Helicopter Bernanke-San

Some folks in China are wondering where the Fed is getting the money to run its up-to-$1.15 trillion program. Is Bernanke-san's helicopter-mounted printing press finally running?

Some are confused by the fact that last year, the Fed's expansion of its balance sheet seemed to "need" the support of the Treasury (Supplemental Financing Program) with an initial injection of $100 billion, rising quietly to $559 billion. It was then unwound in November when reserves began to flow into the Fed (attributed to the decision to pay interest on reserves). My colleague, who is also not a central bank expert, thought the Fed might not be statutorily capable of directly printing money. I asked him why I hadn't seen the Treasury go and ask for the money from Congress. He told me that the authorization ceiling of $2 trillion still remains, and the current US debt ceiling will accommodate any new issuance for the recent announced purchases. That could be where the money is going to come from, he supposes. However, in my admittedly undereducated reading of the situation, the Treasury action was mainly sterilizing at the time and the primary impetus was to keep effective short-term interest rates above 0%.

The current round of Treasury purchases should be partially or wholly unsterilized. Isn't that the point of "credit easing"? However, my colleague points out that they might still choose to do a lot of sterilization, since there is likely excess cash in the economy. Essentially, the powers that be would suck up cash lying around and get it to do something. Even the purchase of Treasuries can be sterilized, according to him, with different duration notes aimed at changing the yield curve.

I have not found much evidence in the press either way, except this from The Economist:

"THE Federal Reserve cut its shortterm interest rate to, effectively, zero last December, and with unsterilised bond purchases (that is, financed by creating money) now underway, the Fed is trying to get long-term interest rates there as well."