The House voted Thursday to pay for planned highway construction by drawing on the Federal Reserve’s capital. The idea of using Fed capital to pay for government spending, which comes up periodically, is a bad one, for several reasons. Although the Federal Reserve is not a private bank and can in fact operate with little or no capital, it’s not good optics or good precedent for Congress to be seen as raiding the supposedly independent central bank to pay for spending. More substantively—and this is what I want to focus on in this post—“paying” for highway spending with Fed capital is not paying for it at all in any economically meaningful sense. Rather, this maneuver is a form of budgetary sleight-of-hand that would count funds that are already designated for the Treasury as “new” revenue...Bottom line: It appears that Bernanke would like to see all debt-related sleight-of-hand fully run through the Fed. His post is shot fired to protect slight-of-hand financial operations at the Marriner S. Eccles Federal Reserve Board Building in Washington D.C.and at the New York Fed building,
Again, drawing on the Fed’s capital provides no new resources and amounts to “paying” for the spending by issuing new government debt.