<p><strong>No, because monetary policy is known to increase inequality.</strong></p>

<p>In effect, <a href="https://economix.blogs.nytimes.com/2013/06/03/the-fed-and-inequality/" rel="nofollow noreferrer">evidence</a> indicates that monetary policy has contributed toward <strong>higher inequality</strong>. Therefore, the Fed is not being very supportive of fairness, from this point of view.</p>

<p>Reasons are several. Some examples:</p>

<ul>
<li><strong>Booming Stock Markets</strong>: low interest rates generate booming stock markets. Because shares are mainly <a href="https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/2017-economic-commentaries/ec-201701-monetary-policy-and-inequality.aspx" rel="nofollow noreferrer">owned by the rich</a>, this benefits them proportionally more than the poor:</li>
</ul>

<p><a href="https://i.sstatic.net/wwNVx.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/wwNVx.png" alt="enter image description here"></a></p>

<ul>
<li><strong>Better access to finance by the rich</strong>: because of higher collateral, more wealthy individuals have better access to financial markets, including loans to business and housing. Therefore, they benefit much more than the rest of individuals from cheap credit via low interest rates. As <a href="https://www.forbes.com/sites/jeffreydorfman/2015/05/12/the-feds-low-interest-rates-are-increasing-inequality/#4ed6941678e9" rel="nofollow noreferrer">this article</a> states:</li>
</ul>

<blockquote>
  <p>the wealthier you are, the more you are likely to borrow (until one gets very, very wealthy), because banks will lend you more and because you are likely to buy an expensive house and want to milk the tax advantages of a large mortgage. With today’s low interest rates, a wealthy family with a \$300,000 mortgage could be saving \$7,500 per year in mortgage interest or over \$600 per month. Some wealthy families have much bigger mortgages than that, so the Fed-driven savings to the wealthy could be even larger. Since the wealthy save more from low interest rates than the poor, the Fed’s interest rate policy is making wealth inequality worse.</p>
</blockquote>

<p>Some people however say that the activity of the Fed, even if it has increased inequality by the above channels, it remains overall beneficial by fostering higher employment and avoiding a more deep financial and economic recession. Thus, higher inequality is simply a "short-term" cost of the necessary activity of the Fed.</p>

CC BY-SA 3.0
2017-08-15T17:12:27.980Z
Though one could say that lower interest rates also create lower tax savings on those interests.
Paŭlo Ebermann
CC BY-SA 3.0
2017-08-15T19:52:26.837Z
If you want an inflation of 5%, then give to everyone an amount equal to their 5% annual income. The prices will go up by 5% so the buying power of everyone will stay the same. If the inflation will not by exactly 5% (I'm not sure if the annual income is the best reference), then the inflation will be another number - say 3%. But in any case, everyone will have the same buying power as before, because the inflation increases the prices for everyone. Therefore there is no need to increase the inequality. That means the system is not fair and the Fed is only increasing the public confusion.
Joe Jobs
CC BY-SA 3.0
2017-08-16T06:43:12.540Z
@JoeJobs Wealthy individuals can protect themselves from inflation much better than poorer individuals. Also, inflation affects the poor disproportionately more than the rich.
luchonacho
CC BY-SA 3.0
2017-08-17T16:54:47.857Z
@luchonacho - fine, so if the inflation affects the poor say 50% more than the rich, then give to the poor 50% more money than to the rich (in proportion I mean). Think about a compensating system instead of maintaining a fraudulent system that uses a bombastic language and fuzzy terms that actually nobody understands.
Joe Jobs
CC BY-SA 3.0
2017-08-28T22:43:27.707Z
Re:"even if it has increased...overall beneficial". Those same people are also likely to believe that a "ruling elite" is necessary in order to keep society under control. After all, the masses aren't smart enough to do the right thing. The Federal Reserve System is nothing more than keeping the uber-rich and powerful...well...uber-rich and powerful. The only benefit of the Fed is that it keeps the uber-rich and powerful from manipulating the economy to trigger long-term recessions when the government doesn't do what they say because the government is already doing what they say.
Dunk
CC BY-SA 3.0
2017-08-15T14:10:24.213Z
2017-08-15T20:00:44.493Z
2017-08-15T20:00:44.493Z
luchonacho
<p>Normative questions require a standard of fairness in order to then be analyzed and answered with some degree of "objectiveness" so that the answer is not just a declaration of philosophical-ideological positions.</p>

<p>The OP starts by writing</p>

<blockquote>
  <p><em>"Basic logic says that, once a central bank is issuing new money for increasing the money supply, the money should be distributed equally
  between all the citizens."</em></p>
</blockquote>

<p>Why "basic logic" says that? <em>Whose</em> "basic logic"? I note that throughout human history and especially in the western civilization in the last 400 years, "fairness" is almost exclusively interpreted as "proportionality", not flat equality (i.e. as "per capita tax" is considered <em>not</em> in accord with current societal values, so are "per capita transfers").</p>

<p>Anyway, under the given fairness standard, certainly "new money is not fairly distributed". </p>

<p>Regarding how the creation of new money works, and how it affects the domestic or global economy (or not), which is an additional question, I believe there are many threads here that provide a lot of information on the matter. Selecting the tag "inflation" or "money supply" will bring up most of them.</p>

