PrintDecember 22, 2010
The Federal Reserve: Aging Magician of the Welfare State
Almost two years ago, still in the early months of the financial crisis, money supply growth started to falter, frustrating Federal Reserve Board policy. Soon, this turned into tenacious rates of decrease. This little-discussed development could profoundly affect the course of our history.The production of money at rates greater than what a gold standard would permit is what central banks are all about. For many decades, the Fed has been marvelously good at producing money. Its method -- simply to nudge up the "monetary base" (that is, to increase the so-called reserves of banks by its own asset purchases) -- was "quantitative easing" avant le mot. Our banks would then willingly translate these new bank reserves into new actual money through the magic of our fractional reserve system of "credit money" -- money created in the process of extending loans*.Let's look at the years from 1960 to 2000. During that period, with...(Read Full Article)
