Ask HN: “government is printing money” - what does it mean in practice?
Is there a book (or any source) where I could understand the mechanics of quantitative easing? (the practice, not theory)
I understand that the government is not literally printing money. But it's creating it somewhere, somehow.
Where and how?
This money has to go from public to private hands.
Which private hands are receiving it? Do they get it "for free"?
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[ 5.1 ms ] story [ 137 ms ] threadThe IMF is an extension of that, they lend money to countries, then siphon off that countries assets in return.
Look up the Federal Reserve Act 1913 also.
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." - Henry Ford
The Fed overall has a weird hybrid public/private hybrid structure, but the monetary policy decision-making part, the Federal Reserve Board of Governors, is a bog-standard “indepedent within the executive branch” federal agency just like the FCC, FTC, etc.
I always wondered why so many people were in so much debt, and was really shocked when I came to the understanding that we've designed our monetary system to trap people in debt. https://youtube.com/watch?v=2nBPN-MKefA is a cartoonish but thorough explanation for anyone who has the time.
This system really is insane. I mean, I thought Bitcoin was dumb because it's based on nothing, but our national government-based monetary systems being based on debt are even worse.
Going down that rabbit hole is so insightful. We are all stuck in a debt based system. The only way to pay off debts is to print more money and create even more debt. That's all there is. There is no way to eliminate all the debt+interest. None.
In the end, money is just some kind of an abstract quantity that we collectively believe and agree can be used for obtaining something directly useful or desirable later. Its value is based on that mutual understanding and belief.
As long as the economy isn't a zero-sum game, thinking of money that way makes debt (and interest) actually kind of make sense without having to turn it solely into a vicious circle of more debt to pay off the interest.
If the real economy keeps growing and those abstract resources borrowed from someone else (debt) can be used for investment that allows for creating added real value (or decreasing real costs), that added value can be used for offsetting the interest. The entire arrangement may still require "printing" more money and creating more debt but that's not necessarily the only thing that's happening. The real value that can be obtained with that increased amount of money in circulation also increases as long as the real economy also grows.
It kind of does seem to make it a requirement that the real economy actually keeps growing, though.
Or, at least that's how it looks to me as a layman.
It is a formalisation of "Bill, here's a pig, owe me one". Then Fred does some work for you and you say to Bill "don't owe me, owe Fred".
Humans know who they owe and who owes them. We write it down when society gets too big to hold all the people we might owe in our collective heads.
For every debt there is a financial asset. It all sums to zero.
Interest pays for itself. It is nothing more than the wages of bankers. Banks earn interest and pay it to bankers and shareholders, who spend it with firms for stuff who then pay it back to the banks.
It's always worth remembering to differentiate stocks and flows. $ and $/month are as different as miles and miles per hour.
The simplest way to understand why this isn't true is to consider the following thought experiment.
1. Alice has $100. This is the only money that exists in the world. She loans it to Bob at a rate of 10% interest.
2. Bob receives the money and immediately hands it back to Alice in order to purchase supplies to set up his new business. Alice now has $100 again, and Bob owes $110. Note: total debt > money supply.
3. Bob creates his business and finds a customer - Alice again, who lent money to Bob because she needed his business services.
4. Alice pays Bob $20 for a widget he made.
5. Bob now has $20, Alice has $80.
6. Bob uses that $20 to pay off part of his loan to Alice. He gives it right back to her, which clears both his interest payment and part of the principal. Alice now has $100 again, and Bob has nothing, but Bob now owes Alice only $90.
7. Go to Step 4 and repeat until Bob's debt is reduced to zero.
In this scenario Bob will eventually pay off his debt even though there apparently isn't enough money to do so. The reason is the difference between stocks and flows, as neilwilson points out. Debt is cancelled by a flow of capital, but money circulates and as it moves it creates flows. The less money you have the faster it needs to move to cancel a debt in unit time.
But when the first loan was made, $10 was given to Bob. But Alice also saw the same $10 as an asset. This created more money in the system, as in, suddenly both Bob and Alice were rich.
