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Reply #24: The problem is that if we buy the bonds from any non-Fed entity, that is injecting a huge amount of [View All]

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BzaDem Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Jul-31-11 07:04 PM
Response to Reply #19
24. The problem is that if we buy the bonds from any non-Fed entity, that is injecting a huge amount of
Edited on Sun Jul-31-11 07:07 PM by BzaDem
cash into the economy, and the money supply increases by that amount. The advantage of buying from the Fed is that the cash just goes to the Fed's vault (not into the circulating economy).

I'm not opposed to this (it would essentially be QE3), because in the near term the economy is so depressed that inflation can't really happen, but it does theoretically cause inflation in the medium/long term. I think international currency markets would react very differently to a bond-exchange with the Fed (which is essentially a nothing-burger) than with a bond-exchange with the private sector (which would for the first time involve a politically accountable Treasury unilaterally increasing the circulating money supply, setting a dangerous precedent for the world and potentially causing medium/long term inflation).
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