>
> (email exchange)
>
> On Mon, Sep 14, 2009 at 10:45 AM, wrote:
>
> By the way, you didn’t hear NPR this morning, but there was the usual hagiography
> about how the Fed averted a Great Depression last year because it “created”
> trillions of dollar to support the banking system.
>
> But my understanding is that ONLY the Treasury creates money and the Fed simply
> tries not very successful) to determine a price for the money that is created by
> TSY.
>
> When you look at it this way, the narrative changes considerably.
>
Yes!
The Fed did loan to banks and act as broker of last resort between banks who had Fed funds and banks who needed them, but that should always be done in the normal course of business.
So I do give them credit for figuring out how to do what they were charged to do from inception in 1913, since Bernanke et al had to play the cards they were dealt.
But even now they haven’t figured out they should just trade Fed funds in unlimited quantities with member banks, at their target rate, and instead use an alphabet soup of programs to get that done indirectly.
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