At the base of the Fed pyramid, and therefore of the bank…
“At the base of the Fed pyramid, and therefore of the bank system's creation of "money" in the sense of deposits, is the Fed's power to print legal tender money. But the Fed tries its best not to print cash but rather to "print" or create demand deposits, checking deposits, out of thin air, since its demand deposits constitute the reserves on top of which the commercial banks can pyramid a multiple creation of bank deposits, or "checkbook money."”
About This Quote
This interpretation was drafted with AI assistance. It is one reading of the quote, not the author's own explanation.
The Fed creates money by issuing demand deposits, not cash, enabling banks to multiply deposits.
In simple terms: Banks expand money through deposits.
Key Takeaway
Understand how money is created.
Themes
economics
banking
policy
Mood
analytical
critical
Type
economic
educational
When to use this quote
- financial education
- policy debate
- investment strategy
Key Concepts
monetary theory
fractional reserve
Questions to Reflect On
- What are the risks of money creation?
- How does this affect inflation?
A Different Perspective
Complex mechanisms can be opaque to the public.