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Reply #27: It has no impact on money supply. [View All]

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girl gone mad Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Jul-31-11 09:46 PM
Response to Reply #25
27. It has no impact on money supply.
Edited on Sun Jul-31-11 10:44 PM by girl gone mad
The bonds are already very liquid and can be traded in the money markets. They function almost exactly like the cash reserves they'd be replaced by, but they earn more interest. That's why this can be viewed as deflationary rather than inflationary.

You'd have a point if it were the Fed buying these bonds since that would involve an increase in money supply, but this is Treasury. The debt instruments belong to Treasury and when Treasury buys back the bond using dollar credits, the debt obligation gets destroyed. An equal amount of money is credited to and removed from the private sector. That's kind of the whole point of this coin work around plan.
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