Where are we getting the money for the bailouts...

[Wulfslæd]

If someone from another country buys them, how does that increase the money supply? They can't print FRNs. Don't they have to use existing money?

 

[Zippyjuan]

Good point. They are getting dollars from us buying goods from them- but that is money leaving the US and going to them- reducing our money supply here. Many countries have dollar reserves. So I guess that would be a partial return of money we already lost out of our financial system.

 

[JordanL]

If someone from another country buys them, how does that increase the money supply? They can't print FRNs. Don't they have to use existing money?

They have two options:

1. A foreign country can pay with dollars it has acquired through trade with the United States, (like oil for instance). The most useful thing to do with American dollars is spend them somewhere in the American economy, so for countries that are net exporters to the US, investing their dollars back into the US economy usually makes sense if they don't have anything they want to purchase.

2. A foreign country can pay using it's currency should the US be looking to acquire some for the purpose of importing products from taht country. Oil would be the best example of such an item, except that oil is denominated in US Dollars around the world anyway.

Most of the time it's option 1... in which case the bond is a way to reaquire our dollars from foreigners without selling them a product. Well, we are selling them a product... we're selling them debt.

 

[Wulfslæd]

So then the FED has to inject more money to make up for the loss of money supply here? If so, what is the process the FED uses to to do that? Loans to banks, buying treasuries off the market?

 

[Wulfslæd]

They have two options:

1. A foreign country can pay with dollars it has acquired through trade with the United States, (like oil for instance). The most useful thing to do with American dollars is spend them somewhere in the American economy, so for countries that are net exporters to the US, investing their dollars back into the US economy usually makes sense if they don't have anything they want to purchase.

2. A foreign country can pay using it's currency should the US be looking to acquire some for the purpose of importing products from taht country. Oil would be the best example of such an item, except that oil is denominated in US Dollars around the world anyway.

Most of the time it's option 1... in which case the bond is a way to reaquire our dollars from foreigners without selling them a product. Well, we are selling them a product... we're selling them debt.

Makes sense. Thanks.

 

[JordanL]

So then the FED has to inject more money to make up for the loss of money supply here? If so, what is the process the FED uses to to do that? Loans to banks, buying treasuries off the market?

Here's the thing about it: The FED does not have to disclose anything to anyone. This means that it's very difficult for us to tell how many of the dollars they hand out are real, and how many are digital bits they just materialized.

 

[fj45lvr]

bump