[skybrian]

The word you want is "loan." The Fed makes loans, not grants. Maybe you have this confused with the stimulus bills Congress has been passing?

There is also no direct connection to taxes, since the Fed creates any money it needs.

[slv77]

US productivity increases at roughly 2% per year. With a stable money supply prices would on average decrease by roughly 2% per year. The Federal Reserve has a target inflation rate of 2% per year.

In the best case the Fed would need to hold interest rates a 4%+ per year to compensate dollar holders for the loss of purchasing power. Prior to 2008 those benefits used to accrue directly to the government. The Federal Reserve purchased only Treasury bonds which would lower overall market rates for government bonds. In addition any bonds held by the Fed were effectively interest free as interest was returned to the Treasury.

In 2008 the Fed started to purchase mortgage bonds and other assets and later started to pay interest directly to banks. This is a direct transfer of purchasing power from dollar holders to homeowners and banks.

In this case look at the alternative if the Federal Reserve didn’t allocate those loans. The airline would go to court and file bankruptcy and losses would be allocated to equity holders and creditors. Those losses don’t magically go away because it isn’t easy to see who the losers are.

[neilwilson]

You’re assuming a fixed amount of stuff and that the system is running at maximum capacity.

If there is any unemployment in the system it isn’t. It is systemically supressed. (There is insufficient spending in the right areas to employ everybody. Largely from the people that would otherwise be employed).

What you are describing is the “full employment fallacy”.

We’re demonstrably not at full employment. Which is when Everybody who wants a living wage job has one. Only then does what you say hold true.

And that’s because Interest Rate Targeting doesn’t work. If the Fed was required to hire everybody who couldn’t find another job they wanted then we’d be in the position you describe.

We’d also have an empirical test of how well Interest Rate targeting works

[Consultant32452]

Deflating the value of my dollars by increasing the money supply is no different than taking money right out of my pocket.

[skybrian]

It doesn't, or at least not yet. Increasing the money supply might eventually cause inflation, but it's not a mechanical link and doesn't happen automatically. For example, the money might be paid back, and that decreases the money supply again.

Also, for inflation to happen, people will have to try to buy more stuff than what's available, and merchants will have to raise prices. Although we've seen shortages for a few things, that kind of overall spending is unlikely to happen until the recovery phase when people are feeling confident again.

Other than the staggering amounts, it's not really different from any other bank making a large loan.

[Consultant32452]

There's more to inflation than CPI. For example, the entire stock market is being inflated right now with these dollars. We should be experiencing deflation because many classes of assets should be crashing harder than they are. Keeping things steady when they should be deflating is still taking my money through inflationary forces.

[skybrian]

There aren't many people who benefit from a stock market crash, which is why the Fed is propping things up. I happen to have money to invest when the price is low enough, but that's unusual, and complaining about not having that opportunity (yet) would be "world's smallest violin" territory.

An opportunity cost is not a real cost. There are always missed opportunities.

[Consultant32452]

Stocks are not the only thing that would be falling rapidly. Real estate is another. What's happening here is that the Fed is making sure that the people who are rich and powerful stay rich and powerful. Otherwise, why not let average people get functionally infinite loans at zero interest? Why can a bank/corporation sell their depressed assets to the Fed at before crash prices but I can't? Every privilege given to incumbent wealth is a middle finger to the average worker.

[hansvm]

That's kind of the point of inflation though, isn't it? If you accept that money exists to facilitate trade and improve on the barter system (not necessarily a reasonable assumption, especially since money is flexible enough that it could very well serve other purposes if we wanted and allowed it to), then it's a bit odd to let it hold its value in perpetuity because the delayed nature of such transactions no longer represents the barter system that money was meant to replace.

As a simplified example, suppose that 1 duck is generally worth 2 chickens and that monetary prices reflect this (e.g. ducks are worth $10 and chickens $5). I sell you a duck for $10. Time goes on, and the relative values swap -- ducks are worth $5, and chickens are worth $10. I buy two ducks from you for $10. Those two _monetary_ transactions if compressed in time into the bartering that money was meant to replace would represent me trading one of my ducks for two of yours, which assuming no other hidden variables is an unrealistic trade that would never happen.

The relative values of goods shift constantly, and arguably a dollar yesterday really isn't conceptually the same thing as a dollar today -- even though they can both be represented with the same slip of paper. Inflation is one strategy to align money more closely with its role as a medium of exchange.

standard disclaimers -- opinions are my own not my employer's, I'm not a lawyer, I'm not an economist, the above is a simplified model and blatantly ignores huge swathes of fiscal policy, ....

[GaryNumanVevo]

sure, it's a loan, then if we're (the tax payers) are paying 50$ Billion to bail out Boeing, then it should be owned by the government.