What does the Fed do with the extra money it is printing?
"First of all, just for the sake of clarity, the Federal Reserve doesn't actually ""print"" money - that's the job of the BEP. What they do is they buy US Treasury bonds - i.e., loan money to the US government. The money they do it with are created ""from thin air"" - just by adding some numbers in certain accounts, thus it is described as ""printing money"". The US government then spends the money however it wishes to. The idea is that this money is injected into the economy - since the only way the US government can use the money from these loans is to spend them on buying something or give it to some people that would spend them.  As it is a loan, sometime in the future the US government would pay these loans back, and in this moment the Fed would decide - if they want to ""contract"" the supply of money back, they just ""destroy"" the money they've got, by erasing the numbers they created before. They could also do it by selling the bonds they hold on the open market and then again ""destroy"" the money they got as proceeds, thus lowering the amount of money existing in the economy. This way the Fed can control how much money is out there and thus supposedly influence inflation and economic activity.  The Fed could also inject money in the economy by buying any assets after creating the money - for example, right now they own about a trillion dollars worth of various mortgage-based securities. But since buying specific security would probably give unfair advantage to the issuers and owners of this security, usually US treasury bonds if what they buy. The side effect of increased supply of money denominated in dollars would be, as you noted, devaluation of dollars compared to other currencies." "Usually the FED uses newly printed money to buy US treasuries from Goldman Sachs, JP Morgan, etc..  These banks then lend out the new cash which expands the money supply. During the height of the crisis the FED printed over $1.0 Trillion and bought....well...almost anything the banks couldn't offload elsewhere.  Mortgage Backed Securities, Credit Default Swaps, you name it - they bought it.  Must be nice to always have a customer to sell your junk investments to.  They also bought these securities at face value - not at market value.  Chart from here.  The FED announced in early November, 2010 that they will print another $600 billion and buy US Treasuries.  They will be buying ALL the debt that will be sold by the US government for the next 8 months.  This was admitted by the Dallas FED chairman in this article: For the next eight months, the   nation’s central bank will be   monetizing the federal debt. ""Monetizing"" is a fancy word for printing money. I think this was done because the US government ran out of customers for its debt.  China has reduced its purchases of US debt and the Social Security Trust Fund is no longer buying US debt since it is running a deficit."
I'm not sure that the deflation will occur regardless of policy choice. There is a clear choice: inflation through printing or some sort of sustained deflation/deleveraging. I'd actually venture to guess that the powers-that-be are clearly on the side of printing. "Its definitely not a stupid question. The average American has absolutely no idea how this process works. I know this might be annoying, but I'm answering without 100% certainty.   The Fed would increase the money supply by buying back government bonds. This increased demand for bonds would raise their price and therefore lower the interest return that they deliver. Since U.S. treasury bonds are considered to be the very safest possible investment, their rate is the ""risk free"" rate upon which all other rates are based. So if the government buys billions of these bonds, that much money ends up in the hands of whoever sold them. These sellers are the large financial organizations that hold all of our money (banks and large investment vehicles). Now, since bond rates are lower, they have an incentive to put that money somewhere else. It goes into stocks and investment in business ventures.   I'm less certain about how this turns into inflation that consumers will recognize. The short answer is that there is only a finite number of goods and services for us to buy. If the amount of money increases and there are still the same number of goods and services, the prices will increase slightly.   Your question about printing money to pay off debts is too complex for me to answer. I know that the inflation dynamic does play a role. It makes debts easier to pay off in the future than they seem right now. However, causing massive inflation to pay off debts brings a lot of other problems." I've wondered the same thing.  And, after reading the above replies, I think there is a simpler explanation. It goes like this. When the bank goes to make a loan they need capital to do it. So, they can get it from the federal reserve, another bank, or us. Well, if the federal reserve will loan it to them for lets say 0.05%, what do you think they are going to be willing to pay us?  Id say maybe 0.04%. Anyway, I could be wrong, but this makes sense to me. The Fed controls the base interest rate for lending to banks. It raises this rate when the economy is doing well to limit inflation, and lowers this rate when the economy is doing poorly to encourage lending. Raising the interest rate signals that the Fed believes the economy is strong/strengthening.   Obviously it's more complicated than that but that's the basic idea. Inflation follows the money, chases the money. All the money in the past few years has been directed into the banking system, and so we have an inflation in banking investments -- an investment bubble.  The Fed makes a big mistake putting all the money into these investment banks. Better to put it into the population directly than let these buggering bankers control it. But then, the Fed *is* the buggering bankers, just wearing a different hat.  It's Wyle E. Coyote time yet again as we wait to see how long it takes these bastards to realize there isn't anything substantial under their feet and it's a long way down to the canyon floor. Again. "And where does, say, Federal reserve, gets the money to buy those [2.5 trillions](https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124)?   As for ""inflationary pressure"" - we don't really know it. Those money circulate between various financial instruments  - so it is a very big question whether or not they spill out to affect consumer prices." Operation twist is just an asset swap. The balance sheet isn't being expanded, money isn't being printed to buy treasuries. The fed is just selling short term assets and buying longer term assets. If more longer term treasuries are bought this brings the yield down (for bonds the more you buy them, the lower the yield goes). Lower long term interest rates means people can borrow at low rates and this is supposed help the economy.   No printing of money means that gold doesn't get more precious.   