Page 2 of 4 FirstFirst 1234 LastLast
Results 31 to 60 of 118

Thread: The Biggest Threat to National Security is the Debt

  1. #31
    Quote Originally Posted by Dr.No. View Post
    The US government budget is not like a household budget. This is the fundamental mistake that video makes.
    Math applies the same. The only difference is the government can always print more zeros - the Zimbabwe solution.

    "Let it not be said that we did nothing." - Dr. Ron Paul. "Stand up for what you believe in, even if you are standing alone." - Sophie Magdalena Scholl
    "War is the health of the State." - Randolph Bourne "Freedom is the answer. ... Now, what's the question?" - Ernie Hancock.



  2. Remove this section of ads by registering.
  3. #32
    Quote Originally Posted by Dr.No. View Post
    The US government budget is not like a household budget.
    How is it different from a household budget?



  4. Remove this section of ads by registering.
  5. #33
    Quote Originally Posted by Madison320 View Post
    Specifically the monetary base correct?
    As I have tried to show you many, many times, the monetary base is not a measure of the money supply. If you want to see if the money supply is growing fast and may be going to cause higher inflation in the future, you need to look at M2. Monetary base is cash (paper and coin money) plus bank reserves. Money in reserve is not being spent and causing price levels to change. Monetary base does not give you any useful information on what may occur in the economy.

  6. #34
    Rand is sort of right. The debt is a threat because debt slows growth. It is much more likely that the US will become a stagnating country like Japan because of the debt than anything else.

  7. #35
    Quote Originally Posted by Jamesiv1 View Post
    How is it different from a household budget?
    Household's cannot print their own currency. Sovereign governments who issue their own, non-convertible currency with a floating exchange rate, can.

    Quote Originally Posted by Zippyjuan View Post
    As I have tried to show you many, many times, the monetary base is not a measure of the money supply. If you want to see if the money supply is growing fast and may be going to cause higher inflation in the future, you need to look at M2. Monetary base is cash (paper and coin money) plus bank reserves. Money in reserve is not being spent and causing price levels to change. Monetary base does not give you any useful information on what may occur in the economy.
    Very weak and muddling correlation between M2 and inflation:

    That graph has a very, very mildly positive R squared number. Indeed, you can see periods where rising M2 seems to indicate a decrease in CPI. You can do the same calculation assuming that inflation lags growth in M2. Rolling correlations make the R squared number slightly negative. So even saying that growth in M2 leads to an increase in CPI is false.

    Although I do agree with you that M2 correlates for "demand for money", though total credit level is the better estimation.

  8. #36
    Quote Originally Posted by Dr.No. View Post
    Household's cannot print their own currency. Sovereign governments who issue their own, non-convertible currency with a floating exchange rate, can.
    You're talking about the money system, not the budget.

    A budget is a budget. You have income, and you have expenses. To live on a budget, whether you are government or household, is to live within your means and not spend more than you make.

    You might want to do some research before you embarrass yourself again.

  9. #37
    Quote Originally Posted by Jamesiv1 View Post
    You're talking about the money system, not the budget.

    A budget is a budget. You have income, and you have expenses. To live on a budget, whether you are government or household, is to live within your means and not spend more than you make.

    You might want to do some research before you embarrass yourself again.
    But the difference is that the federal government can spend more than it taxes in via taxes because it issues the currency. IT doesn't even need to issue debt, it only does so because the Federal Reserve needs to control interest rates.

    MOre

    Moreover, think about the economy as a whole. How can the private sector save financial assets? If one household spends less than it earns, another household must spend more than it earns. The only way to break this trend is to either have an export economy, or for the government to run a deficit. Exports would trade real goods for financial assets, and government deficits add financial assets to the private sector.

  10. #38
    Quote Originally Posted by Dr.No. View Post
    But the difference is that the federal government can spend more than it taxes in via taxes because it issues the currency. IT doesn't even need to issue debt, it only does so because the Federal Reserve needs to control interest rates.

    MOre

    Moreover, think about the economy as a whole. How can the private sector save financial assets? If one household spends less than it earns, another household must spend more than it earns. The only way to break this trend is to either have an export economy, or for the government to run a deficit. Exports would trade real goods for financial assets, and government deficits add financial assets to the private sector.
    The government and households can both run deficits by borrowing. Households by using credit cards or loans and the government by selling more Treasury notes. And low Fed interest rates don't stop either of them. Borrowing didn't halt in 1980 when rates hit as high as 20%. Lower rate may make it easier or more tempting to borrow.

  11. #39
    Quote Originally Posted by Zippyjuan View Post
    As I have tried to show you many, many times, the monetary base is not a measure of the money supply. If you want to see if the money supply is growing fast and may be going to cause higher inflation in the future, you need to look at M2. Monetary base is cash (paper and coin money) plus bank reserves. Money in reserve is not being spent and causing price levels to change. Monetary base does not give you any useful information on what may occur in the economy.
    And I've proven to you many, many times that the monetary base IS in fact one measure of the money supply. And it's the most important at predicting the future because an increase in the base gets multiplied and eventually leads to an increase in M1, M2, etc. That's why the monetary base is referred to as high powered money.

