You are correct. Money ('currency' or it's electronic equivalents) is a placeholder, a representation for 'value'.
The Treasury nominally 'creates' money when it prints it, but the influence of the Federal Reserve upon the banking system, and the financial markets, has a greater effect upon the 'creation of money'.
By lending money, banks 'create' money (economics 101). Money is cycled through the real economy and exerts a 'multiplier effect', i.e., 'creating' more money as it is deployed.
The faster said loaned money is returned to the banks (the 'velocity of money') the faster it can be loaned out again... and this 'creates' the largest portion of the available money supply. Equity issuance works in a similar manner.
There is a feed-back loop wherein the real economy constrains this process. If their are no takers for loans (perhaps because of a down-turn in the economy, or excessive debt levels among commercial entities, or an inverted yield curve) then - despite the 'pushing' of money - the take-up of loans is less, the velocity of money is less, and less money is created.
So, we agree? |
