Federal Reserve Bought $164 Billion Dollars of Treasuries in Q2 2009

The WSJ is reporting that of the $339 billion dollars of net new Treasuries sold in Q2 2009, the Fed (Federal Reserve) bought up $164 billion of it.

Foreign governments and individual investors have started to snap up US Treasuries once again, but this doesn't change the fact that the US has to sell a tremendous amount of debt in order to fund their deficit spending.

Where does the Fed get the money to fund these purchases?

It simply prints the money, which increases the chances of runaway inflation and lowers the value of the US dollar.

An anticipated weak economic recovery in the US will likely help to keep inflation low over the coming years, despite the eye-popping amount of money that is being printed by the Fed right now.

What happens when the economy starts to significantly strengthen, but we are still borrowing up to a trillion dollars a year to pay for our deficits? I'll let your mind wander there, but I don't see how we can avoid experiencing a significant amount of inflation under that scenario.

The article in the WSJ also points out that the Fed is currently "buying 80% of the bonds issued by agencies such as Freddie Mac and Fannie Mae."

What will be the impact when the Fed stops sopping up both Treasuries and mortgage-backed debt issuances? That's the $64,000 question.

Source: WSJ.com - Eager Fed Helps Keep Treasury Rally Alive