Oh no! QE2 depends on more stimulus spending

Originally posted by me elsewhere on 11/19/2010

As you know, Ben Bernanke has arranged for the U.S. Federal Reserve to buy $600 billion dollars worth of U.S. debt. However I only recently learned that the Federal Reserve doesn’t buy these Treasury Bonds directly from the Treasury. As I understand it that behavior would alarm other creditors and they might lose confidence in the dollar. Instead all the bonds are sold at auction to Primary Dealers, such as Goldman Sachs. Then these Primary Dealers make a profit on the bonds by selling them at a higher price to someone else, such as the Fed. That’s right… there is a middle man who makes a profit whenever the U.S. Government sells its own debt to itself.

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