And when the debt was finally paid off by Bob, Bob is poor again. The only way more money can come into the system, and Bob can have money again, is if another loan is made.
So it follows that the only way to pay off existing debts is to create more debt because of debt is repaid with just "work", wealth is destroyed, leading to recession/depression.
"And when the debt was finally paid off by Bob, Bob is poor again."
Not quite. The above example is a thought experiment just to demonstrate that a common argument about money is false, but if we want to take it seriously then by the end of the process Bob has no money but he now owns a productive business. In reality of course there are more people than just Alice and Bob, so Bob will hopefully sell to more people and get rich that way.
"So it follows that the only way to pay off existing debts is to create more debt because of debt is repaid with just "work", wealth is destroyed, leading to recession/depression."
You're mixing up several different concepts. No wealth was destroyed in the Alice/Bob example. Both Alice and Bob ended up richer. Alice ended up with widgets, and Bob ended up with a business. Wealth was created, not destroyed.
> No money was created in the above example because neither Alice nor Bob are banks. You could also argue that even if Alice was a bank, there is no actual problem because the money has not actually been created, the bank is merely claiming the money is there, as people discover from time to time when there's a bank run.
Creation of money is an abstraction. When Alice made a loan to Bob, Bob got a deposit in their bank account but Alice never lost her deposit. Alice sees the same thing as her asset as Bob sees as his liability. However, both can trade the asset/liability for goods and services. This is creation of money, via fractional reserve, since both the lender and borrower can trade goods with the same base money.
> Not quite. The above example is a thought experiment just to demonstrate that a common argument about money is false, but if we want to take it seriously then by the end of the process Bob has no money but he now owns a productive business. In reality of course there are more people than just Alice and Bob, so Bob will hopefully sell to more people and get rich that way.
And that is the point. Bob can pay off his debt by selling goods to others. But those others they sell the good too also only have money if it was created via debt somehow. Not a single human bootstrapped with dollars. It was all created via a loan on some balance sheet and the human simply acquired it via trading of their work.
> You're mixing up several different concepts. No wealth was destroyed in the Alice/Bob example. Both Alice and Bob ended up richer. Alice ended up with widgets, and Bob ended up with a business. Wealth was created, not destroyed.
Wealth obviously was destroyed. At the inception of the loan, the total amount of money in the system was money owned by Alice2. When the debt was payed off, the total amount of money in the system was Alice1. While it is true that Bob ended up with a business, it is also true that the amount of money in the economy has shrunk. Wealth was created with the new business but wealth was also destroyed with the asset/liability draw eliminated to zero.
What helps really understanding this wealth effect via fractional reserve is scaling your example to the entire dollar economy. By your example the total amount of money in the system effectively is zero because ultimately it is all two sides of the balance sheet. Yet, wealth is still measured in assets whose value goes up by that asset being more valuable through others spending money that was created via debt.
You're arguing with a scenario I didn't give. As I said already: neither Alice nor Bob are banks, therefore when Alice lent Bob the money she no longer had it. She didn't retain an appearance of having the money in her account because there is no account - it's all just cash. It's a very simplified scenario designed to show why the argument about money supply and debt is false in the general case.
"But those others they sell the good too also only have money if it was created via debt somehow. Not a single human bootstrapped with dollars."
Of course they did! Banking is an evolved system that sits on top of physical money. It isn't the case that all money is bank issued fractional reserve debt and it never has been so. Most people and institutions do indeed control at least some "hard money", even if it's just in the form of cash, or these days cryptocurrency.
In the west, we've come to rely more and more on fractional reserve accounts over time, but that doesn't change the correctness of the underlying argument - we aren't in a situation where paying debts off is impossible because there isn't enough money.
"At the inception of the loan, the total amount of money in the system was money owned by Alice2. When the debt was payed off, the total amount of money in the system was Alice1. While it is true that Bob ended up with a business, it is also true that the amount of money in the economy has shrunk."
