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The Fed: The Engine that Powers the Most Powerful Government in History

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The Federal Reserve serves as the engine that makes all of the US government’s unconstitutional spending possible. Without the Fed, the entire system would collapse.

Just consider this: in March and April of this year, the Federal Reserve effectively monetized 100 percent of the new debt taken on by the U.S. government.

What does this mean in practice?

In simplest terms, it means the central bank is backstopping virtually all of the borrowing and spending.

In March and April, the US Treasury Department issued $1.56 trillion in debt securities to fund Uncle Sam’s massive coronavirus spending spree. Meanwhile, in March, the Fed bought $1.02 trillion in Treasury bonds. The central bank slowed its roll a bit in April, but till purchased $526 billion in U.S. bonds. That brought the two-month total to $1.56 trillion.

In effect, the Federal Reserve bought the equivalent of all of the debt issued by the US government in March and April with money created out of thin air.

Granted, the central bank doesn’t buy bonds directly from the US Treasury. That would actually be illegal. The Fed purchases Treasuries on the open market. But by inserting itself into the bond market, the Fed creates artificial demand for Treasuries. This keeps prices up and interest rates low. Without the Fed interjecting itself into the bond market, there would not be sufficient demand to fund all of the government borrowing at these low interest rates. Without the central bank creating artificial demand, there likely wouldn’t be enough buyers. Without enough buyers, the US government wouldn’t be able to finance all of its programs.

Last month, the national debt pushed above $26 trillion. In just a little over two months, the US government added over $2 trillion to the debt. The 2020 budget deficit has already set an all-time record with four months left in the fiscal year.

And there is no end in sight to the spending. There is talk of additional stimulus and President Donald Trump is reportedly working on a proposal for a $1 trillion infrastructure package and possibly another stimulus bill.

During a podcast, financial analyst Peter Schiff pointed out that Trump’s infrastructure plan would ultimately rely on borrowing backstopped with money created out of thin air by the Federal Reserve.

“The government doesn’t have money that it doesn’t take. Any dollar that the government spends is a dollar that the private sector can’t spend or can’t invest. The government has to take money out of the economy before it can put it back in. Nobody seems to understand this basic point because they see the Fed creating money and they think, well, we just print money. They don’t realize that when they print money, they destroy the value of the money that’s already there. So, they’re not adding new purchasing power. They’re just redistributing it.”

If the federal government had to rely on tax receipts and debt it could repay to fund all of its unconstitutional wars, foreign aid and domestic spending, it would be dead in the water. The ability to raise revenue through taxation would naturally limit the government. But with the Fed backstopping the borrowing and monetizing the debt, there are virtually no limits on spending.

Money is power and the Federal Reserve serves as an unlimited spigot pumping dollars into the system, enabling the biggest government in the history of the world to keep on truckin’. Without the Fed, there would be no foreign wars. There would be no massive, unsustainable social programs. There would be no police state. There would be no corporate welfare programs. The federal government would truly be limited as it was intended to be.

If you want to end unconstitutional, overreaching federal power you have to end the Fed’s monetary expansionism.

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About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
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