I do think gold will do well though, if the ECB wants to save the EU they're going to have to print, and print a lot. The Bank of England is doing some QE too. Lots of countries will be/ are easing. The money created by the Federal government is spent on public programs increasing the wealth of the general population. Banks loan money to the general population and make back more money in interests, thus gaining a part of the increased money created by the government. The bank can now pay back more that what the borrowed from the government. "Regardless of what they are doing, you can't ""kill inflation.."" Every single dollar created by the federal reserve is done so out of debt through a promissory note loaned by the US Treasury. The note which is essentially debt, is created &amp; loaned with the understanding that the federal reserve will one day pay off it off. However, this is impossible because more money would have to be created to pay of these notes which in turn creates more debt. But wait, let's not forget to factor in tax! The debt can never be paid off, it is literally impossible through our current system of currency circulation carried out by the Federal Reserve. In other words, due to our crippling debt that cannot be alleviated, inflation will continue to occur because our currency will continue to devalue. Those that created the Federal Reserve (in what? the 20's) knew all of this to be true. There goal was to destabilize the economy and they succeeded, they being large influential families such as the Rockefellers and the Morgans. This is the exact reason Andrew Jackson shut down the original central bank.. They are a foundation for corruption and anyone who tells you otherwise is either ill informed or in on it. It is impossible to kill inflation &amp; the notion that one company or one man can do so is preposterous and simply click bait." "The Federal Reserve is not the only way that money can be ""printed."" Every bank does fractional reserve banking, thereby increasing the money supply every time they make a new loan. There's a number called the reserve requirement which limits how much money each bank can create. Lowering the reserve requirement allows banks to create more money. Raising it will destroy money. But banks can also destroy money by calling in loans or being less willing to make new loans.  So when you look at the number of banks in the US, and the number of loans they all have, it's impossible to figure out exactly how much the money supply is expanding or contracting." For the US government, they've just credited Person B with a Million USD and haven't gained anything (afterall, those digits are intangible and don't really have a value, IMO). Two flaws in this reasoning: The US government didn't do anything. The receiving bank credited the recipient. If the digits are intangible, such that they haven't gained anything, they haven't lost anything either. In practice, the role of governments in the transfer is purely supervisory. The sending bank debits the sender's account and the receiving bank credits the recipient's account. Every intermediary makes some money on this transaction because the cost to the sender exceeds the credit to the recipient. The sending bank typically receives a credit to their account at a correspondent bank. The receiving bank typically receives a debit from their account at a correspondent bank. If a bank sends lots of money, eventually its account at its correspondent will run dry. If a bank receives lots of money, eventually its account at its correspondent will have too much money. This is resolved with domestic payments, sometimes handled by governmental or quasi-governmental agencies. In the US, banks have an account with the federal reserve and adjust balances there. The international component is handled by the correspondent bank(s). They also internally will credit and debit. If they get an imbalance between two currencies they can't easily correct, they will have to sell one currency to buy the other. Fortunately, worldwide currency exchange is extremely efficient. The problem with that is that banks create the money they lend, thus they are able to lend far more.  Individuals can only lend money that has already been created, and are at a big disadvantage.  If it weren't for the federal reserve money printing machine, it would be a viable lending scheme. A central bank typically introduces new money into the system by printing new money to purchase items from member banks.  The central bank can purchase whatever it chooses.  It typically purchases government bonds but the Federal Reserve purchased mortgage-backed-securities (MBS) during the 2008 panic since the FED was the only one willing to pay full price for MBS after the crash of 2008. The bank, upon receipt of the new money, can loan the money out.  A minimum reserve ratio specifies how much money the bank has to keep on hand.  A reserve ratio of 10% means the bank must have $10 for every $100 in loans. As an example, let's say the FED prints up some new money to purchase some office desks from a member bank.  It prints $10,000 to purchase some desks.  The bank receives $10,000.  It can create up to $100,000 in loans without exceeding the 10% minimum reserve ratio requirement.   How would it do so?  A customer would come to the bank asking for a $100,000 loan.  The bank would create an account for the customer and credit $100,000 to the customer's account.  There is a problem, however.  The customer borrowed the money to buy a boat so the customer writes a check for $100,000 to the boat company.  The boat company attempts to deposit the $100,000 check into the boat company's bank.  The boat company's bank will ask the originating bank for $100,000 in cash.  The originating bank only has $10,000 in cash on hand so this demand will immediately bankrupt the originating bank. So what actually happens?  The originating bank actually only loans out reserves * (1 - minimum reserve ratio) so it can meet demands for the loans it originates.   In our example the bank that received the initial $10,000 from the FED will only loan out $10,000 * (1-0.1) = $9,000.  This allows the bank to cover checks written by the person who borrowed the $9,000.  The reserve ratio for the bank is now $1,000/$9,000 which is 11% and is over the minimum reserve requirement.  The borrower makes a purchase with the borrowed $9,000 and the seller deposits the $9,000 in his bank.  The bank that receives that $9,000 now has an additional $9,000 in reserves which it will use to create loans of $9,000 * (1 - 0.1) = $8100.   This continual fractional reserve money creation process will continue across the entire banking system resulting in $100,000 of new money created from $10,000. This process is explained very well here. You need to read up on how QE works. Banks are not reinvesting deposits at the Fed in Equities. They are earning interest and sitting there, hence why the velocity of any money supply measure is far below where it used to be. If Jack owns all of the one million founding shares (which I assume you meant), and wants to transfer 250,000 shares to Venturo, then he is just personally selling shares to Venturo and the corporation gains nothing. If Jack does not own all of the founding shares, and the corporation had retained some, then the corporate shares could be sold to raise cash for the corporation. Usually in situations like this, the corporation will create more shares, diluting existing shareholders, and then sell the new shares on the open market to raise cash.