You seem to be having a hard time keeping the various layers of the system separate! The amount of money in my toy scenario didn't change at any point because, again, neither Alice nor Bob are banks. They are people. When Alice lent to Bob she didn't create money: she had zero money at that point.
Here is a good article from the Reserve Bank of Australia describing how banks create money via loans, and lists the conditions by which "money creation is constrained." Note how none of the conditions ensure that Value(asset) = Value(debt)
"Money can be created, however, when financial intermediaries make loans." "However, the process of money creation is constrained in numerous ways and depends on the behaviour of borrowers, banks and regulators, as well as the stance of monetary policy. " https://www.rba.gov.au/speeches/2018/sp-ag-2018-09-19.html
Edit: just to clarify, imagine a pre-GFC mortgage of $1million. This loan results in money creation of $1million + loan of $1million. But if the market crashes and the asset(house) is now worth $200000, the house may be forfeited because the loan is not being repaid. If the house is sold by the bank to balance the debt, the economy now has $0.8million extra money floating around. The bank may have to pay the central bank this $0.8mill eventually, but will do so under relatively tiny interest rates, so the money remains in the economy for as long as it takes the bank to repay the loan. Or the government bails the bank out and the created money becomes permanent!
When you borrow money for your house, this is new money introduced into "circulation". Where did it come from? Well when you borrow $100k you get $100k in your checking account and $100k debt. They add up to zero, so no problem!
You then send the $100k IOU from the bank to you to someone else, and now bam you are in debt. Hopefully you got a good asset in return!
https://en.m.wikipedia.org/wiki/End_the_Fed
You might be better off reading: The Historical Performance of the Federal Reserve: The Importance of Rules. Mankiw's textbook on economics has a nice explanation as well.
Um. Close to 650 pages?!!
Not saying it's not worth it. But Paul's book is a much easier start. If you want someone to run an ultra-marathon, first start with getting them to finish a 5k.
https://www.amazon.com/Historical-Performance-Federal-Reserv...
https://www.youtube.com/watch?v=UowzxWxlKJU
Also, the question was ‘How does the government print money?’ and not ‘How does a bank lend money?’
That much seemed obvious; of course they have the money you paid them.
>and a debt instrument (asset) that is worth more than $400,000 on its balance sheet
Yes, the buyer is now in their debt; this is of course why they do it. They give money now for money later.
None of that changes the fact that the money still came out of the ether.
>Also, the question was ‘How does the government print money?’ and not ‘How does a bank lend money?’
The topic is germane to the topic of monetary creation.
Ultimately, the creation of debt is the creation of money and the destruction of debt is the destruction of money.
If the bank just created $400k and you paid it back and it made $400k profit plus interest for printing that money, then they would be much more aggresive in giving you a mortgage, in fact you would see negative interest rate loans, because if they give you the $400k from thin air, and you only pay back $40k real money, they still make $40k profit! Hell they would probably just go around buying houses from other banks in circles in a scheme a bit like modern web3 defi wrapping all sorts of coins and reselling them.
Yes, over the term of a 10, 20, or 30 year loan. However, the immediate effect is such that the money supply is increased, $400k is created. The destruction of the money is gradual as the loan is repaid.
The reality of the situation is not that far off from what you're describing here.
There really is not a thing called "a dollar". It's better to think of the dollar is a complicated engineered system. "Printing money" frequently means tweaking some subsystem of that system to move liquidity to specific places. That may sound like semantics but those types of money can only be used in specific ways and aren't convertible into each other.
One thing Jeff Snider talks about (who is someone I find to have interesting thoughts on this topic but isn't beginner friendly, and also puts out some low quality content) is that people are focused on the quantitative expansion of money but that over the last 30 years, the potentially more interesting story is the qualitative expansion of money, IE we have invented a huge amount of subtly different new types of "money" all of which have different effects on the system and none of which are easily understandable by the average person. He argues that the central banks no longer really understand this system either, that large banks probably have the best current understanding but that really no one party fully understands it, kind of like how no single person understands every detail of a modern smartphone.
