Can the Fed Print Money?
Every morning is the dawn of a new error – Anonymous
It Can and it Does
In light of the upcoming October Fed (non-)decision, we want to briefly revisit a subject that still appears to be causing some confusion. We most recently encountered this confusion again in a quarterly update by the Hoisington Investment Management Company. To be sure, we very often, if not to say almost always, have tended to agree with the economic conclusions of Lacy Hunt and Van Hoisington since we have first come across their work (we may arrive at these conclusions in a somewhat different manner, but the conclusions as such are usually not much different).
Money from nothing and chicks for free – how the Fed does it.
Image credit: dreamstime
US true money supply TMS-2: this broad aggregate contains all the items that can be properly defined as money – click to enlarge.
In their third quarter update we have come across one sentence that we believe requires comment, as we have seen similar things asserted elsewhere and we believe it is important to be 100% clear on the topic. In addition to the assertion we want to challenge, which is highlighted below, we also quote the preceding paragraph, because it serves to elucidate a few additional conceptual problems.
“Despite the unprecedented increase in the Federal Reserve’s balance sheet, growth in M2 over the first nine months of this year fell below its average rate of growth over the past 115 years, a time when the growth in the monetary base was stable and quite modest. In addition, velocity of money, which is an equal partner to money in determining nominal GDP, has moved even further outside the Fed’s control. The drop in velocity to a six decade low is consistent with a misallocation of capital and an increase in debt used for either unproductive or counterproductive purposes.
…click on the above link to read the rest of the article…
