My question is regarding the checks which the US government has sent out during the pandemic. Below is a chart of M2 money supply increase as a result of it:

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It is also said that 40% of all the m2 money supply in circulation has been put in "created" during the pandemic.

Usually money that the government creates in form of stimulus such as in 2009 and subsequently has been in form of bank reserves, against which banks loan out to businesses. So funds do not make to people in form of "money in the pocket" so to say. Thus the m2 money supply has more or less been constant. Except now...

My question is who is sending these checks to people? Banks or is it coming directly from FED? Are these checks against bank reserves which were created or was this money "printed" out of thin air?

The reason I ask is, this is not a loan which one has to return with interest, so it would seem that this new M2 money is not against any "bank reserve".

  • $\begingroup$ This question has too many speculative elements, makes incorrect assertions (“Usually money that the government creates in form of stimulus such as in 2009 and subsequently has been in form of bank reserves...”) and has multiple embedded questions. To answer it, it would require reading a primer on the details of the implementation of monetary and fiscal policy. You need to stick to one question, and you should avoid making assertions. There are also many questions on money supply here already that you could consult. $\endgroup$ Commented Feb 5, 2021 at 1:17
  • $\begingroup$ Could you advise how i can rework the question because i am having a hard time getting to my question on if the stimulus checks are against bank reserve or if it actually "money printing" as in inflationary? Without giving the reader where i am coming from. $\endgroup$ Commented Feb 5, 2021 at 1:21
  • $\begingroup$ The simplest way is to ensure that you have only a single sentence that is a question, and add the minimal explanation to make sure that one sentence makes sense. I answered what appears to be a core issue. $\endgroup$ Commented Feb 5, 2021 at 1:35
  • $\begingroup$ @BrianRomanchuk You are right, i think i did not understand the question which i was asking in its entirety because of my limited understanding and soundbites YouTube videos. Thanks for your answer. $\endgroup$ Commented Feb 5, 2021 at 1:44
  • 1
    $\begingroup$ None of this is obvious, since it requires understanding the details of banking and government finance operations. “Money printing” is a very misleading phrase. $\endgroup$ Commented Feb 5, 2021 at 2:03

3 Answers 3


The Treasury Department of the U.S. federal government sends the checks. Assume all such payments go to customers of commercial banks and add to their checking deposit balances.

The short answer to the question is as follows. If Treasury uses debt management then on average it does not increase the M2 money supply as measured on the aggregate balance sheet of commercial banks. The increase in M2 would then be caused by Fed asset purchases from non-bank counter-parties or by the conversion of commercial bank liabilities outside M2 into M2 liabilities when banks deal with non-bank customers.

Long answer. The Federal Reserve (Fed) and commercial banks clear payment between Treasury and customers of the commercial banks. The Treasury holds its high powered "checking account" at the Fed. This is known as the Treasury General Account (TGA). Also the commercial banks hold reserve balances at the Fed either directly or through a correspondent bank.

Treasury debt management means the sale of Treasuries to cover a cash flow deficit or the redemption of outstanding Treasury securities to dispose of a cash flow surplus. Most of the time Treasury anticipates a deficit and sells enough Treasuries to cover the deficit and add to its TGA balance as desired. Other times Treasury can run down a large balance in the TGA to offset the need to sell Treasuries. Other times Treasury has a surplus due to tax season and would net redeem Treasuries rather than add to its TGA balance.

If Treasury uses debt management to cover the deficit then on average no reserve balances are added to the assets of the commercial banks and no net money is added to the liabilities of commercial banks as M1/M2 money supply because Treasury drains just as much reserves and M1/M2 as it adds via deficit spending during a period.

Note the net new Treasury securities are printed out of "thin air" when debt management is used to cover the deficit so high powered financial assets are created by the federal government.

