The fed doesn't print "deficit money". They are forbidden from doing that and even if they did, who is going to spend it? The treasury prints money. Remember w

The fed doesn't print "deficit money". They are forbidden from doing that and even if they did, who is going to spend it? The treasury prints money. Remember when Janet Yelled said she is ready to mint a one trillion USD coin in case it is needed to avoid the debt ceiling. What the Fed does is a duration transformation. Commercial banks can deposit US treasuries at the central bank and receive a claim on those treasures in the form of liquid central bank reserves. This is done because people keep holding more and more short term duration deposits in their checking accounts or at brokerage accounts. Buying a 10 year treasury with deposits that only have a 1 day duration is quite insane. This means that in practice whatever deposits you are keeping in your account are missing from the economy. The US federal government can run a deficit and it can run it regardless of the financing conditions. It will merely pay an exorbitant interest rate if it chooses to do so. Here is a loosely related paper: https://www.elsevier.es/en-revista-investigacion-economica-122-articulo-money-generalized-exchange-a-critical-S0185166715000375 https://www.elsevier.es/en-revista-investigacion-economica-1... In an equilibrium economy, the expected net money supply is always zero, that is, every dollar in the money supply is offset by a dollar in debt. So called inside money. If the neoclassical theory is true, then attempts at extracting seigniorage would immediately be spotted and no inflation could ever occur. The inverse is also true. If the government artificially restricted the money supply, people would find alternative means of providing themselves with the ability to exchange. So the expectation is that the government has zero power or ability to influence the economy with monetary policy. The only reason why it would have the ability to do so, is because it has made those alternatives illegal.