Tags: Fed | budget | Treasurys | hyperinflation

New Fed Policy Virtually Guarantees $1 Trillion Budget Deficit

By    |   Friday, 14 Dec 2012 07:36 AM

The only way the federal government can spend about $3.8 trillion a year is if someone agrees to buy about $1 trillion worth of Treasurys every year. With its latest expansion of quantitative easing, the Federal Reserve has become a trusted source of that money.

The Fed will buy $85 billion of Treasurys a month, or $1.02 trillion a year. In addition, the Fed will return any interest earned to the Treasury, which should amount to at least another $80 billion next year. By creating $1.1 trillion that it can transfer to the Treasury to spend in any way the government chooses, the Fed has agreed to finance the deficit until unemployment drops to 6.5 percent.

Using optimistic projections, unemployment would drop to the Fed’s target by the next presidential election if the economy creates an average of 250,000 jobs per month, adding 12 million jobs by end of 2016.

We have not seen jobs grow that fast since Bill Clinton’s first term. In President Barack Obama’s first term, jobs growth averaged 0.97 percent a year and would need to average 2.02 percent a year in the next four years to reduce the unemployment rate to 6.5 percent.

Economists are not expecting the pace of economic growth to improve dramatically under Obama, and that means job growth will likely remain slow. Fortunately for the Obama administration, the Fed has agreed to provide all the funds needed to maintain $1 trillion deficits.

History offers other examples of governments printing money to cover deficits. Some ended with hyperinflation. The outcome of the Fed’s printing plans will not be known for several years, but higher inflation is a strong possibility.

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
MichaelCarr
The only way the federal government can spend about $3.8 trillion a year is if someone agrees to buy about $1 trillion worth of Treasurys every year. With its latest expansion of quantitative easing, the Federal Reserve has become a trusted source of that money.
Fed,budget,Treasurys,hyperinflation
277
2012-36-14
Friday, 14 Dec 2012 07:36 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved