How does the U.S. gov't finance its debt? Is it through the treasury or the fed and is it through the sale of bonds or through foreign loans or something else? I appreciate the clarification.
How does the U.S. gov't finance its debt? Is it through the treasury or the fed and is it through the sale of bonds or through foreign loans or something else? I appreciate the clarification.
"When the expenses of the U.S. Government exceed the revenue collected, it issues new debt to cover the deficit. This debt typically takes the form of new issues of government bonds which are sold on the open market. However, the debt can also be monetized by which the Federal Reserve creates an entry on its books to credit the US Government for an amount equal to the dollar amount of the bonds the Federal Reserve is acquiring. The money created in this process not only includes the new dollars that came into existence just to purchase the bonds, but much more because this new money is now sitting in the form of checkbook money at the Federal Reserve. Under the scheme of Fractional Reserve Banking this new checkbook money is treated as an asset to lend against. Economists estimate the expansion of the money supply as being many times the amount of the initial money created with the exact amount of the expansion being a function of the marginal propensity of the consumer to consume (rather than save) each new dollar."
