The most interesting thing about what the Fed is now doing is that it is illegal. The Fed’s argument that it is not monetizing the US debt fails now on its own terms. The Fed is buying treasuries for no purpose other than to directly finance the government’s escalating debt. Here’s the deal:
The drastic moves by the Feds and Fed throughout 2020 sidetracked us without any discussion straight into Modern Monetary Theory, which claims the government can create as much debt as it wants forever and the Fed can directly finance that debt forever with the only bound being the restraints of inflation.
The Fed’s absolutely massive reverse repo operations (used this month to extract half a trillion dollars in cash money out of the system!), done at the same time the Fed is creating money in the system, leave us with no question that the Fed is directly financing the government and monetizing its debt at whatever level the government demands (with almost no restraint on the government’s part for its role).
The Fed is financing the government at this level to save the nation from the economic devastation caused by the government-mandated COVID closures of 2020, but it is doing it at the cost of crushing monetary policy. No one in the main financial or political media is calling the Fed out on this outright debt financing, and no one is likely to care because everyone quietly realizes the entire economy and all markets would crumple into the dust if the Fed stopped doing what it is doing.
Read the rest here: https://thegreatrecession.info/blog/the-feds-argument-that-it-is-not-directly-financing-government-debt-finally-fails/