Who can really ‘print’ money? The Fed or the Treasury?

We are often told that the Fed prints money, while the Treasury can only borrow. Yet, this statement is inaccurate.

Well, if we narrow down the question to who has the power to print physical currency, the answer is plain: The Fed prints banknotes and the Treasury prints/mints coins.

Yet, the question is worth asking to discuss which authority has the power to credit the private sector with currency, adding to private income–which is what most people mean when discussing, or reproaching, or wishing ‘money printing.’

Sure, the Fed does this when it pays its employees, or buys a new computer system, or pays interest on bank reserves: the employees, the computer supplier, or the bank are credited with currency, adding to their incomes.

But the bulk of the Fed’s monetary operations don’t do this: When the Fed makes loans, or buys securities, the Fed trades currency with financial assets, not adding to the income of the currency recipients. The Fed just modifies private (notably, banks’) balance sheets: holdings of currency increase while holdings of other financial assets fall.

How about the Treasury? When the Treasury pays for its approved expenditures, it credits currency, adding to the income of the private sector. The opposite is true when the private sector pays taxes: currency is transferred to the government, and thus gets out of circulation, while private disposable income is likewise reduced.

Thus, the Treasury has the power to ‘print’ (or ‘unprint’) money through spending and taxing. The Fed does not have the same power.

28 thoughts on “Who can really ‘print’ money? The Fed or the Treasury?

  1. Ron

    Let’s cut the bs, the USA has the legal right to print money and should be instead of subbing it out to the FED

  2. crowbar

    Going through this blog made me shudder from such a number of so called economists who bravely and over confidently speak on the topic they do not understand and are mainly driven by their ideological emotions…

    I am currently trying to educate myself in the area of macroeconomics and movement of money consider as the main issue on this subject. Here is what I think I understood so far on the topic in discussion:

    1. The bank system without any central banks is intrinsically unstable. Bank runs are unavoidable and difficult to prevent. When they happen, the economy goes into crises.

    2. The central banks in all countries and Federal Reserve including were created to stabilize the system and so far performs the function of stabilizer. Banks borrow currency from the Feds when they run out of the reserves, thus avoiding the bank runs. Unfortunately Feds is also burdened with economical tasks of preventing recessions and unemployment.

    3. As I understood, Feds is a government organization, however, independent of the government. The idea was just that – the professional and top level economists make decisions about monitory policies without interference of political pressures from the government. Unfortunately, this premise has been broken and Feds are subject to such pressures.

    4. I consider that the structure of the Feds precludes the Feds from becoming a conspiracy organization as some of the bloggers above suggest. I like and support the theory of the laws of stupidity as suggested by Carlo Cipolla. As follow from his theory, people may be professionally bright even Nobel laureates but otherwise be stupid. Not bringing here many examples proving that, I will mention just one – Alebrt Einstein. The latter considered the main threats to the world after WWII coming not from the USSR but from fascist Argentina and Spain. Also, he considered Lenin as the keeper and rejuvenator of society conscientiousness. So whoever referred to Ford, you can take this example away. He might have understood cars but not Feds.

    5. Feds as all human organizations is not immune to corruption. But it is not that easy there.

    6. The production of both paper money and coins is performed by the Treasury’s Bureau of the Mint and Bureau of Engraving and Printing. It then sells this currency to Feds (cents for paper money, coins at face value). Treasury has an account with Feds where it keeps the Government money. The distribution of currency is the responsibility of Feds. I did not find yet the details of this transactions, i.e. how much currency Feds is allowed to buy for supporting the money in the accounts and for other reasons.

    7. The economy needs new money for many reasons – because of population growth, necessity to support growth of the economy, and a number of other reasons. I do not yet understand how the newly printed money gets into circulation, i.e. who is granted this new money. Probably Feds which lends it then to the banks. But it is my guesses, I did not find info on internet.

