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The US Senate announced to $2T stimulus package to help keep the economy up and running. Where does the government come up with that type of money? Surely they don't have that much cash available?

  • Hi Phil, unfortunately economics questions are not on topic for this site; you can see more details in the help center. Thanks! – Joe Mar 25 at 21:23
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Surely they don't have that much cash available?

No, they don't. The US government last year ran at a deficit of about $1 Trillion, which means that it spent more than it took in, so it has to "print money" (not literally, but through complex financial transactions) and/or borrow that much money to cover what it spends. That borrowed money comes from the sale of US Treasury bonds, of which about 70% is owned by US institutions like banks, the Federal Reserve, institutional investors, pension funds, etc. and about 30% is owned by similar entities in foreign countries (the largest being China and Japan). This stimulus package would increase that deficit, barring any action to either reduce spending elsewhere or to try and increase revenue (taxes). To my knowledge, there has been no public discussion by Congress yet as to how either or both would be addressed. One would hope that the stimulus would be seen as an "investment" in the US economy that would get partially paid back through increase tax revenue and repayment of loans, but that it yet to be seen.

The ramifications of deficit spending and accumulation of debt are subject to debate and too numerous for this forum (although I suspect there will be much debate in the comments).

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There is no cash, money from the government is just bank account credits.

Then the U.S. government finances the budget deficit with issues of Treasury Bills, Notes, and Bonds.

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It comes from people having money and thinking what to do with the money.

Consumption = NO, as during these times people want to prepare for the worst, and don't want to consume any excess money. Also, consumption options are rather limited due to prevalent widespread restrictions.

Stocks = NO, as in a true crisis stock values decrease rapidly and it's not a safe place to put money therefore.

So, what options are there remaining? Safe and liquid assets, i.e. government bonds.

So, the money for the stimulus package comes from people who still earn a salary and want to prepare for the worst. They lend their money to the government, and the government uses the borrowed money for the stimulus package.

There is no shortage of people willing to lend their money to the government. They trust the government pays it back with interest.

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  • "Safe and liquid assets, i.e. government bonds." - Are bonds liquid? Can/should this be reframed as "safe assets (ie gov bonds) and liquid assests (ie cash)" ? Commenting instead of editing as I'm not sure myself. – Freiheit Mar 25 at 19:24
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    US treasuries and Short term gov't bonds/T-Bills are debatably some of the most liquid assets around. Corporate and sovereign debt definitely can be far less liquid. – user95212 Mar 25 at 20:05

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