14

Normative questions require a standard of fairness in order to then be analyzed and answered with some degree of "objectiveness" so that the answer is not just a declaration of philosophical-ideological positions. The OP starts by writing "Basic logic says that, once a central bank is issuing new money for increasing the money supply, the money should be ...


13

This is surprisingly subtle. When, for instance, when bank A in the Richmond Federal Reserve district sends $1000 in reserves to bank B in the Minneapolis Federal Reserve district, reserves are taken out of bank A's account at the Richmond Fed and placed into bank B's account at the Minneapolis Fed. Now, bank A's reserves are a liability on the books of ...


13

No, the Fed is not allowed to buy stocks, they are allowed to buy government securities in open market operations in order to achieve the target rate for the federal funds rate. The guidelines for this are explained in the Section 14 of the Federal Reserve Act. You can find the Fed holdings in the Federal Reserve Statistics. However other central banks, ...


13

@capm is correct that the Fed is not allowed to buy equities (though they may lend against them if need be, so long as they are secured to their satisfaction— see, for example, all the things they lent against in the Maiden Lane transactions), however, they're allowed to buy a lot more than "government securities" (i.e., Treasuries). Section 14 of the ...


10

The Fed introduces money in the economy through the banks via the mechanism of fractional-reserve banking, as you mentioned in your article. This means the Fed is then allowing the banks to provide credit to anyone who they find adequate. The reason to do so is that banks will favor investment opportunities which lead to long term growth, such as build a ...


9

This happens all the time and is normal. It's due to measurement error. It is hard to measure these things in real time and as time goes by more data comes in, which allows measurement of GDP and other macroeconomic variables to be better so they are revised. Sometimes the revisions can be quite large. Typically the latest data is also the least reliable. ...


8

According to this official link Does the Federal Reserve ever get audited? Yes, the Board of Governors, the 12 Federal Reserve Banks, and the Federal Reserve System as a whole are all subject to several levels of audit and review: The Government Accountability Office (GAO) conducts numerous reviews of Federal Reserve activities. The Board'...


7

You anticipate the answer when you ask: This question can be easily answered if there were any way in which new money can leave the central bank without being paid back. Are there such transactions I don't know about? Indeed, there is always a way that money leaves the central bank without being paid back: the central bank does something with its net ...


7

The Treasury auction process is described here: Treasury Direct Bidders can either enter competitive or non-competitive bids. Non-competitive bids are limited in size; the price is set by the competitive bids, which generally come from Primary Dealers (that are obliged to bid). As a simplified example of the bidding process, assume that the government ...


6

Clearing for the US Banks is done through the Automated Clearinghouse System which is operated by the Fed. For transfers of central bank money, which would include transfers between reserve banks, the Federal Reserve also operates the Fedwire Funds Service which is an RTGS (Real Time Gross Settlement) system. This is similar to the Bank of England's RTGS ...


6

The Federal Reserve is a system, consisting of the reserve banks, which are "owned" (in a limited fashion) by their member banks (members select the leadership of the reserve banks), and the Federal Reserve Board of Governors, which oversees the member banks and is independent within the government (that is, the Governors are nominated by the President and ...


6

No, term deposits aren’t affected, it’s a change reflecting how often transfers can be made from savings accounts, which changed last April. Per their announcements page: As announced on December 17, 2020, the Board's Statistical Release H.6, "Money Stock Measures," will recognize savings deposits as a type of transaction account, starting with ...


5

@BB King's answer is good, but I want to make one point very clear: The Fed did not change the data. The Bureau of Economic Analysis revised the data as a part of its 2013 comprehensive revision process, which it engages in every five years using data from the most recent Economic Census. It may be worth noting that the BEA, which is the agency that is ...


5

No, because monetary policy is known to increase inequality. In effect, evidence indicates that monetary policy has contributed toward higher inequality. Therefore, the Fed is not being very supportive of fairness, from this point of view. Reasons are several. Some examples: Booming Stock Markets: low interest rates generate booming stock markets. Because ...