Some of the basic categories here are
1) Understanding the differences between base money and non base money
2) various repo market products and other types of "interbank liabilities"
3) All the other Fed Facillities, especially things like Foreign Central Bank liquidity swaps which is really another totally different category of moneyhttps://www.newyorkfed.org/markets/desk-operations/central-b...
4) Offshore dollar markets (eurodollar markets) and their dollar repo markets
5) And then QE (which simply means buying the long end of the bond market as opposed to short end which was traditionally just called Open market operations, but also happens in bigger volumes than OMO)
As someone else mentioned, Joseph Wang's book could be a good starting point
Here is a really interesting talk on some of these topics: https://youtu.be/itTpI_-OcPc?t=962
https://www.youtube.com/watch?v=hiCs_YHlKSI
1. The annual congressional budget has a massive deficit every year. Our government is currently ~30T in debt.
2. In order to make up the difference between tax revenue and spending, the treasury sells bonds.
3. The country’s central bank AKA federal reserve buys those bonds, crediting the treasury without any “buyer side debit”. This part is confusing and where the printing happens. The fed adds treasury bonds to its balance sheet WITHOUT actually “spending” any money.
4. The treasury receives cash on its balance sheet.
TLDR: The fed expands the money supply to buy treasuries so congress can fund its expenses.
The fed has about ~9T in treasuries and MBS on its balance sheet last I checked.
Or can the government supply itself with any amount of money at will using this procedure?
Although the President does appoint the chairman. Most of the time nobody wants to rock the boat…so for example both Trump and Biden selected Powell as the current chairman.
Anyone can hold u.s. treasuries but only banks can hold reserves. Banks are highly regulated in how they can spend their money and the assets they need to hold. Hence- stuffing banks full of reserves does not hit the real economy. They can’t spend it.
When the government issues debt they are creating new money. Debt = money. More debt = more money. This is why banks are regulated, they create debt(money).
The inverse here is taxes. Taxes take money OUT of the economy. More taxes = less money.
It's valid to argue that dollars are fungible and it's all how you choose to account it, and that's my point.
They don't need you to pay them taxes to get schools and roads, but there does need to be enough productive capacity available in the economy to supply those things, and the government needs to be able to command their production without causing major problems.
Paying say, 40% tax "sort of" reserves 40% of production for government use, but it's complicated.
https://www.whitehouse.gov/briefing-room/statements-releases...
2. The fed makes asset purchases on the open market. Of late, these have been two types of assets: US treasuries, and mortgage backed securities. It pays for these with cash and adds them to the balance sheet, said cash was “printed”. The fed is currently in the process of selling (some of) these assets back onto the market and “destroying” said cash.
All of that is represented as the “M1” money supply. M1 is dwarfed by the M2 supply, which is made up of the M1 supply as well as the money created when banks make loans backed by their own balance sheets.
When Congress approves an increase of the debt, I presume it's actually allowing the issuing of more treasury bonds, is that correct?
Does the FED have any hard/legal limit to its "printing"? Can it just print and buy stuff like mortgage-backed securities out of the blue? Or does it always require Congress approval, for example, as the executive branch needs to issue debt?
Congress approves budgets, and when the budget has a deficit it implicitly requires the issuance of debt to cover its expenses. There technically exists a “debt ceiling” by law that they created at some point in the past (I’m not familiar with the exact history) but it’s not there as a requirement and has always been raised when the debt has hit the pre existing limit.
> Does the FED have any hard/legal limit to its "printing"? Can it just print and buy stuff like mortgage-backed securities out of the blue? Or does it always require Congress approval, for example, as the executive branch needs to issue debt?
So, to start, the executive doesn’t require congressional approval to issue debt exactly, it’s more so that it’s acting on congresses allocated budget.
