How much does the Fed create money out of "thin air" per year? $200 billions??

Question

I assume that United States Federal Reserve System controls money supply by creating money. But how much per year? I don't see this info in government fiscal budget. Something like $200 billions = 2% of GDP?? (I guessed this number based on inflation rate).

Answer 1

Let's answer it in two ways:

1) Physical currency - In 2006, the BOE printed 33 million notes a day with a face value of approximately $529 million which were distributed by the Federal Reserve. 95% of the notes printed are used to replace worn-out notes. Last year about 55% pf the notes printed were $1 bills which have a useful life of about 18 months.
ref: http://www.moneyfactory.gov/document.cfm/18/106

2) Increase on the base money supply - In the last 12 months, the Fed has increased the base money supply M0 by about $24B with thin air money (See http://www.zentralbank.us/releases/h41/Current/ ).

Each M0 dollar tends to increase M1 by 1.4 dollars, and M2 by 9 dollars.

Your $200B number? You can break that down to $24B created by the Fed with "thin air" money, and $180B created by subsequent deposits and lending (if you're not sure how this works, read up on the Deposit Multiplier)

Answer 2

http://www.federalreserve.gov/releases/h6/Current/

This is the statistical release. It is not part of the Federal budget, you may be thinking of seignorage. That is Federal Revenue. In the United States, money is actually backed by the loans in the banking system. As long as citizens pay back their dollar denominated loans, the paper money is good. The Fed really doesn't "create" money, the market demands it and permits credit to be extended. It does create "reserves." These reserves are the basis of cash money and the money supply. It does so by buying Treasury securities and offsetting them with reserves.

A long time ago, it was thought that the banking system did this, but it is generally recognized that money is created by the interaction of the banking system and the needs of industry. Shifting GDP requires either more reserves or a change in the velocity of money.

Answer 3

Anything you could possibly want to know about them

http://money.howstuffworks.com/fed.htm