# please explain to me why we can't "just print more money" to pay off the national debt **URL:** \ **Category:** Factual Questions\ **Created:** [December 23, 2012, 2:47am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889 "2012-12-23T02:47:52Z")\ **Posts on this page:** 20\ **Page:** 6
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [December 29, 2012, 3:06am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/101 "2012-12-29T03:06:28Z")
> [@LinusK](#): > > It has nothing to do with what’s required by regulators - that’s just how the financial system works. Reserves are liabilities of the Fed. They continue to exist until the Fed reclaims them. Only the Fed can create liabilities on itself, and only the Fed can redeem them. Commercial bank lending cannot change the Fed’s balance sheet by $1. You are failing to make any distinction between **reserves** and **excess reserves** , which are not the same thing. You are also, incidentally, failing to make a distinction between **monetary base** and **reserves** , which are not the same thing. When **deltasigma** writes a post about excess reserves, it is inappropriate to respond with the definition and characteristics of the monetary base, or of total reserves. The poster was not talking about the monetary base or about reserves. The poster was talking, specifically, about excess reserves. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [December 29, 2012, 3:32am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/102 "2012-12-29T03:32:47Z")
> [@deltasigma](#): > > It seems to me that you didn’t follow the entire discussion. As I pointed out a couple of times the nature of the ‘investments’ in questions were ones on which people buying treasuries would make a risk/reward decision. Investors do not consider any of the things you mention in buying treasuries. If have cites to prove otherwise please share them. I’m not disputing the factual accuracy of what you were saying, based on the definitions you were using. I just think you were misreading **Chronos**. Two people talking past each other, is all. I’m nearly certain **Chronos** was talking about “investments” in the sense of the government making purchases. Here is his original post: > [@Chronos](#): > > Essentially all of the National Debt consists of bonds. Anyone who has ever bought a federal government bond, has held part of the national debt. And that can be pretty much anyone who wants to. Some bonds are held by foreign investors, large and small, and some are held by ordinary citizens who are saving up for retirement or for their kids’ education. > > It’s also worth noting that as of right now, the debt isn’t actually a big problem. The problem with going into debt is that you eventually have to pay it back, with interest. But as of right now, the federal government is able to borrow money at an incredibly low interest rate. When interest rates are low enough, it makes sense to borrow as much money as you can, and then put it all into investments that have higher returns. Admittedly, for most of the investments the government makes, it’s tricky to calculate exactly what their rate of return is, but the bar isn’t set very high. > > Now, it’s certainly possible (even likely) that, at some point, lenders will decide that the return on government bonds isn’t high enough to bother with, or that the risk isn’t low enough to justify the low returns. When this happens, the interest rates on government bonds will start going up, and the government debt will start becoming a problem. At which point we should start solving it. Emphasis added. He’s clearly using “investment” there to refer to people making decisions about _government spending_ in the second paragraph, not the people who are purchasing bonds referred to in the first paragraph. He said the government was borrowing money to put that money into “investments”. That means the investment is the government spending, not the Treasuries that are issued. You reply: > [@deltasigma](#): > > **Chronos** : I don’t really think you can properly say that there is an ROI (return on investment) when it comes to govt expenditures. Fiscal policy just doesn’t work that way. How would you calculate ROI for Medicare or defense or social security for example? To which both he and I reply: That isn’t relevant. Just because you can’t measure the return on the investment for such fuzzy things is not relevant. _The return exists_, despite the impossibility of measurement. Which is exactly what **Chronos** said: > [@Chronos](#): > > They certainly _have_ an ROI. You simply attach a figure to how much you value “gramma not starving” or “the US not getting invaded”, or whatever, and compare that value to what you’re paying for it. Of course, there are bound to be debates on just what those figures should be: That’s why I said it was hard. But pretty much everyone can agree that those things have _some_ value. Precisely right. Government spending has some value as an “investment” (broadly defined). I’m not saying his posts were easy to