War and Covid - The excuse for the coming financial collapse

[steve_bank]

Ase we say over here, 'You can take it to the bank'.


The treasury and the Fed are different entities.

 

[Canard DuJour]

The Fed, like most central banks, has day-to-day autonomy in monetary policy (interest rate setting) but cannot veto the fiscal operations of govt. The govt, whether in deficit or surplus, spends by instructing the Fed to mark up commercial bank reserve balances with keystrokes.

That is, instruction, not request. And keystrokes, not cash.

Hunh? The Treasury can write checks (or push buttons on its smartphone I suppose ) but cannot overdraw its account at the Fed. When its balance goes to zero, the Treasury must replenish its account by auctioning off new debt paper.

Then it can - and almost always does - "overdraw its account at the Fed". Treasury is indeed then obligated to issue bonds, but by its own fiscal rules, not because the Fed is authorised to say "payment declined". Those bonds aren't some negative form of money, but an interest-bearing form of money - the holder's asset, not liability.

What exactly are we quibbling over?

Whether Greenspan is right in saying "There is nothing to prevent the federal government from creating as much money as it wants and paying it to someone." Which, in turn, means that the purposes of taxation and bond issuance are commonly misunderstood.

The detailed mechanics I assume, since the principles of government finance and money creation were given upthread. Various government agencies have checking accounts at Treasury and Treasury itself has accounts at the FRB. Any "overdraft" in these accounts would be very short-lived. I wasn't aware that they had any overdraft protection — and would like to see a cite that overdrafts occur — but it would have no effect on the principles we're discussing.

And I wasn't aware that they need any such thing as "overdraft protection". It would imply that the central bank could constrain govt spending like a commercial bank constrains household spending. Thus Greenspan would be wrong. Treasury issues bonds because it imposes the fiscal rule upon itself, not because the central bank is authorised to decline its payments.

Why the fiscal rule?

If govt deficit-spends a billion dollars, that creates a billion dollars worth of reserves in the banking system. Without some way of draining them, they'd accumulate in the system until their value in the interbank market were driven to zero and the central bank might lose control of interest rates. The preferred way is for Treasury to issue bonds, sale of which is only settled when reserve balances of banks are debited. If the central bank wants to keep interest rates low, it buys the bonds in the secondary market and marks the reserve balances back up.

Despite some very misleading language, it is central bank monetary operations which require treasury bond issuance, not govt fiscal operations.

Your "and almost always does - overdraw its account at the Fed" is almost certainly wrong, Are your alleged "overdrafts" subject to the statutory debt ceiling?

The statutory debt ceiling is an absurd piece of right wing theatre. It's always exceeded, and always must be . So, no.

 

[RVonse]

Bitcoin is a failure for a currency. Can you imagine waking up and finding out your money is worth 40% less than what it was the day before? And would you spend it today if it could be worth 25% more tomorrow? That isn't how currencies function in a proper fashion.

And yes, gold and silver, open to manipulation just the same, and suffer from the ills of being a commodity.

So these are solutions that either could never work or didn't work well when they were used originally.

Bitcoin was never meant to be a currency it was meant to be a store of wealth that could not be stolen by any government. As such I would say it does appears to be failing although it is probably too early to know for sure. It is still in its infancy.

Really? That isn't what this guy said.

Anyway, the reasoning is that when enough rational people decide to use money that can not be manipulated by special interests, they will. And that there will be nothing any government can do to prevent it. At some point there will be so many on board bitcoin will no longer be volatile becoming a defacto currency for the world.

Or this guy stated.

The general premise of bitcoin is correct but what most are forgetting is that any government can and will outlaw a blockchain currency if they consider it a threat.

It is common place to interchange the terms money and currency in speech. Although that is technically not correct for bitcoin and as such was not technically correct when I said it.. So guilty as charged.

Although Bitcoin would work as currency transactions just takes too long to ever be practical

 

[jdf5]

Banking is a ponzi and it will collapse if not transformed. If they have $1000 they push a button and 100 times that is created that they can lend out. Fake loans of course.

 

[Swammerdami]

There are MANY topics about which I am VERY ignorant, and relatively few on which I am expert. (Start a thread "Comparison of the details of IBM mainframes in the mid-1970's" ... and I could babble for days!)

