–The weird merry-go-round of Treasury bonds and QE

Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

Mitchell’s laws:
Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.

●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor,
which ultimately leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive,
and the motive is the gap.
==================================================================================================================================================================

In the beginning there was nothing. There were no American laws. There was no America. There were no American dollars.

Nothing American.

Then, in the late 1700’s AD, men created from nothing, American laws. And from nothing, these laws created a nation named “The United States.” And these laws also created the United States dollar.

All from nothing.

The men could have written their laws any way they wished. America could have been a monarchy. It could have been a theocracy. But the men decided to create laws to make America a Presidential Democracy. From nothing.

And these laws, created from nothing, also created the American dollar, also from nothing. And because the men had complete control over these laws, there was no limit to the number of dollars they could create from nothing.

This power is called “Monetary Sovereignty,” the ability to create and to rule, unlimited amounts of your own sovereign currency.

And they continued to create and distribute these American dollars all over the land and all over the world, so that many millions of people owned these dollars, that never had existed and were created from nothing.

Then, for reasons lost to history, men decided the American government should borrow some of the dollars it already could create without limit, from nothing. And thus were laws enacted creating the T-bond, T-note and T-bill.

There is no limit to laws, no limit to T-bonds, no limit to T-notes, no limit to T-bills and no limit to dollars.

All are created from nothing.

The federal government, being Monetarily Sovereign, never needs to ask anyone for its sovereign currency, the dollar — not you, not me, not China. The federal government (unlike state and local governments and euro governments) never can run short of its own sovereign currency, and has no need for tax dollars or “borrowed” dollars.

Now, over the years, the populace had forgotten how the dollar was created, and came to believe the American government no longer could control its own laws — the laws that allow the unlimited creation of the dollar.

And this belief led to articles like this one:

Bullard Says Fed Should Consider Delay in Ending QE
By Steve Matthews and Craig Torres, Oct 16, 2014

The Federal Reserve should consider delaying the end of its bond-purchase program to halt a decline in inflation expectations, said St. Louis Federal Reserve Bank President James Bullard.

“Inflation expectations are declining in the U.S.,” he said in an interview today with Bloomberg News in Washington. “That’s an important consideration for a central bank. And for that reason I think that a logical policy response at this juncture may be to delay the end of the QE.”

Bullard is the first Fed official to publicly suggest the central bank should extend its asset-purchase program when policy makers meet later this month.

For those who don’t understand “QE” (Quantitative Easing), it refers to one agency of the federal government, the Treasury, creating and issuing bonds, notes and bills to the public, while another agency of the federal government, the Federal Reserve Bank, takes them back and destroys them.

Left pocket to right pocket.

The populace believes something like this: When T-securities are purchased, dollars flow from the public to the Treasury, which uses them for spending. Then when T-securities are purchased by the Federal Reserve Bank, new dollars must be created.

That is completely false. That belief results from not understanding the enormous difference between personal financing and federal financing.

The reality is a weird merry-go-round that goes like this:

A. To acquire these newly created bonds, notes and bills, the public takes dollars from privately-owned checking accounts at private banks, and deposits those dollars into privately-owned T-security accounts at the Federal Reserve Bank.

No dollars are created or destroyed. They merely are transferred from one privately-owned bank account to another — much like transferring dollars from a checking account to a savings account.

B. Then, with QE, the Federal Reserve Bank, transfers the dollars from T-security accounts to checking accounts — and destroys the T-bonds, notes and bills. Again, no dollars are created or destroyed.

If one believes inflation is caused by an increase in the money supply, QE does not fight inflation, as QE does not reduce the money supply. No new dollars are created or destroyed.

Except for one thing: QE, by transferring ownership of T-securities from the public to the Federal Reserve Bank, also transfers interest payments from the public. Fewer dollars are created by QE.

All of the above devolves to three questions:

1. Since the issuance and redemption of T-securities neither increases nor decreases the money supply, what is the purpose of T-securities?

I suspect the only answers are: Some thing T-securities may give the government more control over long-term interest rates. And they do provide a small, hidden, off-budget method for pumping interest — growth dollars — into the economy. Finally, they provide a reasonably safe investment for those who want a low-paying place to park dollars.

In my opinion, these effects are too small to be worth the effort and deception involved.

2. On balance, is an increase in the money supply beneficial to the economy (economic growth) or detrimental to the economy (uncontrollable inflation)?

Evidence indicates an increase in the money supply stimulates the economy (See: Introduction and numerous subsequent posts on this blog) and has not caused inflations (See: Federal deficit spending doesn’t cause inflation

3. Does QE really give the government greater control over interest rates?

The Fed has absolute control over short term rates, merely by fiat. Long-term rates, though heavily influenced by short-term rates, can drift. But QE is a slow, clumsy, imprecise way to adjust them. A simpler option would be for the Fed to issue rules to member banks, controlling rates.

Bottom line, a complex, convoluted, Rube Goldbergian T-security process has evolved over the years — a process that does not accomplish what is claimed and confuses not only the public but also those who implement the process.

The federal government creates dollars from nothing, at will, and has no need to “borrow” dollars from anyone — not you, not me, not China. And to “pay off” this so-called “debt,” the government merely transfers existing dollars from private T-security accounts to private checking accounts.

No dollars created or destroyed.

On balance, we could eliminate T-securities and simplify our money controls.

But then, the Fed could not fool the people into believing it actually is doing something constructive about the economy.

