Grandma Bernanke’s Flour Canister

I hate comparisons between household budgets and Government budgets. Things which work in the micro-economic environment fail in the macro-economic environment, often because of the Fallacy of Composition. But this scenario is so cute I’ll make an exception.

Grandpa earned the money and paid the bills, but somehow, perhaps by skimming the grocery money, grandma always had a couple of dollars nobody knew she had. When she’d give you a dollar for that water pistol which caught your eye at the candy store [that’s New York’s precursor to the convenience store, it didn’t only sell candy] it usually had a fine white dust clinging to it.

You got your water pistol, grandma was delighted, and grandpa was non the wiser.

Fed Chairman Bernanke has a Flour Canister with about $900 billion of Treasury bills bought by the Federal Reserve Bank in two rounds of Quantitative Easing.

QE1 and QE2, as the press named these policies, used a tried and true method of infusing the economy with liquidity to offset the de-leveraging of the economy following the collapse of the housing bubble. It is one way the Fed can create money to replace that lost to the unwinding of credit instruments following a boom. Mehanically it is done by creating deposits on account with the Federal Reserve for major financial institutions who sell the bonds to the Fed.

Now, listed among the creditors to the U.S. Treasury is the U.S. Federal Reserve Bank.

So Timothy Geithner is Grandpa, making money and paying bills, and Ben Bernanke [sorry Ben] is Grandma who can slip little Barack a dusty T-bill or two if he needs a little leeway. Selling that T-Bill to an investor can bring in needed money, if the Congress fails to come through.

But don’t be fooled for one minute. The fact that Grandpa never knew Grandma hid the money does NOT impact the math.

Grandma, Grandpa, and in this case the United States of America, is poorer by the amount which Grandma removes from the Flour Canister to put in the hands of the Candy Store man.

This entry was posted in America, Economics & Finance, Scarce Facts and tagged , , . Bookmark the permalink.

1 Response to Grandma Bernanke’s Flour Canister

  1. Pingback: Grandma | participle

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