The Federal Reserve Has Never Printed 'Money': Part I

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by: Eric Basmajian
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Summary

The Fed has no authority to print money; they never have printed money and can only create reserves.

Reserves are not money. Reserves are not part of M1 or M2; they are part of the monetary base. Banks create money through loaning out reserves.

Tightening monetary policy will ultimately reduce velocity of money and further dampen the inflation rate.

There has been no inflation because there has been no outsized increase in the currency in circulation. The rate of M2 growth has remained constant but is beginning to decline.

Overview

There is a fundamental misunderstanding about the way in which the Federal Reserve conducts open market operations, monetary policy and the impacts of those actions.

Conventional wisdom suggests that the Federal Reserve 'prints' money