> How did the Fed push these reserves into the system? Easy. It created them out of thin air, and used them to buy government securities from banks.
This type of economic wizardry can't be good...
This type of economic wizardry can't be good...
There's a great piece by NPR a few years ago on the topic where they explain the process:
http://www.npr.org/sections/money/2010/08/26/129451895/how-t...
My understanding is weak and I'm still not clear whether the Zeitgeist Movement's position on the matter is correct, but I'd recommend watching the second of the Zeitgeist Movement's video on the matter to enrich your opinion.
It's true that creating money out of thin air increases the supply of money. But the price of money is not set by one factor of supply alone. You also have to consider the velocity of money (affecting supply) and the demand for money. If these are changing too, then you can certainly increase the supply of money without devaluing the currency.
Also you can have counterintuitive effects where increasing the supply of money stimulates the economy increasing the demand for money thereby strengthening the value of the currency overall.
To some extent, compared to not doing so, it does. But whether the extent a particular injection does this is undesirable or not depends on conditions, and manifestly the large injections of money by the Fed over recent years have not resulted in significant inflation.