> Demand for dollars is (like anything) organic and capricious, but the supply is directly controlled by the Fed. This is actually wrong. Money really consists

> Demand for dollars is (like anything) organic and capricious, but the supply is directly controlled by the Fed. This is actually wrong. Money really consists of 2 things: 1) Government debt 2) Private bank credit The Fed only controls the amount of bank reserves, which is a function of: 1) Policy (federal funds rate target, reserve requirements) 2) Demand for reserves from private banks The fed cannot create or destroy money, because money as we know is either a balance in a bank account, coins, or notes. The fed's operations are always either neutral towards bank account balances, or swap physical currency (coins or notes) for bank account balances. The government creates money by spending it into existence, and destroys money by collecting revenue. Private banks create money by lending it out, and destroy money when loans are paid off.