    From the Federal Reserve's website:

    "There are several standard measures of the money supply, including the monetary base, M1, and M2."

    https://www.federalreserve.gov/faqs/money_12845.htm


    Here's where I posted it before. But instead of learning from your mistake you just wait awhile and then regurgitate your propaganda.

    http://www.ronpaulforums.com/archive.../t-459831.html

    Quote Originally Posted by Zippyjuan View Post
    Monetary base does not give you any useful information on what may occur in the economy.
    That's another way of saying printing money has no effect on prices. That's just stupid.

  12. #40
    Quote Originally Posted by Dr.No. View Post
    It is not even close to a near ratio. They just tend to go up together...
    LOL!



  13. Remove this section of ads by registering.
  14. #41
    Yes, it is ONE measure of money- but the least used. Until the recession, excess reserves were zero meaning the base was basically cash. The soaring bank reserves have distorted it and made it even less useful.

    Perhaps you can explain how rising bank reserves will impact the economy. (Rising bank reserves were the reason that the monetary base rose so sharply during the recession as banks held more money rather than lending it all out). Your link also notes:

    Over recent decades, however, the relationships between various measures of the money supply and variables such as GDP growth and inflation in the United States have been quite unstable. As a result, the importance of the money supply as a guide for the conduct of monetary policy in the United States has diminished over time.
    The Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System, still regularly reviews money supply data in conducting monetary policy, but money supply figures are just part of a wide array of financial and economic data that policymakers review.
    Last edited by Zippyjuan; 01-06-2017 at 05:14 PM.

  15. #42
    Quote Originally Posted by Zippyjuan View Post
    Yes, it is ONE measure of money- but the least used
    Good, I'm glad you admit that you're wrong. Hopefully you'll remember.


    Quote Originally Posted by Zippyjuan View Post
    Perhaps you can explain how rising bank reserves will impact the economy.
    They won't, until they get loaned out. You think they'll just sit on it forever?

    Actually the more I think about it, the more what's happened so far makes sense. They've printed about 3.5 trillion, but only about a trillion entered the economy, specifically to buy stocks and mortgages. So the base that has entered the economy has doubled. Since the crash in 2008 stocks have tripled, which make sense since the inflation created is concentrated in that area. Eventually I expect the inflation to spread to other parts of the economy and for the 2.5 trillion in reserves to get out as well. If interest rates rise it could all happen very quickly.

  16. #43
    Quote Originally Posted by Madison320 View Post
    LOL!
    Do you know what a ratio is?

    Quote Originally Posted by Zippyjuan View Post
    The government and households can both run deficits by borrowing. Households by using credit cards or loans and the government by selling more Treasury notes. And low Fed interest rates don't stop either of them. Borrowing didn't halt in 1980 when rates hit as high as 20%. Lower rate may make it easier or more tempting to borrow.
    The federal government can run a deficit without borrowing. It prints the money.

    The primary reason the federal government has to issue notes, is that they need to drain the reserves from the system. When the government runs a deficit, it is adding reserves to the system. But, the Federal Reserve manipulates the reserve levels in order to manage interest rates. With the treasury adding reserve to the system, they are pushing interest rates lower. So if the Federal Reserve wants to maintain its target interest rate, it has to drain the reserves. That is why every Monday, the treasury and Fed coordinate on securities the treasury is going to issue, so that the Fed can buy/sell more to meet its target rate.

    What tends to happen in the private sector, is that higher interest rates actually leads to higher inflation. Borrowers pass the cost of borrowing money on to the customer, and since so much of our economy is debt-financed, an increase in interest rates tends to increase costs for everyone, resulting in inflation. But, theoretically, at some point, if interest rates got too high, and borrowers thought they would remain high (otherwise, they could refinance), then you will see borrowing drop, and there would be deflation (or less inflation).

    Quote Originally Posted by Madison320 View Post
    Good, I'm glad you admit that you're wrong. Hopefully you'll remember.




    They won't, until they get loaned out. You think they'll just sit on it forever?

    Actually the more I think about it, the more what's happened so far makes sense. They've printed about 3.5 trillion, but only about a trillion entered the economy, specifically to buy stocks and mortgages. So the base that has entered the economy has doubled. Since the crash in 2008 stocks have tripled, which make sense since the inflation created is concentrated in that area. Eventually I expect the inflation to spread to other parts of the economy and for the 2.5 trillion in reserves to get out as well. If interest rates rise it could all happen very quickly.
    Why then has the credit level risen nearly 10 trillion (from 54 to 63 trillion) since 2009?

    Banks do not loan out reserves. That simply isn't how the banking system works. Banks make loans out of thin air (depending on the credit-worthy investments they find), and use reserves to meet regulatory requirements (paltry), meet physical cash demand, and settle intra-bank obligations. To the extent that their balance sheet swells, they will require more reserves, and if the Federal Reserve wants to maintain its target interest rate, it will provide those reserves.
    Last edited by Dr.No.; 01-06-2017 at 07:03 PM.

