During the Katrina aftermath the federal government spent many billions of dollars more than previously planned. This can be seen in bill versus bond spread. No extra money needed to be borrowed. The excess liquidity was soaked up by raising the Fed Funds rate instead of taxing or borrowing.
The feds do not need to borrow money except to regulate the supply of money. If the money supply is increasing too slowly the government can 1. Buy back Federal obligations with newly created money, 2. Lower bank reserve requirements (doesn't work as well as it used to), 3.Reduce taxes, or, 4. send out checks. All of these things work the same way. Macroeconomically there is no difference amongst them.
The system works in reverse to lower money supply growth.
The Feds can bail out a $1.5 Trillion loss with a mere click of the fingers. Just write a check. The banks will cash it. The banks will be paid back by a big bunch of brand new Franklins (or equal). If the net effect is inflationary or deflationary see above.
Not quite as simple as I make it seem, but only in detail.
This will seem kind of strange, but money is the same thing as credit.
This will seem kind of strange, but money is the same thing as credit.
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This may seem kind of strange, but REAL money is not quite the same as credit. A paper dollar with nothing behind it is another matter.