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I took money out of a mutual fund and put it into my checking account. Come to think of it, that's what has happened to a few billion mutual fund dollars since mid '07. Let's see:

11/07 stock funds posted an outflow of 10.89 billion

1/08 stock funds posted an outflow of 44 billion.

2/08 stock funds posted an outflow of 9.5 billion.

Just think of the bloated money stock on these.

I took money out of a mutual fund and put it into my checking account.

Yes, but you did not create the short term cash in order to liquidate your stock portfolio. The Federal Reserve did.

Your problem is that in that joy to be a smarmy jerk like Toddster you overlook simple fundamental facts, like the fact that short term money equivalents, unlike credit, are not created out of thin air but genuinely reflect short term cash created by the Federal Reserve.

There is a wealth of economics literature on the subject if you need to go educate yourself on it. You can start with the Federal Reserve itself.

You see, if the federal reserve did not create the liquidity for the system, you could and everyone else could not liquidate stock portofolios at ever increasing valuations because one liquidation would decrease the amount of short term cash available for the next liquidation. There is only so much money to go around, unless Bernanke stays as busy as he has been and creates more of it.

BTW I know of no serious economist or member of the federal reserve board or economist at the federal reserve who argues that the federal reserve does not create short term money. The argument is not about whether they do, but whether they should, and whether they should be creating moral hazard by liquidating the excesses of the banking system.

It is a fine measure of demand for stocks by retail investors, but has exactly nothing to do with the money supply. Every dollar sent to a mutual fund and used to buy stocks, bought those stocks from someone who already owned them, and every time a mutual fund sells stocks, someone pays them the dollars they give their investor as they cash out. Same stocks and same dollars before and after, either way. Just in different hands. Trade in existing securities (including FRNs) does not change the quantity of the items traded, in existence.

The amount of stock in existence rises from IPOs and options issuance to insiders, and declines from share buybacks and cash takeover offers. The amount of dollars in existence changes when dollar banks make loans, or retire assets without making new loans to match (a net positive cash flow toward banks). The amount of FRNs in existence changes when customers want more physical notes and fewer deposits or vice versa. No other process changes the quantities of these things in existence, they only shift around who holds how much of which type.