  17. #44
    That is why every Monday, the treasury and Fed coordinate on securities the treasury is going to issue, so that the Fed can buy/sell more to meet its target rate.
    No, they do not. The Treasury decisions on how many and what value securities to issue is not coordinated with the Federal Reserve. The Congress notifies the Treasury how much more money they borrow to cover their shortages between taxes and expenditures. The Treasury also has to issue notes to replace maturing ones but they do not consult (or need to consult) with the Federal Reserve on this. Other than replacing maturing notes, the Fed has not been in the Treasury market since October, 2014 when QE ended.

    What tends to happen in the private sector, is that higher interest rates actually leads to higher inflation.
    Cause and effect is backwards. Higher inflation rates lead to higher interest rates. Lenders charge for three things as a pert of their interest rates- one, their expected rate of real return- payment for lending money. Two- the expected rate of inflation during the time of the loan. They want a real (after inflation) return. If they expect higher inflation, they will demand a higher interest rate. Three- a "risk premium"- the odds of them getting their money back in the future. The less likely a borrower will pay (riskier), the higher rate they will charge.

    Note that interest rate increases tend to FOLLOW, not LEAD, changes in the inflation rate.


  18. #45
    Quote Originally Posted by Madison320 View Post
    Good, I'm glad you admit that you're wrong. Hopefully you'll remember.




    They won't, until they get loaned out. You think they'll just sit on it forever?

    Actually the more I think about it, the more what's happened so far makes sense. They've printed about 3.5 trillion, but only about a trillion entered the economy, specifically to buy stocks and mortgages. So the base that has entered the economy has doubled. Since the crash in 2008 stocks have tripled, which make sense since the inflation created is concentrated in that area. Eventually I expect the inflation to spread to other parts of the economy and for the 2.5 trillion in reserves to get out as well. If interest rates rise it could all happen very quickly.
    If interest rates rise, demand for money tends to fall so if interest rates are rising, the reduction in reserves will be slower.

    That is the key- WHEN THEY GET LOANED OUT. Money sitting in banks is not competing with other dollars for goods and services causing prices of them to rise. They have to be borrowed (loaned out) and spent first. How much of an impact depends on how quickly they get loaned out (the reserves reduced). If it happens quickly, then prices may rise. If they are drained slowly, they will have little if any impact on prices.

  19. #46
    The debt is not a problem for the US government.

    Money owed to foreign countries does not need to be repaid.

    Government can confiscate everything of value within their reach.

    The US still has many natural resources. All the govt needs to do is take control of them.

    Bottom line is US government is solvent. Everybody else gets fuched.

  20. #47
    Quote Originally Posted by Zippyjuan View Post
    No, they do not. The Treasury decisions on how many and what value securities to issue is not coordinated with the Federal Reserve. The Congress notifies the Treasury how much more money they borrow to cover their shortages between taxes and expenditures. The Treasury also has to issue notes to replace maturing ones but they do not consult (or need to consult) with the Federal Reserve on this. Other than replacing maturing notes, the Fed has not been in the Treasury market since October, 2014 when QE ended.
    Notice the trick Zippy plays here. He just ignores all the other parts of the post, and looks at the one thing he can possibly nitpick.

    The Treasury is the body that actually spends the money. Not Congress. The Treasury spends the money, then coordinates with the Federal Reserve to manage bond sales. The reason being that the Federal Reserve needs to know the new reserve levels in order to maintain its interest rate target. The FOMC holds this meeting every Tuesday (not Monday...on that point you are correct).



    Quote Originally Posted by Zippyjuan View Post
    Cause and effect is backwards. Higher inflation rates lead to higher interest rates. Lenders charge for three things as a pert of their interest rates- one, their expected rate of real return- payment for lending money. Two- the expected rate of inflation during the time of the loan. They want a real (after inflation) return. If they expect higher inflation, they will demand a higher interest rate. Three- a "risk premium"- the odds of them getting their money back in the future. The less likely a borrower will pay (riskier), the higher rate they will charge.

    Note that interest rate increases tend to FOLLOW, not LEAD, changes in the inflation rate.

    If that is what you want to prove, you are using a horrible graph. You need to do a proper time-series comparison, with rolling numbers.

  21. #48
    Quote Originally Posted by Dr.No. View Post
    Notice the trick Zippy plays here. He just ignores all the other parts of the post, and looks at the one thing he can possibly nitpick.

    The Treasury is the body that actually spends the money. Not Congress. The Treasury spends the money, then coordinates with the Federal Reserve to manage bond sales. The reason being that the Federal Reserve needs to know the new reserve levels in order to maintain its interest rate target. The FOMC holds this meeting every Tuesday (not Monday...on that point you are correct).





    If that is what you want to prove, you are using a horrible graph. You need to do a proper time-series comparison, with rolling numbers.
    Congress writes the spending bills. They determine taxes. They determine the spending. They determine the deficit/ debt. It is true the Treasury writes the checks and borrows the money they come up short but they do not coordinate with the Federal Reserve. The Treasury determines how many bonds they will sell and they set up the auctions to sell them. No Fed involved.