understand or anything. Just that I’m fairly confident you were misreading him. From his very first post in this thread, he was referring to government spending as the investment, with the investment made worthwhile by how cheap credit is at the present time. > [@deltasigma](#): > > Of course there are different schools of thought, all wrong in an absolute sense most likely. That’s why science has to be empirical in nature rather than deductive. You hypothesize, observe and refine your hypothesis. However when it comes to economic issues, passions seem to become unduly inflamed. Okay, I seem to have been misreading you in this case. Sorry about that. I agree that people get passionate about this stuff. Giving the amount of suffering at stake, I think a certain amount of passion is justifiable, though not necessarily helpful with communication. I would make one other point: Despite the possible inadvisability about passionate rhetoric, a person who uses such heated rhetoric is not necessarily incorrect. One of my least favorite arguments in the world is someone pointing out an angry newspaper columnist, and claiming that his anger means he’s not worth listening to. You didn’t do anything like that, but it’s a common fallacy in these sorts of discussions, and I figured a bit of prolepsis was in order. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [December 29, 2012, 3:41am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/103 "2012-12-29T03:41:07Z")
**Hellestal** : I think enough people so far have defended Chronos such that if he wants to defend himself at this point, he should. Otherwise I think I’ll start shopping around for my own online bodyguards. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [December 29, 2012, 3:57am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/104 "2012-12-29T03:57:52Z")
> [@deltasigma](#): > > **Hellestal** : I think enough people so far have defended Chronos such that if he wants to defend himself at this point, he should. Otherwise I think start shopping around for my own online bodyguards. You ever get that itch you just can’t stop scratching? A lot of us here have that itch. It’s the itch of someone else having made a simple, even completely understandable, mistake… without having admitted making that mistake. [Someone is wrong on the internet.](http://xkcd.com/386/) For instance, a completely understandable mistake in misreading another person’s slightly confusing post. Many of us here want to scratch that itch. Ultimately, this has nothing to do with Chronos. It has to do with **you**. You’re new here, and it’s worth figuring out what kind of person you are. I wouldn’t be bothering with this if you were a poster with an established history of intellectual cowardice. Such a poster has also appeared in this thread, but they’re not worth the effort. You’re an unknown still, which means it’s worth sounding you out. We would be satisfied – or at least, I would personally be satisfied – the itch would go away immediately, if there was an acknowledgement of error. Such a little thing, both the easiest and hardest thing in the world. Errors are permanently on record here. And when people refuse to admit their mistake – even if it’s on, yes, such a small and seemingly insignificant topic – well, that is _also_ permanently on record. I personally can’t help thinking that if a person is unwilling to admit a small insignificant error, there’s no way in hell they’ll ever admit a big important error. Take that for whatever you think it’s worth. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [December 29, 2012, 4:09am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/105 "2012-12-29T04:09:38Z")
Hellestal: You want me to admit that I misunderstood. I’ve read that several times and in the context of the discussion I’m not convinced I did. That’s why I’m not going to discuss the discussion. If you believe I don’t know what I’m talking about, that’s fine. It’s still a free country - more or less. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [December 29, 2012, 7:06am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/106 "2012-12-29T07:06:17Z")
> [@Chief\_Pedant](#): > > Get back to me on your theory of how much control the Fed has when demand for Treasuries drops so low (because we’ve over-borrowed and mistrust arises about whether or not we will repay our debt with non-devalued dollars) that they go unsold. It is very difficult to sell Treasuries at low interest rates if general inflation is running amok. > > It’s not clear to me (and especially given the current “fiscal cliff” kerfuffle) that raising taxes or cutting spending is particularly simple. > > “Future dollars” in the context I used it means dollars coming from future revenue as opposed to dollars paid out of current revenue. Your argument depends on the notion that the government needs to sell Treasuries to private investors (it doesn’t). The government can finance its debt itself. It’s doing it now. The fact that we can do that (unlike Spain or Italy or California) is why US debt is so safe, and interest rates low. It’s ironic that the fact we don’t need to sell debt is why our debt is in so much demand, but then, lenders have always preferred to lend to those who don’t need it. Anyway, there’s no danger of US debt going unsold. Or selling at an interest rate different than the one corresponding to the safest possible investment. The Fed controls what that interest rate is, not investors. The government can create inflation by borrowing too much/printing too much money. It can also create unemployment by borrowing/printing too little. Since unemployment is a problem, and inflation is not, the government should be borrowing and printing more, not less. