Yes Virginia, There is Debt Monetization

Of course in the title the “Yes Virgina” hearkens us to a much happier message from the famous editorial published in 1897 called “Yes Virginia there is a Santa Claus”.  Well it seems that in spite of the recent decision by the Fed to monetize another 600 billion in debt we are to believe that debt monetization doesn’t exist.  Well at least we are supposed to believe that it isn’t happening.

Well according to Michael Pollaro at the Forbes Blog, not only are they monetizing the debt but it is actually much worse then it appears and much more involved then QE2.  The up shot from Forbes is that there is more then one way to monitize debt, these include…

  • The Fed has other central banks from foreign nations in on the monetizing.  Basically Asian nations are printing their own money at will via back door deals for the expressed purpose of buying Fed debt.
  • The assumed obligation of organizations such as Freddie Mac and Fannie Mae also represent more debt monetization.  The organizations have been given what amounts to, “unlimited access to the U.S. Treasury.”

In the end the folks at Forbes build a case that in addition to the debt being directly bought by the Fed they are doing all they can to increase the debt by making it easier for foreign banks banks to buy our debt.  At the same time they are also  giving access to the US Treasury to any quasi government organization in trouble.

Read the Detailed Article at Forbes.com

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