Where does $2 Trillion Come from?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Locked
Topic Author
iawre125
Posts: 2
Joined: Tue Dec 27, 2016 1:32 pm

Where does $2 Trillion Come from?

Post by iawre125 » Wed Mar 25, 2020 8:12 pm

Can someone explain to me in simple terms how this $2 Trillion stimulus package would be funded?

Thesaints
Posts: 3453
Joined: Tue Jun 20, 2017 12:25 am

Re: Where does $2 Trillion Come from?

Post by Thesaints » Wed Mar 25, 2020 8:13 pm

iawre125 wrote:
Wed Mar 25, 2020 8:12 pm
Can someone explain to me in simple terms how this $2 Trillion stimulus package would be funded?
Debt. Interest expense will be less than zero.

User avatar
tvubpwcisla
Posts: 203
Joined: Sat Nov 09, 2019 10:09 am

Re: Where does $2 Trillion Come from?

Post by tvubpwcisla » Wed Mar 25, 2020 8:15 pm

My understanding is that it is funded by the Federal Government as loans, most of which will be repaid by the companies. I'm sure there is a lot of pork in it and we will never actually know where it goes. It sure does make investors feel better to know the government will do it's best to help the American people and businesses. If this bill passes and the Virus goes away, I would expect a big bounce in the market. :moneybag
The secret to building wealth is to have a plan, keep expenses low, become an expert in your craft, consistently buy the market, diversify, establish multiple income streams, and always smile.

bugleheadd
Posts: 162
Joined: Fri Nov 29, 2019 11:25 am

Re: Where does $2 Trillion Come from?

Post by bugleheadd » Wed Mar 25, 2020 8:16 pm

i always thought the Federal Reserve can just electronically create money on their computers and then they can distribute it over the internet.

Retired1809
Posts: 311
Joined: Fri Feb 23, 2007 4:11 pm
Location: North Carolina, USA

Re: Where does $2 Trillion Come from?

Post by Retired1809 » Wed Mar 25, 2020 8:17 pm

5, 4, 3, 2, 1 .....

ionball
Posts: 214
Joined: Wed Jan 31, 2018 12:17 pm

Re: Where does $2 Trillion Come from?

Post by ionball » Wed Mar 25, 2020 8:19 pm

in before the lock, in need of larger post count.

User avatar
Misenplace
Moderator
Posts: 1720
Joined: Mon Feb 01, 2016 9:46 pm

Re: Where does $2 Trillion Come from?

Post by Misenplace » Wed Mar 25, 2020 8:21 pm

This thread is off-topic (pending legislation) and is locked.

As noted in Re: Tax exempt muni bond funds & proposed lower rates on taxable investment interest, discussions about proposed or pending legislation (what will happen to implement the changes) is off-topic to "keep investors from making bad decisions. Pending legislation and proposed regulations change many times between the time they're introduced and signed into law."

The stimulus package is no exception. Based on past experience, discussions without clear direction will soon devolve into contentious disagreements.

User avatar
LadyGeek
Site Admin
Posts: 60908
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Where does $2 Trillion Come from?

Post by LadyGeek » Fri Mar 27, 2020 4:20 pm

The bill has been signed into law. This thread is reopened to continue the discussion. As a reminder, see: Non-actionable (Trolling) Topics
If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
  • US or world economic, political, tax, health care and climate policies
  • conspiracy theories of any type
  • discussions of the crimes, shortcomings or stupidity of other people, whether they be political figures, celebrities, CEOs, Fed chairmen, subprime mortgage borrowers, lottery winners, federal "bailout" recipients, poor people, rich people, etc. Of course, you are welcome to talk about the stupid financial things you have done.
Please state your concerns in a civil, factual manner.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Jags4186
Posts: 4376
Joined: Wed Jun 18, 2014 7:12 pm

Re: Where does $2 Trillion Come from?

Post by Jags4186 » Fri Mar 27, 2020 4:24 pm

The Federal Reserve sells treasuries the raise money and then deposits the money into the government’s checking account at the treasury.

