The Fed now owns more US bonds than China. Hooray!
The story below explains that the US Federal Reserve, an agency of the US government, is now the largest owner of US bonds. What it does not explain is that the Federal Reserve creates money out of thin air in order to buy those bonds. In other words, the government “prints” (electronic equivalent of prints) money in order to buy its own bonds. Why, you might ask, does the government not simply spend the money it creates out of thin air? Why go through the extra step of buying bonds which in theory the government needs to repay to itself? The answer is that directly spending this new money would make it too obvious what is going on.
Too bad the rest of us can’t just “print” whatever money we need and then hide what we are doing so it won’t be criticized. Wouldn’t that be convenient? Of course if we did, the economic system would shortly collapse. What is happening now is that the government is doing this on a larger and larger scale and, no surprise, the economic system is in the process of collapsing, although not at once, just over a period of years.
Hunter Lewis 11-17-2011