Politicians, journalists and market participants often refer to quantitative easing as “printing money.” This is because when the Fed buys bonds from banks it does so by crediting those banks’ accounts at the Fed with reserves that didn’t exist before. But it’s misleading to call this process “money printing” because it doesn’t actually do anything to increase the amount of money in circulation. In fact, in our monetary system, most money is created by private banks and not the Federal Reserve. When a bank lends you money on your credit card, that’s “printing” money. When the government buys bonds from banks, it merely raises the price of that particular type of bond and lowers the interest rate. Lower interest rates might encourage consumers to take out loans, but it won’t actually lead to more money in the system unless banks create money through making loans. And banks won’t do that unless they identify profitable lending opportunities.
