November 24, 2020 - Douglas Myser

Printing money for stimulus proposals. When the economy was going down the toilet, due to the COVID pandemic, back in the spring, the government had to decide whether to put stimulus money into the economy to jump start the economy. Since the cost of inaction, lost tax revenue, due to lost jobs and business failures, was greater than the money put into the economy, the decision was relatively easy. Without additional dollars, the system was in jeopardy of seizing up, due to credit market freezing up, and individuals and businesses stopping spending.  As a result markets had stopped working smoothly, until the Federal Reserve put more money into the system so banks had the liquidity they needed to lend money to consumers and businesses, to keep the system running smoothly. If the Fed didn't take these steps and other emergency measures, "the system already would have blown up", said Tim Buy, an economist at the University of Oregon who previously worked at the U.S. Treasury, "The markets would have crashed 10 times over." Printing money for stimulus proposals.

Separately, Congress recently has passed massive, spending bills that have swollen the national debt by about $2.4 trillion to help businesses and taxpayers. Much of that money comes from issuing U.S. treasury securities--government debt that is bought by investors who earn interest on it. Such foreign and domestic investors owned most U.S. public debt as of last year, with the Fed only owning 14% of it, according to the Government Accountability Office. Now the Fed has even more. Since mid-March the Fed has bought $1.4 trillion in Treasuries--the bulk of the $1.6 trillion in total. The Fed however, doesn't buy securities directly from the U.S. Treasury. Instead, it purchases previously issued Treasury securities through commercial banks. That is why Congress, through the CARES Act relief and stimulus measure, has provided $454 billion for Fed programs in case some loans fail, giving the central bank some political cover. Printing money for stimulus proposals.

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