Sanders conflates Fed easing with government spending

Sen. Bernie Sanders (I-Vt.) on Sunday night conflated two of the central financial tools the government has to fight an economic crisis, wrongly insinuating that they were interchangeable.

In the CNN debate with former Vice President Joe Biden, Sanders compared financial easing from the Federal Reserve to shore up the financial system with government spending to support workers’ wages.

“If Trump can put or the Fed can put $1.5 trillion into the banking system, we can protect the wages of every worker in America,” he said.

Economists have criticized Sanders for making similar comments on Twitter recently, noting that the Fed’s actions are not comparable or interchangeable with government spending.

Earlier in the week, the Federal Reserve announced that it would pump $1.5 trillion into the financial system to decrease the chances of a financial meltdown. The Fed controls monetary policy and the money supply in large part by allowing banks to borrow cash. Banks trade in bonds for the cash and have to repay the cash in short order.

The amount of cash in the economy, the realm of monetary policy, is separate from the fiscal policy controlled by the government, which comes from tax dollars and borrowing and is spent on anything from unemployment insurance to NASA.

The government is unable to “spend” liquidity injections from the Federal Reserve because they are short-term, asset-backed loans.