NYT: Treasury bills program

[Skip to the end]

>   On Thu, Sep 18, 2008 at 4:21 PM, Eric Tymoigne wrote:
>   One former FOMC member at least gets it (From the NYT) (well, at least if you
>   replace “can create money” by “can create reserve”):

I’ve heard him before, and he definately doesn’t quite get it. See my comments below:

September 18, 2008, 3:15 pm

Will Government Bailouts Lead to Inflation?

by Catherine Rampell

A reader asks about inflation concerns, and finds a divided response from our panel:

I’m worried about how much the government is intervening. It appears that the last remaining weapon the government will have is printing more money. Is hyperinflation a real concern down the road? — Geoffrey Bell

The question is about hyperinflation.

From Bob McTeer of the National Center for Policy Analysis:

All the offsets do is to alter the resulting interest rate. The offsets have nothing to do with inflation. Fed operations are about pricing, not about inflation per se. The only connection Fed policy has regarding inflation is the further effect of the interest rate they select. It has nothing to do with quantity.

The Fed’s ability to lend is limitless because it can create money.

All Fed lending is ‘creating money’ (changing a number in a member bank’s reserve account).

So it’s not that it’s limitless because it ‘can’ ‘create money,’ it’s limitless because it always/only does ‘create money’.

Its ability to offset the lending is limited by its portfolio. Hence, its request to the Treasury to sell some extra Treasury bills. — Bob McTeer

Yes, and this is a self imposed constraint put on by government.

Functionally and operationally, a treasury security is nothing more than a credit balance in a security account.

Current law doesn’t allow the Fed to take funds into a securities account of its own creation.

This is one of many self-imposed constraints by government that are contributing to ‘the problem’.