Monetization can be done in two ways. First, there is outright monetization as is now being conducted by the Fed through its POMO program; that is, its daily purchase of $4–$8 billion of Treasury debt. Indeed, the Fed’s QE2 bond purchases have been so massive that it is literally buying Treasury paper in the secondary market almost as fast as new bonds are being issued. During January, for example, fully 40% of the Fed’s $100 billion bond buy was from CUSIP numbers less than 90 days old.
Needless to say, putting brand new treasury bonds in the Fed’s vault before they have paid even a single coupon is functionally equivalent to printing greenbacks. After all, under this type of high-speed round trip, virtually all the coupons from newly issued bonds will end up as incremental profit at the Fed and be remitted back to the Treasury at year end.
Stated differently, in the present era of massive quantitative easing, newly issued Treasury securities amount to non-interest bearing currency without the circulation privilege.
http://www.marketoracle.co.uk/Article26902.html
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