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The Fed's Next Move: Money Supply

Money creating depository institutions do not loan out savings. Money creating depository institutions increase the money supply when they make loans to or buy securities from the non-bank public.

Savings held within the commercial banking system are lost to investment and to any type of expenditure. These deposits have a velocity of zero. These deposits can only be spent by their owners, they cannot be spent by the commercial banks.

Imposing interest rate ceilings & then lowering them until the CBs are out of the savings business does the following:

(1) it provides an immediate increase in the supply of loan funds
(2) it decreases the level of short & long term interest rates
(3) it vastly increases the profits of the commercial banks and the financial intermediaries
(4) it contributes to much higher rates of change in real-gdp

The proof? Take the housing crisis of 1966. Ceilings for CBs were lowered. There was an immediate increase in mortgage lending money. The housing crisis slowly recoverd, but slowly only because rates weren't lowered fast enough, and low enough.

If you don't understand this you have no idea how money & central banking works.