Federal Reserve Monetizing US Debt Faster than its Previous Tightening

The Great Recession

During its brief and utterly failed attempt to reduce its balance sheet (called quantitative tightening), the Federal Reserve only rolled off securities at a rate of $50 billion a month. It is now purchasing US treasuries at a rate of more than $55 billion a month:

The Federal Reserve continues to add more US government securities to its securities portfolio and these have been bought outright…. Since January 1, 2020, the Fed has added $113.7 billion to its securities portfolio.

Seeking Alpha

Buying securities outright is called “monetizing the debt” because the Fed creates money out of thin air in order to buy US treasuries as a way of funding the government’s debt.

And, since September 11, 2019 … the Fed has added $341.4 billion to its holding of US government securities [and] … has also let $98.1 billion run off from its holdings of mortgage-backed securities. The net impact on the Fed’s balance sheet was a $243.3 billion rise in the total securities portfolio.

So, the Fed has added a quarter of a trillion dollars to its securities portfolio since the Repo Crisis began. If you add all of the repos the Fed is continuously rolling over, it has injected a total of half a trillion dollars into the monetary system, as I pointed out with a graph in my last post, to mitigate the damage of the Repocalypse.

Since that $113.7 billion covers only a one-and-a-half-month period, the Fed will have bought $151.6 billion in securities over the course of two months if it continues at that rate through the end of February. That will mean it is creating new money at a rate of $75 billion a month for securities purchases alone! That is almost the same as the $80 billion a month the Fed added to the economy back in the days of its full-on quantitative easing.

It is, at the same time, trying to appear that it is pulling some money out by slowly reducing the number of term repos that it is rolling over (by about $5 billion a month). That, as I will show is a mirage. Even if it were not, a net $70 billion being added into the economy each month is close to the Fed’s original QE rate, and the reduction in repos has actually resulted in repos now being continually and grossly oversubscribed as also shown in a graph by Zero Hedge in my last post:

Read the rest here: http://thegreatrecession.info/blog/federal-reserve-monetizing-us-debt/

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