    8. Feds and its Central bank are not private. Private banks which are members of the Federal Reserve system are obligated to have stock of Fed Reserve System or its Central Bank (do not remember) but it is not traded anywhere. Central Bank pays yearly dividend for this stocks 6%. The rest of Feds income after paying the salaries and other similar expenses is returned to the Treasury. Here is the Federalism you could not find.

    9. I am still fighting with the question about how newly printed money get distributed.

    10. Also, I am sure I saw in the internet the Feds banknotes and Treasury banknotes with explanations how to distinguish them but could not find it at the time of typing this post. I wouldn’t be able to explain what I saw unless I found it again.

  3. Rick B

    The Treasury Department has two divisions that create the physical “cash” we use for everyday transactions. The paper money we use, called notes, are physically produced by the Bureau of Engraving and Printing. The US Mint produces coins. The Federal Reserve Bank buys the notes and coins from the Treasury, who in turn delivers them to the Fed.
    Banks in turn buy these currencies from the Fed based on public demand. They return currency to the Fed when they have more than they need. Please note, however, that “money” exists in other forms than notes and coins. These include checking accounts, savings accounts, and money market accounts. Because we have a fractional reserve system of banking in the US, a bank’s reserves of cash are only a fraction of their customer’s deposits. Banks use the balance of customer deposited funds to loan to other customers (ex. mortgages and business loans). Since money, as broadly defined above, no longer has the backing of anything of real value (ex gold), most of it, aside from the physical currency, is measured in accounting transactions. Money is expanded when customers take loans from commercial banks, and is contracted when customers pay the loans back. Money is also expanded when the Federal Government (us) borrows from the Federal Reserve Bank by selling bonds to it. And it contracts when the Government buys bonds back. Unlike commercial loans, loans to the Federal Government require no collateral. Hence, the Govt can keep borrowing unless they are limited by law. If the Federal debt gets too high relative to our nation’s productive capacity (Gross National Product or GNP), and the interest load becomes unsustainable, a recession or depression will be necessary to wipe out the debt, and probably a devaluation of the currency. These issues were responsible for the economic and cultural collapse of ancient Mesopotamia, Rome, Greece and Egypt.

  4. Tusense96762

    Our founding father intent when they created our constitution or rule of law was to have the congress have the responsibility of printing our currency and handling our monetary policy . The plan was that this way the government would have what it needed to run the government through that power. But in 1913 President .woodrow Wilson was hoodwinked into to signing the Federal Reserve Act. This was an unconstitutional move to take the power away from congress. Through the years of this crinimal cabal called the Federal Reserve with at is a private held company that wants to remain nameless because of the wealth they have generated off the backs of Americans. The Rothschild are one of 7 or 11 families that own the Federal Reserve. The Rothschilds are worth over $ 500 trillion . This is more than half the world’s wealth. How did they make that money? Well they create money out of nothing or they create money because we , the U.S. gave them a charter to and when the government needs money the Fed prints money , and get this, and the Fed lends it to the U.S. and adds interest. Yes that is right we pay interest to the Fed on the money we allow them to print. Why do they deserve interest on U.S. printing press runs, it is our money never was theirs we only allow them to print and control it , they shouldn’t profit on it. Well they say we need them because they handle our monetary policy maintaining a stability and keep inflation in check. How are they doing with that? Not too good since 1913 what a dollar could buy today would cost over $21. That is a inflation rate of 2000, not doubke but 2000 percent increase. American have lost half their wealth in the last ten years . The middle class has been abliterated. If you look at a graph and you used a symbolic 100 people in all classes poor, middle class, upper class and ultra rich . From 0-7 of that hundred would include the poor and middle. What this tells you is spreading all money in the U.S. over those hundred , only 7 percent of all U.S. money is in the poor and middle income hands. This is an outrage and we need to get rid of the Fed , get rid of most of the people in our government. No one is looking out for Americans , they steal our homes, they have tax us to death and now they have taken over health care to kill us.

