What determines how much money (or dollars $) the Fed can print in a given year?

Question

I have always wondered about this question. Not that it does not have any current relevance, but what would restrict the Fed from simply printing more and more money when they need it. I know up until the late 60/early 70's we were tied to the Gold-Standard, but what system is used now to set our printing limit for todays US Dollars?

Answer 1

First, money is not created by the printing of currency. Currency is worthless paper until it is placed into the banking system and matched up with already-existing money. Money is an abstract thing, and currency is just paper that is used to help make money tangible so it can be carried around and exchanged easily.

Your question is about money creation itself, and how that is limited. Money is created by the whole banking system, not by the Fed alone. Money is created when a bank loans out money to a customer -- that loan is newly created money.

There is not any kind of overall numerical limit to money creation. But various processes prevent banks from lending an unlimited amount of money. We call it a "fractional" banking system because a bank can only lend out a fraction of the money it has on deposit (say, 90%). Also the Fed Reserve has some tools to reduce how much cash a bank has on hand when desired, which reduces how much that bank can lend.

Anyway, it's an unappreciated fact that money-creation is linked to the economy's productivity -- that is the limiting factor. This occurs because at the most local level, generally when you apply for a loan to receive some newly-created money, the bank demands that you prove you have a steady stream of income.

If you have income, you are nearly always producing SOMETHING for the economy (with the exception of Paris Hilton I guess). And the bank ensures the loan is not out-of-whack compared with your income (ie, your productivity). The more income you have, the more money you can borrow.

We think of that as a bank just doing due diligence and checking your credit to manage its risk -- but in the big picture, this is how money creation is linked to productivity in the economy.

Answer 2

Right now I think the only thing determining it is how much Bush thinks it will take to keep us from noticing that the economy has tanked under the weight of meaningless war, deficits and tax cuts for the rich. If no one notices for two more years that he's just printing money with nothing behind it, the mess then becomes somebody else's problem!

Answer 3

technically a united states of america can print as a lot because it needs see you later because it has paper and ink, notwithstanding the further money is outlined, the a lot less the cost of it turns into. german marks in the course of the international wars were printed in plenty, notwithstanding it really is cost ultimately dropped to the point that it became more affordable to burn marks than purchase gasoline for the cooking fireplace. for this reason, the in effortless words functional reduce is common experience.

Answer 4

Printing too much money causes inflation. That is what Germany did following WWI and it drove inflation through the roof.

Answer 5

the used and worn and torn bills are gathered from around the globe and turned into the federal reserve banks to be sent to the dept of the treasury to be burned they burn money in huge batches and then its replaced from the reserve banks .. also its got to do with the prime rate that the feds use to lend funds to banks to lend out to the public ..