Introduction to Finance

Economic Stabilization Act of 2008
in early October of that 
year. A primary focus of this legislation, which became known as the 
Troubled Asset Relief 
Program (TARP)
, was to allow the U.S. Treasury to purchase up to $700 billion of troubled 

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5.4 Treasury Cash and General Management Responsibilities
109
or toxic assets held by fi nancial institutions. Then, in an eff ort to stimulate economic activity, 
Congress and the president passed the $787 billion 
American Recovery and Reinvestment Act 
of 2009
in February 2009, with the funds to be used to provide tax relief, appropriations, and 
direct spending. In part, as a result of these actions, economic activity in the United States 
began recovering in the second half of 2009.
As it turned out, the U.S. Treasury purchase of troubled bank-held assets developed 
slowly. In fact, passage of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act 
of 2010
amended the 
Emergency Economic Stabilization Act of 2008
. Title XIII, known as the 
“Pay It Back Act,” reduced the availability of TARP funds from $700 billion to $475 billion 
and mandated that any unused funds could not be used in new programs.
As a result of these fi scal stimulus packages and modifi cations, along with the three 
quantitative easing eff orts by the Fed in 2008, 2010, and 2012, the U.S. economy achieved 
moderate growth through 2015. The unemployment rate also declined from the 10 percent 
level at the end of 2010 to below 5 percent in early 2016. 
5.4
Treasury Cash and General 
Management Responsibilities
The U.S. Treasury promotes economic growth, overseas the production of coins and currency, 
and is responsible for collecting taxes, paying bills, and managing its cash balances so that 
its day-to-day operations have a stable impact on bank reserves and the money supply. The 
Treasury is also responsible for borrowing funds to fi nance budget defi cits and for managing 
the national debt. The Treasury played an important role during the 2007–09 perfect fi nancial 
storm by helping fi nancial institutions merge and through administering government legisla-
tion designed to prevent fi nancial institutions and some business fi rms from failing. We will 
cover defi cit fi nancing and debt management by the Treasury in the next section.
The magnitude of Treasury operations dictates that it must play as defensive or neutral a 
role as possible in its infl uence on the supply of money and credit. While the power to regulate 
the money supply has been placed primarily in the hands of the Fed, close cooperation between 
the Treasury and the Fed must exist if Treasury operations are not to disrupt the money supply.
Consider the impact on monetary aff airs of a massive withdrawal of taxes from the bank-
ing system without off setting actions. The decrease in bank deposits would result in a tempor-
ary breakdown of the system’s ability to serve the credit needs of the public. Yet, the federal 
government periodically claims taxes without signifi cant impact on lending institutions. In 
like manner, borrowing by the government or the refunding of maturing obligations could 
be traumatic in their eff ect on money and credit, but such is not the case. In short, the Fed