For the Treasury to be “borrowing from the Fed” would require the Fed to purchase bonds directly from the Treasury.
They don’t, that’s prohibited in the Federal Reserve Act, and any Treasury purchases done by Fed are done in the secondary market.
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True, not directly. But indirectly it can have much the same effect. What if the Fed wasn’t buying from the secondary market?
“True, not directly. But indirectly it can have much the same effect. What if the Fed wasn’t buying from the secondary market?”
Then the money supply would be more restrained, keeping inflation at bay. Your suspicion that the effect is pretty much the same either way is correct.
A reason that the Fed buys in the secondary is because doing so allows the bond buyer market to determine interest rates. If the Fed buys directly it short circuits that process and creates havoc.
But any time that the Fed purchases Treasuries it is “monetizing the national debt” and increasing the supply of “high powered money” in the banking system. And that allows retail banks to do a lot more lending which is where the money supply has its greatest growth. Fractional reserve lending.
The indicted co-conspirator in the inflationary destruction of the Dollar is Congress. Congress keeps raising the debt limit, the Treasury sells more T-bills in response, and eventually the Fed ends up buying some of them which increases the high powered money supply.
Back before Nixon, when we still had a (weak) link to gold, Fed chairmen could browbeat Congress showing them that their spending was wrecking the dollar. Even the dullards in Congress could get the idea. The quasi-gold standard may not have meant much but it did restrain Congress some. Now the whole budgetary process is totally out of control and we probably are heading for some sort of financial cliff that will be way uglier than we can imagine.