CC BY-SA 3.0
2017-08-15T19:09:57.497Z
I apologize, I wish I could turn back the time to write the question right from the very beginning. What I meant was to distribute the money fairly, and that implies proportionally as you clearly pointed out, choosing the word "equally" was wrong.
Joe Jobs
CC BY-SA 3.0
2017-08-15T21:55:33.867Z
Money-creation isn't a distribution scheme at all, @JoeJobs. It funnels money to people who (think they) can effectively capitalize it into something productive. Then they pay it back. With interest. You might as well say that any bank anywhere making any loan to anyone has to distribute it fairly - after all, the central reserve banks aren't the only ones who create money via fractional reserve technique.
Beanluc
CC BY-SA 3.0
2017-08-17T15:06:40.500Z
@Beanluc - So it's not fair. Creating money that you own (without actually working for it) very much looks like theft. If you create money from nothing, then give it to everyone, for free. Lending money to banks who are plagued by theft, corruption and "no accountability for failure" looks like insulting the people's intelligence. I know a person who makes a good living after he made a loan and vanished with the money. More money than I can save in a lifetime. And then the honest taxpayers like me (who can never buy a house) will have to pay for that - in form of generous bailouts.
Joe Jobs
CC BY-SA 3.0
2017-08-17T18:52:05.537Z
You might as well just say that any borrowing at all is not fair.
Beanluc
CC BY-SA 3.0
2017-08-19T04:43:55.143Z
@Beanluc - of course it's not fair with such banks that take the money from the poor and give it to the rich, to the thieves and who encourage speculation because that's robbery. Clear the corruption in the banks and then borrowing is OK. But that's not my main point. The main point is that nobody should own the money made out of nothing. The money made out of nothing belong to every citizen and it should get to the citizen by: fair distribution or tax cuts or building infrastructure projects. No group of citizens should own free printed money because that's (legalized) theft.
Joe Jobs
CC BY-SA 3.0
2017-08-15T12:27:38.757Z
2017-08-15T12:27:38.757Z
Alecos Papadopoulos
<blockquote>
<p>Is there something important that I'm missing?</p>
</blockquote>
<p>I think the basics are missing and not just from you but the public in general which is why it' s sounds so complicated. Lets start with the four types of money issued in the United States:</p>
<ol>
<li><strong>Coins</strong> - physical money created and issued by the U.S. Treasury and sold at face value to the Federal Reserve, which books coins as an asset on its balance sheet. Unlike the other three forms of money I will outline in this answer, coins are issued without any corresponding debt attached to them. Coins are legal tender, meaning that they can be used to pay, &quot;all debts, public charges, taxes, and dues.&quot; 31 U.S.C. § 5103.</li>
<li><strong>Cash</strong> - aka, Federal Reserve Notes, is physical money issued by the Federal Reserve (though created by the Treasury's Bureau of Engraving and Printing at the Fed's instruction) and sold by the Fed at face value to commercial banks, which pay for cash using their reserve accounts at the Fed, which get debited in the amount of cash obtained. Cash is one of two liabilities on the Federal Reserve's balance sheet, and an obligation of the U.S. government. Cash is legal tender, meaning it can be used to pay, &quot;all debts, public charges, taxes, and dues.&quot; 31 U.S.C. § 5103.</li>
<li><strong>Reserves</strong> - this is electronic money created and issued by the Federal Reserve in exchange for U.S. government bonds and bills, that is, IOUs from the U.S. government. Reserves are the second liability on the Federal Reserve's balance sheet, but reserves are assets to commercial banks and other entities that bank with the Fed, including the U.S. government and foreign central banks. Reserves, that is, Fed liabilities or IOUs, are money only for these entities, and exist only as the result of government debt. The amount of reserves in the system is controlled by the Federal Reserve, which increases reserves by buying government bonds or agency mortgage-backed securities and decreases reserves by selling government bonds or agency mortgage-backed securities. Reserves are not legal tender.</li>
<li><strong>Bank money</strong> - this electronic money created and issued by commercial banks in exchange for debt, public or private, taken by borrowers from the bank, whose electronic accounts at the bank are credited in the amount of their new loan. Bank money is a liability to commercial banks but is an asset to non-bank entities who bank at commercial banks, including people, non-financial businesses, non-bank financial businesses, and governments...bank money, that is, a commercial bank liability or IOU is money for these entities. The amount of bank money in the system is controlled by commercial banks, which increase bank money bu buying debt, crediting bank accounts in exchange for loan paper, and decrease bank money by not issuing new debt as old debt gets paid off. Bank money is not legal tender.</li>
</ol>
<p>I think what is confusing and it was even for me, is all the discussion that we hear in the media, but none of the clarification. That discussion is on <strong>reserves</strong>. Reserves function as money for commercial banks, which have accounts at the Fed, but do not function as money for ordinary people and non-bank businesses, who do not have accounts at the Fed. For ordinary people and non-bank businesses, money isn't reserves, it's bank money. Cash is an altogether different animal for the purposes of this discussion, which pertains to digital money only. But the Fed cannot and does not create bank money. Commercial banks create bank money.</p>
<p>For commercial banks, reserves are asset-money, and bank money, that is, ordinary checking and savings accounts, is liability money. Makes sense so far?</p>
<p>So when the Fed buys assets from a commercial bank or the U.S. government, it creates new reserves and credits in the bank's or the government's Fed account in the amount of those new reserves, and the seller transfer the asset to the Fed in exchange. The key takeaway here is that this simple two-party transaction structure results in an increase in reserves, <em>but no net increase in bank money</em>. The reason there is no change in bank money under the Fed's normal asset purchase route is that there is no non-bank entity, and thus no bank money, involved in the transaction, which is simply a two-party transaction between the Fed and a Fed account holder, a commercial bank or the government, conducted entirely in reserves.</p>
<p>With all that said, the traditional two-party asset purchase structure was recently abandoned by the Fed in February of 2020, however, replaced by a three-party asset purchase structure of getting public money into private hands. Since then what we have been seeing is the lockstep increase in both reserves <em>and</em> bank money.</p>