There is no reason why there needs to be a treasury sale, the treasury department is well within its power to simply deposit however much money it sees fit into the government’s checking account without generating any debt or adding to the deficit. This is the “trillion dollar platinum coin” plan.

lgs88
Posts: 382
Joined: Tue Jun 07, 2016 7:48 am

Re: Where does $2 Trillion Come from?

Post by lgs88 » Fri Mar 27, 2020 4:26 pm

Right now, the US government can borrow money for 30 years at ~1.26%. This tells me that there are plenty of people who want to lend money to the federal government.
merely an interested amateur

jebmke
Posts: 10264
Joined: Thu Apr 05, 2007 2:44 pm

Re: Where does $2 Trillion Come from?

Post by jebmke » Fri Mar 27, 2020 4:28 pm

Jags4186 wrote:
Fri Mar 27, 2020 4:24 pm
The Federal Reserve sells treasuries the raise money and then deposits the money into the government’s checking account at the treasury.
Other way around. FED buys treasuries.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Jags4186
Posts: 4376
Joined: Wed Jun 18, 2014 7:12 pm

Re: Where does $2 Trillion Come from?

Post by Jags4186 » Fri Mar 27, 2020 4:29 pm

jebmke wrote:
Fri Mar 27, 2020 4:28 pm
Jags4186 wrote:
Fri Mar 27, 2020 4:24 pm
The Federal Reserve sells treasuries the raise money and then deposits the money into the government’s checking account at the treasury.
Other way around. FED buys treasuries.
Thanks for the correction! I always get it mixed up :oops:

Thesaints
Posts: 3453
Joined: Tue Jun 20, 2017 12:25 am

Re: Where does $2 Trillion Come from?

Post by Thesaints » Fri Mar 27, 2020 4:35 pm

...and they cannot buy them at auction...

User avatar
Phineas J. Whoopee
Posts: 9477
Joined: Sun Dec 18, 2011 6:18 pm

Re: Where does $2 Trillion Come from?

Post by Phineas J. Whoopee » Fri Mar 27, 2020 5:37 pm

Jags4186 wrote:
Fri Mar 27, 2020 4:24 pm
The Federal Reserve sells treasuries the raise money and then deposits the money into the government’s checking account at the treasury.

There is no reason why there needs to be a treasury sale, the treasury department is well within its power to simply deposit however much money it sees fit into the government’s checking account without generating any debt or adding to the deficit. This is the “trillion dollar platinum coin” plan.
To consolidate responses, the Fed does not issue bonds. The Treasury does. It can be misleading because the Fed, as one of the banking services it offers the federal government, conducts the auctions. Congress, which created the Fed and to whom it reports, made it illegal for the Fed to bid at primary Treasury auctions.

With respect to the trillion dollar coin, Bo Gritz, during his 1992 presidential campaign, is the first recorded to have publicly suggested the idea. It's just fudging numbers, a gimmick in the words of a recent president. It wouldn't solve anything. Probably it would make the global economy worse. The US is part of the globe. There's no point in our harming all of us.

Among the Fed's concerns is keeping the inter-bank overnight lending market, of excess reserves from banks which end the day with more than required to those which happen to end the day with too little, liquid and predictable. In order to do so it can buy Treasuries from banks that already own them, but more frequently uses repurchase agreements, repos, to inject or drain reserves.

Bank reserves are referred to as, wait for it, Federal Funds. The Federal Funds Rate, FFR, is the target for the annualized rate at which credit-worthy banks lend reserves to each other overnight, which includes over-weekend.

In these extraordinary days the Fed reduced the reserve requirement to zero. There's a strong argument to be made that for many years now capital requirements have been a bigger constraint on bank lending, and those are still in place.

I have read online news stories which describe repos as the government repurchasing its own securities. The Fed cannot repurchase the securities because it didn't issue them in the first place. The Treasury, if it has extra funds can buy its own securities on the open market, and has done so in the past. I can see how a reporter on a new beat could make the mistake. I don't see how their editors could let the claim be published.

The Treasury sells Treasury securities, via its banker the Fed which merely conducts the auctions. The Fed facilitates the transfer of money from successful bidders to the Treasury's checking account, which is held at the Fed.

I hope that's helpful for somebody. If there are remaining questions about what the Fed is doing, and does in general, please ask here and I (and no doubt others) will field them as best we can.

