Question about Federal Reserve

[apc3161]

I'm trying to learn more about the federal reserve. I'm looking for a real pro to help me out here.

1) Does anyone know of a good book that explains in detail how the fed works
2) Can anyone link to me to some good peer reviewed articles say from google scholar that explain how the fed work.

My main question involved the open market operations. When the fed buys these securities, thereby sending dollars out into the economy, where did they get these dollars? I always read "and the sellers account at the fed gets credited with X amount of money..."

My question is where did this money come from? Is the fed actually using its own money to by these securities, or is it quite literally just crediting the accounts because they are allowed to. Are they really just "creating" money out of thin air when they do this?

If anyone knows a lot about this, I would be most grateful. Thanks

apc

[Brutus]

The money didn't exist before. Murray Rothbard has several (free via PDF) books on the Federal Reserve. Look at Mises.org.

[noxagol]

They do create money out of thin air. They get their cotton paper and fire up the presses and once the process is done, poof, new money. The whole process of bonds and securities is just smoke and mirrors to confuse people and to track who got how much free money.

[Bradley in DC]

For work more substantive for what you're looking for, search for articles, etc., by Walker Todd or Michael Bordo is another good one. Rothbard is more philosophical and not really pertinent here. Also, I'm not sure if he gets into what you're looking for but Jerry O'Driscoll is one of us and a former Fed guy.

The SF Fed runs a database of literature called FRED that has lots of good resources.

[Kingfisher]

"The Creature from Jekyl Island " by Griffith is an excellent history of the Federal Reserve and a lot more. Highly recommended.

[Bradley in DC]

About the ESF:

http://www.clevelandfed.org/Research/commentary/1999/1201.pdf

Good sites:

The Committee for Monetary Research and Education
http://cmre.org/

The Foundation for the Advancement of Monetary Education
http://fame.org/

Must read:
Walker Todd, "Disorderly Markets: The Law, History, and Economics of the Exchange Stabilization Fund and U.S. Foreign Exchange Market Intervention," in Research in Financial Services: Private and Public Policy, ed. George Kaufman, vol. 4 (Greenwich, Conn.: Jai, 1992)

http://www.house.gov/jec/fed/fed/esf.htm

An insider's view of the political economy of the too big to fail doctrine
http://ideas.repec.org/p/fip/fedcwp/9017.html

http://www.fmcenter.org/atf/cf/%7BDFBB2772-F5C5-4DFE-B310-D82A61944339%7D/FOMCalert_NovDec98.pdf

http://www.cato.org/pubs/pas/pa-243.html

[Channing]

They do create money out of thin air. They get their cotton paper and fire up the presses and once the process is done, poof, new money. The whole process of bonds and securities is just smoke and mirrors to confuse people and to track who got how much free money.

They don't even need to print the money. They just type in the numbers in a computer.

[fsk]

I consider my blog to be a good resource.

I wouldn't expect a mainstream economics professor to give a good critique of the Federal Reserve. Who pays economics professors? The government! That isn't exactly unbiased research.

[apc3161]

Ok I plan to read this stuff later tonight, but is the conclusion pretty much this? :

When the Fed credits someone for the securities they recently bought (thus increasing the money supply by purchasing government securities and sending out dollars), they just credit their account by clicking a button? Did they just give them money they magically created in their account, or does the fed have "reserves" from which they took money to credit the account.

In one case, the Fed is using its own money to pay for the reserves, in the other, it is simply paying them with money it decided to create just because it wanted to, big difference.