TIP307: Cullen Roche on Stocks, Inflation, & COVID-19 (Business Podcast)
We Study Billionaires - The Investor’s Podcast Network
Understanding the Fed: Banks for Banks, Not Money on the Streets
The Federal Reserve functions primarily as a bank for banks, focusing on stabilizing the banking system rather than directly injecting money into the economy for public circulation. Programs like quantitative easing (QE) aim to enhance liquidity within banks by converting treasury bonds into reserves. This process does not increase the total amount of financial assets available to the private sector; instead, it merely alters the composition of these assets. By swapping out interest-bearing treasury bonds for lower-interest reserves, the private sector maintains the same overall quantity of financial assets, though they slightly change in type. Consequently, the Fed's actions, often misconstrued as money printing, effectively retire the treasury bonds from the private market temporarily, demonstrating that its operations do not align with conventional definitions of money supply expansion.
