18. Money and the Monetary System. CHAPTER. Th e process by which banks create money is so simple that the mind is repelled. John Kenneth Galbraith Economist, Institutionalist (1908 – 2006).
Money and the Monetary System
The process by which banks create money
is so simple that the mind is repelled.
John Kenneth Galbraith
(1908 – 2006)
Bank failures are caused by depositors who don't deposit enough money to cover losses due to mismanagement.
44th US Vice President
(1946 - )
In billions of dollars
The Regional Federal Reserve Banks
Open Market Operations
Open market operation - purchase or sale of government securities —U.S. Treasury bills and bonds—by the New York Fed in the open market.
Open market transactions are conducted with banks and private buyers/sellers, NOT the US government.
Initial deposit multiplied 2.5 times)
Change in quantity of money
Change in monetary base
Below the line means for every dollar increase in the monetary base (injection into banking system), money supply increases by LESS than a dollar. SO currently, usual monetary policy to increase money supply actually decreases it! (this has never happened before)