CC BY-SA 4.0
2021-06-25T23:45:38.113Z
2021-06-25T23:45:38.113Z
Daniel
<p>The Fed introduces money in the economy through the banks via the mechanism of <a href="https://en.wikipedia.org/wiki/Fractional-reserve_banking" rel="noreferrer">fractional-reserve banking</a>, as you mentioned in your article. 
This means the Fed is then allowing the banks to provide credit to anyone who they find adequate. The reason to do so is that banks will favor investment opportunities which lead to long term growth, such as build a house or a factory, rather than immediate consumption of goods, which would lead faster to inflation. The alternative would be to transfer the money to the government, which would distribute it through investments (like build roads) or subsidies.</p>

<p>Your question is on fairness: whilst there would be several ways to look at what "fairness" means (give the same to everyone OR give more to the ones who deserve/need more), the key point is that the Fed's job is to make the US dollar stable, and not to work on individual bank gains. You can read on the <a href="https://www.federalreserve.gov/publications/gpra/2011-mission-values-and-goals-of-the-board-of-governors.htm" rel="noreferrer">Fed's mission</a>:</p>

<blockquote>
  <p>(...) to foster the stability, integrity, and efficiency of the nation's monetary, financial, and payment systems so as to promote optimal macroeconomic performance</p>
</blockquote>

<p>Their approach to distributing the money is to keep the inflation low, which according to them and the US Congress, is on the best interest of the whole country and not just the banks.</p>

CC BY-SA 3.0
2017-08-15T19:33:19.637Z
Thanks. Basic logic says that you keep inflation low by simply not issuing new money. If the population or the productivity grows that will create deflation (the products become cheaper), and then you only issue enough money to reduce the deflation to zero. If the population or the economic efficiency (productivity) are decreasing, that will create inflation and then you burn money to reduce it to zero. The banks have a dreadful record of giving credits - the money go to huge bonuses, Swiss banks or into tax havens. Giving the money directly to the people, proportionally, looks much more fair.
Joe Jobs
CC BY-SA 3.0
2017-08-15T20:33:37.203Z
@JoeJobs - You are missing the fact that the Federal Reserve is not part of the federal government. The Federal Reserve is a collection of private corporations. So why would a private corporation simply give money directly to the people?
Dunk
CC BY-SA 3.0
2017-08-17T16:46:59.290Z
@Dunk - because the Fed is licensed to create money out of nothing. If the Fed doesn't want to give those free money for free, then they should not have such a licence. It's outrageous to think that any entity has a licence to print money and then to own it. Not even the government should be allowed to do that. Free money should be distributed freely and fairly, because nobody actually worked to create the value of those money (after paying the production costs, ofc). Distribute the money to everyone or give tax cuts to everyone or build infrastructure that everyone benefits from.
Joe Jobs
CC BY-SA 3.0
2017-08-28T22:36:04.553Z
@JoeJobs-The Fed doesn't create money out of nothing. They "print money" when the federal government says " we want a loan, can you sell federally insured T-Bills in the amount of $XXX". We guarantee to pay you "The federal reserve banks" that amount of money plus interest. If you want to call "a promise" by the federal government "creating money out of nothing" then I won't disagree. However, the mere fact that people are willing to buy that "nothing" money shows that our opinion of that fact doesn't matter.
Dunk
CC BY-SA 3.0
2017-08-15T09:06:26.460Z
2017-08-15T09:06:26.460Z
JoaoBotelho
<p>Basic logic says that, once a central bank is issuing new money for increasing the money supply, the money should be distributed fairly between all the citizens, and that means giving them all an amount equal in proportion to their income (say a 5% of their annual income for achieving a 5% inflation). So they should give the money to the government, and then the  government either distributes the money or it builds public infrastructure that everyone benefits from. Most likely, this is the way the Eastern European countries experienced inflation in the 1990's.</p>

<p>Conversely, when the Fed decides to remove a certain amount of money from the economy, the Government should tax everyone in a fair way (the rich should pay more than the poor) and then give the money to the Fed to burn it. Or to burn it directly, without even giving it to the Fed.</p>

<p>Instead, the Federal Reserve has some sophisticated and arcane ways to move the money, beyond the comprehension of the general public. The Fed and the banks are involved into actually owning those newly issued money, and that looks really strange.</p>

<p><a href="https://www.theatlantic.com/business/archive/2011/04/the-destruction-of-money-who-does-it-why-when-and-how/236990/" rel="nofollow noreferrer">This article</a> says:</p>

<blockquote>
  <p>When the Fed wants to expand the money supply, it buys a security -- let's call it Asset A -- from a bank. Then it electronically transfers money to that bank.</p>
</blockquote>

<p>Therefore, if the Federal Reserve decides, it can issue new money and buy and own half of the assets in the USA for free whenever they want. The newly issued money get to the banks, and depending on the decision of the banks to use the money or not, they can create inflation - or not. They can give those money in astronomical bonuses to their top executives and those people can send the money to Switzerland for example - therefore no inflation.</p>

