Do you know how money is really created by the Fed?

I was reading an article today in Politico about Thomas Hoenig. Hoenig was the president of the Federal Reserve Bank in Kansas City retiring in 2010.

The article is about how Thomas Hoenig knew what quantitative easing and record-low interest rates would bring.

What I found the most interesting, is it gives the best description to understand how money is created today by the Fed.

Here is the direct quote from the article:

"The basic mechanics and goals of quantitative easing are pretty simple. The goal is to pump massive amounts of cash into the banking system at the very moment when there is almost no incentive for banks to save the money, because rates are so low. (When rates are low, banks don’t earn much from saving cash because the cash earns meager interest.) The Fed creates the money as it always has, by using its own team of financial traders who work at the Fed’s regional bank in New York.

These traders buy and sell assets from a select group of 24 financial firms called “primary dealers,” an ultra-exclusive club that includes the likes of JPMorgan Chase and Goldman Sachs. The primary dealers have special bank vaults at the Fed, called reserve accounts. To execute quantitative easing, a trader at the New York Fed would call up one of the primary dealers, like JPMorgan Chase, and offer to buy $8 billion worth of Treasury bonds from the bank. JPMorgan would sell the Treasury bonds to the Fed trader. Then the Fed trader would hit a few keys and tell the Morgan banker to look inside their reserve account. Voila. The Fed had instantly created $8 billion out of thin air, in the reserve account, to complete the purchase."

This started after the 2008 crash with pumping $600 billion into the economy and today Jerome Powell uses the same concepts to pump trillions.

I run in a pretty conservative group of people. Most of my friends that have made quite a bit of money over time are very conservative.

There is a lot of conversation about how housing prices are going to keep climbing into 2022. Most are predicting it will not rise as much as 2021, but with the millennials and the supposed short supply of housing inventory, we should expect at least a high single digit increase.

Rate rises are coming, this will decrease affordability, which will decrease buying power. Decreased buying power will decrease record high prices.

It's pretty simple actually and everyone will guess at when this will start.

The article is really good and I strongly suggest you read it. It can be found at this link.