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Discussion: (9 comments)

  1. @DiscardedVirtues

    What a load of crap. It is not intention or duration that determines whether the Fed is monetizing debt per its own definition – it is the act itself and the results that determine whether debt is or has been monetized. The Fed’s actions have been purposefully taken to, among other things, depress interest rates and counteract anticipated deflationary pressure on the dollar following the crash (although in actuality, it was done primarily to restore balance sheets on member banks by transferring bad debt to the taxpayer). One side effect of this behavior has been to cut the carry cost of ballooning federal debt to the US government. As it stands right now, if the Fed were to exit ZIRP, the interest expense on this federal debt would skyrocket, consuming a large fraction of federal tax revenues and worsening the fiscal problem. The Fed has painted itself into a corner from which it will not soon or may never emerge.

  2. The Fed often trots out this argument — that it can rein in inflation before it becomes an issue by charging higher interest on its excess reserves — but it’s been debunked many times. In short, the Fed doesn’t “destroy” money. Once new money is introduced into circulation, banks can lend it out, whereupon other borrowers can deposit it into other banks, which then do the same thing. Thus new money creation grows exponentially thanks to fractional reserve banking — so these QE injections are much larger than meets the eye. Charging interest on the original Fed injection does nothing to “destroy” money.

    And who says the term “monetizing debt” means “permanently” providing government with revenue? If the Fed is expanding its balance sheet by buying U.S. debt that would otherwise be sold to legitimate investors, it is inarguably monetizing debt.

    If anyone is interested in why Bernanke is full of it when he makes similar arguments to those above, Bob Murphy has a useful tutorial here:

    1. James Ashby

      Fiat money is deciding that money is worth nothing, then trying in vain to change the subject to how much money there is. This is exactly what the 1913 Federal Reserve Act did. The Federal Reserve lives to regulate the money supply, not, as the US Constitution directs, to regulate money’s value. No one at the Fed can say what a dollar is, there is no creation or destruction of money, only destruction of money’s value, destruction of what money is. Fiat money loses value every day it exists because of what it is, no matter what fiat-money-laundering strategy the Fed trots out. The Fed is for putting as much distance as possible between money’s value and the US government. A gold dollar needs no laundering, no big government, no government debt, no entire world revolving around borrowing and lending, puts buying and selling first, makes government the servant instead of the usurper of commerce.

  3. Adam Baum

    A very poor analysis from somebody who normally doesn’t buy into the official line. There’s absolutely no way to determine intent and duration is irrelevant when you can simply refund the debt. What we know is that the Fed has maintained a large volume (even if the amounts are represented by different numbers) of marketable U.S. Treasury debt, which it has “paid for” using its power to create currency. It has already monetized debt.

  4. It is buying treasuries Jimmy. That is monetization no matter what the boys at Pravda tell you.

  5. Pay no attention to the man behind the curtain.

    1. that he will initial the exiesnton of this contract for 5 more years . However , I would like to add a clause that would start out in case of death , what would you suggest I do , go to a lawyer and write a new contract , or add a clause and have him sign it . Any suggestions would be helpful Thanks Frank

  6. James Ashby

    ” money creation ”

    Pure fiction. People decide what money is worth, fiat money isn’t money creation, it’s drastic reduction in what a dollar is worth. Fiat money by definition is robbery, is ignoring money’s value, is not gold.

    ” Some means other than money creation will be needed to finance the Treasury debt ”

    Pure fiction finances nothing, a gold dollar needs no government debt, finances commerce, serves everyone, robs no one, shrinks government wholesale.

  7. Stephen O'Grady

    Who gets the interest from the bonds and MBS the Fed is buying? My understanding is
    the US Treasury depr does. So how is this not
    monetization of the US federal debt under any
    credible definition of the term. The author of this propaganda piece must not value his credibility.

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