This report describes changes in the Fed balance sheet during the recent pandemic crisis


where the increase of Fed assets means Fed issues loans or purchases financial assets in open markets. The increase in Fed liabilities occurs when Fed pays the banks with an increase of reserve balances. If the counter-party is the customer of a bank then Fed credits the bank reserves for an increase and the commercial bank credits the deposit account of its customer for an increase. This last credit of deposit account is an increase of M1/M2 money which could migrate to other bank liabilities or bank equity via knock-on deals between banks and the investors who hold their liabilities and equity.

  • $\begingroup$ Great answer. Are there at reports to that show how much of FOMC bond purchases are from banks vs non banks? As this would then tell you the direct effect of QE on m1 vs just the monetary base. $\endgroup$
    – geronimo
    Commented Feb 27, 2021 at 23:41
  • $\begingroup$ FRED defines nonborrowed reserves here: fred.stlouisfed.org/series/BOGNONBR. This means reserves are created through borrowing by banks and through open market operations (OMO) and Fed publishes the distinction between borrowed reserves and nonborrowed reserves. If Fed purchases securities via OMO with a bank, however, it creates only reserves and no M1/M2 money. If Fed purchases securities via OMO with a nonbank then it creates reserves and equal amounts in M1/M2 which can migrate to other bank liabilities or bank equity. But the question is about stimulus checks not about QE stats. $\endgroup$ Commented Feb 28, 2021 at 0:07
  • $\begingroup$ Yes, I understand all that. My question is are there stats released on who the Fed is buying treasuries from during OMOs? I'm new here so maybe I'm supposed to start a new question for that? $\endgroup$
    – geronimo
    Commented Feb 28, 2021 at 0:21
  • $\begingroup$ I don't know if there are specific statistics but it seems Fed does open market operations with firms on the list of Primary Dealers. Drill down into the information posted here: newyorkfed.org/markets/primarydealers and of course you could ask a new question which should be based on some thought and any research you have done first. $\endgroup$ Commented Feb 28, 2021 at 0:58

There are many parts to this question, I will offer a minimal answer.

The Treasury writes the checks. The Treasury is the fiscal arm of the Federal Government, which banks at the Federal Reserve - which is a bank. There are no reserves held against the Treasury’s funds - since the Federal Reserve does not hold reserves at itself. (Bank reserves are deposits of private banks at the Fed.)

When checks are cashed, they are cleared by the Fed reducing the Treasury’s balance, and sending reserves to the customer’s bank. If nothing else happens, this would grow the money supply.

The M2 chart you are showing picks up what the Federal Reserve is doing as part of monetary policy: Quantitative Easing (QE). There are many, many questions on this website about QE that you can consult.


Correcting some incorrect statements in question:

It is also said that 40% of all the m2 money supply in circulation has been put in "created" during the pandemic.

No, your own graph shows that is false. According to the data on M2 provided by FRED dataset and also the same data as shown above, money supply as measured by M2 increased during pandemic by about $25.8\%$ - far cry from the $40\%$ mentioned in the question.

Answers to questions above:

My question is who is sending these checks to people? Banks or is it coming directly from FED?

Neither. It should be sent by the Internal Revenue Service (IRS) (which is part of US treasury).

Are these checks against bank reserves which were created or was this money "printed" out of thin air?

The money comes from US treasury. US treasury gets its money primarily by a) taxes, b) issuing bonds (or more broadly all sort of debt instruments). Only very few banknotes are nowadays printed by the bureau of engraving and printing that is under US treasury, or coins minted by the mint. For all practical purposes those can be ignored as they form very small amount of new money created each year.

Some of US bonds are bought by US central bank (Fed) which does that by creating new reserves. Although, this is just government creating money and 'borrowing it to itself' - Fed has to send all its profits straight to the US treasury.

Furthermore, Fed does not fund the whole US budget, it is just part of the mix and so consequently the stimulus is funded by mix of taxes, bonds issued to households, firms, bonds issued to other government and then Fed as well.


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