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IPFS News Link • Federal Reserve

Is the Fed Really Purchasing Over 60% of 2011’s Fiscal Deficit?

Taking the last first, QE-2 represents a direct monetization of just shy of half of the Federal government’s deficit for 2011. The math is: $600 billion divided by $1.267 trillion equals 0.4736. In other words, 47.36% of the Federal government’s deficit for fiscal year 2011 will be financed through the creation of money by the Federal Reserve. As to QE-lite, if you take the conservative figure of $200 billion for the total August 2010 to August 2011 period, and exclude the first two months (since they’re not part of the fiscal year 2011), you get $167 billion of total Treasury bond purchases by the Federal Reserve during fiscal year 2011, as part of QE-lite. Again, basic math applied on the $1.267 trillion deficit gives us a percentage of 13.15%. If we use the $300 billion figure for QE-lite, exclude the months of August and September 2010 as before, and divide it by the $1.267 trillion deficit, we arrive at 19.73%. So conservatively speaking, the Federal Reserve will directly finance no less than 60.51% of the U.S. Federal government’s deficit for fiscal year 2011. That figure might be as high as 67.09%, depending on the size of QE-lite.