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [December 29, 2012, 7:30am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/107 "2012-12-29T07:30:53Z")
> [@LinusK](#): > > Anyway, there’s no danger of US debt going unsold. Or selling at an interest rate different than the one corresponding to the safest possible investment. The Fed controls what that interest rate is, not investors. Please explain how the fed does this. Aside from setting the fed funds rate, the only other mechanism with which I’m familiar is the FOMC and their responsibility is spelled out in their name ‘open market committee.’ They only execute trades to buy and sell securities so as to expand or shrink the money supply. So if there are other powers the fed has directly over rates, I’m interested in learning. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [December 29, 2012, 7:00pm UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/108 "2012-12-29T19:00:27Z")
> [@Hellestal](#): > > You are failing to make any distinction between **reserves** and **excess reserves** , which are not the same thing. You are also, incidentally, failing to make a distinction between **monetary base** and **reserves** , which are not the same thing. > > When **deltasigma** writes a post about excess reserves, it is inappropriate to respond with the definition and characteristics of the monetary base, or of total reserves. The poster was not talking about the monetary base or about reserves. The poster was talking, specifically, about excess reserves. The point that I was making is that it’s the Fed that controls the amount of reserves in the banking system, not commercial banks. He responded by saying that excess reserves are those above what’s required by law. He was implying, I guess, that if the reserves are not required by law, then the banks can somehow get rid of them. They can’t. You’re right that monetary base is also currency, but it’s bank customers who decide how much base is held as currency, not banks. ---
**Author:** ![UltraVires](https://avatars.discourse-cdn.com/v4/letter/u/ecccb3/32.png) [@UltraVires](https://boards.straightdope.com/u/UltraVires)\ **Post date:** [December 29, 2012, 8:07pm UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/109 "2012-12-29T20:07:20Z")
> [@LinusK](#): > > Your argument depends on the notion that the government needs to sell Treasuries to private investors (it doesn’t). The government can finance its debt itself. It’s doing it now. > > The fact that we can do that (unlike Spain or Italy or California) is why US debt is so safe, and interest rates low. It’s ironic that the fact we don’t need to sell debt is why our debt is in so much demand, but then, lenders have always preferred to lend to those who don’t need it. If you would, I would like a more detailed explanation for this proposition. Sure, SOME of our debt is financed by the social security trust fund and the like, but to borrow money, you don’t borrow from yourself. We sell it to private investors and foreign governments. Should those investors find out (whether immediately or over a period of years) that we are just firing up the printing presses with our currency, they will demand higher interest rates. Which, as **Chief Pendant** says, will cause us to print more money causing higher interest rates and more money and, sorry babe, it’s Chinatown… ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [December 29, 2012, 9:02pm UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/110 "2012-12-29T21:02:36Z")
> [@jtgain](#): > > If you would, I would like a more detailed explanation for this proposition. Sure, SOME of our debt is financed by the social security trust fund and the like, but to borrow money, you don’t borrow from yourself. We sell it to private investors and foreign governments. Should those investors find out (whether immediately or over a period of years) that we are just firing up the printing presses with our currency, they will demand higher interest rates. Seriously? The governments of Japan and China don’t realize this today, and have all along? What the hell do they think is happening? (Hint. Maybe they think, correctly, that we are not just firing up the printing presses with our currency.) ---
