austrian63

To Monetize or Not to Monetize: Who Cares?

At the end of the day monetization does matter. It takes a long article with many loops to enable a writer and a reader to convince themselves that it does not matter.

The Treasury sells $100 bn of 3 month T-bills to the Fed. The Fed does not give the Treasury (existing) paper currency from a vault. The Fed prints it or creates it electronically and gives it to the Treasury to spend. Magic, there is now $100 bn of new currency in existence. Another point: since the Fed and Treasury are related parties, do you really think the T-bills will be retired in 90 days? I don't think so.

What everyone must understand is that creating money out of thin air does damage the economy and the currency. Beware of long, acedemic sounding explanations that seek to convince you that you are a simpleton if you are worried about monetization of the debt. Hayek called this the pretense of knowledge.

Money is only a medium of exchange and not a store of value. If more can created with little effort, its value declines.