    (The rate they target is the Federal Funds which is the rate banks are charged by either the Fed or by other member banks to borrow money short term- usually overnight- not Treasury Rates. Treasury rates are determined at auctions.
    Last edited by Zippyjuan; 01-07-2017 at 11:41 AM.



  22. Remove this section of ads by registering.
  23. #49
    Quote Originally Posted by Zippyjuan View Post
    Congress writes the spending bills. They determine taxes. They determine the spending. They determine the deficit/ debt. It is true the Treasury writes the checks and borrows the money they come up short but they do not coordinate with the Federal Reserve. The Treasury determines how many bonds they will sell and they set up the auctions to sell them. No Fed involved.

    (The rate they target is the Federal Funds which is the rate banks are charged by either the Fed or by other member banks to borrow money short term- usually overnight- not Treasury Rates. Treasury rates are determined at auctions.
    The Federal Reserve coordinates with the Treasury. They have to know how many bonds the treasury will sell, so that they can OMO appropriately.

    You aren't understanding the connection between the Federal Funds rate and government spending. When the government runs a deficit, it net adds to reserves. When the reserve level goes up, the Federal Funds rate goes down. If the Federal Reserve wants to maintain its FF target, it will need to balance out the additional reserve addition with OMO. Of course, the Treasury itself will issue bonds, but the Federal Reserve might want additional purchases/sales to get to its targeted FF rate. The reverse happens when the Federal government runs a surplus (and not just on an annual basis, but on a rolling basis). As reserves are drained from the system in the form of payments to the government, the Federal Reserve might want to add additional reserves (buy bonds) in order to maintain its interest rate.

    You will notice that when Bill Clinton ran surpluses, the overall debt level didn't go down; it went up....because the Federal Reserve was creating new debt and adding the corresponding reserves to the banking system in order to negate the new upward pressure on the Federal Funds rate.
    Last edited by Dr.No.; 01-07-2017 at 09:40 PM.

  24. #50
    When the government runs a deficit, it net adds to reserves.
    If that statement is true, reserves should be at least $19 trillion (the amount of the debt which is the sum of all deficits). Are reserves that high? Not even close. Thus the statement is completely false.

    You need to study up on this stuff better.

    The Fed does use Open Market Operations to try to adjust the Federal Funds rate but that is independent of the Treasury issuing bonds to cover government debt. The Treasury selling new debt has no impact on bank reserves and no impact on the Federal Funds rate.
    Last edited by Zippyjuan; 01-08-2017 at 11:28 AM.

  25. #51
    Quote Originally Posted by Zippyjuan View Post
    If that statement is true, reserves should be at least $19 trillion (the amount of the debt which is the sum of all deficits). Are reserves that high? Not even close. Thus the statement is completely false.
    It isn't 19 trillion because the government then drains the reserves from the system, via bond sales (either from the Federal Reserve or the Treasury). As I have mentioned before in my posts.

    Quote Originally Posted by Zippyjuan View Post
    The Fed does use Open Market Operations to try to adjust the Federal Funds rate but that is independent of the Treasury issuing bonds to cover government debt. The Treasury selling new debt has no impact on bank reserves and no impact on the Federal Funds rate.
    Of course it does. When the government makes payments to the private sector, it net adds to reserves. When it takes payments from the private sector, it deducts from reserves. When the treasury sells new debt, it is taking payments from the private sector; reserves go down. When it runs a deficit, it is net adding reserves to the private sector.

  26. #52
    Quote Originally Posted by Dr.No. View Post
    It isn't 19 trillion because the government then drains the reserves from the system, via bond sales (either from the Federal Reserve or the Treasury). As I have mentioned before in my posts.
    I'm really not sure what you're getting at here:

    If the Federal Reserve bought bonds directly, that would not reduce reserves. It would grow the money supply.

    If banks bought bonds with excess reserves, this would also grow the money supply.


    Quote Originally Posted by Dr.No. View Post
    Of course it does. When the government makes payments to the private sector, it net adds to reserves. When it takes payments from the private sector, it deducts from reserves. When the treasury sells new debt, it is taking payments from the private sector; reserves go down. When it runs a deficit, it is net adding reserves to the private sector.
    You keep using reserves as a synonym for money. They are not the same.
    Quote Originally Posted by Swordsmyth View Post
    Pinochet is the model
    Quote Originally Posted by Swordsmyth View Post
    Liberty preserving authoritarianism.
    Quote Originally Posted by Swordsmyth View Post
    Enforced internal open borders was one of the worst elements of the Constitution.

  27. #53
    Technically any spending- whether it is by the government or companies or individuals- adds to reserves if you deposit the money into a bank. If it gets loaned out for whatever purpose, the reserves go down by the amount lent. Or if I simply withdraw my money from the bank.
    Last edited by Zippyjuan; 01-09-2017 at 04:33 PM.