  5. Nalliah Thayabharan

    U.S. economy is struggling and the U.S. government is absolutely drowning in debt. Unfortunately, the Federal Reserve has decided to recklessly print money out of thin air, and in the short-term some positive things have come out of it. But quantitative easing worked for Germany almost 100 years ago.. At first, more money caused economic activity to increase and unemployment was low. But all of that money printing destroyed faith in German currency and in the German financial system and ultimately Germany experienced an economic meltdown that the world is still talking about today. This is the path that the Federal Reserve is taking the USA down, but most Americans have absolutely no idea what is happening.

    It is really easy to start printing money, but it is incredibly hard to stop. Like any addict, the Federal Reserve is promising that they can quit at any time, but they refuse to even start tapering their money printing a little bit. Federal Reserve seems to be convinced that any “tapering” could result in the bursting of the massive financial bubbles that it has created. Federal Reserve believes as the market seems not to, that the current “recovery” could not survive without continuation of massive monetary stimulus. Federal Reserve is usually very careful not to do anything which will hurt the short-term interests of the financial markets and the big banks. If Federal Reserve continues to pump, the financial bubbles that it has created will get even worse. If Federal Reserve stops, those bubbles will burst. But it is inevitable that these financial bubbles will burst at some point one way or another. The Federal Reserve is trapped and can’t end tapering or else the bond and stock markets will blow up. The longer this continues the bigger the inevitable burst. While the Federal Reserve has been recklessly printing money out of thin air, household incomes have actually been going down for five years in a row… The employment to population ratio fell from about 63% before the last recession down to underneath 59% at the end of 2009 and it has stayed there ever since. So if quantitative easing has not been good for average Americans, who has it been good for? The wealthy, of course. This is fantastic for every rich person – This is the biggest redistribution of wealth from the middle class and the poor to the rich ever.
    The implication of the Federal Reserve’s policy is that the rich will spend their wealth and create jobs—essentially betting on “trickle-down economics.” But it hasn’t worked for five years. We have now entered a money printing spiral from which there is no easy exit. Federal Reserve has “crossed the Rubicon” and we are now “in the End Game”… If tapering even $10-15 billion per month from $85 billion month quantitative easing programs would damage the economy, then we’re all up you know what creek without a paddle. Here we are, five years after 2008, and the Federal Reserve is stating point blank that the economy would absolutely collapse if it spent any less than $85 billion per month. This admission has proven just how long ago we crossed the Rubicon. We’re already in the End Game. Period. Most Americans don’t really understand what quantitative easing is, and most don’t really try to understand it because “quantitative easing” sounds very complicated. But it really isn’t that complicated. The Federal Reserve is creating gigantic mountains of money out of thin air every month, and the Federal Reserve is using all of that newly created money to buy government debt and mortgage-backed securities. Over the past several years, the value of the financial securities that the Federal Reserve has accumulated is greater than the total amount of publicly held debt that the U.S. government accumulated from the presidency of George Washington though the end of the presidency of Bill Clinton…

    US dollar supply is beginning to grow at an exponential pace. So far, complete and total disaster has not struck, so most people think that everything must be okay. But it is not.
    It is simply not rational for other nations to continue to lend USA money at less than 3% a year when reckless money printing by the Federal Reserve threatens to greatly accelerate the devaluation of our currency.

    Right now, the Federal Reserve is buying roughly half a trillion dollars worth of U.S. Treasuries a year, but the U.S. government issues close to a trillion dollars of new debt and must roll over about 3 trillion dollars of existing debt each year. If the Federal Reserve eventually decides to buy all of the debt, then interest rates won’t be a major problem. But if the Fed goes that far our financial system would be regarded as a total joke by the remainder of the globe and we would reach hyperinflation much more rapidly. If the Federal Reserve stops buying debt completely, the financial bubbles that they have created will burst and we will rapidly be facing a financial crisis even worse than what we experienced back in 2008. The Federal Reserve is systematically destroying what was once the strongest financial system in the world, and in the end we are all going to pay the price

  6. David L

    1. Why does the US government borrow money from the Fed when the Fed can print as much money as needed to finance any unlimited purchases. It seems like the US making “money out of air”.