<p>Is there something important that I'm missing?</p>

CC BY-SA 3.0
2017-08-15T14:27:39.190Z
The fed doesn't create the money: The banks do. https://en.wikipedia.org/wiki/Fiat_money#Money_creation_and_regulation
Martin Schröder
CC BY-SA 3.0
2017-08-15T15:22:19.477Z
@MartinSchröder That's not strictly true.
J...
CC BY-SA 3.0
2017-08-15T17:04:08.087Z
Where does the "basic logic" in your first sentence come from?
Paŭlo Ebermann
CC BY-SA 3.0
2017-08-15T17:24:33.053Z
I think this is an excellent case where we get to see what happens when "basic logic" is challenged.  Whose basic logic?  One interesting consequence of your logic is that creating and destroying money robs from the rich and gives to the poor (you give it out equally by citizenship, but take it equally by wealth).  If the fed creates a billion dollars, then destroys a billion dollars, by your system, those two don't actually cancel out!
Cort Ammon
CC BY-SA 3.0
2017-08-15T19:02:37.953Z
@Cort Ammon You are right. By "equally" I meant "fairly", i.e. proportionally. When creating say a 5% inflation, everyone should get a 5% more money. When creating a 5% deflation, everyone should pay a tax of 5% of their own money - they won't really lose anything because the prices will go down by 5%. I have corrected the question, thanks.
Joe Jobs
CC BY-SA 3.0
2017-08-15T19:14:41.837Z
@JoeJobs Editing the question to alter critically its content is _not_ the way to do it, since it tends to make the already posted answers obsolete/incomprehensible/irrelevant.
Alecos Papadopoulos
CC BY-SA 3.0
2017-08-15T19:21:01.187Z
@AlecosPapadopoulos : Well I think it was still visible in the first version of the question that by "equally" I mean "fairly". I'm afraid that, by creating another similar question, I would only create confusion. I think the best approach is to modify the already posted answers.
Joe Jobs
CC BY-SA 3.0
2017-08-15T21:49:19.467Z
"Basic logic says that, once a central bank is issuing new money for increasing the money supply, the money should be distributed fairly between all the citizens." Only if you want to force every citizen to borrow money. That's where it goes when it's created - it goes to borrowers. And it's not free, those borrowers get the obligations of those loans.
Beanluc
CC BY-SA 3.0
2017-08-15T22:57:58.227Z
What possible purpose would there be to distributing money in such a way? Wouldn't it be equivalent to not distributing any money at all?
David Schwartz
CC BY-SA 3.0
2017-08-16T03:46:53.660Z
"Basic logic says ..." this is the snotty version of "It's common sense that ...", and we all know how rare common sense is, and that "common sense" -- and "basic logic" -- are usually wrong.
RonJohn
CC BY-SA 3.0
2017-08-16T23:05:04.730Z
The economy is very interconnected. How do you know that buying securities *doesn't* proportionally give money to everyone?
Criticize SE actions means ban
CC BY-SA 3.0
2017-08-17T14:53:20.500Z
@Beanluc - if you issue new money, you don't have to borrow it. You should simply give it to everyone. Give it directly or build infrastructure or give tax cuts.
Joe Jobs
CC BY-SA 3.0
2017-08-17T14:54:34.380Z
@David Schwartz - if you give money to all, then you create the inflation you want to achieve - and you must create inflation to reduce deflation to zero for example.
Joe Jobs
CC BY-SA 3.0
2017-08-17T14:57:01.093Z
@RonJohn - your answer is comical, sorry. The system fails simply because it defies basic logic and invents sophisticated "solutions" supported by fancy language that nobody understands. Your answer reminds of the mindset of "government abuses defy logic but they are good, because they prevent the tyranny of the majority".
Joe Jobs
CC BY-SA 3.0
2017-08-17T18:52:48.850Z
@JoeJobs "if you issue new money, you don't have to borrow it. You should simply give it to everyone." That isn't how it works though. The money is created when it's loaned. The Fed aren't borrowing from themselves when they create money, they create some to lend (not give) to an actual borrower.
Beanluc
CC BY-SA 3.0
2017-08-17T19:01:50.337Z
@JoeJobs No, you could not create inflation nor could you reduce deflation with such a scheme. That scheme would, for example, have no effect on (for example) what quantity of goods a given person's salary can purchase if not changed by negotiation.
David Schwartz
CC BY-SA 3.0
2017-08-19T04:31:04.487Z
@Beanluc - I apologize, I meant "lend it", not "borrow it". To answer again to your first statement: There is no need to force everyone to borrow money. You just give it for free. Free money created out of nothing should be distributed to everyone for free. When the borrowers return the money to the Fed, the banks that own the Fed will own that money = free money for the rich banks.
Joe Jobs
CC BY-SA 3.0
2017-08-19T04:35:00.777Z
@DavidSchwartz - I was talking about inflation, not about buying power. You create inflation in order to counter deflation, not to reduce (or to increase) the buying power of the consumers. That's the whole point of issuing money that way - to create inflation, and as you noticed, that won't affect the buying power. It will just reduce the deflation to zero
Joe Jobs
CC BY-SA 3.0
2017-08-19T04:40:36.710Z
@JoeJobs I understand why you create inflation. But you actually won't create any inflation that way, as I explained. If you had created inflation, buying power would go down. Since it didn't, you didn't create inflation. The same argument applies to all the other consequences of inflation, which you also won't have. You'll just create the illusion of inflation with none of the actual effects needed to counter actual deflation.
David Schwartz
CC BY-SA 3.0
2017-08-19T04:41:20.877Z
@JoeJobs For example, one of the consequences of deflation is that buying power goes up. Since your proposed method won't decrease buying power as inflation does, it: 1) Won't counter the effects of deflation and 2) Won't cause inflation. It will do nothing but cancel itself out.
David Schwartz
CC BY-SA 3.0
2017-08-19T18:55:07.723Z
@DavidSchwartz - wrong. Just as the consequence of inflation is not buying power going down. Look at Japan. If the population increases then you have to split the same amount of money between more people and that will reduce both prices and wages while the buying power stays the same. Deflation doesn't automatically increase the buying power. But the increase in buying power is generally leading to deflation since actually people love buying more stuff if they have more buying power - you get more products in the market while the total amount of money stay the same. We need forum 4 such debate
Joe Jobs
CC BY-SA 3.0
2017-08-19T23:35:31.217Z
@JoeJobs Actually, that shows precisely why I'm right. Notice that you also needed a reduction in wages! Your scheme would be precisely equivalent to doing nothing at all and wouldn't do anything to prevent, for example, increasing productivity from causing deflation.
David Schwartz
CC BY-SA 3.0
2017-08-20T08:10:02.503Z
@DavidSchwartz - more money in the market means inflation. Double the amount of money in the economy and then the prices and wages will double. Therefore it will reduce any existing deflation. If you distribute the money in a fair way, then it won't affect the buying power. Sorry but I can't answer here anymore, we need a forum to continue such a conversation.
Joe Jobs
CC BY-SA 3.0
2017-08-20T20:45:49.290Z
@JoeJobs I'll make it as simple as I can: 1) Deflation causes buying power to up. 2) Therefore, anything that cancels out deflation must cause buying power to go down or it didn't cancel out the actual effects of deflation. 3) Your scheme does not cause buying power to go down, therefore it doesn't cancel out the effects of deflation. Is that clear enough? You scheme leaves the harmful effects of deflation in place, even though it causes the appearance of inflation. It's fake inflation.
David Schwartz
CC BY-SA 3.0
2017-08-22T21:18:17.867Z
Jeez. @JoeJobs, nobody said anything at all about forcing anyone to borrow money. If you don't believe that borrowers from the Fed are interested and willing parties, I can't help you. Others have explained to you what the borrowers do with the money from the Fed: They re-lend it again or use it to maintain fractional reserve requirements, which is GOOD because it keeps that money in circulation. Google "velocity of money supply" for an informative overview.
Beanluc
CC BY-SA 3.0
2017-09-22T16:04:55.707Z
@JoeJobs "Your answer reminds of the mindset of ..." where in the hell do you get that from?  After all, even the actions of crazy people are logical (based on their own internal, but warped, logic).
RonJohn
<money-supply><federal-reserve>
Is the Federal Reserve issuing money in a fair way?
Joe Jobs
# Is the Federal Reserve issuing money in a fair way?

