Friday, December 12, 2008

The Fed Is - Finally - Starting to Create Money From Thin Air

According to Tom Dyson, the Federal Reserve has finally started to create money out of thin air.

Then, last week, it took a "quantum leap," according to George Goncalves, the chief Treasury and agency strategist at Morgan Stanley.

Instead of swapping assets in the banking system, the Fed started buying them. The Fed bought $5 billion of Freddie Mac, Fannie Mae, and Federal Home Loan Bank corporate debt. The New York Fed's website says the purchases are being "financed through the creation of additional bank reserves." The Fed has finally started to create money out of thin air.

In other words, to pay for its purchases, the Fed opened new bank accounts for its commercial bank customers, struck a couple of computer keys, and filled the accounts with money. The Fed hopes the banks lend this money out. If they do, it will add credit to the marketplace... That's inflation.

1 comment:

Peehu Sharma said...

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