**Author:** ![UltraVires](https://avatars.discourse-cdn.com/v4/letter/u/ecccb3/32.png) [@UltraVires](https://boards.straightdope.com/u/UltraVires)\ **Post date:** [December 29, 2012, 9:11pm UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/111 "2012-12-29T21:11:17Z")
> [@Exapno\_Mapcase](#): > > Seriously? The governments of Japan and China don’t realize this today, and have all along? What the hell do they think is happening? > > (Hint. Maybe they think, correctly, that we are not just firing up the printing presses with our currency.) Right. We are not. The OP suggested that we should. If we did, these governments would realize it. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [December 29, 2012, 9:33pm UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/112 "2012-12-29T21:33:54Z")
> [@jtgain](#): > > If you would, I would like a more detailed explanation for this proposition. I think a lot of confusion arises from most people not understanding what the nature of the fed is and how it operates. What I often see is that people think that the fed is a branch of the govt. In fact, it is an independent body that represents both the interests of private member banks as well as the govt. Here is part of the wikipedia intro. > [@](#): > > The Federal Reserve System’s structure is composed of the presidentially appointed **Board of Governors** (or Federal Reserve Board), the **Federal Open Market Committee** (FOMC), **twelve regional Federal Reserve Banks** located in major cities throughout the nation, numerous privately owned U.S. member banks and various advisory councils.[13][14][15] > > The FOMC is the committee responsible for setting monetary policy and consists of all seven members of the Board of Governors and the twelve regional bank presidents, though only five bank presidents vote at any given time. > > The Federal Reserve System has both private and public components, and was designed to serve the interests of both the general public and private bankers. The result is a structure that is considered unique among central banks. It is also unusual in that an entity outside of the central bank, namely the United States Department of the Treasury, creates the currency used.[16] > > According to the Board of Governors, the Federal Reserve System “is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.”[17] Emphasis added. So when the fed buys securities such as treasury bonds, even though it does so with money denominated in USD that it creates out of nothing (ex nihilo), it’s not the same as the govt financing it’s own debt. I admit that it’s a pretty fine distinction and in some ways could be considered a distinction without a difference, however we also have to consider the fact that [nearly half](http://en.wikipedia.org/wiki/United_States_public_debt#Foreign_holdings) of all US public debt is held by foreign investors. So even if some of the debt is ‘monetized’, that’s certainly not true for the vast bulk of it. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [December 29, 2012, 9:57pm UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/113 "2012-12-29T21:57:17Z")
> [@deltasigma](#): > > I think a lot of confusion arises from most people not understanding what the nature of the fed is and how it operates. What I often see is that people think that the fed is a branch of the govt. In fact, it is an independent body that represents both the interests of private member banks as well as the govt. Oh, please. This is itself standard confusion. The Fed is as much a part of government as independent regulatory agencies and in the same way. It was created by Congress. Its Board of Directors is appointed by the President. It works by and for the government. As your Wiki link notes, the Fed does have private components, but it itself is not private. That’s standard CT nonsense all over the Internet. The Fed is the central bank of the United States of America. There is no such thing as a private central bank in this century. Everything the Fed does is as a representative of the government. ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [December 29, 2012, 10:40pm UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/114 "2012-12-29T22:40:42Z")
If it makes you feel better, **deltasigma** , I think [**Hellestal** ’s understanding of my post](http://boards.straightdope.com/sdmb/showpost.php?p=15841495&postcount=102) is accurate to what I intended to say by it. And that’s about all the more defense I feel like bothering with, since any more would amount to just repeating things already said. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [December 29, 2012, 11:30pm UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/115 "2012-12-29T23:30:29Z")