  28. #54
    Quote Originally Posted by Zippyjuan View Post
    Technically any spending- whether it is by the government or companies or individuals- adds to reserves if you deposit the money into a bank. If it gets loaned out for whatever purpose, the reserves go down by the amount lent. Or if I simply withdraw my money from the bank.
    I am assuming that if a bank is buying treasuries with 100% excess reserves, after the government spends it less than 100% of it will return to the banking system as reserves. In addition, it will be spread through more accounts within more (and smaller) banks, and therefore be more likely to be loaned.
    Quote Originally Posted by Swordsmyth View Post
    Pinochet is the model
    Quote Originally Posted by Swordsmyth View Post
    Liberty preserving authoritarianism.
    Quote Originally Posted by Swordsmyth View Post
    Enforced internal open borders was one of the worst elements of the Constitution.

  29. #55
    Quote Originally Posted by TheCount View Post
    I'm really not sure what you're getting at here:

    If the Federal Reserve bought bonds directly, that would not reduce reserves. It would grow the money supply.
    Yes, how is what I said opposed to this? I said the government drains reserves via bond sales, not purchases.

    Quote Originally Posted by TheCount View Post
    If banks bought bonds with excess reserves, this would also grow the money supply.


    You keep using reserves as a synonym for money. They are not the same.
    OK, remember: what are reserves?

    Reserves are the money held by depositor banks in their accounts at the Fed. They are higher level than bank money. They are the currency of the banking system. When you cash a check from someone at a different bank, the different bank transfers reserves from their account at the Fed to your bank's account at the fed, while your bank credits you for the amount of the check. When you write a check to someone in a different bank, and it gets cashed, the reverse happens. But, ultimately, reserves are not created or destroyed in the system as a whole.

    But what happens when the government writes you a check? Well, the Treasury has an account at the Fed. The Treasury instructs the Federal Reserve to credit the reserve account of your bank by the amount of the check. Your bank then credits you for the amount of the check. Here, reserves are injected into the system. New reserves have been added. When you write a check to the government (say, you pay your taxes), the reverse happens: your bank hands over reserves to the Treasury, who simply destroys the reserves.

    When banks buy bonds from the treasury, they are writing a check to the government (hell, when anyone buys bonds from treasury auction, this is what happens). So, reserves are removed from the system. I'm not sure how this would grow the "money supply"...and, of course, what do you mean by the money supply. Monetary base? No, it would reduce it. M1/M2,M3? It would reduce it as well if banks directly bought bonds. The overall credit level (which is the money supply which chases goods)? Banks balance the credit levels against their assets...which includes reserves, and bonds. When they swap reserves for bonds, they are merely swapping out a non-"100% risk-free" interest-bearing asset for a "99% risk-free" interest-bearing one.

    Quote Originally Posted by Zippyjuan View Post
    Technically any spending- whether it is by the government or companies or individuals- adds to reserves if you deposit the money into a bank. If it gets loaned out for whatever purpose, the reserves go down by the amount lent. Or if I simply withdraw my money from the bank.
    Except if that were true, the numbers wouldn't add up...as I have showed you numerous times in the graphs of reserves/loans/deposits/etc. But you always ignore it!

    I mean, think about what a loan is: A loan is a creation of a deposit! How could a loan reduce the reserve level if it creates a deposit, which by your definition adds reserves to a bank?
    Last edited by Dr.No.; 01-09-2017 at 10:31 PM.

  30. #56
    Quote Originally Posted by Dr.No. View Post
    Yes, how is what I said opposed to this? I said the government drains reserves via bond sales, not purchases.
    You said bond sales "either from the Federal Reserve or the Treasury" but those two do not have the same effect.


    Quote Originally Posted by Dr.No. View Post
    OK, remember: what are reserves?

    Reserves are the money held by depositor banks in their accounts at the Fed.
    Plus all of the banks' cash on hand.


    Quote Originally Posted by Dr.No. View Post
    But what happens when the government writes you a check? Well, the Treasury has an account at the Fed. The Treasury instructs the Federal Reserve to credit the reserve account of your bank by the amount of the check. Your bank then credits you for the amount of the check. Here, reserves are injected into the system. New reserves have been added. When you write a check to the government (say, you pay your taxes), the reverse happens: your bank hands over reserves to the Treasury, who simply destroys the reserves.
    No. That's simply not how money is created.

    The Treasury gets its money by selling bonds (also taxes). That's where the electronic money in their account came from.



    Here's an example of how the system actually works:

    Money supply is $100K total. It's all in bank accounts.

    Bank(s) buy Treasury bond(s) for $20K.

    Treasury now has $20K. Bank(s) have $80K.

    Fed decides it wants to grow the money supply.

    Fed buys Treasury bond for $20K.

    Where did the Fed's money come from? Literally noplace.

    Bank(s) have $100K, Treasury has $20K.

    Treasury spends its money. Banks have $120K.

    Boom, there's more money than there used to be.

    Repeat forever.


    Quote Originally Posted by Dr.No. View Post
    When banks buy bonds from the treasury, they are writing a check to the government (hell, when anyone buys bonds from treasury auction, this is what happens). So, reserves are removed from the system. I'm not sure how this would grow the "money supply"...and, of course, what do you mean by the money supply. Monetary base? No, it would reduce it. M1/M2,M3? It would reduce it as well if banks directly bought bonds.
    The Treasury doesn't sell bonds for laughs. They sell bonds to generate funds, which they then spend. They don't sell more or less than they need. The amount of money being paid to the government in taxes + the amount of bonds sold = amount of government spending. Money in, money out.