PJW

Mickstick
Posts: 47
Joined: Thu Nov 02, 2017 8:16 am

Re: Where does $2 Trillion Come from?

Post by Mickstick » Fri Mar 27, 2020 5:38 pm

Money printer go brrrrr.
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design" - F.A. Hayek, The Fatal Conceit

Poorman
Posts: 52
Joined: Sat Jan 11, 2020 9:57 am

Re: Where does $2 Trillion Come from?

Post by Poorman » Fri Mar 27, 2020 5:43 pm

I'm not getting a check so guess it comes from my taxes. Welcome

ThankYouJack
Posts: 3276
Joined: Wed Oct 08, 2014 7:27 pm

Re: Where does $2 Trillion Come from?

Post by ThankYouJack » Fri Mar 27, 2020 6:36 pm


H-Town
Posts: 2569
Joined: Sun Feb 26, 2017 2:08 pm

Re: Where does $2 Trillion Come from?

Post by H-Town » Fri Mar 27, 2020 6:43 pm

Poorman wrote:
Fri Mar 27, 2020 5:43 pm
I'm not getting a check so guess it comes from my taxes. Welcome
Poorman pays taxes. Very fitting. :mrgreen: :beer

jpmorganfunds
Posts: 125
Joined: Thu Jun 07, 2007 12:56 am

Re: Where does $2 Trillion Come from?

Post by jpmorganfunds » Fri Mar 27, 2020 7:16 pm

Jags4186 wrote:
Fri Mar 27, 2020 4:24 pm
The Federal Reserve sells treasuries the raise money and then deposits the money into the government’s checking account at the treasury.
You mean the treasury sells treasuries.
Jags4186 wrote:
Fri Mar 27, 2020 4:24 pm
There is no reason why there needs to be a treasury sale, the treasury department is well within its power to simply deposit however much money it sees fit into the government’s checking account without generating any debt or adding to the deficit. This is the “trillion dollar platinum coin” plan.
Then who would receive the interest payments from the debt slaves? Look up debt as money.

Stormbringer
Posts: 947
Joined: Sun Jun 14, 2015 7:07 am

Re: Where does $2 Trillion Come from?

Post by Stormbringer » Fri Mar 27, 2020 7:30 pm

In general, where money comes from is an interesting question. There is far more money than there is physical currency. This is often a consequence of a fractional reserve banking system:

Person A deposits $10,000 in a bank.
Bank loans the $10,000 to Person B, who buys a car.
Car dealer deposits the $10,000 back in the bank.

So now both Person A and the car dealer each have $10,000 on deposit at the bank ($20,000 total), effectively doubling the amount of money in the economy. The banking system created new money.

When the government issues debt, it sort of sponges some of this extra money up, as depositors seek higher interest rates and prefer bonds over bank deposits. This is one of the criticisms of government debt, because in theory at least, it competes with banks for deposits, leading to less lending and consumption.
"Compound interest is the most powerful force in the universe." - Albert Einstein

Carter3
Posts: 195
Joined: Thu Oct 31, 2013 12:51 pm
Location: Western Tennessee

Re: Where does $2 Trillion Come from?

Post by Carter3 » Fri Mar 27, 2020 8:16 pm

Stormbringer wrote:
Fri Mar 27, 2020 7:30 pm
In general, where money comes from is an interesting question. There is far more money than there is physical currency. This is often a consequence of a fractional reserve banking system:

Person A deposits $10,000 in a bank.
Bank loans the $10,000 to Person B, who buys a car.
Car dealer deposits the $10,000 back in the bank.

So now both Person A and the car dealer each have $10,000 on deposit at the bank ($20,000 total), effectively doubling the amount of money in the economy. The banking system created new money.

When the government issues debt, it sort of sponges some of this extra money up, as depositors seek higher interest rates and prefer bonds over bank deposits. This is one of the criticisms of government debt, because in theory at least, it competes with banks for deposits, leading to less lending and consumption.
Thank you for that

Thesaints
Posts: 3453
Joined: Tue Jun 20, 2017 12:25 am

Re: Where does $2 Trillion Come from?