Economics, government organization and finance are not topics on which I have much formal training (although the Chairman of a major Economics department once took me for dinner and begged me to switch my major to Econ) and most of what I know is information easily acquired with Google and Wikipedia. Yet my experience at message-boards has shown me that many intelligent people have grave misconceptions about U.S. government finance, money and money creation.

Everything I've written in this thread can be easily confirmed with Google and Wikipedia. I am baffled by Infidels who do not concede the correctness of my posts!

Part of the problem, I think, is that people develop their own intuition about what words like "money" even mean; and then refuse to educate themselves. Just looking up "money" in one of many on-line dictionaries could cure this ignorance.

A recent development, introduced in Japan over 20 years ago, and now widespread in U.S. and elsewhere, is for a Central Bank to purchase large quantities of government debt. This has the conceptual effect of inflating the money supply with large quantities of a new sort of fiat money. Since this was NOT a pattern for prosperous democracies in the 20th century, I think it's best to keep it somewhat separate in discussions, and not assume this is how government finance ALWAYS operated.

Finally, another issue is that different countries have different mechanics for central banks and government financing. Canard du Jour refers to the mechanics of government financing in the U.K., while all my comments pertain to the U.S. The U.S. Treasury stopped issuing fiat banknotes about 50 years ago; since then only FedRes issues legal-tender banknotes. But these are mechanical details. and often have little effect on the big picture.

(Federal) taxation is the destruction of money.

(Federal) government spending is the creation of money.

Currency issuing governments do NOT spend tax receipts; Rather, they tax back some of the money they spent into existence.

. . . The US Federal Government does not, and never has, spent tax receipts. The taxes you send to the IRS are functionally indistinguishable from banknotes shovelled into an incinerator, and the sole purpose of the action of collecting those taxes is to remove money from the economy, so that government spending (which can be done regardless of taxation) doesn’t cause unreasonable levels of inflation.

This is a fanciful — and not particularly wrong — perspective on government financing; and is the point of view fostered by "Modern Monetary Theory." While arguably a useful perspective conceptually it is not the way the actual mechanics of money creation work, and can therefore foster confusion.

Again: Government raises money via taxes or borrowing. Taxes do not increase the money supply, but they transfer money from the private sector to the public. (It then gets back in private hands when government pays its workers, pays its munition manufacturers, or mails Covid stimulus checks.)

Borrowing DOES increase the money supply when the government bills, notes or bonds end up belonging to a U.S. bank, private or central. At present the Federal Reserve banks own about $6 trillion of Treasury debt (and another $3 trillion in other debt, especially mortgage-backed securities). As recently as 2019 the Fed had only $2.5 trillion of Treasury debt, so "QE" has been progressing rapidly just in a few years. (What would interest rates be without this huge "demand" for such debt?)
. . .
Bilby is correct, at least given present-day central bank realities. Government borrowing is INCREASING the money supply (possibly "too much"). Taxes do not.

You still have not read the lins. As Loren pointed out the Fed is semi-autonomous by design. To increase spending above revenue the government has to borrow money and make payments just like a car loan. The Fed is the central bank. All governments actually have credit ratings just like an individual r a business. A government's credit rating affects the abilty to borrow money and how much inerest it has to pay.

Say you have 1 million dollars in a bank account Banks are required to keep a minimum percentage of all deposits on hand. You ask for your 1 million dollars in cash and the bank does not have it on hand. Where does your bank go to get a million dollars in real paper cash?

Much of what Steve Bank writes is correct. That he is fundamentally confused, however, is shown by comments like "You still have not read the lins." Part of his confusion is restricting the term "money" to "currency." If the dictionary definition of "money" is ambiguous, perhaps he should Google and learn the definitions of M1 and M2 — the specific money measures used by government policy-makers in the U.S.

The Fed, like most central banks, has day-to-day autonomy in monetary policy (interest rate setting) but cannot veto the fiscal operations of govt. The govt, whether in deficit or surplus, spends by instructing the Fed to mark up commercial bank reserve balances with keystrokes.

That is, instruction, not request. And keystrokes, not cash.

Hunh? The Treasury can write checks (or push buttons on its smartphone I suppose ) but cannot overdraw its account at the Fed. When its balance goes to zero, the Treasury must replenish its account by auctioning off new debt paper.

