Deficit Owls | Federal Reserve Operations: Some Basics @deficitowls5296 | Uploaded December 2017 | Updated October 2024, 3 hours ago.
Rohan Grey, founder and President of the Modern Money Network, on with Steve Grumbine at Real Progressives, outlining the basics of the payment system and central bank operations.
When I want to pay you, unless I hand you cash, I'm not actually paying you directly. Instead, I make a payment to my bank, then my bank makes a payment to the Federal Reserve, then the Federal Reserve makes a payment to your bank, then your bank makes a payment to you. In concrete terms, this happens through reserve accounts, which are accounts that banks keep at the Fed. My bank will mark-down my account, then the Fed will mark-down my bank's reserve account and mark-up your bank's reserve account, then your bank will mark-up your account.
When a bank makes a loan, all it does is mark-up your account. It is creating money when it does this. It is NOT "lending" you something it already had. Rather, it is creating its own IOUs, and these IOUs move through the economy as money.
When you go to get cash from the bank, they pull from their inventory, called "vault cash." If the bank is short vault cash, it will get cash from the Fed. The Fed will mark-down the bank's reserve account, then send an armored truck with the cash. Likewise, if a bank has more cash on hand then it wants, it will send an armored truck to the Fed, then the Fed will mark-up the bank's reserve account.
Banks use reserve accounts only for paying each other and meeting requirements. The Fed supplies reserves by choosing an interest rate, then supplying whatever amount banks need, at that interest rate. If it didn't do this, then banks would be unable to make payments, meet withdrawals for cash, or meet its reserve requirements.
See the whole interview here: youtube.com/watch?v=eP3CkeMfw54
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Rohan Grey, founder and President of the Modern Money Network, on with Steve Grumbine at Real Progressives, outlining the basics of the payment system and central bank operations.
When I want to pay you, unless I hand you cash, I'm not actually paying you directly. Instead, I make a payment to my bank, then my bank makes a payment to the Federal Reserve, then the Federal Reserve makes a payment to your bank, then your bank makes a payment to you. In concrete terms, this happens through reserve accounts, which are accounts that banks keep at the Fed. My bank will mark-down my account, then the Fed will mark-down my bank's reserve account and mark-up your bank's reserve account, then your bank will mark-up your account.
When a bank makes a loan, all it does is mark-up your account. It is creating money when it does this. It is NOT "lending" you something it already had. Rather, it is creating its own IOUs, and these IOUs move through the economy as money.
When you go to get cash from the bank, they pull from their inventory, called "vault cash." If the bank is short vault cash, it will get cash from the Fed. The Fed will mark-down the bank's reserve account, then send an armored truck with the cash. Likewise, if a bank has more cash on hand then it wants, it will send an armored truck to the Fed, then the Fed will mark-up the bank's reserve account.
Banks use reserve accounts only for paying each other and meeting requirements. The Fed supplies reserves by choosing an interest rate, then supplying whatever amount banks need, at that interest rate. If it didn't do this, then banks would be unable to make payments, meet withdrawals for cash, or meet its reserve requirements.
See the whole interview here: youtube.com/watch?v=eP3CkeMfw54
Follow Deficit Owls on Facebook and Twitter:
facebook.com/DeficitOwls
twitter.com/DeficitOwls
And follow our sister page, Modern Money Memes:
facebook.com/ModernMoneyMeme
twitter.com/ModernMoneyMeme
