Quote from: hugolp on June 19, 2011, 04:30:33 PM

Quote from: teamdren on June 19, 2011, 04:24:47 PM

I may been unclear. I meant to say that traditionally the Fed buys securities from a bank, and then the bank will use the cash they've received from the Fed to make a loan.

You are very clear. And you have this detail wrong, although it does not change the big picture of what you are saying. Banks lend the money out first and then look for money of the Fed to keep the ratios. So the money is lent first by the banks, and later on the Fed creates the money to cover the operations, not the other way around.

I still don't understand what it has to do with the labor theory of value.

Ah, I see what you're saying. I was referring to the flow of money from the Fed's point of view whereas I think you're speaking from the point of view of the bank. In other words, banks lend out money and then sort of expect the Fed to buy some securities in order to maintain their desired excess reserves.

Obviously you aren't saying that banks create new money and then are reimbursed by the Fed.