I understand how the Fed controls the Fed Funds Rate and I understand that injecting money into the system eases credit woes. However, if the Federal Reserve provides banks with more money, how does that money get translated into money in the money supply? Loans are only temporary, but the money supply increases consistently from year to year?
I understand how open market operations work, but what i don’t understand is how it contributes to the money supply. Money held at banks is not part of the money supply, so i don’t see how OMO’s can permanently increase the money supply.

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Asian markets plunged Friday after the sovereign wealth fund of Dubai requested an extension on billions of dollars worth of debt payments, sparking widespread credit concerns that spilled over to world markets.

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