The real reason the fed needn't stick to a budget is that they can print money into existence. Of course, it can only do this to the extent that people will accept a certain level of inflation due to currency devaluation. (Inflation also devalues federal debt.) This is why they must also raise taxes & continuing borrowing overseas. But they confuse this increase of money being shuffled around with increasing economic activity. The former is a poor measure of the latter.
Example:
Uncle Sam took $10 from Sally. Uncle Sam gave Burford (who is on the dole) the $10.
There was no economic activity, but left leaning economists might trumpet that there was a $140 increase in the economy. ($10 + $10 = $20. Then there is a fiscal multiplication factor of 7 (heard it on NPR) for all the commerce resulting from taking & giving away Sally's $10.) This is why we should pay much higher taxes....cuz the economy would boom.
I've always wondered why there's no fiscal multiplier for Sally spending her own $10. The money truly blossoms only when people spend money given them by government. Modern economic theory is so sophisticated, that economists have proven that sometimes 10=10, & sometimes 10=140.
Revolting,
First of all, thank you for your comment. Indeed, the Fed can print "funny money", and no other government can in the US. There are actually local currencies in circulation, such as "Berkshares", which are privately printed, so what you said isn't entirely correct; but I'll go along with your drift.
That said, "printing money" (actually, just digital transfers to banks from the taxpayers) does not create wealth: The amount of goods and services in the country is still the same as before the "funny money" was put into circulation. With more dollars chasing the same value of goods and services, the prices of those goods and services are therefore inflated, and the value of the dollar relative to the real wealth it represents goes down: and it doesn't just go down arithmetically, in proportion to the "quantitative easing" (the modern euphemism for "printing money"); it goes down exponentially; because that "new money" is given to banks to increase their reserves.
Say a bank needs to keep 10% of its outstanding loans in reserve, so it can pay its own creditors when they demand payment. If a bank holds $100,000, then, it can lend out $1,000,000. Add another $100,000 to that bank's reserves through "quantitative easing", and the bank can now lend out $2,000,000 -- $2,000,000 that the bank never had in the first place, but which it will receive back when the loan is repaid -- with interest. It therefore is making money, literally, out of thin air; unless the borrowers have to default, and the bank is stuck with toxic assets. If that happens, we taxpayers simply reimburse them for their loss with bailouts.
Indeed, the Federal government does not behave like us mere mortal taxpayers. That doesn't mean it shouldn't. If it DID behave like responsible citizens have to, we wouldn't be victims of this Frankenstein economy.
