If the Fed has $35 billion to help the financial system, why can’t they use some of their money to help the poor?
The Fed isn’t spending the money on bailing out banks, hedge funds, or helping rich people. It is making fully-collateralized loans that will be repaid the next day (or week). So, while it’s putting the funds in today, it’s taking them out almost immediately. If, instead, the Fed were to take $35 billion in $20 dollar bills and go hand them out to the needy, this would be a permanent increase in the quantity of money in circulation. More money in the long run means higher prices – and that’s inflation.
