In these two ways, the Federal Reserve has been monetizing the Federal governmentÂs debt. The Fed bought up toxic assets from the TBTF banks, which then went and bought Treasuries. And the Fed is lending money for free to the TBTF banks, which are then buying Treasuries.
Take a step back, and you get the picture: The Too Big To Fail banks are the sewer system by which the Federal Reserve supplies money to the Federal government for all its deficit spending.
This is stealth monetization.
ItÂs not even particularly stealthy, actually  itÂs happening right out in the open. ItÂs just that nobody is pointing it out  or perhaps because it is an obscure, complicated system, nobody has realized what it actually is.
But itÂs monetization, pure and simple. The Fed is printing up all the money the Federal government wants and needs.
To put it more bluntly  and disturbingly  the pedophile is in the room with Dakota Fanning.
One of the pernicious effects of this stealth monetization is the dis-incentive it gives banks to lend money to small- and medium-sized businesses. Everyone  including the Fed  is complaining that the banks arenÂt lending to businesses. But I donÂt know why theyÂre complaining  it makes perfect sense.
See, the TBTF banks get money for free from the Fed, and then they turn around and lend it to the Federal government by way of buying Treasury bonds. Treasury bonds are paying absurdly low yields, because theyÂve been bid up so high by all those freshly minted dollars that the Fed printed up. But to the TBTF banks, it doesnÂt matter how low the Treasury yields are  itÂs still guaranteed profits. Lending money to the Federal government is totally safe.