July 26, 2011
Can the Federal Reserve Ride in on a White Eraser?
More and more people are familiar with the Federal Reserve (Fed) and their use of Quantitative Easing (QE) to fund the US's debt addiction. In simplest terms the Fed uses their 'magic pencil' to add new money to their balance sheet. This newly-created-out-of-thin-air money is then used to purchase financial assets. One important type of asset they purchase is US Treasury Bonds -- for which they recently have had a voracious appetite. When the US Treasury sells its bonds it is taking a loan from the purchaser. By borrowing from the Fed the US increases its debt to acquire money that is used to fund ongoing budget deficits. Two rounds of QE have now been completed and, as a result, the Fed owns approximately $1.7 Trillion of US Treasuries or around 12% of the US debt. In fact, the amount held by the Fed far exceeds that held by China, Japan or any other foreign government. A recent annoyance to the continued utilization of debt to fund our monetary...(Read Full Article)