(Asked by: username_0 on 2017-08-15)

Basic logic says that, once a central bank is issuing new money for increasing the money supply, the money should be distributed fairly between all the citizens, and that means giving them all an amount equal in proportion to their income (say a 5% of their annual income for achieving a 5% inflation). So they should give the money to the government, and then the government either distributes the money or it builds public infrastructure that everyone benefits from. Most likely, this is the way the Eastern European countries experienced inflation in the 1990's.

Conversely, when the Fed decides to remove a certain amount of money from the economy, the Government should tax everyone in a fair way (the rich should pay more than the poor) and then give the money to the Fed to burn it. Or to burn it directly, without even giving it to the Fed.

Instead, the Federal Reserve has some sophisticated and arcane ways to move the money, beyond the comprehension of the general public. The Fed and the banks are involved into actually owning those newly issued money, and that looks really strange.

[This article](https://www.theatlantic.com/business/archive/2011/04/the-destruction-of-money-who-does-it-why-when-and-how/236990/) says:

> When the Fed wants to expand the money supply, it buys a security -- let's call it Asset A -- from a bank. Then it electronically transfers money to that bank.

Therefore, if the Federal Reserve decides, it can issue new money and buy and own half of the assets in the USA for free whenever they want. The newly issued money get to the banks, and depending on the decision of the banks to use the money or not, they can create inflation - or not. They can give those money in astronomical bonuses to their top executives and those people can send the money to Switzerland for example - therefore no inflation.

Is there something important that I'm missing?