The fed doesn’t have any limit in place as of not in money printing, but it is supposed to follow its mandates set by congress: maintaining low unemployment and price stability. It has been granted it’s power by congress, so congress does have the power to change this at any time, but it is generally recognized that “central bank independence” is a good thing, because it’s too tempting for politicians to print their way out of budgetary deficits.
In modern economies money is created in many places.
The most discussed means is through loans to banks from the central bank ("the Fed"). This money is lent to the banks at the current federal interest rate and is "free" in the immediate term but "unfree" in the long term as they must pay interest. Roughly speaking, if you can convince a bank that, should you borrow that money you will certainly generate more, and return it at a faster rate than the bank has to pay, then they will seek to lend you money. For most individuals, this is housing debt (a mortgage) and personal consumer credit (credit cards, car payments, other forms of purchasing in installments, etc.). Companies have access to roughly equivalent and often larger and more attractive forms of credit such as business loans, equipment financing, and so on. Printed money is such a small portion of the economy that it is statistically mostly irrelevant. Other acts of government can also create money by generating government debt and obligations.
However, that is not the whole story. Separately to the banking sector, a whole lot of money is "created" when people ascribe value to things. For example in venture capital, if I were to create a company purely with hard work and loose change and you were to buy in to it because it's the next greatest thing and is clearly going places, let's say you buy 1% for $1M at a pre-money valuation of $100M then you've sort of voted in to existence $99M of the $100M that you didn't buy by saying that valuation has enough legitimacy for you to put down $1M. While that value is not liquid, and is not really "money" per-se until it becomes so, it's been "created" just the same. If I create shares on public markets, art, or iconic architecture, or an NFT, it is the same process. Ultimately the value of these things is curtailed by the market's willingness to purchase them, which is often not directed purely by demand for the supply but by other concerns (irrationality such as FOMO or fads, money laundering, fear of regulators, devaluation of currencies, otherwise illiquid capital, etc.).
In Switzerland they have WIR, an interesting mutual credit clearing association for companies which allows them to purchase from one another without immediate settlement, on the understanding that they will settle in time. Such mechanisms are also effectively creating liquidity (==money) by agreeing to hold debt on their books. It doesn't come from nowhere, but it's still created and created outside of banks. https://base.socioeco.org/docs/wir_and_the_swiss_national_ec...
To a lesser extent all businesses do this with any difference between values ascribed and paid, goods received and payments scheduled, services rendered and payments received. Paraphrasing George Soros: Classical economics is based on a false analogy with Newtonian physics. It's actually a whole lot more irrational, complicated, interesting, and exploitable. Always remember: Trust is the availability of effective recourse. - Dan Geer (2014)
Quotes via https://github.com/globalcitizen/taoup
Depends who’s saying it - if it’s a cryptocurrency “enthusiast” (read: bitcoin bro), it’s probably to disparage all fiat and claim how much better their currency is, while conveniently forgetting to mention that DeFi really means “Deregulated Finance”
Crypto is a self licking ice-cream cone, yep.
Fiat, its management and its creation are politically compromised in complicated ways that largely benefit the wealthy, also yep.
Us banks had so many disasters that at least we have working protections for deposits. Whereas crypto has no rules and is in the middle of cascading failures caused by over leveraging and paying impossible 19% interest rates to their depositors who may likely lose everything.
At a crass level, in the USA, my understanding is the main mechanism used is: there is someone at a desk with a terminal at the Fed bank in NYC that can buy and sell treasury bonds for "free" (dollars that vanish or appear as needed, electronically) and they do so day to day to keep the rates within the window established by the FOMC committee. (But there are other ways for the Fed to create and destroy money)
So really, the money is going into the hands of any and every one who borrows money during that general time period, and thus receives a lower interest rate than they would have if the government were not carrying out that policy. Larger debtors benefitting to a greater degree, naturally. If you get a mortgage on a small house, you benefit. If you borrow money to take over a large corporation for your hedge fund, you benefit.
I haven't found a single good description/explanation of how the actual operations are carried out "on the ground".
