matta on Nostr: 🤔 monetizing the debt…. Government Debt The U.S. government often spends more ...

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monetizing the debt….

Government Debt
The U.S. government often spends more money than it collects in taxes. To cover this gap, it borrows money by issuing Treasury bonds (a type of IOU). These bonds promise to pay back the money with interest in the future.

Selling Bonds
Typically, the government sells these bonds to investors, such as banks, other countries, and individuals.

The Fed Buys Bonds
When the Fed decides to monetize the debt, it buys some of these Treasury bonds. But here's the catch: instead of using existing money, the Fed creates new money for this purpose.

Creating Money
The Fed has the unique power to create money out of thin air. So, when it buys the bonds, it credits the banks' accounts with new money that didn't exist before.

…. in summary, monetizing the debt means the Fed is buying government debt with newly created money, which can help boost the economy but also carries risks like inflation.