In the early ’30s when that episode started, there were a lot of bank failures that wiped out a lot of money and I don’t know what the Fed could’ve done under those institutional arrangements but it, certainly, wasn’t in there pumping out new money like we would be doing today. Today, every time we have a major emergency, you know, the first thing we do is get on the microphone and open up – you open up a spigot. I mean look at what happened in 9/11. I mean on 9/11, we just flooded the markets with liquidity because of all the damage in New York, you know, all these New York banks and investment banks, they’re receiving billions in payments every day and they’re making billions in payments and you know, if they don’t receive it they can’t make it and so, just a hitch or two in that system can bring the thing down.
Well, we just pumped enormous amounts of liquidity in there through open market operations and our check clearing system, which the Houston branch is very involved in, we decided to give credit for checks deposited with us, on the next day when it would normally be done, even though all the planes were on the ground. We couldn’t collect the checks but we pretended we were collecting the checks and we gave credit for those checks, created enormous amount of float, which by law, we’re supposed to treat as a real cost, to us, but since we’re more a public institution than a private institution, we decided not to put our cost situation ahead of the public good, anyway – I’m getting too far off. We know how to handle those things better now, not well enough but not bad. – Federal Reserve Bank of Dallas President Bob McTeer at the Houston World Affairs Council
It must be nice to be considered an essential cog in the smooth operations of the financial lifeblood of the economy, worthy of receiving “enormous amounts of liquidity” (otherwise known as cash), whenever there is a perceived problem. Let’s just say that this isn’t the only pretense going on in our financial system of fictional money.