It's hard enough to find information on how the financial system works in an abstract way. It amazes me that 99.99% of the people who (also indirectly) use it, including the financial 0.1%, don't know what and "where" their shares actually are.
Maybe the exact technical nature of the system doesn't even matter, because ownership and rights are more of a legal idea, but on rare occasions the exact implementation matters.
The best explanations of parts of the financial system I have found so far:
https://gendal.me/2013/11/24/a-simple-explanation-of-how-mon...
https://gendal.me/2014/01/05/a-simple-explanation-of-how-sha...
I'd love to read something like this that shows what kind of hardware and software is actually being used, and which standards are at the interfaces between institutions. What physical, hardware and software requirements are actually needed to start a bank?
These seem to be the backbone of the system:
https://en.m.wikipedia.org/wiki/Systemically_important_finan...
https://en.m.wikipedia.org/wiki/Systemically_important_payme...
https://en.m.wikipedia.org/wiki/Systemically_important_finan...
1. A fibre leased directly from a telco, that physically runs between the bank and the central bank via one or more switching centres. The point is that it's not the public internet. It's a private network and in some countries may not even run on TCP/IP but something older.
2. A connection via SWIFT.
3. A connection via the internet.
SWIFT is the most popular approach and it's common that internet access is less powerful than if you connect via SWIFT. For instance it'll have fewer features, lower SLAs and hilariously the ECB closes its internet access at night for "security reasons" (presumably they have people paid to physically watch internet traffic into the system). SWIFT is a private or semi-private network that you can't connect to unless you have either a direct hard line, or a business relationship with a connectivity broker, or maybe these days they also allow direct internet access via VPNs. It's basically a giant message queue broker with some business logic and data formats layered on top. SWIFT lets you send messages from one organization to another with authentication and being independent of details like underlying IP addresses. SWIFT will queue the messages for the organization if they aren't online right now, although mostly of course banks always are, and they do some validation and identity checking along the way (sometimes). You pay per message. Getting a SWIFT connection is part of what it takes to set up a bank.
So the central bank and the banks all have connections either to each other or SWIFT, and even if they're directly connected they're probably still using SWIFT format messages which are a sort of open standard or they'll be using something like a central bank specific XML format. If you really want to nerd out on the details try reading the TARGET2 user guide. TARGET2 is the ECB's central computer systems:
https://www.ecb.europa.eu/paym/target/target2/profuse/nov_20...
e.g. "The PM account holders may access the SSP via SWIFT (SWIFT-based PM account holder) or via Internet (Internet-based PM account holder). For the Internet-based access, special rules apply, as described in section 3.1.7 Internet-based access."
For securities trading (how CBs create money) check out the TIPS user guide which shows you how the UI works: https://www.ecb.europa.eu/paym/target/tips/profuse/shared/pd...
To connect to any of these systems whether via SWIFT or the internet you will need to be issued with certificates and the keys will need to be in HSMs. This is checked as part of the onboarding process. Banking runs off PKI and large banks can have entire teams devoted to nothing but managing X.509 PKIs.
The central bank runs a large computing system that does a variety of tasks. These are still usually mainframes. These computers track the balances of each bank with an account (rarely CBs will give accounts to non bank entities), allow transfers between them and so on. Actually it's more complicated than that - generally banks will build ...
Analog markets seem to be one of the earliest types of "civilizational infrastructure" to emerge, at least once there is a road or shipping route available. But in countries where mainframes have never existed, and computing and the internet are both relatively recent technology, this must be a huge challenge!
If you want to know what happens to the money created by large institutions, look at a chart of any major index from 2012 onwards........
https://www.amazon.com/Central-Banking-Sustaining-Financial-...
So a mortgage is the creation of a financial asset on the books of the bank called a 'mortgage', secured against a house, against which it creates an 'advance' - the liabilities you use to buy the actual house the mortgage is secured against. The result is the bank's balance sheet expands and that's what 'printing' or better named 'creating money' is.
