The problem with term deposits to the Fed is that it doesn't take money permanently out of circulation, only temporarily. It might make people feel better for 6 months or a year. But when the bank gets its money back complete with its risk-free, 5% interest profits, not only will the money supply NOT be reduced, but the bank will be that much more likely to loan that money out, thus raising inflation. Incidentally, you should thank your lucky stars that the banks ARE being so conservative with lending. Right now the 900 billion in reserves is part of the MB money supply, the stuff in the bank vaults that has no effect on prices or circulation. It's 6-12 months after a significant portion of that money comes OUT of the vaults that we're going to start having serious problems.