The Federal Reserve is America's Central Bank
By John Lawrence
The Fed doesn't actually "print" money in the sense of ink on paper hundred dollar bills. But what it can do is create money with a few keystrokes on a computer.
Money so created is called "fiat money" since it's not backed by gold or anything else. The Fed currently prints the money to purchase $40 billion in mortgage backed securities and $45 billion in government bonds each month. The rationale for doing this is that it keeps interest rates low which is thought to be necessary to keep the economy humming.
Before the financial crisis of 2008-09, the Fed managed to keep interest rates low by adjusting the interest rate at which banks borrow overnight. But after the financial crisis, the Fed needed a more robust policy which is called Quantitative Easing or QE. This policy is mainly a giveaway to the big Wall Street banks to augment their reserves. The lack of sufficient reserves is thought to have been the problem that caused the financial crisis.
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