- Jun 24, 2006
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I've been reading some blogs, and books, and keep seeing it mentioned that the fed increases the supply of money by buying up Treasuries. Can anyone explain how buying treasuries increases the supply of money? It gives the US Gov. more money, but then the government will have to pay it back with interest, so how is monetary supply increased in any way?
And what does the government do with this money? Does it go into the same pool as the money they get from income taxes?
Given that the current yields for 10-years are around 2-3%, couldn't they just take all the money they are making right now and use it to pay back higher-interest debt from previous years? I'm guessing they mostly will pay it to Social Security, Medicare, defense, and the tiny amount left after that will go to various programs, including a tiny amount towards servicing existing debt.
And what does the government do with this money? Does it go into the same pool as the money they get from income taxes?
Given that the current yields for 10-years are around 2-3%, couldn't they just take all the money they are making right now and use it to pay back higher-interest debt from previous years? I'm guessing they mostly will pay it to Social Security, Medicare, defense, and the tiny amount left after that will go to various programs, including a tiny amount towards servicing existing debt.