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Heeding the age-old adage, "follow the money," we decided to begin with the most basic kind of currency -- the humble dollar bill. We headed to Yahoo!'s United States Currency category to pick up the trail. From there, it became clear that the Department of Treasury was the responsible government agency. A quick click and we were there. A few more hops and we were happily perusing a fact sheet on U.S. Paper Currency, where we learned the astonishing fact that the Bureau of Engraving and Printing produces 22.5 million bills (from $1 to $100 denominations) every single day. Talk about making money! The
vast majority of these bills -- 95 percent -- replace worn out or damaged currency already in circulation, but the rest are used to "increase the money supply." That last phrase provided a useful clue for further exploration, especially since we couldn't find much more information on the Treasury site. We returned to Yahoo! and launched a search for "money supply," figuring that the term was sufficiently unique to provide good results. Sure enough, the web site matches were on target, and we had several good leads to follow. Here are some of the highlights: William Hummel's "How the Money Supply Grows" is just one of the independent thinker's essays
on money, monetary policy, and investing. Check out "Money and Inflation" for a specific answer to your second question. He says money supply is related to inflation, but not necessarily the cause of it. "The Money Supply" from the Federal Reserve Bank of New York seems to confirm Hummel's notion. It describes the Federal Reserve's increasing skepticism about money supply as an indicator of prices. Just this year, the Fed stopped setting targets for money supply growth since, in their words, it "does not provide a useful benchmark for the conduct of monetary policy." Finally, Quicken.com provides "Money
Supply for Dummies," an easy-to-understand look at what's behind those little green pieces of paper that we all like to carry around.
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