1. The Fed needs to be able to buy back the entire base money supply always, always, always. If it cannot, i.e. the Fed is insolvent, instant hyperinflation is almost certainly the result. (Theoretically, the value of money could float in midair. Practically, lots of arbitrageurs will be betting on hyperinflation—and in principle the Fed could buy back money as long as it could, and maybe the speculators would run out of dollars before the Fed ran out of assets—but don’t count on either assumption holding up.) As a result, it can only expand the money supply by market-rate purchases of securities (of stable value). Mailing checks to people would be a gift out of share capital. (This is the difference between banks and counterfeiters: the former treat money issued as a liability on their balance sheets, and are willing to buy it back at any time in any quantity.)
2. Cut the interest on excess reserves (IOER). Though keeping the Fed’s balance sheet smaller doesn’t really save on anything important; financial institutions trading T-bills for reserves is not something that can realistically be depleted.
3. Most of that is fiscal policy (government stuff) rather than monetary policy (central bank stuff).
The US govt could raise taxes (or loans) and give the money to the Fed and then it wouldn’t be insolvent any more and the people betting on hyperinflation would lose.
1. The Fed needs to be able to buy back the entire base money supply always, always, always. If it cannot, i.e. the Fed is insolvent, instant hyperinflation is almost certainly the result. (Theoretically, the value of money could float in midair. Practically, lots of arbitrageurs will be betting on hyperinflation—and in principle the Fed could buy back money as long as it could, and maybe the speculators would run out of dollars before the Fed ran out of assets—but don’t count on either assumption holding up.) As a result, it can only expand the money supply by market-rate purchases of securities (of stable value). Mailing checks to people would be a gift out of share capital. (This is the difference between banks and counterfeiters: the former treat money issued as a liability on their balance sheets, and are willing to buy it back at any time in any quantity.)
2. Cut the interest on excess reserves (IOER). Though keeping the Fed’s balance sheet smaller doesn’t really save on anything important; financial institutions trading T-bills for reserves is not something that can realistically be depleted.
3. Most of that is fiscal policy (government stuff) rather than monetary policy (central bank stuff).
The US govt could raise taxes (or loans) and give the money to the Fed and then it wouldn’t be insolvent any more and the people betting on hyperinflation would lose.