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Napanee, Ontario | "Of course anyone without his head up his butt already knows it is being monetized. But at default all claims otherwise go out the window."
You Know, I just got thinking about this John.... they don't even need to do the default. The monetization has already happened, and a default would just be an exercise in labeling. Thanks for the thoughts here...
Since the interest income goes back to the treasury anyways, it doesn't matter if the treasuries exist on the FED's books or not, the money just washes through. If they Zero them out, it just stops the treasury from paying money back to itself through the FED. So you're right - why bother I guess. Just keep them on the books with the official pretense that they will get unwound at some point since there is no effective financial difference to the treasury if they are zeroed, but politically there definitely is.
The monetization indeed has already happened at the inception of removing the bonds from the hands of a bonafide third party that unlike the FED, doesn't remit it's interest payment back to the payer.
Effective monetization by a different name. The original poster is correct that interest rates will skyrocket if they try to unload their positions, and hence why I don't think they ever can. Thus, the default has effectively already happened, and the effects are reduced purchasing power through inflation.
Edited by OldMcdonald 10/30/2014 10:14
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The 4.5 trillion dollar balance sheet. Continued QE
