How the Fed Finances U.S. Debt.

 Wall St Journal op-ed last Thursday.  Written by Judy Shelton.

Strange article.  Never mentioned US bonds (T-bills).  First it talks about a silly plan to mint a $1 Trillion dollar platinum coin, deposit it in the Federal Reserve, and claim we are solvent.  Even if such a toy were 6 feet across, it would not be worth a TRILLION dollars.  Plus, the Fed can print all the plain old dollar bills that might be needed to redeem T-bills as they come due. 

   Then we have a strange quote from Janet Yellen.  “[It] (the platinum coin thing) is equivalent to asking the Federal Reserve to print money to cover deficits that Congress is unwilling to cover by issuing debt. It compromises the independence of the Fed, conflating monetary and fiscal policy.” 

   Wow!  I, and everyone else in America, expects the Fed to prevent a default on our T-bills by any means possible, selling more T-bills if Congress raises the debt limit, or just printing more Benjamins.  The inflationary effect of selling T-bills is about the same as for printing Benjamins.  T-bills are “near money” according to my old college economics text (Samuelson).  They are nearly as good as cash; investors who pay cash for them know that they can turn their T-bills back into cash any business day.  We run a bond market open 5 days a week, and you can sell your T-bills anytime you please and receive a cash payment within a couple of business days.

  Interesting factoid, The Fed gives the interest it earns on various things it bought to the Treasury.  This was $87 billion last year.  A nice chunk of change. 

  There are more words in the piece, but they are things everyone knows.