    2. If, in fact, the Fed is owned by an elite group of wealthy individuals, then why wouldn’t they simply print themselves as much money as they need to fund any of their purchases?

    3. Why does the US need to collect tax money?

    4. Why do we care about the debt ceiling and budgeting?

  7. Jonathan

    The US Treasury is the ONLY entity in the world that can print US bank notes – Bureau of Engraving and Printing and strike US coinage – The US Mint.

    The Federal Reserve manipulates the value of loaned money (Credit) through the use of interest rates as well as buying and selling assets from the US Treasury.

  8. Pauly

    I think I get it now. The treasury is the only entity that can print money. The Fed can manipulate the money supply. The Fed can afford to buy up $89 billion per month in bonds (Qe3) because of all of the interest it is collecting on the national debt. Would anybody dispute any of that?

  9. Greg

    In this 21st century USA, except for $1.2 trillion in cash and coin, money exists and moves through electronic channels between electronic balance sheets in computers. Every entity, you me, Lockheed Martin, First National Bank of Your Town, the US Treasury, has an account ultimately managed by or for the Federal Reserve. You send a $100 check for federal tax to the treasury, your account gets debited $100, the Treasury credited $100. The Treasury needs $100 billion to run the Govt. it makes out $100 billion in treasuries in the name of the Fed, the Fed credits the Treasury account with $100 biillion on which the treasury cuts checks to pay Lockheed for a new F-35. Exit the FED, we have the USPS carrying cash back and forth and we end up back in the 19th century…Good Luck to us all.

  10. Enrique Woll Battistini

    The article’s author states that “…When the Treasury pays for its approved expenditures, it credits currency,” and this is true if the statement refers to the Treasury’s accounting entry for the transaction: asuming that the debt has already been registered as a liability, the transaction’s accounting would be “debit payables, credit currency.” I think the discussion got way off track…

  11. Andrea Terzi Post author

    This is not the point.
    The point is that Fed ‘spending’ is (normally) lending, thus buying ‘money forward’ with ‘money spot’.
    And Treasury spending creates new financial assets in the private sector.

  12. FutureEconomist

    Even when the government issues money the Fed must credit the governments account when it buys treasuries, so the Fed still issues the currency. The Fed also credits accounts when it buys the debt of private entities, just like it does for the government.

  13. Gunzo

    After reading all these posts, I remain confused. For the moment, I am assuming for the sake of simplicity either Govt and / or Fed can print the money. Let me ask a fresh questions which could be like this: (1) How much money was printed in 2011? (2) Did that money straight away go to the government coffers for their “approved” expenditures? (3) Why did they decide to print only that amount of money, why not more why not less and how the limit is decided? (4) If some posters here say that Govt Treasury can print money. If so, why are they coming to the market to borrow the money instead of simply printing the money? I would greatly appreciate. Gunzo.

  14. Benno

    CF, if it’s so easy to say that having to pay all the debt would be economic suicide is too obvious to mention, if debt’s purpose were only a meassuring then why budget and make people suffer for exuberant bank losses which was caused by false kapitalization on their part in the first place. Money is a commodity and equally so banks create a need for money by proxy => ‘business plans + marketing strategies = investment loans’ is just one of the many mechanics.

    Lynn, a Fed analyst always lags behind the facts. While academics theorize economics and argue whether to follow the Kenian’s or Smith’s model the folks at the Fed are having a ‘good larf’ since those who control the debt of a country, control the country whether you like the idea or not. Winners show their cards?

  15. Benno

    Oh? And why would you so necessarily need to *export* your stuff? Oh yes, globalization. lol

  16. CF

    The article is correct..the Treasury creates money by running deficits and destroys money by running a surplus. This a deeply misunderstood subject. While people argue that we need to pay down the national debt, they usually don’t recognize that this would massively choke the economy by destroying dollars (less dollars in circulation means the value of a dollar goes up, which means deflation and that our exports are less competitive.)

