The Fed Can Create Money, Not Confidence:
The Fed has been fighting deflation for nearly two years. It began pumping new money into the economy after the September 2008 stock market crash to restore liquidity in the financial system. It has kept the pumps running by maintaining a near-zero interest rate target. Its net purchases—with newly created dollars—of government and government-agency bonds have totaled some $1.4 trillion, expanding its balance sheet to $2.3 trillion. As the Fed pumped out new money, member bank reserves ballooned and now exceed $1 trillion. That means a vast amount of money is on deposit in Fed accounts, ready to be flooded into the economy if loan demand increases.

Editor's Comment: This is a good read
@ Wall Street Journal |