Federal Reserve Insolvency and Monetizing the National Debt
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 22 April 2020
⏱️ 29 minutes
🧾️ Download transcript
Summary
How central banks can become insolvent and why it can lead to hyperinflation. What are four ways the Federal Reserve and the U.S. Treasury could monetize the national debt.
Topics covered include:
- What are the major asset and liabilities of the Federal Reserve
- How does the Federal Reserve make a profit and what happens if it suffers a loss.
- How has the Federal Reserve has significantly expanded the types of assets it will hold and what are the risks.
- What could cause the Federal Reserve and other central banks to become insolvent.
- What are the constraints central banks face.
- What are four ways the U.S. national debt could be monetized.
- How investors can protect themselves against central bank insolvency.
Thanks to The Great Courses Plus and Policygenius for sponsoring the episode.
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. |
| 0:10.0 | I'm your host David Stein today is episode 295. |
| 0:13.4 | It's titled Federal Reserve Insolvency |
| 0:17.5 | and Monotizing the National Debt. |
| 0:22.3 | We've had a lot of discussions on the money for the rest of us Plus forums recently. |
| 0:27.0 | Regarding actions the Federal Reserve is taking and the Federal Government, most of which are necessary in order to combat the economic |
| 0:37.1 | shutdown related to the pandemic. |
| 0:40.6 | But there's also some concerns. Here's a few quotes from members. When you hear about |
| 0:46.6 | debt in the trillions anymore, it's beyond mind-numbing. How can this be sustainable? |
| 0:51.8 | But the debt is generally measured in dollars, trillions of dollars, |
| 0:56.0 | and it is got awfully high. |
| 0:58.0 | But a dollar is a unit that is not fixed. |
| 1:01.0 | A milliliter never changes, a cup never changes, but today's dollar |
| 1:06.2 | is not 10 years ago dollar or 50 years ago dollar. Maybe it would be better to here we are |
| 1:12.4 | 170 billion Benjamin's in debt. |
| 1:15.0 | Maybe. |
| 1:16.0 | I think a better unit is percent of GDP. |
| 1:19.0 | That is really the only way you can compare debt over time. |
| 1:22.0 | How about debt versus GDP after World War II versus now? |
| 1:27.0 | The federal debt publicly held debt as a percent of the economic output in the US. |
| 1:34.0 | Gross domestic product or GDP is 106%. |
| 1:38.0 | Back in 1948, it was 119%, |
... |
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