  17. Robby

    I really need to understand all this, thoroughly educate myself in economics, remain as unbiased as possible and keep my eye on conspiracy theories to a minimum.

  18. Russell Brown

    I find this thread extremely interesting. The subject, alone, is fascinating and complex. Who really understands it entirely? I found this site after reading on a silver dealer’s web site a statement from the dealer about central banks printing lots of money. My immediate thought was: “Wait a minute. Central banks don’t print money.”

    It is also fascinating to see how we all bring in our own perspectives, biases and inclinations. Also, thank you, Nalliah, for such an informative history. We can all remember Henry Ford’s famous quote in 1922: “If people really understand money and finances in this country, there would be massive riots in the streets in 24 hours.” That says something. The wealthy always bank on the ignorant or powerless – always have.

    I am learning more about the history of money, gold and macro economics and just find it so interesting. What I am learning can be grim and depressing. I remain positive that there will be a day – we probably won’t see it in our lifetimes – when this imbalance of the money holders controlling the economic, social and political will of the world will no longer serve as a viable functioning model on this planet.

    We see tremendous social upheaval throughout the world. Arab nations struggling for a new, different order still to be defined. African nations in such disarray. Yet in the United States, I have long said that as long as most people can have a job, go home at the end of the day, have some food and watch tv, there will be no demand for anything more. Yes. this may seem a bit cynical. Will we ever see a day when most Americans can’t work or when those who are accustomed to buying a nice car really won’t be able to? Will we see a day when the rapidly growing disparity between the wealthy few and the truly poor is so great that Henry Ford’s words become a reality?

    I think these are good question to ask in these mercurial times. Education is always the greatest tool and friend for an individual and society. Having an economics club or a dynamic economics class ( a subject not even taught in many schools) is a great start.

    I always ask: “What can I do?” So, here is what I am doing. I am educating myself about money, gold, silver and banking. I am teaching a class next year at my son’s school on this subject. (thank you, Lynn, for the link. I will check it out.) I talk about these topics with other people. While I cannot control what the Federal Reserve is doing, I can control my own personal finances to a degree. My wife and I are buying gold and silver on a monthly basis – much like dollar cost averaging. We don’t worry about daily, weekly or monthly prices. We just buy some regularly. We think of it as a foundation for our financial stability.

    Beyond these things, I don’t loose any sleep over this. This is just one facit of life. The big picture of money and banking is out our hands, but being a kind, loving person who takes responsibility for his or her own life is not.

  19. Lynn

    Nalliah and others, I do wonder where you get this idea that the Federal Reserve is trying to “trick” people with its name? Frequently online, I see people try to “expose” the Fed for not being a federal agency, and they write it like that was some big secret! At my school, we learned both in middle school social studies class and in high school history classes that the Federal Reserve is not a governmental agency. Moreover, I joined an economics club in my high school, and a Federal Reserve analyst would give us lectures once a week (they were very interesting btw!). He would routinely repeat that the Fed isn’t related to the government and otherwise explain to us concepts about money-making that people seem to think are secretive phenomena. This program is open to any high school, public or private, in the nation (I believe it’s nationwide – it’s definitely in places that span from NY to Arkansas. Not sure if it’s out on the West Coast. Also, if anybody’s curious and wants to get this program started at their local schools, here’s the NY Fed website on it: http://www.newyorkfed.org/education/fedchal.html). If anything, the fact that people think they’re being so clever when “exposing” the Federal Reserve just makes me inwardly groan at how stripped bare our public education must have become.

  20. dale

    Nalliah, while I generally agree with your view of the Federal Reserve, I think you have misunderstood Kennedy’s policy regarding silver.