Post by Thesaints » Fri Mar 27, 2020 8:42 pm

Stormbringer wrote:
Fri Mar 27, 2020 7:30 pm
In general, where money comes from is an interesting question. There is far more money than there is physical currency. This is often a consequence of a fractional reserve banking system:

Person A deposits $10,000 in a bank.
Bank loans the $10,000 to Person B, who buys a car.
Car dealer deposits the $10,000 back in the bank.

So now both Person A and the car dealer each have $10,000 on deposit at the bank ($20,000 total), effectively doubling the amount of money in the economy. The banking system created new money.

When the government issues debt, it sort of sponges some of this extra money up, as depositors seek higher interest rates and prefer bonds over bank deposits. This is one of the criticisms of government debt, because in theory at least, it competes with banks for deposits, leading to less lending and consumption.
Bank deposits are immediately available. Money invested in bonds is not.

User avatar
arcticpineapplecorp.
Posts: 4796
Joined: Tue Mar 06, 2012 9:22 pm

Re: Where does $2 Trillion Come from?

Post by arcticpineapplecorp. » Fri Mar 27, 2020 9:00 pm

Stormbringer wrote:
Fri Mar 27, 2020 7:30 pm
In general, where money comes from is an interesting question. There is far more money than there is physical currency. This is often a consequence of a fractional reserve banking system:

Person A deposits $10,000 in a bank.
Bank loans the $10,000 to Person B, who buys a car.
Car dealer deposits the $10,000 back in the bank.

So now both Person A and the car dealer each have $10,000 on deposit at the bank ($20,000 total), effectively doubling the amount of money in the economy. The banking system created new money.
On paper, perhaps, but is there really $20,000? There is the $10,000 that got taken in (from person A), lent out (to person b) and received back from someone else (the dealer).

Person B still needs to pay back the loan ($10,000 given to them to buy the car). When person B pays back $10,000 they borrowed, then there will be $20,000 in total.

This is what makes our deposits not "really there" because they're lent out waiting to come back to us. If everyone wanted their money, we'd have some big problems.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

User avatar
Cubicle
Posts: 647
Joined: Sun Sep 22, 2019 1:43 am

Re: Where does $2 Trillion Come from?

Post by Cubicle » Fri Mar 27, 2020 9:04 pm

arcticpineapplecorp. wrote:
Fri Mar 27, 2020 9:00 pm
If everyone wanted their money, we'd have some big problems.
Agree. A "run on the banks". There was a statement put out recently advising people not to go to the bank & pull all their money out.
"Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be.

aqan
Posts: 496
Joined: Fri Nov 06, 2015 7:07 am

Re: Where does $2 Trillion Come from?

Post by aqan » Fri Mar 27, 2020 9:13 pm

My take: Fed can create (money out of thin air) and they use it to buy t-bills from banks to introduce liquidity in the banking system.

jjface
Posts: 2736
Joined: Thu Mar 19, 2015 6:18 pm

Re: Where does $2 Trillion Come from?

Post by jjface » Fri Mar 27, 2020 9:20 pm

Stormbringer wrote:
Fri Mar 27, 2020 7:30 pm
In general, where money comes from is an interesting question. There is far more money than there is physical currency. This is often a consequence of a fractional reserve banking system:

Person A deposits $10,000 in a bank.
Bank loans the $10,000 to Person B, who buys a car.
Car dealer deposits the $10,000 back in the bank.

So now both Person A and the car dealer each have $10,000 on deposit at the bank ($20,000 total), effectively doubling the amount of money in the economy. The banking system created new money.

When the government issues debt, it sort of sponges some of this extra money up, as depositors seek higher interest rates and prefer bonds over bank deposits. This is one of the criticisms of government debt, because in theory at least, it competes with banks for deposits, leading to less lending and consumption.
Not really as B owes the bank $10000 too bringing it back down to net $10,000. The bank only has $10,000 in cash.

It is all down to debt and the government has a lot of it (above b funded spending via debt) . 23 trillion or so. Pension funds including the social security trust like the safety of governement debt.
Last edited by jjface on Fri Mar 27, 2020 9:32 pm, edited 3 times in total.