> [@Exapno\_Mapcase](#): > > Oh, please. This is itself standard confusion. The Fed is as much a part of government as independent regulatory agencies and in the same way. It was created by Congress. Its Board of Directors is appointed by the President. It works by and for the government. As your Wiki link notes, the Fed does have private components, but it itself is not private. That’s standard CT nonsense all over the Internet. > > The Fed is the central bank of the United States of America. There is no such thing as a private central bank in this century. Everything the Fed does is as a representative of the government. Look, people need to stop reading into what I say. Since I come from a finance background (although that’s a long story), I’m sure I have my biases. But I’m willing to examine those. So don’t pounce on me because you THINK i’ve said something untoward. What I said was that they are independent. I referenced the wiki entry which covers everything you’ve mentioned and more. But my point was that they make their policy independently. Congress and the Executive can bitch and moan about fed policy all they like, but can’t do a damned thing about it - at least in the short run. They can change the laws, but that rises to a completely different level. > [@Chronos](#): > > If it makes you feel better, **deltasigma** , I think [**Hellestal** ’s understanding of my post](http://boards.straightdope.com/sdmb/showpost.php?p=15841495&postcount=102) is accurate to what I intended to say by it. And that’s about all the more defense I feel like bothering with, since any more would amount to just repeating things already said. Sounds good. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [December 30, 2012, 1:28am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/116 "2012-12-30T01:28:12Z")
> [@deltasigma](#): > > Look, people need to stop reading into what I say. If multiple people persist in “misunderstanding” what you write, then perhaps you should check your words before posting them. This is not snark. I have ten years’ experience in watching new posters insist they are being misread when in reality they haven’t learned how to frame their words for this peculiar medium. I think we’re all responding completely correctly to the words you post, which is the totality of what we have to work with. You can’t win this by dismissing our comments. You’re the one who will have to adapt. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [December 30, 2012, 1:53am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/117 "2012-12-30T01:53:30Z")
Sigh. I’m not trying to win anything. You see - perfect example of what I’m talking about. Where exactly did you read that this was my objective? I admit I’m, ‘less than clear’ at times - and even I know I’m probably being generous there. But that’s usually the result of assuming a certain level of familiarity on the part of my reader with the subject. It’s an implicit assumption, not a conscious one and I try to compensate for that but I don’t always succeed. So I understand the criticism and agree up to a point. However I think that you need to drop the assumption that I have some agenda here. As hard as it is to believe, I don’t. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [December 30, 2012, 2:11am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/118 "2012-12-30T02:11:42Z")
I don’t think you have an agenda. I think that you’re saying dumb things. See the difference? ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [December 30, 2012, 2:19am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/119 "2012-12-30T02:19:52Z")
> [@Exapno\_Mapcase](#): > > I don’t think you have an agenda. I think that you’re saying dumb things. See the difference? Uhhh, OK. If the general consensus seems to be that I what post isn’t helping people understand how the financial system and economy work, I’m happy to spend my time doing other things. I haven’t invested 10 years on a forum such that I’d feel like I’d be walking away from anything. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [December 30, 2012, 2:38am UTC](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889/120 "2012-12-30T02:38:11Z")
> [@deltasigma](#): > > Please explain how the fed does this. Aside from setting the fed funds rate, the only other mechanism with which I’m familiar is the FOMC and their responsibility is spelled out in their name ‘open market committee.’ They only execute trades to buy and sell securities so as to expand or shrink the money supply. > > So if there are other powers the fed has directly over rates, I’m interested in learning. The power the Fed has to create base money to purchase bonds is all it needs to set interest rates. When reserves increase it puts downward pressure on all interest rates, including government debt. Banks and their customers look for ways to invest the funds. But no amount of investment reduces the amount of money created. The money only changes hands. Only the Fed can do that. The banks merely swap the funds back and forth. Meanwhile, all that swapping chases yields down, until the Fed changes policy, or they go as low as they can go. Treasuries are the safest most liquid investment possible, so their prices rise the most. [Previous page](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889.md?page=5) [Next page](https://boards.straightdope.com/t/please-explain-to-me-why-we-cant-just-print-more-money-to-pay-off-the-national-debt/644889.md?page=7)