I have decided to resurrect some old content I developed in the Presentation Site, known as Prezi. I am posting this presentation primarily as an experiment. I have a lot of material that has been dormant for a few years, and I decided to bring it back to life and make updates and corrections as … Continue reading Mysteries of Money & Banking
Category: Money and Banking
Banking, the systems that holds money accounts, manages money transactions and facilitate the effective transfer of money between market actors. Banking also plays the primary role in the creation of artificial money.
Banks also buy notes from customers (still referred to as lending, but banks have nothing to lend.)
Wizard Revealed
When Ben Bernanke ballooned the level of total reserves in the banking system, he did two things. First, he made the amount of excess reserves totally irrelevant. Second, he revealed that the dollars created by the Federal Reserve, contrary to popular belief, have never acted as money. The following chart provides a visual depiction of … Continue reading Wizard Revealed
The Role of Bank Reserves
The role of bank reserves requires frequent explanation, because of widespread misunderstanding. Bank reserves do not act as a form of money. They never have. When people used gold as a form of money, and banks had 100% reserves, banks would hold gold to back the claims represented by banknotes or checks. While held as … Continue reading The Role of Bank Reserves
Death of Deposit Banking
The “laws” of physics change very slowly. The technology we use to apply those laws, however, can change rapidly. We have been able to calculate the amount of power in a gallon of gas for a relatively long time. The amount of that power transmitted to the road has changed significantly since the invention of … Continue reading Death of Deposit Banking
Money Creation
Introduction In an earlier post (The Fed Does Not Create Money), I explained why the Federal Reserve banks do not create money. In this post, I will return to the definition of money and explain who creates money and the process by which claims used as money get produced. Definition of Money Money consists of … Continue reading Money Creation
The Federal Reserve Does Not Create Money
Synopsis Over the years, many goods have been used as “money.” Because a good has been used as money in one situation does not make it money in all situations. The market determines by its use what good qualifies as “money.” The market in the United States generally uses something we call “dollars” as money. … Continue reading The Federal Reserve Does Not Create Money
Fed Funds Explained No. 6
“The Fed Buys U.S. Securities” A truth subject to misinterpretation. Introduction “The Federal Reserve purchases U.S. Treasury Securities to expand the money supply.” This statement contains some misinformation, and some truth and can be misleading. I will deal with these three points in order: Misinformation I have explained in an earlier post [“Who Actually Makes … Continue reading Fed Funds Explained No. 6
Fed Funds Explained No. 4
Does The Fed Provide Liquidity? You may have heard people say that The Federal Reserve provides “liquidity” to the banking system. Does it really? I will give you just a few facts about The Fed and its Open Market Operations in this article. In this limited space, I cannot answer this very complex question definitively, … Continue reading Fed Funds Explained No. 4
Fed Funds Explained No. 3
Banks Replace Gold and Introduce Fractional Reserves This post tells a short tale of how banks take ownership of gold (a money commodity) and replace it with notes and checking accounts used as money. Eventually, they create more checking account money than they have gold, creating “fractional reserve banking.” New Account In a time before … Continue reading Fed Funds Explained No. 3
Fed Funds Explained No. 2
Fed Funds Market Explained In my previous post, I explained the difference between dollars created by The Fed and dollars created by banks. Dollars created by The Fed do not act as money. In this post, I will briefly describe the Funds Market. I realize this is pretty boring stuff, but you need to understand … Continue reading Fed Funds Explained No. 2