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More money: understanding recent changes in the monetary base

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  • William T. Gavin

Abstract

The financial crisis that began in the summer of 2007 took a turn for the worse in September 2008. Until then, Federal Reserve actions taken to improve the functioning financial markets did not affect the monetary base. The unusual lending and purchase of private debt was offset by the sale of Treasury securities so that the total size of the balance sheet of the Fed remained relatively unchanged. In September, however, the Fed stopped selling securities as it made massive purchases of private debt and issued hundreds of billions of dollars in short-term loans. The result was a doubling of the size of the monetary base in the final four months of 2008. This article discusses the details of the programs that the Fed has initiated since the crisis began, shows which programs have grown as the monetary base grew, and discusses some factors that will determine whether this rapid increase in the monetary base will lead to rapid inflation.

Suggested Citation

  • William T. Gavin, 2009. "More money: understanding recent changes in the monetary base," Review, Federal Reserve Bank of St. Louis, vol. 91(Mar), pages 49-60.
    • Handle: RePEc:fip:fedlrv:y:2009:i:mar:p:49-60:n:v.91no.2
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    References listed on IDEAS

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    1. Richard G. Anderson & Robert H. Rasche, 2001. "Retail sweep programs and bank reserves, 1994-1999," Review, Federal Reserve Bank of St. Louis, vol. 83(Jan), pages 51-72.
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    3. Edward J. Stevens, 1993. "Required clearing balances," Economic Review, Federal Reserve Bank of Cleveland, vol. 29(Q IV), pages 2-14.
    4. Daniel L. Thornton, 2009. "The Fed, liquidity, and credit allocation," Review, Federal Reserve Bank of St. Louis, vol. 91(Jan), pages 13-22.
    5. Ruth A. Judson & Richard D. Porter, 1996. "The location of U.S. currency: how much is abroad?," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 82(Oct), pages 883-903, October.
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    Cited by:

    1. Michel Dupuy, 2013. "Households heterogeneity in a global CGE model: Les effets des politiques de Quantitative Easing sur le taux de change : les enseignements de l’expérience américaine," Larefi Working Papers 1302, Larefi, Université Bordeaux 4.
    2. Zbyněk Revenda & Markéta Arltová, 2022. "Akcie, zlato a inflace - vztahy a souvislosti v posledních 25 letech [Stocks, Gold and Inflation - Relationships and Contexts Over the Last 25 Years]," Politická ekonomie, Prague University of Economics and Business, vol. 2022(3), pages 288-311.
    3. Kevin L. Kliesen, 2010. "Inflation may be the next dragon to slay," The Regional Economist, Federal Reserve Bank of St. Louis, issue Jan, pages 4-9.
    4. Zbyněk Revenda, 2009. "Monopoly centrálních bank a emise peněz [Central Bank Monopolies and Money Issuance]," Politická ekonomie, Prague University of Economics and Business, vol. 2009(5), pages 579-600.
    5. José Francisco Bellod Redondo, 2010. "La Crisis Imposible: Tragedia En Tres Actos," Contribuciones a la Economía, Servicios Académicos Intercontinentales SL, issue 2010-03, March.
    6. Cohen, Joseph N & Linton, April, 2010. "The historical relationship between inflation and political rebellion, and what it might teach us about neoliberalism," MPRA Paper 22522, University Library of Munich, Germany.
    7. Zbyněk Revenda, 2016. "Peněžní a úvěrové multiplikátory ve vybraných ekonomikách [Money and Credit Multipliers in Selected Economies]," Politická ekonomie, Prague University of Economics and Business, vol. 2016(5), pages 505-523.
    8. Richard G. Anderson & Charles S. Gascon, 2009. "The commercial paper market, the Fed, and the 2007-2009 financial crisis," Review, Federal Reserve Bank of St. Louis, vol. 91(Nov), pages 589-612.
    9. Lothian, James R., 2009. "U.S. Monetary Policy and the Financial Crisis," The Journal of Economic Asymmetries, Elsevier, vol. 6(3), pages 25-40.
    10. Zbyněk Revenda, 2011. "The Role of Gold in the Monetary System [Role zlata v peněžním systému]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2011(3), pages 47-67.

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    Keywords

    Financial crises; Money supply;

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