The Terms of Production: Making Money

Counterfeiting is very properly illegal in the United States. We object to it not so much because it enriches the counterfeiter as because it impoverishes everyone else, by devaluing the money that we hold. But there is one grand exception to the law against counterfeiting, and it is granted to the United States Government itself. Here I am not referring to the much-maligned Bureau of Engraving & Printing, which is so often accused of churning out “printing-press money.” (In fact it quite harmlessly prints dollar bills to the extent that they are demanded by you and me, and to the extent that old ones wear out.) Rather I have in mind some more obscure, and perfectly legal, operations conducted by the open-market trading “desk” of the Federal Reserve Bank in New York.

In order to understand these operations we must first go back a bit. We all know that there is something called the budget deficit. But the government does not operate “in the red,” as some imagine. In order to meet its obligations, the government sells pieces of paper called bonds, or government securities. To those who are in no hurry to go shopping, these bonds are actually better than money because the government also pays you a solidly reliable stream of interest for holding them (currently about 12 per cent for shortterm bonds).

TB

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Tom Bethell

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Counterfeiting is very properly illegal in the United States. We object to it not so much because it enriches the counterfeiter as because it impoverishes everyone else, by devaluing the money that we hold. But there is one grand exception to the law against counterfeiting, and it is granted to the United States Government itself. Here I am not referring to the much-maligned Bureau of Engraving & Printing, which is so often accused of churning out “printing-press money.” (In fact it quite harmlessly prints dollar bills to the extent that they are demanded by you and me, and to the extent that old ones wear out.) Rather I have in mind some more obscure, and perfectly legal, operations conducted by the open-market trading “desk” of the Federal Reserve Bank in New York.

In order to understand these operations we must first go back a bit. We all know that there is something called the budget deficit. But the government does not operate “in the red,” as some imagine. In order to meet its obligations, the government sells pieces of paper called bonds, or government securities. To those who are in no hurry to go shopping, these bonds are actually better than money because the government also pays you a solidly reliable stream of interest for holding them (currently about 12 per cent for shortterm bonds).