federal reserve

5 myths debunked about the Federal Reserve

Myth 3: The Fed prints money
Myth 3: The Fed prints money © Rashevskyi Viacheslav/Shutterstock.com

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.

advertisement

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed, 0 point 4.41%  0.03 4.44%
15 year fixed, 0 point 3.33%  0.02 3.31%
5/1 ARM 3.34%  0.21 3.55%
 
View Rates in your area Search
Product Rate Change Last week
30K FICO-based HELOC 4.75% --0.00 4.75%
50K FICO-based HELOC 4.51%  0.01 4.50%
100K FICO-based HELOC 4.24% --0.00 4.24%
 
View Rates in your area Search
Product Rate Change Last week
60 month used car loan 2.86%  0.23 3.09%
48 month used car loan 2.79%  0.42 3.21%
60 month new car loan 2.94%  0.04 2.98%
 
View Rates in your area Search
Product Rate Change Last week
1 Year CD 0.89%  0.01 0.88%
2 Year CD 1.01%  0.02 1.03%
5 Year CD 1.59%  0.01 1.60%
 
View Rates in your area Search
Product Rate Change Last week
Balance Transfer Cards 15.71%  0.01 15.70%
Cash Back Cards 16.36% --0.00 16.36%
Low Interest Cards 10.91% --0.00 10.91%
 
Search
advertisement

Blog

Judy Martel

More homeowners above water

Rising prices are driving homeowners into positive equity, but it could be a long road.  ... Read more

advertisement
Partner Center
advertisement

Connect with us