The Fed doesn't actually print money.
Here's what it does instead:
It buys bonds from banks. Then it credits those banks' reserve accounts with dollars that didn't exist five minutes ago.
No printi...
The mechanism is called an open market operation.
The Fed's Open Market Desk contacts primary dealer banks — JPMorgan, Goldman Sachs, Citigroup — and offers to buy Treasury securities or mortgage-backed securities at market price.
The bank sells. The Fed pays by crediting the bank's reserve account. Those dollars don't come from anywhere. They are created at the moment of settlement.
This is not metaphor. The Fed's own balance sheet grows by that amount. The bank's reserves grow by that amount. The bond moves from private hands to the Fed's portfolio. New base money exists that didn't before.
The Fed's Open Market Desk contacts primary dealer banks — JPMorgan, Goldman Sachs, Citigroup — and offers to buy Treasury securities or mortgage-backed securities at market price.
The bank sells. The Fed pays by crediting the bank's reserve account. Those dollars don't come from anywhere. They are created at the moment of settlement.
This is not metaphor. The Fed's own balance sheet grows by that amount. The bank's reserves grow by that amount. The bond moves from private hands to the Fed's portfolio. New base money exists that didn't before.
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