Thanks for the info on open market operations…

When the fed conducts its open market operations it writes checks against itself to large private financial firms to buy treasury securities. These checks are not backed by money. When the private firms deposit these checks with commercial banks, there is now new check-book money introduced into the economy. This money is also called high-powered, and it represents an increase in banking reserves. With this new money, the banks can increase their own deposits with the fed and on that basis, they can expand credit further.

To this point no new federal reserve notes have been issued but new money has been created. However, if customers ask for notes in exchange for deposits, or if the banks need the notes, then the fed will print them up just as you’d expect.

I am under the assumption that by printing money, all the Fed is doing is essentially crediting member banks with funds in their account at the Fed; which banks can then lend out to the general public. Am I missing something? I understand that the Fed’s primary tool is the tinkering of the money supply. I also know that this can be done through open market operations. I wasn’t sure how the “printing press” factored into the whole equation. Any feedback is appreciated…

I think the majority of Keynesians would agree with the article.

As for me, I am not a Keynesian – so I will leave it at that :0)

Cheers

- that none of the deficit is “funded” by increases of the money supply;

- that savings soaked up by government debt are as constructive as savings channelled into investment; and

- that the economy is sufficiently closed that government debt comes from domestic savers, who are the drivers of it.

In this scheme, it is people’s constructive desire of gain that fuels constructive government activity, which wouldn’t happen if savers didn’t think it would deliver a return. That might even be true in a government that didn’t tax but had to maintain and build a directly revenue yielding pool of resources (a “domain”). But that’s not what this is.

“This data indicates … that the federal deficit is too small for the U.S. domestic sector to save anything! Domestic savings are low because the budget deficit is too low. Low and unobtainable savings means low demand, excess capacity, and low levels of employment. In other words, to get adequate demand from a healthy economy, a much larger federal budget deficit is needed.”

More Pathetic:

Thomas E. Nugent is executive vice president and chief investment officer of PlanMember Advisors, Inc. and chief investment officer for Victoria Capital Management, Inc.

Nugent’s article begins with “There’s a lot of confusion about tax-rate reductions and deficits.” There’s a lot of confusion? No wonder.

And just think, aren’t we also lucky that those economic benefits are compounded by the fact that blowing up billions of $$ of things in war is so very central to economic growth.

We’re all gonna be rich!

It all works together so nicely.