1

Barter
Commodity
money

Money accepted
by law

THIS NOTE IS LEGAL TENDER

FOR ALL DEBTS, PUBLIC AND PRIVATE

Federal
FederalReserve
ReserveBank
Bank
ofofRichmond
Richmond

Have you ever stopped

to examine the
features of a dollar
bill?

Treasurer of the United States

Number refers to
5th district; also
corresponds to
the letter E

Secretary of the Treasury

4

the pyramid a
symbol of material
strength and
endurance

the
American
bald eagle

The Great Seal of the United States

ANNUIT COEPTIS - He has favored our undertakings

What does the eye

inside the triangle
represent?
Why is the pyramid
unfinished?

NOVUS ORDO SECLORUM

A New Order of the Ages

Out of Many, ONE

the
theformer
former13
13
colonies
colonies

The
TheExecutive
ExecutiveBranch
Branch

The
TheLegislative
LegislativeBranch
Branch
The
TheJudiciary
Judiciary
Branch
Branch
PEACE and WAR
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 Medium of exchange
Store of value
Unit of account

Liquidity
property of

 M1 : transactions money
M2 : broad money
or near monies
M3 : large-denomination money

Transactions money
M1 =
+
+
+

currency in circulation
demand deposits
travelers checks
other checkable
deposits
10

Near Monies
M2 =
+
+
+
+

M1
savings accounts
time deposits (< $100,000)
money market accounts
repurchase agreements
(<$100,000)
11

M3 =
+
+
+

M2
time deposits
(>$100,000)
repurchase agreements
(>$100,100)
Eurodollars

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Commercial banks
Savings and loan associations
Life insurance companies
Pension funds

13

Fractional reserve banking system

Reserves
Legal reserve requirement
Excess reserves
Loans

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Illustration of money creation

Assume 20% legal reserve requirement
Suppose Nina deposits $1,000 in her checking account at Citibank.

T-account of Citibank:
______Assets________________Liabilities____________
Reserves
Loans

$200
800

Demand deposits

$1,000

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Kevin borrows $800 from Citibank, and buys a computer at

CompUSA.
CompUSA deposits Kevins check at Fleet Bank.

Fleet Banks T-account:

_____Assets________________Liabilities_____________
Reserves
$160
Demand Deposits
$800
Loans
640

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Vivian borrows $640 from Fleet Bank and buys a new TV set at
Sears department store.
Sears deposits Vivians check at Bank of New York.

T-account of Bank of New York:

______Assets____________________Liabilities_______
Reserves
$128
Demand deposits
$640
Loans
512

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Total demand deposits after lending

and re-lending by banks
Banks
Citibank
Fleet
Bank of New York

+ other banks

Demand Deposits
$1,000
800
640

+ additional deposits
___________
= $ 5,000 Total
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Money multiplier (m) = 1 / required reserve ratio

= 1 / .20
= 5
Total demand deposits (M) = m x initial deposit
$5,000

= 5 x $1,000
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