Surely you cannot mean that the 4 trillion USD fed rollout means that the US deficit has decreased by 4 trillion ?
But this discussion probably needs moved to another thread.
sidd
It's still relevant, because the Federal Reserve is again pursuing quantitative easing and related measures right now in dramatic fashion. This is a potent tool to fight economic contraction/deflation/contraction of the money supply (these are three facets of a single economic phenomenon).
The Federal Reserve balance sheet is a collection of assets (treasury bonds and now some commercial bond assets). And these are true assets, with a real rate of return--that goes to the Treasury, to help pay for the fiscal budget. This is exactly like a sovereign wealth fund.
So, acquiring these assets doesn't reduce the deficit, it reduces the debt, in real macroeconomic terms.
The Federal Reserve doesn't give money to any entity other than remitting profits to the Treasury. It lends, and it buys. It lends to banks at a policy-derived interest rate, and it buys mostly Treasury bonds at the market rate. In severely troubled times like this and the Great Recession, it can buy other assets. They just announced they will be buying corporate bond ETFs. This isn't some taxpayer giveaway, plenty of normal investors are buying corporate bond ETFs. And the Fed will receive interest payments, which then will be remitted to the Treasury.
In effect, when the Treasury sells a trillion dollars of bonds to the market, and the Fed buy a trillion dollars of Treasury bonds from the open market, then the government has just printed a trillion dollars to pay for a trillion dollars in spending.
This sounds terribly reckless, a prescription for hyperinflation. But it's not. Most of the money in circulation in the economy never was created by the Fed, nor the Mint, nor the Treasury. Most money gets created in the process of credit/debt, borrowing/lending. This majority component of circulating money is inherently unstable in amount. In a recession, borrowing and lending stops, and the money supply contracts, creating deeper recession, further suppression of borrowing and lending, causing further contraction of the money supply. Positive feedback is present. There's also positive feedback in the other direction with inflation.
The macroeconomic system is thus dominated by positive feedbacks. Systems dominated by positive feedbacks display oscillations. In macroeconomics, the inevitable oscillations from these positive feedbacks are called "the business cycle."
Deflation is deeply destructive, and high inflation is also bad. The oscillations can really only be effectively tamped by actions of the Federal Reserve. Essentially it's entire function is to be the economy's thermostat.
These ideas are part of the foundation of Modern Monetary Theory. We could do a lot of progressive good by gradually replacing much of the credit/debt-based circulating money with government-issued money. Doing so could go far in eliminating the positive feedback cycles that produce the instability and oscillations that plague economies. It can also fund massive amounts of federal spending without causing inflation.
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