    According to


    on NOv 28, 1961, the Southwestern Missourian reports that Kennedy was presenting to Congress his new policy to replace all 2,5,10 and 20 dollar bills (all based on silver) with Federal Reserve notes, which at that time were based on gold. The reason, and the reason for the EO 11 and EO110 orders, was the lower price of silver. The idea was to transition to the final policy of ending Treasury notes based on silver with Federal Reserve notes based on gold.

    Wikipedia confirms that this was the plan, so while I agree with much of your view of the Feds, Kennedy in fact was in the process of ending
    Treasury bills and replacing them with Fed notes.

    I think he was assassinated for his plans to end the Vietnam War, not for seeking to end the Federal Reserve, which in fact he was in process of transferring authority to print money.

    This is my understanding, but I am no expert on this. So I stand ready to be corrected with evidence to the contrary.

  21. Nalliah Thayabharan

    US President John F. Kennedy planned to exterminate the privately owned Federal Reserve System. In 1963 he signed Executive Orders EO-11 and EO-110, returning to the government the responsibility to print money, taking that privilege away from the privately owned Federal Reserve System.

    Shortly thereafter, President John F. Kennedy was assassinated. The professional, triangulated fire that executed the President of the United States is not the most shocking issue. The high- level coordination that organized the widespread coverup is manifest evidence of the incredible power of a “hidden government” behind the scenes.

    Another myth that all Americans live with is the charade known as the “Federal Reserve.” It comes as a shock to many to discover that it is not an agency of the United States Government.

    The name “Federal Reserve Bank” was designed to deceive, and it still does. It is not federal, nor is it owned by the government. It is privately owned. Its employees are not in civil service. Its physical property is held under private deeds, and is subject to local taxation.

    It is an engine that has created private wealth that is unimaginable, even to the most financially sophisticated. It has enabled an imperial elite to manipulate US economy for its own agenda and enlisted the US government itself as its enforcer. It controls the times, dictates business, affects Americans’ homes and practically everything in which Americans are interested.

    It takes powerful force to maintain an empire, and this one is no different. The concerns of the leadership of the “Federal Reserve” and its secretive international benefactors appear to go well beyond currency and interest rates.

  22. Andy

    @ Mark:
    First off, complicated does not equal wrong. simple usually equals incomplete.
    Second, let’s do a thought experiment:

    You have $100. You buy $500 of goods from some other people, assuring them you’ll pay them next week. 6 days later, you haven’t, and you need an additional $400.
    What do you do? You go to the bank and ask to borrow money. The bank prints $400 out of thin air and hands it to you. You pay off your debts, except now you owe your bank that money.
    Options? None, really. You either owe a bank $400 plus interest, or you owe a bunch of people $400 bucks plus an ass kicking for spending money you didn’t have.
    That’s it, that’s how it works! Somebody had to SPEND a LOT more money than there was to spend, and it was the US CONGRESS that YOU VOTED FOR!! That’s how it works.
    But totally, blame the Federal Reserve! After all, when a person accumulates crippling credit card debt, it’s obviously the bank’s fault that they were so irresponsible, and not their own.

  23. Mark

    Come on guys! You’re making this way to complicated and wrong. The private sector has NOTHING to do printing money. The FED buys t-bills and/or T-notes from the Treasury with money they either have already (from maturing T-bills or T-notes) or creates the money out of thin air (ie. PRINTS) the money. The Treasury then spends that money on Medicare, Defence, Social Security, etc…. That’s it, that’s how it works!!!! Somebody had to print $15Trillion in US debt, and it was the FEDERAL RESERVE you idiots.

  24. aterzi Post author

    The private sector is up to the tune of $X worth of bonds PLUS the $X spent by the government into the economy. The private sector’s net financial savings are now $X higher!

  25. Ralph Musgrave

    “When the Treasury pays for its approved expenditures, it credits currency…” Excuse me? What the Treasury does, when it wants to increase spending by $X is to borrow $X from the private sector, give the private sector $X worth of bonds and then spend the $X back into the economy. The private sector is up to the tune of $X worth of bonds, but does not gain any dollars.

    Or have I missed something?

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