“We print it [money] digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds or other government securities. And that actually increases the money supply.”
I probably shouldn’t be, but I often am, amazed an God’s providential timing in providing illustrations of points I plan to talk about. As I’ve been thinking about this series of posts, I planned this week to write about the Fed and the process of money, more properly currency, creation.
In one respect, the process the Fed uses to bring currency into being is fairly easy to grasp. On the other hand, it is so obviously fraudulent that it shocks people when they hear about it. “That simply can’t be.” is, I think, a fairly common reaction.
In the Lord’s providence, and quite apart from any planning by me, it so happened that Jerome Powell, the Chairman of the Federal Reserve, was interviewed on 60 Minutes last Sunday by correspondent Scott Pelley of CBS News. You can watch the full interview and ready the transcript here. In my opinion, Pelley did a good job asking important questions of Powell, especially concerning the process by which the Fed prints money. At one point, Pelley asked Powell about the Fed’s response to the coronavirus (CV) crisis, and Powell ticked off a list of the Fed’s market interventions. Here’s what was said next,
PELLEY: Fair to say you simply flooded the system with money?
POWELL: Yes. We did. That’s another way to think about it. We did.
PELLEY: Where does it come from? Do you just print it?
POWELL: We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds or other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Reserve banks.
There you have it. The Fed chairman admitting on national television that the Fed creates money and uses it to buy, “Treasury Bills or bonds or other government guaranteed securities.” He also noted that this activity, “actually increases the money supply.”
What I would like to do in today’s post is to examine these statements – Powell’s saying that the Fed “creates money” and that this act “actually increases the money supply” – in greater detail. Just how does the Fed create money and what are the effects of “increasing the money supply” on our daily lives?
Lux Lucet 
Leave a Reply