Government Debt Monetization Explained

When the government wants to spend money it does not have, there are basically three options, raise taxes, print money or borrow money.  The Monetization of Debt involves the issuance of debt or simply known as borrowing money done by the Dept of Treasury and the printing of money done by the Federal Reserve.

Monetizing Debt is essentially the Federal Reserve buying government debt, bonds, issued by the Treasury with money the Fed has printed.

The overall picture: One branch of the government, the Treasury, is borrowing money from the public and then the public is being paid back with printed money by another branch of the government, the Fed.  The net result of buying government debt with government issued money is an increase of the money supply which can cause inflation. 

General concepts and Step by Step breakdown of the debt monetization process

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