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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Ilaine who wrote (15574)2/24/2002 5:45:25 PM
From: Don Lloyd  Read Replies (1) of 74559
 
CB -

The Fed doesn't print money. The Fed increases or decreases the reserves of the Federal Reserve Banks which in turn make the reserves available so that credit can be created. Credit money is created by people borrowing money from private banks. If people don't borrow, no credit money is created.
The US Treasury borrows money from lenders all over the world by selling bonds. Foreign currency can be traded for dollars.

If there is another way that money gets into the system, someone let me know. ...

The concept of money supply is an abstraction, serving to 'explain' the fall of the purchasing power of money that generally results from an increase in the quantity of money. However, almost anything that reduces the demand to hold money in order to fund future purchases is money-like in its character, and also reduces the purchasing power of money. This would include anything that can, to one extent or another, be exchanged for money. This would clearly include stocks and bonds, the basis of the wealth effect, anything that can serve as loan collateral, such as real estate, but would also include something as subtle as increases in unused credit limits on credit cards. All of these alternatives each have their own discounts that affect their money-character, but they all reduce the purchasing power of money.

Regards, Don
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