The primary function of the Federal Reserve’s monetary policy during an economic crisis is to pacify the crisis by increasing the flow of money in the market. The Federal Reserve’s financial reserve is inexhaustible and it cannot become insolvent, making it the ideal anchor in troubled financial seas. However, the Federal Reserve does not issue blank checks – all lending must be repaid.
first tuesday take: A broker or agent with a curiosity about the reason for the Federal Reserve and its dominate role in the nation’s and world’s monetary policy would do well to read this focused and instructive short article on the silent lender of last resort, established just before WWI.
Re: “Bagehot on the Financial Crisis of 1825…and 2008,” from the Federal Reserve Bank of St. Louis