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think of that as "money creation" though it's distinct from the effects of fractional reserve banking. And like I said before, the Fed might have to induce banks to buy bonds with slightly lower prices, but those "losses" aren't really losses (the Fed just decided to sell a bond at a bit of a discount). So this answers another one of your questions: the Fed earns money from the maturation of its government bonds. When the Fed runs a profit, it returns its excess money to the U.S. Treasury
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banks hold. They will thus sell bonds to banks, for which they accept dollars, which takes these dollars out of circulation. Now, in order to induce banks to buy bonds from the Fed, the Fed must discount the bonds slightly. Also keep in mind: in order to decrease the money supply, the Fed must keep its dollars out of circulation. Its dollars must be locked in a vault somewhere, or else they are in the system and subject to multiple deposit creation and such mechanisms. I hope this helps.
176:(which has a good article explaining it, which I recommend reading). By lending out a fraction of its deposits, the banking system can "create" money, though it does not create wealth (which is an important distinction). This money creation is distinct from earning money on government bonds, which isn't "creating" money as much as it is paying off government debt with interest.
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For inflation: any sustained increase in the money supply will tend to cause inflation. As long as the Fed keeps the money supply growing faster than real GDP, we will have inflation. The trick is balancing upside risks to inflation with downside risks to economic growth; low and steady inflation is
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Second is the earning of money from open market operations and maturation of government bonds. The Fed always holds a portfolio of dollars (which are not within the banking system) and government bonds. When a government bond held by the Fed matures, the Fed earns money because of it. So you might
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I'm not entirely sure I understand the question you're asking. I'm going to try to explain what I know. The Fed uses open market operations to control the money supply. For an example: let's say the Fed wants to decrease the money supply. This means they want to decrease the amount of money that
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Ooh, how embarrassing. Good catch. I looked at the page, and the vandalism you mentioned was gone, someone else must have reverted it before I saw your note.
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I hope this helps. Perhaps you can better clear up the parts of the articles that were confusing? Or point out the ambiguous parts and I'll give a hand. -
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Use the 'cur' and 'last' links next to old revisions to find the latest "clean" revision (usually the second to last one - the one before the vandal hit)
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article, what specifically is confusing? Do you have any ideas for how to improve it? Or can you suggest areas that should be improved? Thanks. -
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Hope this helps, definitely let me know if you need anything specific clarified. Thanks again for watching out for vandalism. Peace,
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I think I'm beginning to understand your questions. First, for the Fed's "magic" money creation. It's a function of
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Welcome to
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about the topic. If you have specific questions about certain topics, consider visiting
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it yourself if you want, if you happen to see it again. Don't hesitate to leave me a
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Click on that revision and click the 'edit' link above the version you want to save
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if you have any questions or need anything, I'm always glad to help. Peace,
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and asking them there instead of on article talk pages. Thank you. -
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that explains you're reverting vandalism ("rvv" works)
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