Can the Fed Unprint Money?
Can the Fed Unprint Money? - US News and World Report
Americans have had four years to wrap their heads around the concept of the Fed “printing” money, which it does via a policy known as quantitative easing. But when the economy is humming again, the Fed will shut down its theoretical printing presses. Then, there will be another brain-buster to think about: Can we unprint all of that money?
Yes, but it can take some mental gymnastics to understand, especially for those of us who aren’t central bankers.
There are a number of ways to “unprint” money. One short answer to how this might happen is that the money will go back into the ether from whence it came.
“Just as they can create money by buying bonds, they can sell bonds and receive cash for those bonds and effectively extinguish that cash,” says Guy LeBas, chief fixed income strategist at financial services firm Janney Montgomery Scott.
Understanding how a dollar can be “extinguished” is easier with a recap of how all of that money was printed in the first place. In quantitative easing, the Federal Reserve buys assets—treasury bonds, for example, or bundles of mortgages known as mortgage-backed securities—from banks. The central bank recently announced that it would undertake a third round of easing, widely known as “QE3” for short, which involves buying $40 billion in those mortgage bundles each month.