The Fed doesn’t print the money. They create the money digitally out of thin air. With that freshly made money, they buy all kinds of assets. In turn, they put the asset in their balance sheet. Think of the balance sheet as a portfolio. The created money that pays for those assets goes into the economy, increasing the money supply. They trade holdings for cash. IF they wanted to decrease the money supply, the Fed sells those assets, thereby reducing the money supply. That is a basic example of a complex set of transactions. Their money creation tools are in addition to what the Federal Government does. So you have two firehoses filling up the money supply with money.
Here is a graph that shows the amount of money that they have created. This past week we just crossed the 8 trillion dollars. The remarkable aspect of money creation is that it went from 4 trillion to 8 trillion dollars in roughly 20 months. Remember, a trillion dollars is a million one million dollars.
Of course, the problem is that an increasing money supply creates inflation. Here is a sobering look at the money supply just this year.
Look at the dramatic jump from January to February. In conversations that I have had with various businesses, most businesses have taken a wait-and-see approach based on the assumption that this is just temporary and the inflation pressures will subside. Of course, the Fed wants you to believe that theory as they pump trillions of dollars into the money supply creating the very thing they say is temporary.
This past week, the Fed said they would wait until 2023 to raise interest rates to combat inflation. Two years out doesn’t seem “temporary” to me.
Here is another graph of the money supply – Can anyone say inflation?