public debt as of last year, with the Fed only owning 14% of it, according to the Government Accountability Office. Such foreign and domestic investors owned most U.S. Treasury securities – government debt that is bought by investors who earn interest on it. Much of that money comes from issuing U.S. Separately, Congress recently has passed massive spending bills that have swollen the national debt by about $2.4 trillion to help businesses and taxpayers. “The markets would have crashed 10 times over.” If the Fed didn’t take these and other emergency measures, “the system already would have blown up,” said Tim Duy, an economist at the University of Oregon who previously worked in the U.S. This keeps borrowing costs cheap for those who need it. Such big purchases of securities by the Fed also effectively increase the money supply and drive down interest rates. Banks get more dollars in reserve and are more prone to lend money without worrying about exhausting their funds because of a run on the bank in a time of panic.

Fed Chair Jerome Powell said at a recent news conference that these purchases have helped market conditions improve 'substantially' in recent weeks.Īs a result, markets that had stopped working smoothly started to flow again. Without these and the Fed's other emergency measures, the economy would have crashed already, experts say. The strategy also makes credit easier to obtain, with a bigger money supply and lower interest rates.

The Fed's goal: to keep markets functioning after they had seized up in fear. “All the Fed does is literally credit them.

“The way you and I have checking accounts in our banks, that’s how all these other banks have accounts at the Fed,” said Pavlina Tcherneva, an economist at Bard College in New York. By the end of the year, the Fed is projected to have purchased $3.5 trillion in government securities with these newly created dollars, one of many tools it is using to help prop up the ailing economy during the COVID-19 pandemic, according to Oxford Economics. With a few strokes on a computer, the Federal Reserve can create dollars out of nothing, virtually 'printing' money and injecting it into the commercial banking system, much like an electronic deposit. In its frantic scramble to save the American economy, the central bank of the United States seems to have the ultimate superpower.

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