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>>24548447
I wrote some scattershot thoughts on why the Federal Reserve is able to “print money” to pay for America’s spending bills. The conclusion I arrived at was that ultimately it is probably faith in the American economy (more specifically America’s ability to keep up with interest payments from bonds they’ve issued to both domestic and foreign actors) that is the ultimate driving factor. So long as people keep buying bonds, America can keep “printing money” and so long as America keeps up its interest payments, people who buy bonds will believe American bonds are a safe investment and will continue buying them. This further leads to foreign banks purchasing American bonds with US dollars because it is ultimately a safer return than most alternatives. This is why US dollars are deemed a “reserve currency”, because bonds are so reliable there is always a demand for dollars since foreign banks can always use them to buy bonds and get a safe return. If the American economy continues to grow, it will be able to collect more tax revenue to pay its interest payments
In practice this can be a tricky balancing act. If the economy grows too quickly people will not buy bonds as they are not as profitable compared to other investments, and with the rise in spending the Fed may increase rates to control inflation and limit borrowing, which will lead to a decline in demand in the secondary bond market since individuals holding bonds have a lesser incentive to keep them when newly issued bonds will have a higher interest rate. With newly issued bonds having a higher interest rate that means bond yield increases and America must pay more.
Alternatively if the government grows too slowly or undergoes recession it will struggle to collect the tax revenue it needs to make the interest payments to begin with and control its debt. This may scare investors from buying bonds since it will cast doubt if America can make its interest payments.
Would you say that’s roughly accurate
>>24548444
I’m too shy
I wrote some scattershot thoughts on why the Federal Reserve is able to “print money” to pay for America’s spending bills. The conclusion I arrived at was that ultimately it is probably faith in the American economy (more specifically America’s ability to keep up with interest payments from bonds they’ve issued to both domestic and foreign actors) that is the ultimate driving factor. So long as people keep buying bonds, America can keep “printing money” and so long as America keeps up its interest payments, people who buy bonds will believe American bonds are a safe investment and will continue buying them. This further leads to foreign banks purchasing American bonds with US dollars because it is ultimately a safer return than most alternatives. This is why US dollars are deemed a “reserve currency”, because bonds are so reliable there is always a demand for dollars since foreign banks can always use them to buy bonds and get a safe return. If the American economy continues to grow, it will be able to collect more tax revenue to pay its interest payments
In practice this can be a tricky balancing act. If the economy grows too quickly people will not buy bonds as they are not as profitable compared to other investments, and with the rise in spending the Fed may increase rates to control inflation and limit borrowing, which will lead to a decline in demand in the secondary bond market since individuals holding bonds have a lesser incentive to keep them when newly issued bonds will have a higher interest rate. With newly issued bonds having a higher interest rate that means bond yield increases and America must pay more.
Alternatively if the government grows too slowly or undergoes recession it will struggle to collect the tax revenue it needs to make the interest payments to begin with and control its debt. This may scare investors from buying bonds since it will cast doubt if America can make its interest payments.
Would you say that’s roughly accurate
>>24548444
I’m too shy
7/14/2025, 2:34:24 AM
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