Well, much of that rockin' monetary base so far is banking
reserves, as we discussed, but seigniorage,
or printin' in common language, did take off quite a bit
as well, and is well on schedule for the rocket trip to da
moon due to enormous deficits this year that can't be financed
otherwise.
Attn: Watch the Fed balance sheet. The printin' won't be
reflected in the coupon pass data - Bernanke outlined how.
Quite likely, printing might also disappear
from public oversight altogether like M3 did. So far the
data is available through h41 Fed balance sheet, but tracking
all the printing has been quite complicated and is becoming
ever more complicated. They sure make it hard, and will
probably make it impossible. Much of the Fed's 8 Trillion
injections are guarantees, not printing. However, it is
entirely obvious the latter is coming as the Fed pays up.
The temptation of dollar seigniorage
By Kosuke Takahashi
atimes.com
Extract...
Bernanke's views on seigniorage
It's intriguing to note what Federal Reserve chairman Ben Bernanke, then Princeton University economics professor, said about seigniorage. He wrote in his Macroeconomics textbook, co-authored with Andrew Abel, that the government can print money when it cannot (or does not want to) finance all of its spending by taxes or borrowing from the public. In the extreme case, imagine a government wants to spend $10 billion (say, on submarines) but has no ability to tax or borrow from the public. One option is for the government to print $10 billion worth of currency and use this currency to pay for the submarines.
If you replace the word "submarines" with "bailout funds", that will mirror the present US situation.
Bernanke and Abel continue: "Governments that want to finance their deficits through seigniorage do not simply print money but use an indirect procedure. First, the Treasury authorizes government borrowing equal to the amount of the budget deficit, and a correspondent quantity of new government bonds are printed and sold. However, the new government bonds are not sold to the public. Instead, the Treasury asks (or requires) the central bank to purchase the $10 billion in new bonds. The central bank pays for its purchase of new bonds by printing $10 billion in new currency, which it gives to the Treasury in exchange for the bonds."
This is what the Bernanke Fed is thinking of doing in the coming months and years. It has already snatched up a big chunk of soured mortgage-backed securities guaranteed by beleaguered mortgage-guarantors Fannie Mae and Freddie Mac. Bernanke has also said the Fed may buy "longer-term Treasury or agency securities on the open market in substantial quantities", using the Fed's balance sheet and money-creation authority to aid the ailing US economy.
The latest Fed data showed the monetary base jumped to more than $1.7 trillion this month, more than double from around $840 billion in August - a vertical takeoff in the supply of dollars. |
