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David Bean's explanation of how money is created is incorrect. Private banks do not create money; the Federal Reserve creates money. The Board of Governors of the Federal Reserve decide hwo much money should be in circulation and maniputates the money supply through various means such as setting the reserve requirements for private banks. The fractional reserve system multiplies the available money to meet liquidity demands in the general economy. Further, collateral for a loan does not become capital for a private bank; banks must raise capital from investors, just as any other business. Mr. Bean is correct in saying that coin and currency represents a small fraction of the money supply; most money is in the form of bank deposits.
posted 3 years, 1 month ago
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