5

The unwind depends upon what the central bank did. If the central bank did a repurchase agreement (“repo”) or lent against assets for a fixed time, the agreement automatically unwinds at the term of the deal (which is short). They would need to enter into new deals to keep their balance sheet size unchanged. If they bought the asset outright, it will either ...


5

Is it true that the Federal Reserve is not Federal and has no reserves? Both claims are blatantly false. On Reserves Fed literally has power to create new reserves for other banks or for its own spending from nothing. Not only, Fed obviously has reserves which you can easily confirm just by looking at a data (see Fed data on amount of reserves held), but it ...


4

This question as is (October 2, 2015, 15:07 Athens time) should be closed and I voted to that effect. I provide an answer in order to show why it should be closed. As any natural or legal entity, the "Fed" engages in strategic behavior. Strategic behavior is not a priori constrained by moral considerations (and this is why Game Theory has come under fire ...


4

First it is helpful to provide some definitions. M0 includes all paper dollars (plus coins and US notes). Regardless of whether or not they they are held in the banking system. M0 is not a useful metric because it omits electronic dollars. The two main liabilities to the Fed are electronic dollars (some refer to them as Fed Funds or deposits at the Fed ...


4

The consensus appears to be that the effect was large and positive. The IGM Forum asked a panel of economists to assess the statement "Informed postmortems of Ben Bernanke’s Fed chairmanship will judge favorably the Fed's creative and aggressive policy initiatives from autumn 2008 through early 2009." Not one disagreed. Weighted by their confidence, 90% of ...


4

The phrasing of your question (the same is true for your description of your understanding) suggests to me that what you need to understand about money creation in banking is much more basic than "steps and contracts". As a full treatment of money creation would not be appropriate on a Q&A site (it'd be really long!), I will instead recommend that you ...


4

One of the Federal Reserve's (the Fed) primary policy tools is the Federal Open Market Committee (FOMC). Through open market operations the Fed can buy or sell securities on a secondary market. By buying securities they bring new money into circulation, by selling securities they take money out of circulation. Thus the Fed has a direct influence on the so ...


4

There are several issues here: There are banks offering close to $1.5\%$, some well-known such as Goldman Sachs and American Express Most banks currently have excess reserves deposited in the Federal Reserve System which they could use for lending if they wanted to, so they are not missing profitable commercial lending opportunities due to lack of deposits ...


4

Your understanding is wrong. Nations accrue debt by selling bonds. They pay interest on those bonds to the bond-holders.


4

You are right the two series closely follow each other for the reasons you mention. During quite some time the discount rate actually used to be a ceiling for a funds rate. This is precisely, because if the federal funds rate was below the discount rate, most banks adjusted their reserve positions in the federal funds market and when the federal funds rate ...


4

There are some semantic issues here. A more careful statement of the MMT position is that there is no economic reason for the Treasury to issue bonds. However, there is a self-imposed institutional need to do so: the Treasury has a balance at the Federal Reserve, and the rules it follows appears to imply that the balance cannot go negative. Issuing a ...


4

I agree with @BrianRomanchuk +1 answer which is written in the context of modern monetary theory (MMT), but an important thing to note here is that MMT is not widely accepted monetary theory in economics and in fact it has been criticized a lot by mainstream economists (See for example this paper, Krugman's blog, Cochrane's blog and so on). Since your ...


4

Because Fed or any central bank cannot fund 100% of a budget without any adverse effect. I do not know where you heard such argument but it is blatantly false. First, it is virtually unanimously agreed by top policy economists that government cannot fund arbitrary amount of real spending (i.e. spending on real goods and services). This question was actually ...


3

It is not. Monetary expansion is increasing the money supply (through whatever method). Quantitative easing increases the money supply / injects liquidity, but also reduces privately hold stocks (and hence can reduce risks from the banks' balance sheets).


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