#2 In the United States, and in many other countries, the government has assigned exclusive power to issue or print its national currency to privately owned and independently operated central banks. In the United States, this power has been assigned to the independently owned and operated Federal Reserve banks. [1] Such governments thereby disavow the overly convenient, 'slippery slope' option of paying their bills by printing new currency. They must instead pay with currency already in circulation, else finance deficits by issuing new bonds, and selling them to the public or to their central bank so as to acquire the necessary money. If these bonds do not end up in the hands of the public, the only alternative is for them to be purchased by the central bank. For the bonds not to end up in the public hands the central bank must conduct an open market purchase. This action by the central bank increases the monetary base through the money creation process. This process of financing government spending is called monetizing the debt.
It's somewhat more honest than simply printing money. However, the result is absolutely identical. |