Reply To: QE is not printing money?


The Fed can finance its purchase of securities either by selling assets it owns and using those funds to buy the securities or incurring liabilities. One has to look at the evidence to see whether or not the Fed has expanded the money stock when buying securities. Often they do, but sometimes they don’t.

Among its liabilities, if the Fed incurs either the liability of printing new currency or of crediting deposits commercial banks hold at the Fed, then it has increased bank reserves and banks can issue additional fiduciary media and expand the money stock.

Among its assets, if the Fed sells reverse repurchase agreements to finance its purchase of securities, then it drains bank reserves.

Table 8 in the Fed Release H.4.1 has the statistics for the week of Dec. 11: