The Credit Pyramid: From Fed Reserves to Your Bank Balance
Many think the Fed physically prints paper bills. In reality, most money is created by commercial banks when they issue loans. This is called 'Fractional Reserve Banking'.
Fed Reserves (Monetary Base)
The 'raw' money created by the Fed. This is the foundation of the entire financial pyramid.
Money Multiplier (Bank Credit)
When you deposit $100, the bank lends $90 to someone else. Suddenly, there's $190 in the system. This is how money 'multiplies'.
Core Question: 'Is the banking system currently expanding credit (lending) or tightening credit?'