The Federal Reserve does not print money
Here’s something you probably don’t know: The Fed doesn’t print money.
Yes, that’s right, the Fed is actually not in the business of printing money. The actual, physical printing presses are owned and operated by the Treasury Department…not the Fed.
So the Federal Reserve is actually not in the business of printing money…. the Fed does however control the money supply.
Think of the Fed as a bank — but just for other banks. The Fed lends money to banks, which determines the rate which banks charge the rest of us for everything from car loans to mortgages to credit card rates and pretty much every other loan you can think of (and some fees only a banker can dream up.)
By setting the rate banks can borrow from the Fed, non-ironically called “the discount rate”, the Fed helps determine whether rates are high or low for the rest of us. And those rates help determine whether people want to borrow money or not.
Another way the Fed controls the money supply — again, which is different than the actual amount of dollars in circulation — is via its “open market operations”, through which it buys and sells bonds in the open market. If you’ve read news stories about the Fed buying Treasuries to help boost the economy, that’s an example of ‘open market operations’ in action and is an example of “quantitative easing” or QE. When it buys bonds, the money supply increases because the banks exchange their bonds for cash and then have more money — aka liquidity — to lend to businesses or individuals. The opposite occurs when the Fed sells bonds to the banks, who typically can’t refuse any offer from the Fed.
In addition, the Fed controls the money supply by raising or lowering “reserve requirements,” which is the amount of money banks are required to keep “on reserve” at the Fed, sort of like a rainy-day fund for the banking system. Raise those requirements and banks have less money for other stuff — like lending; the opposite is true when the Fed lowers reserve requirements…or keeps them low as has been its recent practice.
So while the Fed doesn’t technically (or actually) print physical dollars, it has an enormous impact in the amount of money and credit in our economy.
The real scandal is the banks pretty much have to do what the Fed wants, which makes Ben Bernanke the equivalent of a “Godfather” figure in the world of high finance.
And you thought Wall Street was powerful?
[Excerpt of Daily Ticker article by Aaron Task]