuals.
Yeah like every Supreme Court decision ever. These individuals are accountable to congress. This is called representative democracy.
Scottie, and I'm going to assume your name is Scottie - I mean this without disrespect. Please audit an economics class. And maybe a civics class. Thus far everything you have suggested is trivially wrong.
Quantitative easing (QE) is a form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to
increase the money supply and encourage lending and investment. Buying these securities
adds new money to the economy, and also serves to lower interest rates by bidding up fixed-income securities. It also expands the central bank's balance sheet.
I don't know why you don't think creating money and buying bonds and mortgage securities on the open market counts as money creation. Or if you're being particularly semantic about the mechanical flow of this money. None of these occur without the central bank changing digits in a database which magically allow new money to exist.
You are wrong on this one, and you do not understand enough to even want to challenge your assumptions. We're done here, and I once again, implore you to audit an economics class.
https://www.youtube.com/watch?v=mrjoElG8KGI
PELLEY: Fair to say you simply flooded the system with money?
POWELL: Yes. We did. That's another way to think about it. We did.
PELLEY: Where does it come from? Do you just print it?
POWELL: We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds for other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Reserve banks.
NARRATOR: But by law, Chairman Powell's Federal Reserve can only lend money that must be paid back.
Which is what I've been telling you.
Powell was providing a simplification, an analogy, so that folks such as yourself without a meaningful background in economics can understand. Obviously he did an insufficient job, and I strongly suspect this clip was out of context.
Furthermore, there are some that believe an interest rate should be determined by markets rather than policy makers.
And on the personal note, I have a minor in economics, my bachelors was finance. Economics is a broad subject, and even if you study monetary policy at the undergraduate level, the mechanics of central bank asset flow is not a subject well covered. But hey, thanks for the elitism and insulting the 99.99999% beneath you.
Fiat required trade to be based on gold first, a peg which was then broken.
Central banks can create infinite units arbitrarily. "Enforced by the legal system" perhaps means controlled by the FOMC, a dozen central bankers who make decisions behind close doors, nominated and chosen by congress I believe.