Geithner recently told the Chinese: NO, don’t worry, watch what we do.
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Deborah Solomon and Jon Hilsenrath at the WSJ inform us that, in order to keep from hitting the $12.1 billion trillion debt ceiling, the Treasury Department is winding down a one-year-old program it created to borrow funds on behalf of the Fed:
Since last year, the Treasury has been selling special short-term securities and placing the proceeds in an account at the Fed. The program, known as the Supplementary Financing Program, reached about $560 billion late last year, but has since fallen to about $200 billion, where it has remained throughout 2009…
The decision could also be controversial, since the program was put in place to help blunt any inflationary impact from emergency actions taken by the Federal Reserve.
But the end of the Treasury program is unlikely to spur inflation, given the Fed’s ability to pay interest on reserves that banks keep on hand there. Both interest on reserves and the Treasury program are tools that can be used to blunt the inflationary impact of the Fed’s balance sheet expansion.
Is the Treasury Courting Inflation? – Zubin Jelveh, The New Republic