OnTrack
Posts: 620
Joined: Wed Jan 20, 2016 11:16 pm

Re: Where does $2 Trillion Come from?

Post by OnTrack » Fri Mar 27, 2020 9:25 pm

As others have said, the money comes from selling treasury securities so it is added to the federal debt. That probably means it gets passed on to our children and grandchildren. It does not come from the fed printing money, although some of the recent fed operations do come from printing money (no actual printing presses needed; just pressing a few buttons). The fed operations are separate from the spending bill passed by congress.

Edit: I have seen some articles that say that some of the money in the bill will go to the fed which in turn can leverage that money, but it is not clear to me how that would work (if it is true?) I don't know why that would be needed given that the fed can print money.
Last edited by OnTrack on Fri Mar 27, 2020 10:04 pm, edited 2 times in total.

User avatar
mrspock
Posts: 820
Joined: Tue Feb 13, 2018 2:49 am
Location: Vulcan

Re: Where does $2 Trillion Come from?

Post by mrspock » Fri Mar 27, 2020 9:40 pm

aqan wrote:
Fri Mar 27, 2020 9:13 pm
My take: Fed can create (money out of thin air) and they use it to buy t-bills from banks to introduce liquidity in the banking system.
Just to add to this: Beyond its traditional role as setting interest rate policy, the Fed acts as something of a "shock absorber" in times of financial stress. In their absence -- as we saw 2 weeks or so ago, when bond issuers or holders attempt to sell bonds, they may find they need to reduce the price of the bond to a level where it's enticing to a bond buyer, or in other words increasing the effective yield on the bond. If enough people do this, the effective yield of the bond is said to have gone up. This is a problem, as when governments try to then issue new bonds, buyers will of course want their yields to be competitive with other bonds on the open market with similar risk & yields/durations.

This is where the sneaky Fed comes into play: If they see bonds getting bid downwards due to a thin market (i.e. few buyer aka "illiquid"), they can step in and become a buyer in the market, creating a more competitive environment for the bonds, and reducing the yields (since the bond prices rise). The more they buy, the more their "balance sheet" grows. Once the market less stressed, and more liquid, they then (slowly) ooze out the bonds on their balance sheet back into the open market, not too fast of course, as they don't want to flood the market. Their balance sheet shrinks when this happens.

In the case of the $2T of debt, if the market demands too much interest for these bonds, the Fed can (and likely will) step in and buy the debt itself and then slowly sell it on the open market.

P.S. It's also worthing noting, that the Fed isn't restricted to just buying bonds, it can buy a variety of assets, bringing these onto its balance sheet, only to later sell them off later on (sometimes making money in the process!).

User avatar
Phineas J. Whoopee
Posts: 9477
Joined: Sun Dec 18, 2011 6:18 pm

Re: Where does $2 Trillion Come from?

Post by Phineas J. Whoopee » Fri Mar 27, 2020 10:06 pm

I repeat my offer to explain how the Fed and the attached US banking system works. The posts since I made the offer are full of fantasies and conspiracy theories.

If nobody has a serious question, rather than just a confirmation bias post toward their favored political opinionator, there's nothing for me or others who know how the system works to write.

Dismiss all of the confirmation bias faerie stories, or take them as proof your favorite political commentator is correct. Up to you.

PJW

redfan11
Posts: 44
Joined: Sat Oct 26, 2019 7:02 pm

Re: Where does $2 Trillion Come from?

Post by redfan11 » Fri Mar 27, 2020 11:07 pm

The most recent Planet Money NPR podcast explains this in detail.
https://www.npr.org/2020/03/26/82178709 ... 00-000-000

Alex Frakt
Founder
Posts: 10891
Joined: Fri Feb 23, 2007 1:06 pm
Location: Chicago
Contact:

Re: Where does $2 Trillion Come from?

Post by Alex Frakt » Sat Mar 28, 2020 1:00 am

Locked. This was off-topic from the start. While this subforum allows discussions of a general nature (as opposed to questions in the Personal Investments, Personal Finance and Personal Consumer Issues subforums), this only applies to issues directly related to investing. Broad economic discussions do not meet this requirement.

Locked