0
$\begingroup$

The Constitutional Case for the Fed's Treasury Backstops | Cato @ Liberty writes no, I think? But I don't quite understand the financial terms iike "lever-up", backstop", "helicopter money". I looked up backstop that just states "Support or reinforce".

In short, and speaking generally, the Fed can "lever-up" all it likes without a Treasury backstop. The sole caveat is that, if its losses are so great that the present discounted value of its future net earnings is itself negative, it can lose control of inflation. That could happen were the Fed to disburse "helicopter money" on a grand enough scale, or were it forced by the U.S. Treasury to accept a deposit of several trillion-dollar platinum coins. But it's unlikely to happen otherwise.

But Marketwatch on 27 March 2020 wrote YES.

The Fed is only limited by how much backstop it gets from the Treasury Department.

$\endgroup$
  • $\begingroup$ This question might be better for Economics.SE, since it sounds like it is not so much about whether the law requires a "backstop", but rather about what that term actually means. $\endgroup$ – Nate Eldredge May 9 at 11:14
  • 2
    $\begingroup$ Whether the Treasury “must” backstop the Fed is a legal question. The Economics SE really can only answer the questions about the definitions of the various terms. I think the question to be modified to be closer to “what is the economic effect of there not being a Treasury backstop of the Fed?”, and/or asking for a an explanation of confusing passages. $\endgroup$ – Brian Romanchuk May 9 at 12:56

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy