3 September 2009
How does the money transfer between the Fed and Treasury?
Posted by admin under: Economics .
When the T-bonds in the Fed’s account mature, will the goverment pay to the Fed? If it will, how does the Fed use the money from the government? If the Fed then transfer the money to the government, does it mean that we all pay an inflation tax?
Related Posts:
One Comment so far...
robrobiii Says:
7 September 2009 at 2:07 am.
While the FED does hold some of the treasury bonds, it is hardly the sole holder, and is as likely to buy it’s holdings from the market as it is directly from the treasury.
That said, when the bills and bonds held by the FED come due, the treasury must re-pay the FED the same as it would any other lender. It can re-pay with tax receipts or with new borrowings.
The ‘inflation tax’ occurs as a result of monetary policy on the part of the FED, not necessarily the result of it’s treasury holdings, although the FED selling treasury bonds on the market is one way it increases monetary supply (causing inflation).
Hopefully that helps, perhaps a link to a more professional site will help:
First on money supply, the FED in general, the tresury department bureau of public debt.