Quote from: johnyj on May 04, 2013, 05:47:09 PM

Quote from: kjj on May 04, 2013, 04:04:40 PM

Except that your chart is nonsense.

In your view, the stuff that is not used as money is money, while the stuff that is used as money is not money. If we agreed to accept your contorted view, you would be right, but then there would be no point in the discussion, because no one gives a fuck about not-money.

Your chart also suffers from the flaw that you are reading it from the top to the bottom, when reality happens from the bottom up. Lending happens first. Reserves are found later, usually by borrowing against the new note.

Money creation is not a secret, just there are two different types. I'm more interested in the central bank money, but other people might be interested in checkbook money, check http://en.wikipedia.org/wiki/Money_creation

FRB is the practice of creating checkbook money, but if FRB is not allowed, then there will be no checkbook money, but there will still be central bank money. and if central bank money is not available, the checkbook money can not increase if commercial banks already loaned out to maximum

FED is buying 85 billion USD bonds and MBS monthly, that money is not generated by FRB, and that is the money might create 850 billion of checkbook money if loaned out by commercial banks later

Look at your chart again. They money that you are talking about is not used as money. It is checking accounts in the fed's computer, which is only useful when a bank writes a check to another bank. A bank can't go to the fed and ask the teller for a cash withdrawal from your reserve account.* If you took away everything else, there would be nothing. Literally every dollar actually used for commerce is outside of that box.

I don't know how much more plainly I can say it. The stuff that you consider to be money is not, in reality, used as money.

Also, you are still clinging to the mistaken notion that the fed needs to make money first, so that commercial banks can multiply it. That is still nonsense. Banks makes loans first, and then buy or borrow reserves from the fed. Not only is this obvious once you understand how the system works, it has also been observed empirically.

* Yes, I know, trucks full of cash actually do drive around the country dropping off and picking up. First, that is a pittance, relatively speaking. And second, cash is just a token used to transfer the real money around. (If you took away the cash, the system would be fine, but if you took away the system, the cash would be worthless.)