    If what you say were true:

    • The size of the money supply would be fixed unless the Treasury - for some reason - decided to create more money than it needed.
    • Treasury bonds would have no purpose because the Treasury could just create money itself instead of selling them.
    • The Fed would have no purpose aside from being a check clearinghouse.
    Quote Originally Posted by Swordsmyth View Post
    Pinochet is the model
    Quote Originally Posted by Swordsmyth View Post
    Liberty preserving authoritarianism.
    Quote Originally Posted by Swordsmyth View Post
    Enforced internal open borders was one of the worst elements of the Constitution.



  31. Remove this section of ads by registering.
  32. #57
    Quote Originally Posted by TheCount View Post
    You said bond sales "either from the Federal Reserve or the Treasury" but those two do not have the same effect.
    No, they do. I think we have a very different view on how the banking system works. I take mine from how it literally it works, from the mouths of the bankers.

    Quote Originally Posted by TheCount View Post
    No. That's simply not how money is created.

    The Treasury gets its money by selling bonds (also taxes). That's where the electronic money in their account came from.
    The Treasury issues the currency. They are not revenue constrained.

    Think about it this way. There is zero money in the economy. How does the Treasury "get" money by selling bonds or taxes, when there is no money to be collected? Government printing and issuing the money is what brings it into the economy.

    Quote Originally Posted by TheCount View Post
    Here's an example of how the system actually works:

    Money supply is $100K total. It's all in bank accounts.
    The problem starts here. What is "money supply" and what is "bank accounts"? Commercial bank accounts reflect obligations of that bank. Reserves represent assets
    of that bank.

    Let's continue your analogy assuming that by money supply you meant the monetary base, and that by bank account, you mean accounts at the Fed. There is no cash, and everything is in the bank.

    Quote Originally Posted by TheCount View Post
    Bank(s) buy Treasury bond(s) for $20K.

    Treasury now has $20K. Bank(s) have $80K.

    Fed decides it wants to grow the money supply.

    Fed buys Treasury bond for $20K.

    Where did the Fed's money come from? Literally noplace.

    Bank(s) have $100K, Treasury has $20K.

    Treasury spends its money. Banks have $120K.

    Boom, there's more money than there used to be.

    Repeat forever.
    Your analogy has some issues with it. The Treasury's money comes from nowhere. Otherwise, how do you explain QE, when the Fed had to create bonds before issuing reserves?

    If the Treasury wants to spend 20K, it simply spends it. It instructs the Federal Reserve to credit the accounts of member banks. Now, there are 120K in reserves.

    Let us say the treasury does nothing more at this point. Because there are more reserves, there is downward pressure on the interest rate. Banks that need reserves to meet regulatory requirements, balance of payments, cash demand, liquidity qualifications, etc. have a greater pool of dollars to fight over. However, the Federal Reserve has an interest-rate target. They decide that the interest rate will be met with the reserve level at 100K. They will issue 20K in bonds to soak up the reserves and return the level to 100K.

    Now, you make some casual statements that make me think you don't understand how the money that circulates at the economy level comes into existence. Your lose use of the words money supply, bank accounts, etc. testifies to this. Banks create loans out of thin air. They use their assets to balance that out. They need reserve to fulfill paltry reserve requirements, to meet cash demand, etc. But otherwise, their ability to create money is unrestrained. In practice, if their asset sheet is healthy, they will expand the effective money supply (the credit level) to the extent that they can find credit-worthy customers.

    Quote Originally Posted by TheCount View Post
    The Treasury doesn't sell bonds for laughs. They sell bonds to generate funds, which they then spend. They don't sell more or less than they need. The amount of money being paid to the government in taxes + the amount of bonds sold = amount of government spending. Money in, money out.
    Effectively, the treasury sells bonds in order to adjust the reserve level. Otherwise, short-term interest rates would plunge towards zero.

    Quote Originally Posted by TheCount View Post
    If what you say were true:

    • The size of the money supply would be fixed unless the Treasury - for some reason - decided to create more money than it needed.
    Depending on what you mean:

    1) Banks can create money out of thin air, so no, the effective money supply wouldn't be stagnant
    2) If you mean the monetary base, the Federal Reserve can always create bonds, and use the accompanying reserves to buy already-held bonds, increasing the money supply. They did this during the Clinton surplus years.

    Quote Originally Posted by TheCount View Post

    • Treasury bonds would have no purpose because the Treasury could just create money itself instead of selling them.
    No, they still have the important purpose of adjusting the reserve level, so that the Fed can set its short-term interest rate. Plus, government debt sets a barometer for system-wide rates.

    Quote Originally Posted by TheCount View Post
    The Fed would have no purpose aside from being a check clearinghouse.
    Like I said, the Federal Reserve uses the tools at its disposal to adjust the short-term interest rate (Federal Funds rate). And, at times, they will try and effect mid- and long-term rates as well, with only some success (as they really are not empowered to do so).

