4 ms·

We might be able to handle deflation, but the fed can not. That would cause them to default on their loans. They are already dangerously close to this happening

• AnimalMuppet 2y ago
  The Fed was never in any danger of defaulting on their loans. (Do they even have loans?) The Fed was worried about everybody else getting wiped out in a deflationary spiral.
  • AnthonyMouse 2y ago
    The Fed is both a bank and the part of the government that prints federal reserve notes (i.e. dollar bills). If it wants to buy government bonds or something else it will just credit your account (or your bank's account) at the federal reserve bank. The Fed then owes that other bank money, but banks are also required to keep reserves on deposit with the Fed in order to make loans, so they generally don't ask for the money, and when they do they generally don't actually want dollar bills, they want to transfer the money to a different bank, and then the Fed would just credit that bank's account. Occasionally other banks actually do want printed currency (e.g. to fill their ATMs), so then the Fed debits their account and gives them physical cash it has printed. The Fed is never in any danger of defaulting. If you want to transfer money it owes you to another bank, they're just changing the numbers in their computer. If you want it as cash, they're the thing that prints the cash. The only reason it can't just create an unlimited amount of money to use for whatever the government wants is that creating money causes inflation.