The Treasury conducts an auction, they sell the bonds directly to the public, the Fed is not involved.
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That’s not true at all. The Fed actually conducts the auction for the Treasury. But I get your point. The pass through of the sale won’t create additional money, regardless of who actually conducts the auction.
Now . . . how does the money supply grow FRiend? My understanding it is through open market operations related to purchase and sale of government securities by the Federal Reserve.
The deficit must be funded, so if you and China don’t buy, then the Fed must create the money to buy the debt, and hold it, or the US renegs on it’s debt and boom, a choice between a crash or inflation.
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They lend out more money than they have assets to back at 100% . . .
Huh? A new bank has assets of $1 billion, how much do you think they can lend out?
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Shorthand. Money multiplier. They lend out full amount minus reserves. When the loan is deposited, next bank lends out full amount minus reserves as well, more than the original deposit has been lent out at that point.
Actually, the Treasury does the auction.
To finance the public debt, the U.S. Treasury sells bills, notes, bonds, and Treasury Inflation-Protected Securities (TIPS) to institutional and individual investors through public auctions. Starting in February 2006, Treasury resumed the auction of Treasury bonds. Treasury auctions occur regularly and have a set schedule. There are three steps to an auction: announcement of the auction, bidding, and issuance of the purchased securities.
My understanding it is through open market operations related to purchase and sale of government securities by the Federal Reserve.
Yes, they buy from or sell to Primary Dealers.
The deficit must be funded, so if you and China don’t buy
The extremely low rate is evidence that they have no problem financing the debt recently.
They lend out full amount minus reserves.
Correct. many Freepers have the mistaken idea that banks can create money out of thin air to loan out. Some even think they can lend 10 or 100 times as much as they take in as deposits.