Money Creation and Treasury Bonds

[Milly]

I am trying so hard to learn what treasury bonds actually are. How do they get created and how do they control the M3 money supply? Here's my understanding:

Government asks for money from the Federal Reserve
Federal Reserve says to foreign nations and private investors, who wants a $1000 in x number of months?
Everyone bids on it and effectively set an interest rate.
The Federal Reserve gives a Treasury bond certificate to the investor.
The Federal Reserve gives the money paid to the government and asks for $1000 back in so many months from their tax revenue.
The money doesn't ever really get paid back though and simply gets added to the debt count?

The Federal Reserve then controls the general supply of money by buying those bonds. If they want more money in the system, they magically buy those bonds back before they are mature by adding the money to the person's account out of thin air.

At the same time, they are also lending money (out of thin air or bonds?) to banks. If they want to contract the money supply, they increase the interest rate for lending so that money starts funneling back away from the population.

I'm doing my best to staple lots of different sources together and have probably missed things and made up things. Can you help me get it straight so I don't feed misinformation on my blog?

I want to write a post about inflation and already have a post that may be wrong about what money is in general.

Thanks!

[rennigade]

This is all you need to know...explains everything...30 min long though.

https://www.youtube.com/watch?v=RrwbgdtbdXE

[97guns]

Abracadabra

[97guns]

Abracadabra

[97guns]

Now creeping up on 19 trillion, they have to raise the debt ceiling again soon

[Milly]

This is all you need to know...explains everything...30 min long though.

https://www.youtube.com/watch?v=RrwbgdtbdXE

That was a brilliantly evil move to trick the English into thinking they lost the war and tank their stocks!

Loved the history lesson, but it skimped on the mechanics.

Also, it probably wasn't the best choice to show my kids that one...

[97guns]

On 15 August 1971, the United States unilaterally terminated convertibility of the US dollar to gold, effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat currency.[2] This action, referred to as the Nixon shock, created the situation in which the US dollar became a reserve currency used by many states. At the same time, many fixed currencies (such as the pound sterling, for example) also became free-floating.




You can see by my chart how the money supply has exploded since coming off the gold standard, current FIAT currency is backed by NOTHING

[rennigade]

That was a brilliantly evil move to trick the English into thinking they lost the war and tank their stocks!

Loved the history lesson, but it skimped on the mechanics.

Also, it probably wasn't the best choice to show my kids that one...

Actually all kids should see this...along with adults. Time to take the blinders off...everything in the video is true.

[Spiffster]

This is all you need to know...explains everything...30 min long though.

https://www.youtube.com/watch?v=RrwbgdtbdXE

Highly entertaining and enlightening. Thanks for sharing this. Reminds me of the documentary "Ethos".

[Milly]

Actually all kids should see this...along with adults. Time to take the blinders off...everything in the video is true.

Not 3 year old's who are worried about "bad guys" and repeat phrases they don't understand...

I'm still missing when money is created and enters circulation. Is all money created debt held in a bond? Is there a way to replace money that statistically is probably lost? If this is all a money grab by the FR, why don't they just print themselves some and go away happy? Something is missing.

[scfr]

Be careful about terminology.

It sounds like you are using the term "bond" to refer to US Treasury Securities in general. But those are not only bonds. They are also bills, notes, and TIPS. (Savings bonds are another type but you may not be talking about those?)

They are issued by the US Treasury, not the Federal Reserve.

"Bids" can be non-competitive, which means not everyone who buys is involved in setting rates (or discount margins). Those of us who buy through Treasury Direct send in our buy orders in advance of the auction and agree to accept whatever is set at the auction.

[Milly]

Be careful about terminology.

It sounds like you are using the term "bond" to refer to US Treasury Securities in general. But those are not only bonds. They are also bills, notes, and TIPS. (Savings bonds are another type but you may not be talking about those?)

They are issued by the US Treasury, not the Federal Reserve.

Thank you! You are correct, I'm not investigating corporate bonds or any private bonds right now. I'm trying to understand money creation. It is a challenge and I think it is intentionally challenging and convoluted.

So Treasury Securities are only between the government (treasury) and the buyer?

Does the Federal Reserve only work with bank lending then?