But where did all this money go? Well, most of it is still with the government but in different forms. The government used this money to buy back assets and treasuries from banks that they wished to sell. This helped the banks remain afloat and escape massive losses.
Banks don't actually lend from their reserves, but reserves are required to enable interbank transfers of loaned funds. They borrow from each other and the Fed when needed to stay in balance. When unforeseen circumstances such as a global pandemic, create conditions where all banks are needing reserves at the same time the Fed must step in to stabilize things.
Keep in mind that QE is only purchasing back Treasury and other government guaranteed debt that was already purchased using US dollar reserves, so it is just avoiding a run on that debt by converting it back to reserves where it started from. No new money is actually created in the process, although it appears as it does since Treasury debt isn't part of the M1-2 money supply, but reserve are.
Go ahead and check the print order archive from the Federal Reserve. They only printed notes worth $146 million in 2020
The numbers reflecting "printed" money, while part of the debt, really have no relevance to the total of money created in any fiscal year. This is simply "paper money" to meet consumer demand. It is also quite seasonal, increasing around the holidays. As the economy adjusts to the convenience of digital currency and paperless transactions this number will dwindle steadily.
The primary reason digital currency hasn't already made paper money totally obsolete is the large number of people who are "unbanked", having no way to collect funds other than to cash checks from employers or the various governments. President Biden is working on a project to allow the USPS to act as a bank for anyone with a Social Security number at much lower fees than is currently charged by check cashing companies, plus give customers access to a debit card.
This would lower costs of dealing with printing and would likely even lower violent crimes involving theft around normal paydays and holidays when many people are carrying cash.
The US government still holds the treasuries that it bought back from the banks and has a strong capability to sell them in the future.
This isn't exactly accurate. The process of buying back debt before it matures allows banks to ride out the demand for reserves, but they also give up any future claim to the Treasuries. They can buy new Treasury issues with the reserves, but those reserves are liabilities, not assets, to banks and they carry their own interest cost at the present Fed rate, making such a purchase a washout.
By creating a stimulus and providing money to its citizens and banks, the government is technically ‘investing’ in them with a hope that the people and the banks can recover from their losses and create an economic output that matches that of the stimulus (or more).
It is important to separate fiscal stimulus from QE in understanding macro-econ currently. QE can provide necessary reserves to allow banks to continue lending, but that lending must be supported eventually by sufficient deficit spending to facilitate timely retirement of the loans.
A bank has no power to "net" create currency even if the credit accounts it creates by loaning are denominated in US dollars. Retiring those loans require public money that only Congress can create when it deficit spends.
The credit money created by bank lending disappears as it is exchanged for public money as loan principal is reduced until it is retired. Many people used their stimulus money to reduce their debt, which is extremely deflationary, destroying money while also lowering GDP and money velocity.
In fact, inflation is driven by consumer demand and spending. Coupled with this increased demand are the shortage of labor and raw materials.
I'm not seeing that much increase in demand. The miniscule amount of stimulus payments made by Congress was hardly sufficient to compensate for the wages lost in the pandemic. If there is a net increase in aggregate demand it is from private sector bank lending as we saw in the '90s during Clinton's budget surpluses.
I believe we are seeing a new factor introduced to the supply/demand equation, "shareholder equity".
As long as resources are currently scarce corporations are using their monopoly positioning to maintain a steady state of profits in a much reduced net output. By avoiding significant losses in stock prices CEOs are also propping up their own bonuses and justifying their salaries.
The meaning of this debt is very different at the level of government compared to the level of a nations’ citizens. This is where it gets complicated so you can search this more yourself if you’re curious.
It isn't really all that complicated. If you understand basic dual entry spreadsheet accounting you can understand federal finance. Every dollar the federal government spends in deficit of taxation becomes someone's financial asset in the private (non-government) sector. It is how the government makes payments and provides a store of value for the real resources and labor it uses.
A "balanced" budget, the holy grail of econ illiterate politicians, steals those resources and labor and isn't sustainable for very long. Such "austerity" spending budgets force the people to fund their own economy and their government with private bank debt, but gives no means to retire that debt, causing cascading defaults as we saw in '08.
But the Democrats are spending so much money — Yes, but the bills are also accompanied with ways to pay for them.
The Democrats can get by with "some" balancing of budgets because they mostly go after the wealthy and non-productive profiteers to get the "payfors" that an econ-illiterate public demands since '80. However, many also believe their own hype and should be considered just as illiterate (or corrupt) as Republicans when it comes to government finance.
Except to drawn down reserves to curb "monetary" inflation (rare) or to generate more equity in society, deficit spending should be considered a necessity to grow the economy and fund population growth. As I mentioned above, it is also required to net retire private bank debt.
The spending of the US government adds to the debt but not the deficit directly. So technically the government can keep spending money as long as there’s a return in sight. The surplus is affected by economic output and jobs (which are improving).
The debt is simply a historic accounting of all money created by federal spending minus collected taxes since our founding, an aggregate of deficits. It is our "net" money supply, mostly saved in Treasury bonds. One should not even consider it to be something that must be "paid off" in the future, regardless of the job supply or productivity. I do believe we should end issuing Treasury bonds and pay interest on excess reserves instead to rid us of the false concept of "debt" in federal finance.
Whenever employment is below 100% the government has taxed the people too much. If inflation begins effecting prices of goods not in scarce supply, the government has spent too much. Taxation and spending aren't as simple as just balancing some numbers. We pay our representatives well to manage our "economy", not the budget or debt. We should demand they do so or get smarter representatives.
PS: Stop believing everything they say on social media. Only believe official websites and wire-press (Reuters).
Sadly, not even most media "experts" are willing to buck popular opinion and continue to frame the issues of federal finance in the language of "currency users", such as their audience is familiar with from their experience. This is totally incorrect when discussing the "monopoly issuer" of the currency and is responsible for a lot of needless suffering.
Any suffering that can be mitigated with federal dollars is entirely a "political choice" and has no relationship to reality of federal budget management.