**Tags:** money-supply, federal-reserve

> **Comments:**
> **username_1**: The fed doesn't create the money: The banks do. https://en.wikipedia.org/wiki/Fiat_money#Money_creation_and_regulation  
> **username_2**: @MartinSchröder That's not strictly true.  
> **username_3**: Where does the "basic logic" in your first sentence come from?  
> **username_4**: I think this is an excellent case where we get to see what happens when "basic logic" is challenged.  Whose basic logic?  One interesting consequence of your logic is that creating and destroying money robs from the rich and gives to the poor (you give it out equally by citizenship, but take it equally by wealth).  If the fed creates a billion dollars, then destroys a billion dollars, by your system, those two don't actually cancel out!  
> **username_0**: @username_4 You are right. By "equally" I meant "fairly", i.e. proportionally. When creating say a 5% inflation, everyone should get a 5% more money. When creating a 5% deflation, everyone should pay a tax of 5% of their own money - they won't really lose anything because the prices will go down by 5%. I have corrected the question, thanks.  
> **username_5**: @JoeJobs Editing the question to alter critically its content is _not_ the way to do it, since it tends to make the already posted answers obsolete/incomprehensible/irrelevant.  
> **username_0**: @AlecosPapadopoulos : Well I think it was still visible in the first version of the question that by "equally" I mean "fairly". I'm afraid that, by creating another similar question, I would only create confusion. I think the best approach is to modify the already posted answers.  
> **username_6**: "Basic logic says that, once a central bank is issuing new money for increasing the money supply, the money should be distributed fairly between all the citizens." Only if you want to force every citizen to borrow money. That's where it goes when it's created - it goes to borrowers. And it's not free, those borrowers get the obligations of those loans.  
> **username_7**: What possible purpose would there be to distributing money in such a way? Wouldn't it be equivalent to not distributing any money at all?  
> **username_8**: "Basic logic says ..." this is the snotty version of "It's common sense that ...", and we all know how rare common sense is, and that "common sense" -- and "basic logic" -- are usually wrong.  
> **username_9**: The economy is very interconnected. How do you know that buying securities *doesn't* proportionally give money to everyone?  
> **username_0**: @username_6 - if you issue new money, you don't have to borrow it. You should simply give it to everyone. Give it directly or build infrastructure or give tax cuts.  
> **username_0**: @username_7 - if you give money to all, then you create the inflation you want to achieve - and you must create inflation to reduce deflation to zero for example.  
> **username_0**: @username_8 - your answer is comical, sorry. The system fails simply because it defies basic logic and invents sophisticated "solutions" supported by fancy language that nobody understands. Your answer reminds of the mindset of "government abuses defy logic but they are good, because they prevent the tyranny of the majority".  
> **username_6**: @JoeJobs "if you issue new money, you don't have to borrow it. You should simply give it to everyone." That isn't how it works though. The money is created when it's loaned. The Fed aren't borrowing from themselves when they create money, they create some to lend (not give) to an actual borrower.  
> **username_7**: @JoeJobs No, you could not create inflation nor could you reduce deflation with such a scheme. That scheme would, for example, have no effect on (for example) what quantity of goods a given person's salary can purchase if not changed by negotiation.  
> **username_0**: @username_6 - I apologize, I meant "lend it", not "borrow it". To answer again to your first statement: There is no need to force everyone to borrow money. You just give it for free. Free money created out of nothing should be distributed to everyone for free. When the borrowers return the money to the Fed, the banks that own the Fed will own that money = free money for the rich banks.  
> **username_0**: @DavidSchwartz - I was talking about inflation, not about buying power. You create inflation in order to counter deflation, not to reduce (or to increase) the buying power of the consumers. That's the whole point of issuing money that way - to create inflation, and as you noticed, that won't affect the buying power. It will just reduce the deflation to zero  
> **username_7**: @JoeJobs I understand why you create inflation. But you actually won't create any inflation that way, as I explained. If you had created inflation, buying power would go down. Since it didn't, you didn't create inflation. The same argument applies to all the other consequences of inflation, which you also won't have. You'll just create the illusion of inflation with none of the actual effects needed to counter actual deflation.  
> **username_7**: @JoeJobs For example, one of the consequences of deflation is that buying power goes up. Since your proposed method won't decrease buying power as inflation does, it: 1) Won't counter the effects of deflation and 2) Won't cause inflation. It will do nothing but cancel itself out.  
> **username_0**: @DavidSchwartz - wrong. Just as the consequence of inflation is not buying power going down. Look at Japan. If the population increases then you have to split the same amount of money between more people and that will reduce both prices and wages while the buying power stays the same. Deflation doesn't automatically increase the buying power. But the increase in buying power is generally leading to deflation since actually people love buying more stuff if they have more buying power - you get more products in the market while the total amount of money stay the same. We need forum 4 such debate  
> **username_7**: @JoeJobs Actually, that shows precisely why I'm right. Notice that you also needed a reduction in wages! Your scheme would be precisely equivalent to doing nothing at all and wouldn't do anything to prevent, for example, increasing productivity from causing deflation.  
> **username_0**: @DavidSchwartz - more money in the market means inflation. Double the amount of money in the economy and then the prices and wages will double. Therefore it will reduce any existing deflation. If you distribute the money in a fair way, then it won't affect the buying power. Sorry but I can't answer here anymore, we need a forum to continue such a conversation.  
> **username_7**: @JoeJobs I'll make it as simple as I can: 1) Deflation causes buying power to up. 2) Therefore, anything that cancels out deflation must cause buying power to go down or it didn't cancel out the actual effects of deflation. 3) Your scheme does not cause buying power to go down, therefore it doesn't cancel out the effects of deflation. Is that clear enough? You scheme leaves the harmful effects of deflation in place, even though it causes the appearance of inflation. It's fake inflation.  
> **username_6**: Jeez. @JoeJobs, nobody said anything at all about forcing anyone to borrow money. If you don't believe that borrowers from the Fed are interested and willing parties, I can't help you. Others have explained to you what the borrowers do with the money from the Fed: They re-lend it again or use it to maintain fractional reserve requirements, which is GOOD because it keeps that money in circulation. Google "velocity of money supply" for an informative overview.  
> **username_8**: @JoeJobs "Your answer reminds of the mindset of ..." where in the hell do you get that from?  After all, even the actions of crazy people are logical (based on their own internal, but warped, logic).  

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## 4 answers

### Answer by username_13 on 2017-08-15. Score: 9 | Accepted answer

The Fed introduces money in the economy through the banks via the mechanism of [fractional-reserve banking](https://en.wikipedia.org/wiki/Fractional-reserve_banking), as you mentioned in your article.
This means the Fed is then allowing the banks to provide credit to anyone who they find adequate. The reason to do so is that banks will favor investment opportunities which lead to long term growth, such as build a house or a factory, rather than immediate consumption of goods, which would lead faster to inflation. The alternative would be to transfer the money to the government, which would distribute it through investments (like build roads) or subsidies.

Your question is on fairness: whilst there would be several ways to look at what "fairness" means (give the same to everyone OR give more to the ones who deserve/need more), the key point is that the Fed's job is to make the US dollar stable, and not to work on individual bank gains. You can read on the [Fed's mission](https://www.federalreserve.gov/publications/gpra/2011-mission-values-and-goals-of-the-board-of-governors.htm):

> (...) to foster the stability, integrity, and efficiency of the nation's monetary, financial, and payment systems so as to promote optimal macroeconomic performance

Their approach to distributing the money is to keep the inflation low, which according to them and the US Congress, is on the best interest of the whole country and not just the banks.

