Federal Reserve holds largest hunk of national debt

December 2, 2024

Did you know that the biggest holder of U.S. national debt - $5.239 trillion - is the Federal Reserve? See story here. This means that over the years, the Federal Reserve has loaned the government $5.239 trillion. (The total national debt is $36.05 trillion.)

My question is, where did the Federal Reserve get all that money in the first place? Not from the federal government, obviously. It may get some revenue in the form of interest on loans to banks, but not in the billions. Apparently it just prints the money. On March 22, 2020, when the Covid-19 was shutting down the economy, Neil Kashkari, President of the Federal Reserved Bank of Minneapolis, appeared on 60 Minutes. He said Congress had "literally" given the Federal Reserve the authority to print money. It doesn't actually print money, but creates it electronically through "quantitative easing". Forbes defines quantitative easing as follows:

Quantitative easing—QE for short—is a monetary policy strategy used by central banks like the Federal Reserve. With QE, a central bank purchases securities in an attempt to reduce interest rates, increase the supply of money and drive more lending to consumers and businesses. The goal is to stimulate economic activity during a financial crisis and keep credit flowing.

Printing money - however the Federal Reserve does it - would certainly throw off the natural balance between production and income. Normally, the production of goods and services generates income equal to the value of goods and services produced. Printing money would increase buying power, and since it doesn't come from production, there is no corresponding increase in stuff to buy. All that extra demand competing for the same amount of goods and services causes inflation. Since February 2020, consumer prices in the United States have increased by 21.4%.

That $5.239 trillion in loans from the Federal Reserve over the years wouldn't have been necessary had the government balanced its budget. Somewhere in the past, idiot economists decided that the laws of the universe did not apply to the federal government. They may be getting a little nervous now that interest on the debt exceeds defense spending, but balancing the budget is still not a political priority. And when you can no longer borrow enough money to finance the government and have to start printing it, you know you are in trouble.

Maybe Trump will have the solution. (Just kidding.)

On the Federal Reserve's own website, it denies that it is printing money to finance the government. However, it admits that it does finance the federal government:

The term "printing money" often refers to a situation in which the central bank is effectively financing the deficit of the federal government on a permanent basis by issuing large amounts of currency. This situation does not exist in the United States. Global demand for Treasury securities has remained strong, and the Treasury has been able to finance large deficits without difficulty.

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