There are three levels of money creation in the US since the passage of the Federal Reserve Act of 1913:
- the US Treasury/Federal Reserve level,
- the “fractional reserve” or commercial bank level, and
- the investment bank level.
It is essential to think about all three of these elements of the money CREATION part off the monetary system. When there is a problem with the system we have to think about the causes in terms of which element it originated from, and what we can do at different levels.
We have ceased to keep track of the “whole” money supply because of the opaqueness about money quality that exists due to near-banks and non-money money.
But when we use the term money-creation, we are really talking about nothing but debt-creation. So we have a complex and mostly unregulated group of bankers and non-bankers who are creating debt-based financial instruments, denominated as they are in $USD, and we have given up keeping track of these financial instruments, due to their complexity, a.k.a. innovative qualities .
Right now, Bernanke and Geithner want us to believe that they are going to “regulate” our way out of this situation. The problem is systemic, the result is our present debt pandemic.
