by Alexander W. Salter
The American Institute for Economic Research
Money makes the world go ‘round, as the old saying goes. And central banks make money. The US central bank, the Federal Reserve, oversees the money creation process. That is a major power in its own right. But, thanks to its response to COVID-19, the Fed has become even more important. It is currently planning $2.3 trillion in asset purchases to soften the pandemic’s economic blow. Understanding what this means for economics and politics is crucial for all citizens.
Sometimes people say the Fed “turns to the printing press” to create money. Technically, that is incorrect. The actual printing presses are owned and operated by the Treasury. And, when the Fed wants to increase the money supply, it rarely turns to them. Instead, it creates money by adding electronic balances to the accounts of depository institutions that hold funds at the Fed.