Recent Decisions of the Federal Open Market Committee (debt monetization)

Federal Reserve Bank of Dallas ^ | 11/08/2010 | Richard W. Fisher

[Zeddicus]

...

My perspective, as with those of all other members of the FOMC, was given a thoughtful and fair hearing at the table. After deliberation, the majority of the committee concluded that under current and foreseeable conditions, the better approach was to purchase $600 billion in Treasuries between now and the end of the second quarter of next year, on top of the amount projected to replace the paydown in mortgage backed-securities. The math of this new exercise is readily transparent: The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit of the federal government for next year. For the next eight months, the nation’s central bank will be monetizing the federal debt.

...

[Zeddicus]

This is the president and CEO of the Federal Reserve Bank of Dallas openly admitting that Fed is monetizing the entire federal deficit for the next eight months.

Stop for a minute and think about what this really means.

[coloradan]

Rather than telling us to stop and think, please spell it out. There are some on another thread who see nothing wrong with this policy.

[originalbuckeye]

Does a Republican House have any control over this?

[Zeddicus]

Besides being final conclusive proof that Bernanke perjured himself before Congress when he said, "we're not going to monetize the debt", what this means in a purely functional sense is that OUR COUNTRY IS LITERALLY BANKRUPT and cannot fund its present level of spending without merely printing Monopoly money out of thin air.

We've hit the wall, folks. This is the end-stage of this cancer we call a federal government.

Denninger's blog on this here: The Federal Reserve Will Not Monetize The Debt?

[Zeddicus]

Does a Republican House have any control over this?

Hell yeah. For starters, they could haul him back before Congress and charge him with perjury, convict, and imprison him.

If this, at a bare minimum, does not happen within the next 60 days then our election victory last week was utterly meaningless and irrelevant.

[wolfcreek]

Minus the interest, they’re doubling the debt.

[Zeddicus]

Denninger spells it out with perfect clarity on his analysis post that I linked to above.

[Road Warrior ‘04]

Ping for later.

[Texas resident]

It is like you taking bills out of your wallet, putting them in your front pocket, then declaring that you have paid off your debt.

[Pearls Before Swine]

Rather than telling us to stop and think, please spell it out. There are some on another thread who see nothing wrong with this policy.

When the government wants to spend, it funds the spending by collecting funds from the populace (i.e., taxes), and selling bonds to anyone who will buy them. Now, the bonds are being sold to the Fed, who simply prints money to pay for them. So, the government seizes a larger share of the economy by printing paper.

There are a couple of intermediate steps, because the Fed actually buys the bonds from the primary dealers who buy the bonds, but the net effect is the same.

Those who argue that the Fed is simply buying existing assets that are in the market miss the fact that over the course of nearly a year, all of the net debt issued by the government to fund its operations is purchased not by existing funds, but by newly printed paper. If the government were not running a deficit and the Fed bought bonds, it would be injecting liquidity by exchanging paper for existing debt. By paying for new debt (although indirectly) it is monetizing the debt, or less politely, printing money.