Alexander, the Fed's operation (and the operation of central banks in general) is a little obscure, but it's not entirely incomprehensible. The Fed puts money into circulation by buying Treasury securities. It takes money out of circulation by selling Treasury securities. It has a somewhat obscure official ownership structure, but all the profits go back to the Treasury.
The Fed can cause trouble (i.e. inflation) by buying too much of the national debt and putting too much money in circulation. It can also cause trouble by selling too much of the national debt, leading to a lack of liquidity, although that hasn't often been a problem historically.
The Fed holds something like 10% of the national debt. A significant part, but not an overwhelming share. A lot of U.S. Treasury securities are held by foreign countries, too. It's just the way the world works, the dollar is still the primary reserve currency in the world economy. I guess the fed could go back to the gold standard, if it could find $600 billion worth of gold.
Alternatively, you could go over to today's hot thread, Subject 32774, and lobby to get #3 off the list.
Cheers, Dan. |
