31 Aug 2022 10:15 pm
As an incentive for the public to buy bonds the interest paid must be higher than the inflation rate to entice wise investors to buy. When the interest doesn't exceed the rate of inflation the government has trouble selling the bonds. So they turn to the Federal Reserve who is required to buy the bonds sufficient to cover the governments overspending to keep the government ledger balanced. Yes, even the US government must balance its ledger, even if it has to do so by forcing the fed to buy they bonds as the "buyer of last resort". However, this is an entirely different situation.
What happens is the US Treasury prints up a bunch of Treasuries sufficient to cover the overspending and balance the ledger. They deliver these to the Federal Reserve. The Federal Reserve then credits the US Governments account by merely adding a number into a computer spreadsheet of the governments bank account. This is known as "monetizing the debt" and is essentially equivalent to just printing the money. The actually money is printed later on down the road after the government spends it and the receiver of the payment goes to the bank to withdraw the cash. But the effect is the same as the money supply immediately increases when the government monetizes the debt. Massive amounts of overspending by Biden was monetized in this manner and resulted in the current inflation we see today.
What happens is the US Treasury prints up a bunch of Treasuries sufficient to cover the overspending and balance the ledger. They deliver these to the Federal Reserve. The Federal Reserve then credits the US Governments account by merely adding a number into a computer spreadsheet of the governments bank account. This is known as "monetizing the debt" and is essentially equivalent to just printing the money. The actually money is printed later on down the road after the government spends it and the receiver of the payment goes to the bank to withdraw the cash. But the effect is the same as the money supply immediately increases when the government monetizes the debt. Massive amounts of overspending by Biden was monetized in this manner and resulted in the current inflation we see today.