The 'advance' then just keeps swapping hands in the private sector, and that's what we call 'money'. That keeps happening until somebody uses some of it to pay back a loan at which point that portion of the 'money' disappears. The bank's balance sheet shrinks and that is 'destroying money'
The government is no different. When it spends, then by default the central bank provides an overdraft loan to the Treasury department, secured on the government's ability to tax, and creates an 'advance' that it uses to pay people. The central bank's balance sheet expands and money is 'printed'
When government receives taxes that reduces the overdraft loan and the central bank's balance sheet shrinks, and money is 'destroyed'.
In a sensible world that is where it would stop. However some people don't like the idea that government spends by borrowing from the bank it usually owns, or at the very least controls, (even though that is the cheapest place government could borrow from since anything it paid in interest would come back to it as the central bank dividend) so they try to hide the fact or stop it from happening.
Usually they introduce a rule that says government can't have an overdraft. However that is normally only a rule that government can't have an overdraft overnight, so the above still applies during the day whichever currency area happen to be operating in. It would be difficult to run an efficient bank clearing system otherwise.
At which point the Treasury issues a different sort of money called a 'bond' which 'primary brokers' then take as collateral to a bank. The bank temporarily buys the bonds by creating an advance against them. That advance is transferred to the Treasury department who uses it to clear the overdraft.
The primary broker then sells the bond into the wider market and receives money in exchange which it uses to buy back the bonds from the bank so it can transfer the bonds onto the end purchaser.
QE is just the central bank buying bonds permanently using the same mechanism that the primary broker's bank used to buy bonds temporarily - issuing an advance against the bonds which then 'creates money'.
In reality it is nothing more than an asset swap. Whoever had the bond as savings ends up with a newly created bank deposit as savings instead - at a lower and variable interest rate. QE is a way of changing the type of savings held in aggregate, not a way of 'issuing money' as some people still think.
QT is the opposite. The central bank sells back the bonds it owns to the market and the end purchaser ends up with a bond, not a bank deposit. The bank deposit is destroyed.
The overdraft the Treasury uses can be disguised in another way. The bond issuing and QE mechanisms above are used in tandem until the Treasury account reaches a particular positive balance. That trick is used by the TGA in the USA and the DMA in the UK to try and make it look like the government is never borrowing - even intraday. It is just a facade. Operationally it makes no difference. The central bank will never bounce a government payment instruction.
I've simplified the above as much as I can, but it is still quite involved. I hope you can follow it.
Notice that I said "can". If the banks don't actually lend out any money to people and businesses, then no money is actually created and interest rates won't go down. If you don't think that's possible then read about Japan's lost decade and zombie banks.
"Which private hands are receiving it? Do they get it for free?"
The federal reserve buys directly from its banks (with some exceptions). It doesn't buy Treasury securities from the federal government/Treasury. This is in accordance to federal reserve act (https://www.federalreserve.gov/faqs/money_12851.htm)
The federal reserve will credit the money to its member banks out of thin air/electronically. They don't print physical money.
These banks don't get the money for free. They have to have the Treasury securities to sell to the federal reserve.
Where you can learn about all this? This is a macroeconomics subject matter. In college, it's usually the third econ course that business and econ majors take. Usually the title of the course is "Money and Banking". If you really want to get into the practice of it, then many universities offer a course called "Central Banking"; warning: you have to be really into ECON and this is an advance level course...
You can also try this course on Udemy about central banking. It's probably not as advance as the university level course, but maybe it's good enough - https://www.udemy.com/course/central-banks-and-quantitative-...
That isn't true. In fact holding the cash in the USA prevents banks from doing lending due to the liquidity ratio requirements. Other nations don't include cash in that ratio. The US does.
Banks never lend money on. They just create it.
See https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
I know that US banks have reserve requirements, but that doesn't mean they don't lend any money out.
When central banks buy bonds, they "create" the money the same way we insert a row into a database table. Buying bonds is equivalent to lending money; and the central bank lends money below any market rate.