[quote][b]Posted by:[/b] Mr Libertarian The problem with the US open window policy is that for every dollar that the fed gives, then it has to keep it in as an asset. [/quote] Certainly. That is technically a loan they have made, and thus, they have "created" money and expanded the money supply. Obviously they don't "print" money as that is the Treasury's job, which is another pet peeve. [quote][b]Posted by:[/b] Mr Libertarian Countries such as Japan had this policy didn't work so well in 1990 (the biggest asset bust in history, #2 I believe is Argentina). When the Central banks allow "natural" rates to give out, it creates a low artificial give out since they are competing as a bank. [/quote] Japan's problem was deflation, not inflation. Japan tried lowering interest rates to combat it, but as you can't obviously lower rates below 0% (realistically), there is a limit on what central bank policy can do. I'm curious why you link the two, since your main problem with Federal Reserve policy is the threat of inflation in the US - not deflation. [quote][b]Posted by:[/b] Mr Libertarian They will not be a "last resort", it is a "hey guys, I -blam!- up again and I'm willing to pay as little as possible!" [/quote] The reason why the Federal Reserve is regarded as a "lender of last resort" is because the window rate is set higher than the rates that banks charge each other. A bank is only going to take a Federal Reserve loan when there are no banks willing to make the loan. The reason why you saw the explosion of Fed lending during 2007-2010 was because of the "credit crunch" - banks were unwilling to lend to other banks. The Fed became the lender of last resort for everyone because no one was willing to lend. That threat has mostly gone away, and the Federal Reserve window is back to mostly disuse.