Recently i ve read articles about FED and ECB making Profits. I ve read mainly in this website that FED just 'prints' money. I know FED buys US Treasury bonds directly, ECB instead finances private banks which in turn they buy eurozone countries bonds.
Q1: Does ECB make money it uses to finance private banks out of thin air too?? If not where does ECB find those money?
Q2. What does it mean that a central bank makes profits?? FED creates money, why need to have profits anyway?? And the profits go to who??
thanks
Fed profits go to the Treasury. I only know that.
any more answers plz?
Q1: Yes. The ECB makes money out of nothing thus reducing the value of the current money stock in the same manner as the FED. The ECB injects money into the banking system by creating reservers at its member banks. The mechanism is not important. It is only that the ECB like any other controller of the value of money creates it as fast as it is able to. This helps the friends of the central bank at the expense of just about everyone else.
Q2: It means that the central bank, Fed in this case, gets more interest from the securities it owns than it pays out in cost of operation and any interest to the member banks. It is a silly number as the Fed being able to create money will just print more to buy more bonds until it covers its costs and interest. This is not the Austrian definition of profit: The differences between what one individual is willing to pay to get a product or service and what another individual is willing to pay to provide the product or service.
So if ECB makes money out of thin air just as FED does, why is Euro considered safer than the Dollar?? I assume it's considered safer since it has gained versus the dollar significantly, is it because ECB is more likely to raise interest rates sooner than the FED??
achilleas999:So if ECB makes money out of thin air just as FED does, why is Euro considered safer than the Dollar??
The ECB has shown less willingness to make money out of thin air.