2) The government is a user of bank money. When the government taxes Paul they take Paul’s bank money and redistribute it to Peter when they spend.
3) If the government runs a budget deficit (taxes less than it spends) then Paul buys a bond from the government and the government gives Paul’s bank deposit (which he used to buy the bond with) to Peter. Paul gets a bond which the government created in much the same way that a private corporation creates a bond when they issue corporate debt. If you want to say these entities “print” financial assets then fine. Corporations print stocks and bonds every day and you don’t hear the world exploding with hyperinflation rants because of it. Likewise, the government “prints” bonds when it borrows.
4)...
I have a question about this because I genuinely don’t know the answer.
When the Fed buys billions of dollars of junk assets from Vanguard and Blackrock to stabilize the markets, who is who? How do we know what price they paid and what determines the price?
For example, if the Fed gives Vanguard $1B for junk bonds that have a market value of $100K, how would we know? Where does the extra $900K come from?
Is Blackrock Paul?
Is the Federal Reserve Paul?
Who is Peter?
Where did the Fed get the $1B?