Sunday, May 10, 2009

"The Fed now has a very large and very risky balance sheet and it must rely on the Treasury for a potential bailout and recapitalization," so writes Tyler Cowen writes in the New York times, June 9.
This is not true. The Fed balance sheet is simply an accounting device that never needs to balance. No one worries when the Fed buys Treasury bonds to affect bank reserves, and no one needs worry if it buys other bank assets or whatever. Being a professor of economics is no guarantee of economic literacy stuck in historic myth.

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