But first, here’s how the Federal Reserve creates money: Let’s say it buys $1 billion of financial assets. In payment, the Fed records $1 billion as a deposit in the seller’s bank account. That’s new money the seller can spend as he pleases. I’m not talking about the green stuff or metal we carry around in our pockets. No, over 90 percent of our money lies in bank deposits. If everyone tried to cash these funds, not nearly enough greenery would go around.
Okay, guess who gets the new money first: The big banks. The Fed overpays the biggies for their financial assets and lends to them on the cheap.
As to who gets the money last, there are two possibilities:
First, the mountain of new money would eventually cause higher prices, diminishing the purchasing power of regular folks, especially older ones on fixed incomes.
Alternatively, by selling the financial assets it holds, the Fed could pull the extra dollars out of the economy. This would cause a severe recession that would hurt the poor disproportionately.
The Fed is helping the rich and hurting the poor. Actually, that’s what big government usually does.
No comments:
Post a Comment