Amid the Federal Reserve’s ability to set interest rates and determine the direction of...
,” a slim 2022 book by law professor and former U.S. Treasury official Lev Menand.
The book provides a refresher course on who creates money. Spoiler alert: It’s private banks, through fractional reserve lending. Menand’s book also describes the primary mechanisms by which the Federal Reserve sets interest rates and determines the pace of money creation — buying and selling bonds, paying interest on bank reserves, and setting the rate at which banks lend money to each other, via the Fed Funds rate.
The CARES Act authorized some of these moves, but Menand argues that it remains legally ambiguous whether the Fed has permanently acquired new interventional powers, or whether these expire as the CARES Act runs out of funding. And he asks whether it’s OK that a nondemocratic institution continues to accumulate new powers each time we suffer a financial crisis.
As a result, the other big trend in restricting the money supply and fighting inflation is known as quantitative tightening. This term refers to the Federal Reserve reducing the amount of financial assets it holds, which effectively drains money from the financial system.A breakdown of key state and local races and candidates in the May 24 primary runoff.
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