It’s the Fed that had the power to print money, not the US government

Contrary to popular belief, the U.S. government can’t “just print money,” because American money is not issued by the Federal government at all, but by private banks, under the aegis of the Federal Reserve System.

The Federal Reserve, in turn, is a peculiar sort of public-private hybrid, a consortium of privately owned banks whose Governing Board is appointed by the U.S. president, with Congressional approval, but which otherwise operates autonomously.

All dollar bills in circulation in America are “Federal Reserve Notes”—the Fed issues them as promissory notes and commissions the U.S. mint to do the actual printing, paying it four cents for each bill.

The arrangement is just a variation of the scheme originally pioneered by the Bank of England, whereby the Fed “loans” money to the United States government by purchasing treasury bonds, and then monetizes the U.S. debt by lending the money thus owed by the government to other banks.

The difference is that while the Bank of England originally loaned the king gold, the Fed simply whisks the money into existence by saying that it’s there.

Thus, it’s the Fed that has the power to print money. The banks that receive loans from the Fed are no longer permitted to print money themselves, but they are allowed to create virtual money by making loans ostensibly, at a fractional reserve rate established by the Fed—though in practice, even these restrictions have become largely theoretical.


This is one of the many passages and charts I find in books and articles on a daily basis. They span many disciplines, including:

I occasionally add a personal note to them.

The whole collection is available here.