  33. #58
    Quote Originally Posted by Dr.No. View Post
    No, they do. I think we have a very different view on how the banking system works. I take mine from how it literally it works, from the mouths of the bankers.
    Your understanding is almost the opposite of how the system actually works.


    Quote Originally Posted by Dr.No. View Post
    The Treasury issues the currency. They are not revenue constrained.
    Although this was historically true, issuing currency and controlling the size of the money supply are not the same thing in a modern economy. There is not a paper dollar for every electronic dollar. The Treasury prints the currency, yes, but they do not manage the money supply.

    There's a reason why the money in your wallet says Federal Reserve Note, not Treasury Note, and why it's a liability on the balance sheet of the Fed, not the Treasury.


    Quote Originally Posted by Dr.No. View Post
    What is "money supply"
    The total supply of money.


    Quote Originally Posted by Dr.No. View Post
    Commercial bank accounts reflect obligations of that bank.
    The account is a liability, the funds are an asset. Banks use the funds to purchase assets. The funds that they don't use for this purpose are an asset called reserves.


    Quote Originally Posted by Dr.No. View Post
    Let's continue your analogy assuming that by money supply you meant the monetary base, and that by bank account, you mean accounts at the Fed.
    I meant no such thing.


    Quote Originally Posted by Dr.No. View Post
    Your analogy has some issues with it. The Treasury's money comes from nowhere. Otherwise, how do you explain QE, when the Fed had to create bonds before issuing reserves?
    The Fed does not create bonds. There are no Federal Reserve bonds, only Treasury bonds.

    QE was the Fed purchasing assets such as Treasury bonds using "new" money which they create from nothing. By purchasing bonds with money that comes from "outside" the money supply it adds to the money supply.

    https://www.federalreserve.gov/monet...nmarketops.htm


    Quote Originally Posted by Dr.No. View Post
    If the Treasury wants to spend 20K, it simply spends it. It instructs the Federal Reserve to credit the accounts of member banks. Now, there are 120K in reserves.
    Nope. While the Fed does act as the fiscal agent of the Treasury, it does not create money when doing so. The Treasury raises money by selling securities, the proceeds of which are deposited in its account at the Fed. All the Fed does is transfer money from the Treasury's account to the account of a member.

    https://www.federalreserve.gov/monet...iabilities.htm
    Quote Originally Posted by Swordsmyth View Post
    Pinochet is the model
    Quote Originally Posted by Swordsmyth View Post
    Liberty preserving authoritarianism.
    Quote Originally Posted by Swordsmyth View Post
    Enforced internal open borders was one of the worst elements of the Constitution.

  34. #59
    The Treasury gets its money by selling bonds (also taxes). That's where the electronic money in their account came from.



    Here's an example of how the system actually works:

    Money supply is $100K total. It's all in bank accounts.

    Bank(s) buy Treasury bond(s) for $20K.

    Treasury now has $20K. Bank(s) have $80K.

    Fed decides it wants to grow the money supply.

    Fed buys Treasury bond for $20K.

    Where did the Fed's money come from? Literally noplace.

    Bank(s) have $100K, Treasury has $20K.

    Treasury spends its money. Banks have $120K.

    Boom, there's more money than there used to be.

    Repeat forever.
    The Fed does not have to give the banks $20k just because the Treasury sold $20k in bonds.

    House votes on spending bills. President signs. But not enough tax revenues to cover spending. Government needs more money. Notifies Treasury. Treasury sells bonds to raise the needed money. That takes money from savers and investors- removing it from the bank. Then they give the money to the government which sends checks to the people they owe the unpaid bills to like employees or contractors. That money can get deposited into an account (the Fed does not deposit money into the banks reserves for them). Any deposit from any person or business or government or business does increase reserves. However, when the money was taken out of an account to purchase the Treasury notes, reserves were taken out of the bank by the person or bank or whomever buying the Treasury bonds. Again, no Federal Reserve participation.

    However, the Fed does act as a clearing house for checks for which they charge fees. The Fed returns profits after net costs to the US Treasury at the end of the year. https://www.newyorkfed.org/aboutthef...int/fed03.html

    Individual at beginning: $10,000. (average Treasury amount). Well, technically, he doesn't have it. He loaned it to the bank in the form of a deposit so really he has $0 but the promise of $10,000 (plus possible interest) back from the bank later on.
    Treasury at beginning: $10,000.
    Bank deposits: $10,000. (assuming this is the only money in the system to keep it simpler).
    Government has zero dollars but needs $10,000 they promised somebody else.

    Treasury creases a $10,000 note which is sold to our customer. Let's figure a ten percent yield. When you buy a bond like a Treasury you get it at a "discount" to its face value. The difference between what you paid for it divided by the face value gives you the yield. So with a ten percent yield, he pays $9,000 which he takes out from his bank account and gives that to the Treasury.

