That’s like saying to the police officer: “I didn’t speed, I merely pressed on this pedal that’s connected to a rod that opened a valve providing more fuel to the engine that’s connected to the wheels”.
Customer approaches commercial bank for a loan, bank assesses credit worthiness[1] and choses to make the loan. New money was “printed” into the economy.
What levers did the fed pull?
Also what function does the fed have in the tax part the GP mentioned?
[1] the bank has other depts looking at capitalisation constraints, another dept managing day to day operations of the reserve account, perhaps another dept managing funding sources etc. but the loan making function doesn’t consult them before creating new money to make the loan
The next mechanism is setting the Fed funds rate and discount rate. That will very directly incentivize the bank to loan more or less money.
The third is the ability to buy whatever asset it deems necessary to support the economy. Quantitative easing almost directly impacts money supply.
No that doesn't exist anymore: https://www.federalreserve.gov/monetarypolicy/reservereq.htm
>> The bank isn't going to make the loan if they don't have the reserve
The bank has unlimited reserves since the central bank will issue reserves via the discount window in unlimited quantities.
Loan making is capital constrained, not reserve (or deposit!) constrained.
>> That will very directly incentivize the bank to loan more or less money
No. This is ignoring what's happened over the past 14 years.
>> Quantitative easing almost directly impacts money supply
Again - this is a statement that isn't supported by what we've seen happen since the GFC.