Andy Harless

To Monetize or Not to Monetize: Who Cares?

Long John Silver, the reason it doesn't result in inflation is that nobody spends the money. The money goes into "circulation" in the sense that, whoever had the T-bills before now has the newly created money (or if you want to think of it as the Fed buying directly from the Treasury, then whoever the Treasury pays or buys from now has newly created money, which otherwise would have had to be withdrawn from elsewhere in the economy via borrowing). But I put "circulation" in quotes for a reason: the money doesn't literally circulate; it just gets held as an asset by some person or institution. We can surmise that they are not going to spend it, based on the fact that they were already holding T-bills with zero yield. They could easily have converted those to cash and spent the cash, but they chose not to. Since cash is more or less the same as T-bills now (both yielding zero, both safe, both highly liquid), if they were holding the T-bills without spending, we can surmise that they will hold the cash without spending.