Author Topic: $2,001,093,000,000: Fed’s Ownership of U.S. Debt Breaks $2T for First Time  (Read 415 times)

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Offline flowers

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Quote - The Federal Reserve’s holdings of publicly traded U.S. Treasury securities—federal government debt—pushed above $2 trillion for the first time last week, hitting approximately $2,001,093,000,000 as of Aug. 14, according to the Fed’s latest weekly accounting.

The Fed’s accounting for the previous week showed that it had owned approximately $1,993,375,000,000 in U.S. Treasury securities as of Aug. 7.

Back on Dec. 31, 2008, before the Fed began its strategy of “Quantitative Easing," the Fed owned only $475.9 billion in U.S. Treasury securities. Since then, the Fed’s holdings of U.S. government debt have more than quadrupled.

Launched in 2009, the Fed's Quantitative Easing (QE) efforts have attempted to stimulate the economy.

“Under QE,” explains a February 2013 Congressional Research Service report, “the Fed attempts to lower long-term Treasury and MBS [mortgage-backed security] yields directly through purchases that drive down their yields, in the hope that lower Treasury and MBS yields will indirectly filter through to reductions in other private long-term yields. (Lower Treasury yields do not directly stimulate economic activity—they are only stimulative if other yields fall as a result.) This could occur because Treasury securities are considered a ‘benchmark’ against which other private securities are priced, so that other securities are automatically repriced when Treasuries are repriced (although the change is unlikely to be one-to-one).”

(In its latest weekly accounting, the Fed also said that as of Aug. 14, it owned approximately $1.299831 trillion in mortgage-backed securities that had been issued by Fannie Mae, Freddie Mac and Ginnie Mae. Back on Jan. 14, 2009, the Fed owned only $5.6 billion in mortgage-backed securities.)

By law, the Fed is not permitted to buy U.S. Treasury securities directly from the Treasury. Instead it buys them in the secondary market. However, when the Fed buys U.S. government debt even on the secondary market it creates a closed circle: The Treasury pays the Fed the interest owed on that part of the federal government’s debt, and almost all of that interest--considered “profit” by the Fed--is paid back to the Treasury.

“Monetizing the deficit refers to financing the budget deficit through money creation rather than by selling bonds to private investors,” said the CRS. “Hyperinflation in foreign countries has consistently resulted from governments’ decision to monetize large deficits.

“According to this definition, the deficit has not been monetized,” said CRS. “Section 14 of the Federal Reserve Act legally forbids the Fed from buying newly issued securities directly from the Treasury, and all Treasury securities purchased by the Fed to date have been purchased on the secondary market from private investors.”

“Nonetheless," said CRS, "the effect of the Fed’s purchase of Treasury
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Offline xfreeper

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In other words, that's what we owe ourselves after buying securities from ourselves because no one else would buy them

Online Oceander

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In other words, that's what we owe ourselves after buying securities from ourselves because no one else would buy them

Yes, but we didn't buy them with real value, we simply printed more fiat money - extra greenbacks - to "buy" that debt, thereby simply priming the pump for inflation by dumping worthless dollars - worthless because not exchanged for real value - into the economy.
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