Fed pumps 41 BILLION into the economy today. where did this 'cash' come from?

Question

http://news.yahoo.com/s/ap/20071101/ap_on_bi_ge/fed_markets

thank you captain obvious. so what makes this cash have any value?

Answer 1

They went to the marketplace for United States Treasury obligations and bought back $41 billion of them in the open market place. This cash was given to the buyers to do with as they please. The cash is backed by the same $41 billion in treasuries they bought. If it seems kind of circular, it is.

The process of dumping money into the economy, where none existed before is called seigniorage. They really did basically just print it. Money is a debt obligation of the government to the people. Its only specific legal use is to pay taxes. However, since it is convenient to use it to pay for other things, people do. Seignorage is a way for governments to make money. They do so in two ways. It costs, if memory serves me, four cents to make a one dollar bill. The government pockets the ninety six cents and uses it to pay for things like social security, basically by redeeming debt that would have otherwise been due. The second part of the income is an annual tax on the money called inflation. Every time the money supply is increased, the value of money falls. It is simple supply and demand. If you add supply, without adding demand, the price of money must fall.

The price of money is the interest rate required to get some from a person who has extra. The value of money is what it can buy in goods and services. If you had 1000 goods and $1000 dollars, each good would be worth $1 if you had freely moving prices, unconstrained labor and unconstrained borrowing. If the government suddenly printed another $1000 then you would have $2000 and 1000 goods and so everything would sell for $2.

The cash literally was printed up, although it was an electronic printing press and no paper actually came into existence. Money just moved electronically between the banks.

Answer 2

Generally it's not newly-printed money, but rather funds drawn from reserves, which include U.S. currency (as well as gold, foreign exchange and government and commercial paper) that is necessary for conducting open-market operations.

The "injection" in this case is inaccurate. These funds were made available via open-market operations whereby the Fed's Open Market Committee purchased treasury securities from member banks, thus exchanging the banks' near-liquid assets for liquidity.

Answer 3

the printing press

Answer 4

they print it