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... shareholders agree to buy the bonds?

Either because (1) they want to or (2) because they have no choice.

The Federal Open Market Committee is made up of the 7 members of the Federal Reserve Board of Governors, and 5 of the 12 Federal Reserve Bank Presidents. So if the entire Board is determined, it will happen. If any of the Board are opposed, at least some of the FRB Bank Presidents, shareholder elected, have to be OK with it.

If the Federal Open Market Committee elects to buy Treasury bonds at whatever interest rate, the Federal Reserve Banks will buy them. And since Federal Reserve Banks return all income above operating costs to the Treasury account and presently hold more than enough Treasury bonds to cover their costs, the interest rate does not matter ~ there is no net interest cost to the Treasury.

Regarding

Baker is not talking about paying for the important needs by fresh banknotes without any "financing" through debt.
When the Fed buys the bonds directly from the Treasury ~ which would be a change to current policy but not unprecedented ~ it actually is the government paying for important needs without financing through debt. One arm of the government "owes" interest to another arm of the government that is required to hand the interest right back again ... which is quite obviously not actual debt finance.

Any discussion as if the Federal Reserve is a private institution is just a means to cloak the responsibility of the government nominated and approved Federal Board of Governors. Pretending that democratically elected representatives have no say in how a Reserve Bank is run is an effective ruse for conning people into not demanding that the elected representatives select a Board of Governors willing to run the Reserve Bank in the public interest.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Oct 13th, 2010 at 07:32:35 PM EST

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