Talk:Money creation

What is published by Infogalactic in the "Money Creation" section is nothing more than a regurgitation of factless theory.

There is absolutely no basis in fact, law or logic that supports any of it.

Neither the Federal Reserve or the U.S. banking system possess the legal authority to create U.S. legal tender currency. As per Paragraph 1, Section 16 of the Federal Reserve Act, the Federal Reserve Board is barred from using the legal tender currency for any purpose other than supplying bank demand, which is determined by depositor withdrawals. This necessarily means that the Fed cannot and does not expand the legal tender money supply via its Open Market Operations or by purchasing bank assets. The Fed purchases assets from the banks in the same manner a commercial bank loans money, it simply credits the seller's account with the amount. The notion that the Fed generates "high-powered money", like the notion of the "money multiplier", is a fiction. Banks generate credit (erroneously referred to as 'money') based upon the assumed value of the assets tendered as collateral and capital assets held, regardless of legal tender money held as reserves. Bank reserves held at the Fed are assets, not money. The Fed does not buy these assets from the banks, it simply credits their accounts with the amounts equal to the assets held on deposit. This credit is utilized electronically in the Fed run interbank settlements system. This line of credit (liquidity) never leaves that system, the banks can either withdraw their assets from the Fed, thus depleting their interbank line of credit (liquidity) or, the bank can use their Fed held assets to purchase legal tender money from the Fed. In turn, the Fed utilizes those assets as collateral, backing the issue of legal tender from the Treasury. The U.S. government has no legal obligation to monetize Fed and bank generated private debt/credit being used as if it were a U.S. money.

The majority of what people know about the U.S. monetary system is a product of economic theory, with little correlation to fact.

Federal Reserve Act, Section 16 [1]

31 U.S. Code § 5103 Legal tender law [2]

Payment of obligations and interest on the public debt [3]

Legal Tender Status [4]

Who Is Holding All the Excess Reserves? [5]

Standard & Poors: Banks cannot and do not lend out reserves [6]

Seigniorage in the United States [7]