> **Comments:**
> **username_0**: Thanks. Basic logic says that you keep inflation low by simply not issuing new money. If the population or the productivity grows that will create deflation (the products become cheaper), and then you only issue enough money to reduce the deflation to zero. If the population or the economic efficiency (productivity) are decreasing, that will create inflation and then you burn money to reduce it to zero. The banks have a dreadful record of giving credits - the money go to huge bonuses, Swiss banks or into tax havens. Giving the money directly to the people, proportionally, looks much more fair.  
> **username_11**: @JoeJobs - You are missing the fact that the Federal Reserve is not part of the federal government. The Federal Reserve is a collection of private corporations. So why would a private corporation simply give money directly to the people?  
> **username_0**: @username_11 - because the Fed is licensed to create money out of nothing. If the Fed doesn't want to give those free money for free, then they should not have such a licence. It's outrageous to think that any entity has a licence to print money and then to own it. Not even the government should be allowed to do that. Free money should be distributed freely and fairly, because nobody actually worked to create the value of those money (after paying the production costs, ofc). Distribute the money to everyone or give tax cuts to everyone or build infrastructure that everyone benefits from.  
> **username_11**: @JoeJobs-The Fed doesn't create money out of nothing. They "print money" when the federal government says " we want a loan, can you sell federally insured T-Bills in the amount of $XXX". We guarantee to pay you "The federal reserve banks" that amount of money plus interest. If you want to call "a promise" by the federal government "creating money out of nothing" then I won't disagree. However, the mere fact that people are willing to buy that "nothing" money shows that our opinion of that fact doesn't matter.  

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### Answer by username_5 on 2017-08-15. Score: 14

Normative questions require a standard of fairness in order to then be analyzed and answered with some degree of "objectiveness" so that the answer is not just a declaration of philosophical-ideological positions.

The OP starts by writing

> *"Basic logic says that, once a central bank is issuing new money for increasing the money supply, the money should be distributed equally
> between all the citizens."*

Why "basic logic" says that? *Whose* "basic logic"? I note that throughout human history and especially in the western civilization in the last 400 years, "fairness" is almost exclusively interpreted as "proportionality", not flat equality (i.e. as "per capita tax" is considered *not* in accord with current societal values, so are "per capita transfers").

Anyway, under the given fairness standard, certainly "new money is not fairly distributed".

Regarding how the creation of new money works, and how it affects the domestic or global economy (or not), which is an additional question, I believe there are many threads here that provide a lot of information on the matter. Selecting the tag "inflation" or "money supply" will bring up most of them.

> **Comments:**
> **username_0**: I apologize, I wish I could turn back the time to write the question right from the very beginning. What I meant was to distribute the money fairly, and that implies proportionally as you clearly pointed out, choosing the word "equally" was wrong.  
> **username_6**: Money-creation isn't a distribution scheme at all, @JoeJobs. It funnels money to people who (think they) can effectively capitalize it into something productive. Then they pay it back. With interest. You might as well say that any bank anywhere making any loan to anyone has to distribute it fairly - after all, the central reserve banks aren't the only ones who create money via fractional reserve technique.  
> **username_0**: @username_6 - So it's not fair. Creating money that you own (without actually working for it) very much looks like theft. If you create money from nothing, then give it to everyone, for free. Lending money to banks who are plagued by theft, corruption and "no accountability for failure" looks like insulting the people's intelligence. I know a person who makes a good living after he made a loan and vanished with the money. More money than I can save in a lifetime. And then the honest taxpayers like me (who can never buy a house) will have to pay for that - in form of generous bailouts.  
> **username_6**: You might as well just say that any borrowing at all is not fair.  
> **username_0**: @username_6 - of course it's not fair with such banks that take the money from the poor and give it to the rich, to the thieves and who encourage speculation because that's robbery. Clear the corruption in the banks and then borrowing is OK. But that's not my main point. The main point is that nobody should own the money made out of nothing. The money made out of nothing belong to every citizen and it should get to the citizen by: fair distribution or tax cuts or building infrastructure projects. No group of citizens should own free printed money because that's (legalized) theft.  

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### Answer by username_10 on 2017-08-15. Score: 6

**No, because monetary policy is known to increase inequality.**

In effect, [evidence](https://economix.blogs.nytimes.com/2013/06/03/the-fed-and-inequality/) indicates that monetary policy has contributed toward **higher inequality**. Therefore, the Fed is not being very supportive of fairness, from this point of view.

Reasons are several. Some examples:

* **Booming Stock Markets**: low interest rates generate booming stock markets. Because shares are mainly [owned by the rich](https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/2017-economic-commentaries/ec-201701-monetary-policy-and-inequality.aspx), this benefits them proportionally more than the poor:

[![enter image description here](https://i.sstatic.net/wwNVx.png)](https://i.sstatic.net/wwNVx.png)

* **Better access to finance by the rich**: because of higher collateral, more wealthy individuals have better access to financial markets, including loans to business and housing. Therefore, they benefit much more than the rest of individuals from cheap credit via low interest rates. As [this article](https://www.forbes.com/sites/jeffreydorfman/2015/05/12/the-feds-low-interest-rates-are-increasing-inequality/#4ed6941678e9) states:

> the wealthier you are, the more you are likely to borrow (until one gets very, very wealthy), because banks will lend you more and because you are likely to buy an expensive house and want to milk the tax advantages of a large mortgage. With today’s low interest rates, a wealthy family with a \$300,000 mortgage could be saving \$7,500 per year in mortgage interest or over \$600 per month. Some wealthy families have much bigger mortgages than that, so the Fed-driven savings to the wealthy could be even larger. Since the wealthy save more from low interest rates than the poor, the Fed’s interest rate policy is making wealth inequality worse.

