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It's a reserve system. Money is generated by banks lending more than they currently hold. The Fed lends money to the banks which is then multiplied 10-20x by th
by foxyv 2y ago
It's a reserve system. Money is generated by banks lending more than they currently hold. The Fed lends money to the banks which is then multiplied 10-20x by the bank effectively "Printing money." This is the same way that banks were historically able to turn 1lb of gold into 10lbs of gold notes. The Fed is responsible for setting reserve requirements and the FDIC insures bank accounts.
Right now the Fed has set reserve requirements to 0% effectively allowing banks to print unlimited money so long as they can cover their withdrawals and interest payments for Fed loans. The money isn't ACTUALLY printed, it is lent out as a number in a ledger.
https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm
- cs702 2y agoFinancial institutions cannot force customers to borrow. Customers must first ask to borrow. Their collective behavior determines the multiplier. Customers = individuals and private non-financial organizations. Since the financial crisis, their collective behavior has caused the multiplier to drop significantly in the US: https://fredblog.stlouisfed.org/2023/07/the-monetary-multiplier-and-bank-reserves/ https://fredblog.stlouisfed.org/2023/07/the-monetary-multipl... https://fred.stlouisfed.org/graph/?g=13oHw https://fred.stlouisfed.org/graph/?g=13oHw I'm very skeptical of simple, appealing narratives.
- foxyv 2y agoYou are right, there is a lot more to it. It's an internet comment, not an econ textbook. However, the short answer is, the way the Fed "Prints Money" is through reserve rates, interest rates, and loans to banks. They don't need a press to do that, just a ledger.
- cs702 2y agoAgree. Thanks! :-)