Quote from: jtimon on August 21, 2011, 09:27:59 AM

In my understanding, when the fed buys 1B in bonds, the government then spends this 1B in bonds and the money enters the economy.
The bonds are the "reserve" for those 1B.
When the fed lends to commercial banks 10B, the "reserve" is an IOU from commercial banks stating "IOU 10B plus interest". But if the inflation is equal to the nominal interest, then the real interest is zero.
The fed doesn't use fractional reserve, because all its "reserves" are always debt .
You talk like if creating price inflation was a hard thing to do, but is the simplest thing in the world. Is the government of zimbawe made of geniuses because they reach hyperinflation?
No.
M * V = P * Q
You increase M, P will increase. Period.
Creating price inflation is just as easy as print (creating monetary inflation).

Jjtimon, You are right. The Fed does not practice fractional reserve banking (the Ten to one stuff). Instead, they loan to banks who are allowed to practice Fractional reserve banking.

Now regarding the Fed directly buying stocks... Very bad idea. The last thing we need is a front organization for the private banking cartel creating money to purchase parts of other companies.

Even if you subscribed to the idea that the Federal Reserve is a government run institution (which it is not - it is sort of a hybrid-ish monster), it would still be a bad idea for government to buy up parts of companies. This would be a defacto move from socialism on the part of government.

Since the Fed is actually a government protected private organization (see The Creature from Jekyll Island book), this would be akin to a fascist (state controlled expansion and control of industry) move in US government policy. This is a road that may have small "advantages" early on, but has grave consequences if pursued to its ends.