Then it can - and almost always does - "overdraw its account at the Fed". Treasury is indeed then obligated to issue bonds, but by its own fiscal rules, not because the Fed is authorised to say "payment declined". Those bonds aren't some negative form of money, but an interest-bearing form of money - the holder's asset, not liability.

What exactly are we quibbling over?

Whether Greenspan is right in saying "There is nothing to prevent the federal government from creating as much money as it wants and paying it to someone." Which, in turn, means that the purposes of taxation and bond issuance are commonly misunderstood.

The detailed mechanics I assume, since the principles of government finance and money creation were given upthread. Various government agencies have checking accounts at Treasury and Treasury itself has accounts at the FRB. Any "overdraft" in these accounts would be very short-lived. I wasn't aware that they had any overdraft protection — and would like to see a cite that overdrafts occur — but it would have no effect on the principles we're discussing.

And I wasn't aware that they need any such thing as "overdraft protection". It would imply that the central bank could constrain govt spending like a commercial bank constrains household spending. Thus Greenspan would be wrong. Treasury issues bonds because it imposes the fiscal rule upon itself, not because the central bank is authorised to decline its payments.

Why the fiscal rule?

If govt deficit-spends a billion dollars, that creates a billion dollars worth of reserves in the banking system. Without some way of draining them, they'd accumulate in the system until their value in the interbank market were driven to zero and the central bank might lose control of interest rates. The preferred way is for Treasury to issue bonds, sale of which is only settled when reserve balances of banks are debited. If the central bank wants to keep interest rates low, it buys the bonds in the secondary market and marks the reserve balances back up.

Despite some very misleading language, it is central bank monetary operations which require treasury bond issuance, not govt fiscal operations.

Your "and almost always does - overdraw its account at the Fed" is almost certainly wrong, Are your alleged "overdrafts" subject to the statutory debt ceiling?

The statutory debt ceiling is an absurd piece of right wing theatre. It's always exceeded, and always must be . So, no.

Part of the confusion is due to Canard du Jour basing his understanding on the mechanics of government financing in the U.K., while my exposition is based on the U.S. However the big-picture differences are minimal. In particular note that the Consolidated Fund of U.K. government financing is required IIUC to have zero balance at the end of every day.

The end result is that almost everything Mr. Canard writes is incorrect. (And he has provided no real cites despite my request.) The money creation Greenspan referred to is accomplished via debt issuance, with FRB effectively a buyer of last resort.

 

[Canard DuJour]

Part of the confusion is due to Canard du Jour basing his understanding on the mechanics of government financing in the U.K., while my exposition is based on the U.S. However the big-picture differences are minimal. In particular note that the Consolidated Fund of U.K. government financing is required IIUC to have zero balance at the end of every day.

That's right. It starts each day with a zero balance so it must operate on intra-day credit from its own central bank. Otherwise it couldn't spend unless in surplus - or within some limit imposed by the central bank, in which case its spending would be constrained like household spending.

The accounting analysis of UK govt finance I cited upthread cites several such analyses of US govt finance which also conclude that it isn't thus constrained. For example:

"An analysis of reserve accounting reveals that all government spending is financed by the direct creation of HPM (high powered money); bond sales and taxation are merely alternative means by which to drain reserves/destroy HPM. The choice, then, is between alternative methods for draining reserves in order to prevent the overnight lending rate from falling to zero. In light of these findings, it is perhaps time to reconsider our definitions of monetary and fiscal policy as well as of taxation and bond sales as "financing" operations."

- Can Taxes and Bonds Finance Government Spending?

The end result is that almost everything Mr. Canard writes is incorrect. (And he has provided no real cites despite my request.) The money creation Greenspan referred to is accomplished via debt issuance, with FRB effectively a buyer of last resort.

As you've already said, but one's disputing that treasury is required to match net spending with bond issuance. The question is by whom and to what purpose?

If the cited analyses are wrong, and it's because the Fed would otherwise decline treasury instruction to make payments, then there IS something "to prevent the federal government from creating as much money as it wants and paying it to someone". Namely the very institution whose Chairman avers that there ISN'T.

Not me.

 

[jdf5]

Guess so.

 

[Loren Pechtel]

Guess so.

Please provide a better indication of what's in videos you link.