Free Capitalist Network - Community Archive
Mises Community Archive
An online community for fans of Austrian economics and libertarianism, featuring forums, user blogs, and more.

FED open market ops and primary dealers

rated by 0 users
This post has 0 Replies | 1 Follower

Top 150 Contributor
Posts 727
Points 11,605
meambobbo Posted: Mon, May 19 2008 2:55 PM

I'm trying to figure this out.  When the FED conducts open market operations to buy treasuries, it adds to its reserves, allowing credit to be created many times larger than the value of the treasuries.  This will cause inflation.

My question is this: who is actually purchasing the treasuries?  Do all the member banks pay equally (according to their share of the system)?  If only one pays (thus getting the ability to expand credit), doesn't this serve to debase the loan values of the other banks?  Is there some kind of auction system?  And, if the FED is buying treasuries with the member banks' reserve accounts at their regional FED, shouldn't the reserves neither gain nor lose value, preventing credit expansion?

Secondly, who gets to decide who gets to be a primary dealer?  How are primary dealers different than ordinary treasury holders?

Check my blog, if you're a loser

Page 1 of 1 (1 items) | RSS