Paul Zarembka wrote: > > It is true that the > > Federal Reserve, after printing money, places it on the market at interest > > (if it is more than the replacement of worn-out currency).
Laurent writes: > The fed does not create new money: only private banks do create money > each time they make a loan and they have this right in exchange for > following bank regulations. Laurent, that's only according to a narrow interpretation of "money creation." The Fed does not create money (i.e., currency) as in "printing it" and droppng it from its Milton Friedman Memorial fleet of helicopters. (Ben Bernanke once suggested that it could, BTW.) However, it does create -- or rather, increase or decrease -- the monetary base (the stock of high-powered money). That magnitude refers to the monetary liabilities of the Fed, i.e., bank reserves and currency. The Fed can and does increase those, which almost always has the impact of increasing the money supply. And when banks want to convert the bookkeeping entries called bank reserves into currency, the Fed _will_ print it. This converts one kind of Fed IOU into another. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.
