So if the $250 Billion printed to purchase mortgage backed securities isn’t “created”, then what is it?
Regarding TARP purchases made by Treasury, I’ve seen no evidence that Treasury created dollars to fund TARP. Like all government spending, the cash came from either taxes or Treasury bond sales (borrowings). You can see the charts of oustanding Federal debt from then until now skyrocketing to the tune of several trillion.
When cash is needed, those Treasury bond auctions start crankin’. Institutional investors and central banks from around the world purchase the Treasury bonds at the auctions.
“Monetary policy”, i.e., how much new money to create and inject into the economy, is the purview of the Federal Reserve Bank (which is owned by banks, it’s not technically part of the Federal government, it is just chartered by Federal statue).
As far as the Federal Reserve purchasing MBS, yes, that’s money creation, since the seller (bank) is credited to their account at the Fed to “pay” for the purchase.
But you can see that transaction does not involve the Treasury Department.
If you follow it through, however, it’s interesting. If instutional investors all over the world are needed to waddle up to those auctions of Treasury bonds and buy the bonds with dollars...
well, what if they feel they own enough government-backed “low-risk” securities ? What if there just aren’t enough buyers of Treasury bonds ? They want a certain amount of them on the Asset side of their balance sheet, but just that certain amount.
Well...
with the Federal Reserve open market operations buying up mortgage-backed securities (similar debt instruments), now those investors that sold their MBS in the open market might now be in the market for some new Treasuries.