The Fed has two ways of controlling how new money gets into the economy:
1) Controlling the FFR (Federal Funds Rate). When the rate goes up, fewer entities want new loans (debt), and the new money from new loans reduces. Existing debt is also getting paid off as time goes on - which destroys money, so that also adds to the size of the money supply.
2) QE (Quantitative Easing) - the Fed directly creates new money when it buys assets from commercial entities, using banks as the intermediary. These assets are typically toxic and of little value, but the Fed buys them at face value, pretending they are AAA rated paper. There hasn't been much QE going on lately.
Hope this helps...
So the fed both in terms of interest rates and buying assets is injecting tons of money into the economy, ie increasing the money supply, right?
So how does that stack up with your assertion that...
“the monetary system is in danger of slipping into deflation”?