October 12, 2012

The Weight of the Fed in the Voters' Decision

By Jon N. Hall
In science there are lots of facts but only a few theories. Fewer still, perhaps, are the "laws" of science, one of which is the Law of Conservation of Matter, which holds that matter can neither be created nor destroyed. The laws of science, however, aren't good enough for the Federal Reserve -- you see, the Fed creates money. Since the financial crisis of 2008, the Federal Reserve has created trillions of new dollars. The Fed creates money when it buy assets, which is called "quantitative easing," or QE. The assets the Fed buys can be "whatever assets it likes: government bonds, equities, houses, corporate bonds or other assets from banks." For instance, when it launched QE2 in Nov. 2010, the Fed bought back $600B of its own Treasury bonds. Just as the Fed creates money, it also destroys money. The Fed destroys money when it sells assets. When the Fed sells its assets, it takes money out of the system; that money is then no longer out in the economy where folks can use it. (I'm not...(Read Full Article)