Some people however say that the activity of the Fed, even if it has increased inequality by the above channels, it remains overall beneficial by fostering higher employment and avoiding a more deep financial and economic recession. Thus, higher inequality is simply a "short-term" cost of the necessary activity of the Fed.

> **Comments:**
> **username_3**: Though one could say that lower interest rates also create lower tax savings on those interests.  
> **username_0**: If you want an inflation of 5%, then give to everyone an amount equal to their 5% annual income. The prices will go up by 5% so the buying power of everyone will stay the same. If the inflation will not by exactly 5% (I'm not sure if the annual income is the best reference), then the inflation will be another number - say 3%. But in any case, everyone will have the same buying power as before, because the inflation increases the prices for everyone. Therefore there is no need to increase the inequality. That means the system is not fair and the Fed is only increasing the public confusion.  
> **username_10**: @JoeJobs Wealthy individuals can protect themselves from inflation much better than poorer individuals. Also, inflation affects the poor disproportionately more than the rich.  
> **username_0**: @username_10 - fine, so if the inflation affects the poor say 50% more than the rich, then give to the poor 50% more money than to the rich (in proportion I mean). Think about a compensating system instead of maintaining a fraudulent system that uses a bombastic language and fuzzy terms that actually nobody understands.  
> **username_11**: Re:"even if it has increased...overall beneficial". Those same people are also likely to believe that a "ruling elite" is necessary in order to keep society under control. After all, the masses aren't smart enough to do the right thing. The Federal Reserve System is nothing more than keeping the uber-rich and powerful...well...uber-rich and powerful. The only benefit of the Fed is that it keeps the uber-rich and powerful from manipulating the economy to trigger long-term recessions when the government doesn't do what they say because the government is already doing what they say.  

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### Answer by username_12 on 2021-06-25. Score: 0

> Is there something important that I'm missing?

I think the basics are missing and not just from you but the public in general which is why it' s sounds so complicated. Lets start with the four types of money issued in the United States:

1. **Coins** - physical money created and issued by the U.S. Treasury and sold at face value to the Federal Reserve, which books coins as an asset on its balance sheet. Unlike the other three forms of money I will outline in this answer, coins are issued without any corresponding debt attached to them. Coins are legal tender, meaning that they can be used to pay, "all debts, public charges, taxes, and dues." 31 U.S.C. § 5103.
2. **Cash** - aka, Federal Reserve Notes, is physical money issued by the Federal Reserve (though created by the Treasury's Bureau of Engraving and Printing at the Fed's instruction) and sold by the Fed at face value to commercial banks, which pay for cash using their reserve accounts at the Fed, which get debited in the amount of cash obtained. Cash is one of two liabilities on the Federal Reserve's balance sheet, and an obligation of the U.S. government. Cash is legal tender, meaning it can be used to pay, "all debts, public charges, taxes, and dues." 31 U.S.C. § 5103.
3. **Reserves** - this is electronic money created and issued by the Federal Reserve in exchange for U.S. government bonds and bills, that is, IOUs from the U.S. government. Reserves are the second liability on the Federal Reserve's balance sheet, but reserves are assets to commercial banks and other entities that bank with the Fed, including the U.S. government and foreign central banks. Reserves, that is, Fed liabilities or IOUs, are money only for these entities, and exist only as the result of government debt. The amount of reserves in the system is controlled by the Federal Reserve, which increases reserves by buying government bonds or agency mortgage-backed securities and decreases reserves by selling government bonds or agency mortgage-backed securities. Reserves are not legal tender.
4. **Bank money** - this electronic money created and issued by commercial banks in exchange for debt, public or private, taken by borrowers from the bank, whose electronic accounts at the bank are credited in the amount of their new loan. Bank money is a liability to commercial banks but is an asset to non-bank entities who bank at commercial banks, including people, non-financial businesses, non-bank financial businesses, and governments...bank money, that is, a commercial bank liability or IOU is money for these entities. The amount of bank money in the system is controlled by commercial banks, which increase bank money bu buying debt, crediting bank accounts in exchange for loan paper, and decrease bank money by not issuing new debt as old debt gets paid off. Bank money is not legal tender.

I think what is confusing and it was even for me, is all the discussion that we hear in the media, but none of the clarification. That discussion is on **reserves**. Reserves function as money for commercial banks, which have accounts at the Fed, but do not function as money for ordinary people and non-bank businesses, who do not have accounts at the Fed. For ordinary people and non-bank businesses, money isn't reserves, it's bank money. Cash is an altogether different animal for the purposes of this discussion, which pertains to digital money only. But the Fed cannot and does not create bank money. Commercial banks create bank money.

For commercial banks, reserves are asset-money, and bank money, that is, ordinary checking and savings accounts, is liability money. Makes sense so far?

So when the Fed buys assets from a commercial bank or the U.S. government, it creates new reserves and credits in the bank's or the government's Fed account in the amount of those new reserves, and the seller transfer the asset to the Fed in exchange. The key takeaway here is that this simple two-party transaction structure results in an increase in reserves, *but no net increase in bank money*. The reason there is no change in bank money under the Fed's normal asset purchase route is that there is no non-bank entity, and thus no bank money, involved in the transaction, which is simply a two-party transaction between the Fed and a Fed account holder, a commercial bank or the government, conducted entirely in reserves.

With all that said, the traditional two-party asset purchase structure was recently abandoned by the Fed in February of 2020, however, replaced by a three-party asset purchase structure of getting public money into private hands. Since then what we have been seeing is the lockstep increase in both reserves *and* bank money.


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