Sunday, January 13, 2013

Fed and Treasury: We'll Stick to Monetary Inflation via Treasury Securities

The U.S. Treasury and the Federal Reserve said Saturday that they wouldn’t pursue a proposal to mint a $1 trillion dollar coin as a means of dealing with the federal debt ceiling.

“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” said Treasury spokesman Anthony Coley.

Which means it is back to the Congress, where after some major drama, the debt ceiling will be raised and result in the Fed monetizing Treasury paper versus a Treasury coin.

In the end not much difference, it'll be the Fed printing more money.


  1. Eventually the Fed will be the sole buyer of Treasury debt. Then what? How long can this situation exist without sovereign downgrades, a bursting of the bond bubble, and the dollar losing its reserve currency status?

    Imagine a country with anemic economic growth, chronic double digit unemployment, punitive taxation, crushing regulation, and surging prices. That's America's future.

    Got gold?

    1. Right now, the Fed buys about $80billion of "Treasury debt" PER MONTH. The DAILY volume of trades of Treasuries is about $600billion. PER DAY! (Data sources: Federal Reserve, SIFMA) The Federal Reserve is not even a party in 1% of total trades. The vast majority of Treasuries are bought by the private sector at record low yields. That's a long way to go until the Federal Reserve becomes the sole buyer, don't you think?

    2. Actually, the Federal Reserve only purchases about $45 billion of treasury debt per month. It also purchases another $45 billion of mortgage-backed securities per month, which are not treasury debt.

    3. 12:57, Are you confusing all treasury trades on the market with new debt issues? And doesn't the FED just purchase new debt? Correct me if I am wrong.

    4. It doesn't matter if they are new issues or not. The focus on new issues by the critics of the Fed just obscures the true depth of the market. It is misleading. Also, no the Fed (not the FED) does open market operations and buys Treasuries from primary dealers not the Treasury directly. The breakdown between Treasuries and MBS is correct and just shows even less of an influence of the Fed in the Treasuries market. Of course since the GSEs are now not just government sponsored but government run, buying GSE guaranteed MBS isn't much different from the point of the original post than buying Treasury debt directly.