"the FED®, in order to fight deflation (encourage inflation) would resort to buying treasuries. Why would such action by them fight deflation? It seems that it would only drive up the prices of treasuries alone, not prices over all. I don't see it as pumping that much money into the system because that money is really already there."Actually, when the Fed bonds, it puts money into the buyer's bank account, which is counted as part of the money supply. (Treasury bonds are not). Increasing the money supply should stimulate the economy overall. I don't think you can say the money is already there. The fed actually creates money when they do a transaction like this. They also bid up the price of bonds, which lowers interest rates, and also stimulates the economy.
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