Wednesday, December 3, 2008

Monetizing debt, printing money, quantitative easing, whatever your poison

From the Fed:

What is the policy objective of the Federal Reserve's program to purchase direct obligations of the housing-related GSEs?

The goal of these debt purchases, combined with the purchases of mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac and Ginnie Mae announced on November 25, 2008, is to reduce the cost and increase the availability of credit for the purchase of houses. Purchases of GSE direct obligations are intended to lower the spreads between rates on GSE direct obligations and U.S. Treasury debt, which have widened recently.

RW: Okay, so how are you going to pay for this?

Will these operations be reserve neutral?

No, these operations will be financed through the creation of additional bank reserves.

RW: Enough said.

Rebecca Wilder


  1. RW: There is a lot more news in today's Washington Post on mortgages and Gov't mortgage purchase:

    Meantime, I dug for hours following all sorts of leads last night to get to the bottom of whether or not MBS purchases in this nation are monetized or not. Found out lots, including a raging debate on the matter (The Fin Min is right at the center of a historical political debacle, won't go into it, more news in the next few days), but it appears that his press release on the NHA MBS purchases is at odds with what I just tripped across on the Finance Dept's website, digging for a forum I'm participate in this morning:
    [...][CMHC borrowings from the Government of Canada will increase to fund this operation. The Government of Canada will increase its issuance of treasury bills and bonds to finance these loans.] [...]

    More detail here:

    I highly suspect this is going to be the topic of much more debate in blogs, forums and newspapers, especially re Brown's latest move in the UK.

  2. Hi Stephen,

    The Washington Post article suggests that the FEd and the Treasury are working in tadem. It sure doesn't seem thay way to me.

    Thanks for the article, Rebecca


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