4 ms·
The fed did not "spend" anything. There are three things to remember here: * The Fed creates money * The money supply has shrunk greatly, so the Fed needs to
by cynicalkane 16y ago
The fed did not "spend" anything. There are three things to remember here:
* The Fed creates money
* The money supply has shrunk greatly, so the Fed needs to create money anyway
* The money is not given out, but traded for Treasury securities
Saying the Fed spent money on banks suggests a fundamental ignorance on how these things work. If anything, the Fed spent money of the government, but that viewpoint is not accurate either, only less ignorant.
- marcamillion 16y agoHrmm...so when the Fed creates money, is it not 'spent' ? Yes. Why? Because there is a bill somewhere. It might be directly on the taxpayer like when the Treasury spends it, but it is on everybody else that holds and uses US Dollar assets - by way of inflation. So yes, they did "spend". The money was technically given out - because they essentially purchased securities (not just Treasuries, but commercial paper, Mortgaged Backed paper, Gold, etc.) at significant losses to themselves in the short term - so that the banks can shore up their balance sheets. My broader point was that the US Treasury could spend only $700B, because the Fed was there to further capitalize the banks. If you want to go ahead and be a grammar natzi, then feel free. But at the end of the day, the financial institutions were given approx $2.5T cash - in exchange for a variety of things (some securities on their balance sheets, to warrants for their own common & preferred stocks). Although the Fed can create money out of thin air, the notion that it isn't spent (i.e. it has no cost to anyone) is a misguided notion because it typically has a greater cost to everyone than the Treasury doing so.