With
government-bond purchases of $3.9 trillion (including mortgage-backed bonds)
from November 25, 2008 to October 30, 2014, the U.S. Federal Reserve Bank
stimulated the American economy by keeping interest rates low. This in turn
kept the U.S. Treasury department’s interest payments on the gargantuan federal
debt lower than would have otherwise been the case. Put another way, the
Federal Reserve Bank’s massive foray into stimulating the economy made holding
debt and borrowing still more money less costly than it would otherwise have
been, and thus enabled the government’s penchant for debt-financing over
raising taxes and/or reducing spending. “Enabling an addict” would be a less
charitable way of putting the Fed’s role vis-à-vis the U.S. Government. In this
essay, I explore problems resulting from the Fed’s stimulus on the government’s
debt-financing.
The full essay is at "The Federal Reserve's QE"
