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Read of the Day: Everything you Know About the Fed is Wrong

Really excellent piece here by Mark Dow and Michael Sedacca at MarketWatch.  They get the terminology wrong in the opening paragraph, but you’ll recognize it nonetheless:

“The Fed does not control the money supply; they control base money (or inside money), which is a small fraction of the broader money supply. In our fractional reserve system, the banks (loosely defined) control the other 90% or so of the money supply (a.k.a. outside money). And the banks have not been lending. This is why the money supply has not grown rapidly in response to years now of QE.”

Inside money and outside money are backwards, but no big deal.  The message gets across all the same.  Go have a read.

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