Can you explain what the government does when it prints money?

Can you explain what the government does when it prints new money? How does it put that new money into circulation? (NEW money meaning money that increases the money supply, NOT currency that replaces old bills). How can money be introduced without somebody getting a lot of cash for nothing?

don't just tell me they buy US debt on the open market. That doesn't answer the question. What do they do with the debt? Specifically, answer how is money put into circulation without someone getting cash for nothing?

The government does not create money by "printing money." Money is created by banks receivng deposits and loaning money. This is called the money multplier effect. I deposit money in a bank that bank loans a portion of my deposit. The borrower deposits money and that money is loaned. This is a simple way of describing the effect. The majority of money exists in book form. Only a really small portion of money exists as actual printed bills and coins.

This is why the Federal Reserve attempts to control the rate of money creation ( and control inflation) by increasing or decreasing the Federal Funds Rate. This is the rate banks loan money between each other it is also the basis for the "Prime Rate" (Federal Funds Rate + 3%). The higher the interest rate or cost of money the less likely people or to borrow slowing down money creation. The lower the rate the more borrowing and money creation.

Your question can best be answered by going the BEP portion of the US Treasury website:

and this article discussing distribution currency by Federal Reserve.
The U.S. operates the most profitable business in the country: printing new money. They sell that money to the Fed, which distributes it to the banks around the nation when the demand for physical money increases.

Here's a more detailed answer. I found it by Googling "Money printed treasury circulation"

Want a real brain teaser? Most money isn't physical! It exists only as numbers in a bank account or in a computer database. Want another one? Banks make more money than the U.S. mint! Every time a bank writes a loan, it creates money. It is required by law to cover that transaction with a certain amount of cash reserves, which is where the Fed and the U.S. mint come in. Every time you put your ATM card in the machine, you're effectively "buying" cash from the bank, who bought it from the Federal Reserve (The Fed).
Go read this paper, it goes over it all (pdf).

It's an older paper, but the principles are all the same. Sorry I can't explain it all, but it's a really complicated topic and if you really want to get it you have to dive in and read something like this.
May I try?

The Federal Reserve Banks distribute new currency for the U.S. Treasury Department, which prints it.

depository institutions buy currency from the Federal reserves when they need it to meet customers demand.

these depository institutions deposit deposit cash to the Fed. reserve when they have more than enough to meet the clients demand

It's as simple as that. You and I don't receive cash from the federal reserves. All our money coming from the fed reserve an are coursed thru depository institutions, that is how the money supply is controlled by the federal reserves.

by the way, these are real money not just digits in the computer.


Simple money flow, assuming new money is printed

US TREASURY DEPT PRINTS NEW MONEY --->>> Fed Res ---> Bank --> going to me thru payroll --> I buy at walmart in cash --> walmart deposits to BANK --> Bank has excess money supply for current demand --> deposits to Fed Res. Bank.

The answers post by the user, for information only, does not guarantee the right.

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