    Now the bank has $1,000 left. Our customer has no money but a bond worth $10,000 in the future- a "promise to pay" with interest. The Treasury has $9,000 which the government gives to their client. If that customer puts it into a bank account, the bank now has $10,000 ($1,000 from the original depositor and $9,000 from the person who the government paid), the Treasury has $0 and our bond holder has $1,000 left (which is really at the bank and part of their $10,000- he has zero).

    Net effect? Zero change in reserves and total deposits. It just moves around to different people. The issue comes when the Treasury has to pay off that note. Then they need to borrow $10,000 (or get some more money in taxes).
    Last edited by Zippyjuan; 01-10-2017 at 08:54 PM.

  35. #60
    Quote Originally Posted by TheCount View Post
    Your understanding is almost the opposite of how the system actually works.
    Right back at you.

    Quote Originally Posted by TheCount View Post
    Although this was historically true, issuing currency and controlling the size of the money supply are not the same thing in a modern economy. There is not a paper dollar for every electronic dollar. The Treasury prints the currency, yes, but they do not manage the money supply.
    So technically, the Fed print banknotes while the treasury mints coins. But the question really is who has the power to credit the private sector with currency, adding to private income. When the Fed pays its employees, buys equipment, or pays interest, they would do this. But the bulk of the Fed's operations do not involve this. When the Fed makes loans or engages in OMO, the Fed trades currency with financial assets. They do not add to the income of the recipients. They modify private balance sheets with holdings of currency in place of other financial assets. Typically, those assets have been treasury bonds, while in QE, it included MBS.

    When the Treasury pays for expenditures, it credits currency, adding income to the private sector. The opposite is true when it takes in taxation. It is the Treasury that has the power to print or unprint money through spending and taxing.

    In regards to your last point, the Federal Reserve manages the money supply through OMO and QE. And yes, it can create money. But it is the treasury sector that adds net financial assets to the private sector, and it is the private banking sector, through loan creation, that sets the effective money supply (credit level)

    Quote Originally Posted by TheCount View Post
    The total supply of money.
    OK, so you mean the credit level (at around 66 trillion). Banks have primarily created that. They use their assets (including NFAs engendered via federal deficit spending) as assets against th

    Quote Originally Posted by TheCount View Post
    The account is a liability, the funds are an asset. Banks use the funds to purchase assets. The funds that they don't use for this purpose are an asset called reserves.
    You are mistaking the way the system works. Your example is too simplistic. Not all accounts have "funds"/reserves to back them. When Chase bank creates a loan, they create it out of thin air. Just electronic digits. The liability is the deposit that the loan creates (for example, a mortgage loan of 100K will get deposited in someone's account, this creates a liability of the bank of 100K). The asset against that liability is the loan. The value of the loan is the asset the bank holds.

    The reason reserves come into the picture is:

    1) Regulatory requirements requirement that some reserves/cash are maintained (these are very paltry requirements).
    2) Banks need to use reserves to settle transactions.

    For example, when Chase has created the 100K loan with the 100K deposit, some of that depository money might leave the bank. Let us say that the old homeowner had an account at Chase. In a savings accounts or a CD, Chase wouldn't have to do anything. If in a checking accounts, Chase would now have to find reserves to meet the new obligation. For simplicity sake, let us say that 100% of the money was in a checking account, subjected completely to a 10% reserve rate. Chase would need to find 10K of reserves. But let us say the old homeowner decided to spend all that money, and 80% of the purchases ended up at other financial institutions. Ultimately, 20K is still held at Chase. But for the other 80K, Chase would need to get 80K in reserves for in order to settle the transactions at the other banks. Chase would transfer the reserves to those banks to settle the transactions.

    Those banks would undergo the same calculus as the money shifts and spread around the economy. But the overall reserve level for the system has only gone up by 10K. And as money shifts into accounts that don't have reserve requirements, it will shrink even further. Overall, the 100K will result in less than a 1K increase in the total level of reserves. And, course, the net financial sheet of the entire system would not change. There would be 1K(or 5K or 10K) increase in reserves, with an equivalent decrease in financial assets, which would be absorbed by the Federal Reserve as it provided the required new reserves, in order to maintain its target interest rate.

    Quote Originally Posted by TheCount View Post
    The Fed does not create bonds. There are no Federal Reserve bonds, only Treasury bonds.
    Of course, but when they underwent QE, they created 1.6 trillion in new Treasury bonds. Issues by the Treasury, of course, but engineered because of the Fed's policy. The reason being that if the Fed in the future wants to soak up that 1.6 trillion in reserves, it doesn't want to hand over the MBS it purchased and instead will give back the treasury bonds.

    Quote Originally Posted by TheCount View Post
    QE was the Fed purchasing assets such as Treasury bonds using "new" money which they create from nothing. By purchasing bonds with money that comes from "outside" the money supply it adds to the money supply.
    Why would it add to the money supply? Under normal operations, it hasn't changed the net financial position of the banks. They are not wealthier or poorer...why would they suddenly engage in more lending, therefore growing the money supply? They lost an interest-bearing asset and gained a non-interest-bearing asset of the same value.

Page 2 of 4 FirstFirst 1234 LastLast


Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •