Is there any way to tell whether the Fed has begun to monetize the debt?

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Lemonyellowschwin's picture
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 561
Is there any way to tell whether the Fed has begun to monetize the debt?


 Chris has talked about Fed monetization of the debt being something of a watershed moment.  Similar to my last question, is there  any source of publicly available information that will allow us to determine whether debt monetization has begun?


Carl Veritas's picture
Carl Veritas
Status: Gold Member (Offline)
Joined: Oct 23 2008
Posts: 294
Re: Is there any way to tell whether the Fed has begun to moneti


Have you tried the Feds website? I woudn't know which section to look at though.

I only know that if the Fed buys govt bonds from the Treasury, it credits the govts account with the Fed and from there the govt can start writing checks. This is one entry point for the new money. The Fed "paid" for the bonds with money (in the form of credit) created by a blip on the screen. The debt (bond) just got monetized.

Buying existing govt bonds from commercial banks gives those banks fresh "reserves", The Fed pays for them the same way they pay the Treasury when buying from them. By virtue of the fractional-reserve banking system banks can loan out some $9 per $1 from the Fed. Again, new money (in the form of credit) was just created since the Fed paid for it with a blip on the screen. This is the other entry point for the new money to enter the economy---trough the banking system.

Writing checks or printing money is not necessary in the computer age.    The counterfeiting act is concealed behind the banking system,  and most people haven't got a clue.    

The Fed has an inventory of assets on its balance sheet, mostly govt bonds.

When it sells bonds to commercial banks, money in the banking system is reduced. It's reduced when the banks pay the Fed for the govt bonds. This buying and selling govt bonds with the commercial banks is how the Fed influences the money supply. They target a specified Fed Funds rate and begins their buying or selling daily to meet that target. Fed funds rate is the rate banks charge each other. It's called Fed funds because banks lend to each other to maintain their reserve requirement.


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