It leads to other examples being used that just are not true. Like: "It is similar to a person using his or her credit card for a purchase (rather than cash, check, or a debit card) and not paying the full credit card balance each month".
I cannot sell access to my debt to pay for past debts, which is how the government has paid it's debts since 1837 (probably so long ago because that the last time we sought to destroy debt and not pay for things by monetizing debt, it caused the longest depression in American history due to Jackson's monetary policy in 1835). Nor can I create credit out of thin air, by buying treasuries my member banks. Also, I most definitely do not owe 50% of my non-intergovernmental debt to my own central bank and state and local governments and their pensions. Much less, all the while operating with a currency I control.
So yeah, I don't love it, but I get it.
Just a small correction. Federal Government spending was $4.4 trillion in 2019. It was $6.6t for 2020 [2], with $4.6t of that being mandatory spending; tax revenue was $3.4t for 2020 by comparison. We wish outlays were only $3t, we'd have a nice budget surplus right now.
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan
So yeah, it's just my opinion but to me the mechanics and context of the US's federal debt is so departed from that of household finance, that it's more detrimental than beneficial to even use them in the first place. But again, I understand the desire to anchor it to something people recognize.
Do they? I havent looked in a while but my recollection (of south america in particular) is that the impact of government bond default is actually pretty low. A couple years without good international bond market access, higher premiums for a few years, maybe some wrangling with the IMF and surface level "restructuring." But sooner rather than later its back to issuance on the open market with willing buyers after those premiums.
I can't help but think this is confusing as heck to most Americans.
I'm not sure all of the quoted statements are true. Private banks create a good chunk of the new money that goes into circulation by issuing loans. The Federal government (through the Treasury) creates still more by issuing bonds to cover deficit spending.
The Fed can influence the rate of money creation by setting short term rates. But the Fed can't force banks to loan money, so its power is limited. Especially so with short term rates pegged at zero for most of the last 13 years or so.
Although some view the Fed's QE as a form of "money printing," it's not. It's an asset swap in which the Federal reserve buys a Treasury from a bank, issuing a reserve asset as a credit to the bank. Reserve assets thereby become "trapped" inside the banking system. They are not cash and can only be used under very restricted conditions (not unlike a laundry token) at least according to some sources.
Even this is misleading private banks do not "create" money. They add to the supply but do not create. For every loan credit there is an equal loan debit. The total amount of money, the sum of all credits and debits, is the exact same.
Printed dollars are necessary in an amount proportional to economic activity, and the sum of printed dollars is only loosely related to the total money supply as it affects the macroeconomy (and is becoming less relevant every year).
Yes, a loan creates both a credit and a debit, and they offset exactly. In that sense, nothing is created.
But the credit spends just like cash. The debit, on the other hand, does not spend like negative cash. So in the sense of the supply of money in circulation, bank loans create money.
Can't banks lend something like 7X more money than they have in deposits?
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
According to the lede of [1], "[Federal Reserve Deposits] are interchangeable with Federal Reserve Notes", i.e. cash. But you are claiming the opposite. Do you have a source?
[1] - https://en.wikipedia.org/wiki/Federal_Reserve_Deposits
This is how I see it. Treasury makes new treasuries, and the Federal reserve buys them (through a bank, but it is a middle man only). Essentially, Federal reserve created money and loaned it to the government, holding the treasuries as IOU. This is further complicated as the Federal reserve is also mandated to give all profits to the treasury. So, essentially, the treasury did not create the money, only got a loan, but its loan payments are going to come back to itself.
I personally find it easier to dispel with the illusion of an independent fed, and just say the government (which includes both fed and treasury) prints money.
New money is created by debt issuance. This comes from both the federal government, which supplies the monetary base, and from commercial lenders, which leverage the monetary base through loans to the “real” economy—business startup loans, mortgages, supply chain finance, revolving lines of credit, etc.
I think you’re technically right; I would only call it outright printing if the Fed actually canceled the debt rather than rolling it over.
This is their balance sheet released on 9th Sep, 2021 - https://www.federalreserve.gov/releases/h41/current/h41.htm
* https://github.com/fedspendingtransparency/usaspending-api
* https://api.usaspending.gov/docs/endpoints
* For geography based spending - https://github.com/fedspendingtransparency/usaspending-api/b...
https://usafacts.org/data/topics/government-finances/spendin...
Edit: looks like they’re not as up to date, unfortunately.
1. "Amazon Restaurant & Bar Inc" received 1.3M in FY2021 while apparently empolying only 8 people and taking a revenue of 96k (https://www.manta.com/c/mhx084z/amazon-restaurant-bar-inc).
2. Google received 11k in the last 12 months, less than a Florida man named Christian Google.
3. Palantir Technologies Inc. 231.3M, versus Microsoft Corporation 357.5M in the last 12 months.
Bonus question: can you find the judicial branch and the legislative branch?
>In 2020, the federal government collected $3.42 trillion in revenue.
>In 2020, the federal government spent $6.55 trillion.
One wonders why they bother with the effort of collecting taxes.
They should just borrow the entire budget and let everyone get on with their lives.
They'd save money in the long run: no more IRS budget.
>Why can’t the government just print more money?
and thought “because the treasury is not the central bank” LOL
