Debt Monetization

Summary of Debt Monetization

The expansion of the national money supply through the issuance of public debt instruments. In the United States debt is monetized whenever the treasury issues bonds or bills; these instruments are purchased by the Federal Reserve system with a check. The check, once deposited, constitutes reserves of the bank holding the check; these reserves may be used for lending purposes. The borrowing capacity so generated constitutes “money” in the form of purchasing power. The creation of money is accelerated because a bank is authorized to create demand deposits in multiples of its reserves.

(Main Author: William J. Miller)