Was it just lying around somewhere?

On Tuesday the U.S. government agreed that the Federal Reserve would supply $85 billion to bail out American International Group, the world’s largest insurance company. Does the government really have a spare $85 billion lying around just in case?

Yes. There’s no stack of unused money gathering dust in the federal coffers, but the Federal Reserve can always raise cash by selling off some of the securities it keeps in reserve. The Fed maintains a massive balance sheet that shows exactly what its assets are; right now, its reserves are estimated to be less than $200 billion, down from $800 billion at the beginning of this year. These reserves take the form of securities, often purchased from the U.S. Treasury. The securities function as a kind of “under the mattress” stash that can easily be converted into cash on the open market… www.slate.com

Posted by John Malloy on 09/18/2008. Filed under International. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry