High-Powered Money

High-powered money, also known as the “monetary base,” is the total amount of money the public...and Federal Reserve Banks...have.

Basically, all the money.

So what makes money “high-powered,” you ask? What’s it’s superpower...besides being able to buy just about anything?

The Federal Reserve controls the money supply by setting monetary policy, as central banks are wont to do. Money that flows from the coffers of the Fed and into the public and Reserve Banks is high-powered because of the money multiplier effect.

High-powered money ripples through the economy, like it's been given a big ol' shot of espresso.

When money is pumped into the banking system and out into the public, the act of lending and borrowing kind of “creates” new money through a ripple effect. For instance, a bank lends you money, which you take and spend elsewhere...say, at the deli, and on rent. Then your landlord and the deli-dude takes that money you paid them to pay for their rent and their lunch, and so on and so on.

Meanwhile, the bank is still getting paid back. Is that money high-powered? We’d say so. Time for some coffee.