Submitted by Michael Panzner of Panzner Insights,

In “The Biggest Myth About the Fed,� David Beckworth, an assistant professor of economics at Western Kentucky University, suggests that the pessimists are wrong to be concerned about what Mr. Bernanke and Co. are up to.

There many myths about Fed policy over the past few years, but the biggest one has to be that the Fed has been monetizing the national debt. This simply is not true, but it does not stop some folks from making this claim. For example, at last week’s Cato Monetary Conference we find former Fed officials pounding the Fed-is-monetizing-the-debt drums:

Mr Warsh and Mr Poole (who was filling in for Allan Meltzer) made a sharp distinction between the “legitimate� efforts to fight the crisis and the subsequent easing actions that were, allegedly, unjustified by the economic fundamentals.

According to them, the interventions of 2007-2009 were required to ensure that “the markets could clear�, as Mr Warsh put it, while the second round of easing was done to satisfy “political masters� by monetising the debt. In fact, Mr Warsh said that the Fed was being actively unhelpful by “crowding in� Congress’s supposedly poor policy choices.

My first response is how can they can say this with historically-low U.S. treasury yields and muted inflation expectations? Surely, if the Fed were truly monetizing the debt we would be seeing a 1970s-repeat in the bond market, but we are not. And this is happening, in part, because the Fed is not that big of a treasury purchaser. Consider the figure below. It shows the Fed’s stock of treasuries by remaining maturity compared to the total stock of marketable treasuries as of the end of October, 2012.

Though the Fed’s share of treasuries increases by remaining maturity, at most it hits 32% of the total for 10-30 years category. That means that after many months of Operation Twist that roughly 68% of long-term treasuries are still held outside the Fed. Overall, the Fed holds about 15% of marketable treasuries as seen in the “All Years� category. It is hard to square these numbers with the allegations that the Fed is monetizing the debt.

Leaving aside the questions of whether:

the Fed’s share of the Treasury market will remain as low as it is now if other investors start heading for the hills;
the central bank’s intentions with respect to their securities holdings will remain the same if the economic, financial, political, or social landscape changes for the worse; or,
we can really know for sure that the debt has been monetized until after the fact;

the notion that current benign market conditions are a reason for optimism sums up just how out of touch with reality most academic economists (and other alleged experts, including journalists-cum-forecasters who parrot this nonsense) are.

By this sort of logic:

Mid-2005 was the right time to be optimistic on housing
January-2007 was the right time to be optimistic on the banking sector
The spring of 2007 was the right time to be optimistic on credit markets
The fall of 2007 was the right time to be optimistic on global equity markets
Mid-2008 was the right time to be optimistic on commodities
This past September was the right time to be optimistic on technology stocks

Of course, we know how those all worked out (hint: not well).

WOW, One commenter says it so well,,,,,,,,,

All Risk No Reward
All Risk No Reward's picture

Actually, I think this guy is right - at least up until the point it won't matter anymore.

The Fed doesn't "print," rather it issues debt. Debt based money is bifurcated. There is an obligation portion and then there is a spendable currency portion.

The MBS QE is all about taking toxic assets from their criminal corporatocracy and replacinig it with cash at or near par.

One point of view is that the difference between the money paid out and the actual value of the toxic trash is "printed."

I would argue that this "printed" aspect is simply a temporary mirage - but one that could last for years and has the potential to have real consequences on the economy for years to come. Or not - that all depends on the oligarch club plans.

I am convinced that the difference in value will be recognized at some future point and will be deemed debt owed to the Federal Reserve criminal cartel by the mostly wilful American debt serf class. Why are we wilfull serfs to a large degree - because of all the mirages set up to fool us and keep us from recognizing the ultimate outcome of this financial Art of War campaign engineered to impoverish us so we can be more easily robbed and controlled.

When that day of recognition comes, "printed" will not suffice to describe it. Weapons of Mass Debt will suffice, though - although most probably still won't get it, just like they didn't get that they were conned in the original "Roaring 20s / Great Depression" societal asset strippiing financial Art of War operation.

Because the debts are unpayable BY DESIGN...

Debt Money Tyranny
http://www.keepandshare.com/doc/4768883/debtmoneytyranny-6-1-pdf-60k?tr=77

...society can never pay back these fraudulent debts. However, the purpose of the debt money fraud will have already been accomplished by the time the debts are eventually zeroed out. The oligarch front corporations will have asset stripped the majority of the remaining serf illusion of wealth and solidified their control over the traitorous national government "representatives" they finance and promote.

It's all a con. The biggest misconception about the Fed is that they are legitimate and not a criminal cartel and the Trojan Horse being used by Big Finance Capital to bring down America to its knees and seize authoritarian control over it.

Must Reading:

Tragedy and Hope by Carroll Quigley

http://archive.org/details/TragedyAndHope

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

Must Viewing:

The Ultimate History Lesson

https://www.tragedyandhope.com/th-films/the-ultimate-history-lesson/

Gatto Paraphrase: There was a second American Revolution in the late 1800s. It wasn't won through force of arms, but through force of insight into how to create public opinion.

False Narratives "creating" public opinion:

1. The Fed has a dual mandate. No, their mandate is singular and they've broken it for almost 3 decades. Look it up the source document - "Section 2A of the Federal Reserve Act" - and read it yourself.

2. The Fed is supposed to keep inflation low. No, the Fed is supposed to keep prices stable with no inflation at all. Again, read the source document referenced in #1.

3. Fluoridated water is a scientific marvel with a great cost/benefit ratio. No, the "EPA scientists oppose water fluoridation." Search the quoted text to find the NTEU link (s/b first link) to find out why and verify their source data. Got dementia on the installment plan to generate Big Phosphate and Big Aluminum toxic waste sales profits and Big Pharma profits?

4. If they don't talka about the underlying math of a debt based monetary system, it will not hurt you. No, it will bankrupt your nation, your community and very, very likely, you and yours as well. In due time, of course - so don't expect it today - unless you were one of the thousands caught in the trap today... more and more every day. See the first link posted in this comment in order learn exactly how it works to enslave society to debt.

5. If they never discuss the fact it is legal for the "news" to lie to you in order to benefit those who finance/own/control their operations, then the "news" must be telling the truth as best they can with no hidden agenda. At least "your news" - whatever false narrative a given person has fallen for. No, the news media went to court to soldify their state sanctioned right to lie to the people all day long in order to serve their self interest at the expense of everyone else - including your children.

Unsettling Accounts
https://www.youtube.com/watch?v=eZkDikRLQrw

That's just a smidge of the deception in play.

BTW, I agree on the control exerted over the mis-education system. Nobody will ever teach the truth... Debt Money Tyranny, to the students. If they did, it would be the end of them. Certaiin disagreement is allowed in order to further the agenda of "free ideas," but there are lines in the sand that few dare cross and there are "consequences and repercussions" (Eddie Murphy) if they do.
http://www.zerohedge.com/news/2012-11-25/guest-post-out-touch-reality-crowd

Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.