Myth 3: The Fed prints money
The notion is rooted in the Federal Reserve's control of the nation's money supply. The Bureau of Engraving and Printing, part of the U.S. Treasury, is responsible for printing currency.
"Although the Bureau of Printing and Engraving prints it, it delivers it to the Fed, and then the Fed gets to decide how much of it to put out into the economy," says W. Michael Cox, director of the O'Neil Center for Global Markets and Freedom at Southern Methodist University's Cox School of Business. He's also former chief economist of the Federal Reserve Bank of Dallas.
In a way, Reiss of the Brooklyn Law School says, "the Fed can create money and does so in a variety of ways." What he means is the Fed can increase the money supply through its monetary tools. Since the end of 2008, it has used "quantitative easing," or QE, a term used to describe the Fed's strategy to boost the supply of money. In the latest round of QE, the Fed has undertaken the monthly purchase of $85 billion in assets over the past year.
If you want to describe the process correctly, you might take a cue from St. Lawrence University's Horwitz. The central bank isn't in the printing business, but it has some control of the process.
"The money that the Fed creates is all done electronically in the form of bookkeeping entries that expand the deposit accounts that banks hold at the Fed," he says.