And we all do enjoy riding the Fed merry-go-round.

Rodger Malcolm Mitchell
Monetary Sovereignty

===================================================================================
Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)

10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)

The Ten Steps will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.
——————————————————————————————————————————————

10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
Two key equations in economics:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports

THE RECESSION CLOCK
Monetary Sovereignty

Monetary Sovereignty

Vertical gray bars mark recessions.

As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.

#MONETARYSOVEREIGNTY

47 thoughts on “–The weird merry-go-round of Treasury bonds and QE

  1. Correction: The Federal Reserve Board Of Governors is the PUBLIC agency, while the Federal Reserve Bank is a PRIVATE banking corporation.

    They are two completely different entities and this is an easy mistake to make, because it was done intentionally to deceive that we have a class of “royalty” who as a private corporation were given rights reserved to the government.

    I worked for both the public agency and the private corporation and my employment contacts, health plans, retirement plans, and paychecks all clearly indicated that in the first case that I was an employee of the U.S. government and in the second case an employee of a private corporation.

    There is no logical reason why the notes in your wallet should say “Federal Reserve” instead of “United States”, other than some of us are more equal than others since my PRIVATE “Critical Thinker” notes are not legal tender and cannot be used to pay PUBLIC taxes while the PRIVATE “Federal Reserve” notes can!

    Like

    1. Per Wikipedia:

      The Federal Reserve Banks have an intermediate legal status, with some features of private corporations and some features of public federal agencies.

      The United States has an interest in the Federal Reserve Banks as tax-exempt federally created instrumentalities whose profits belong to the federal government, but this interest is not proprietary.

      In Lewis v. United States, the United States Court of Appeals for the Ninth Circuit stated that: “The Reserve Banks are not federal instrumentalities for purposes of the FTCA [the Federal Tort Claims Act], but are independent, privately owned and locally controlled corporations.”

      The opinion went on to say, however, that: “The Reserve Banks have properly been held to be federal instrumentalities for some purposes.”

      Another relevant decision is Scott v. Federal Reserve Bank of Kansas City,[6] in which the distinction is made between Federal Reserve Banks, which are federally created instrumentalities, and the Board of Governors, which is a federal agency.

      Regarding the structural relationship between the twelve Federal Reserve banks and the various commercial (member) banks, political science professor Michael D. Reagan has written that:

      the “ownership” of the Reserve Banks by the commercial banks is symbolic; they do not exercise the proprietary control associated with the concept of ownership nor share, beyond the statutory dividend, in Reserve Bank “profits.” … Bank ownership and election at the base are therefore devoid of substantive significance, despite the superficial appearance of private bank control that the formal arrangement creates.

      Bottom line: The federal government controls the Federal Reserve and its banks. If the Chairman gets our of line, the President will fire him (her). They are as “private” as is the military.

      Like

      1. It is a FACT that I was not an Federal employee when I worked for the NYFRB, and no lawyer parsing word link that you post can change that reality that I experienced.

        It take a special kind of “delusion” to believe that an entity is a government entity when all its employees are not covered by any government health nor retirement plan, and their checks do not say “United States Treasury” as the payer.

        Is not this the same willful ignorance of contrary evidence that you describe to people who refuse to believe that the U.S. is monetary sovereign?

        Like

        1. Government entities employ private groups to fulfill functions. But really, isn’t this all sophistry?

          The Fed, which runs the FRBs, is a federal agency. The FRBs are not independent businesses, but instead do exactly as the Fed tells them to do.

          As the professor said, “they do not exercise the proprietary control associated with the concept of (private) ownership”

          Anyway, what point are you trying to make?

          Like

          1. [1]I’m reminded of a Greenwald piece from last year where he interviewed some guy from the NSA. Seems that guy would be paid via the federal govt one week, then for a few weeks he was paid via the private contractor he was employed by. It was back and forth like this for quite some time. He did exactly the same job whether the govt or the private contractor paid him.

            [2] Bernanke – “We are the agent of the Treasury”
            Here is a transcript of a section of Ben Bernanke’s testimony to the Joint Economic Committee on May 22, 2013 in response to a question by Sen. Pat Toomey about how the Fed would have dealt with the effect of hitting the debt ceiling:

            (1:34:25) Sen Toomey: So clearly there were plans regarding how to deal with processing of Fed payments, for instance, and other things. Could you give us a sense of what those plans consist of and what you can tell us of those plans?
            (1:34:39) Ch. Bernanke: Well, my memory won’t be complete, but we looked at our systems and our ability to make payments to principal and interest holders. For the most part we found that we were able to do that with a few possible exceptions – people holding savings bonds and few things that are not as easily connected to the system. We also had some discussion of the kind of policy we would have with banks – with discount window lending would we accept a defaulted treasury – all kinds of things that were contingency planning if this were to happen. What we did not do was directly engage the private sector for any contingency planning. We were mostly looking at our internal systems and our ability to address whatever directions – we are the agent, of course, of the Treasury and it’s our job to do whatever they tell us to do. We were just working through our capacity both as an agent and managing the payment system and also as a bank supervisor to deal with a possible default if the debt ceiling was not raised.

            Like

      2. From your post:

        “beyond the statutory dividend, in Reserve Bank “profits.”

        I just wanted to point out that is what amounts to a “royalty” class of private individuals being given public rights!

        The “profit” of being able to use your own notes as legal tender for goods and services needed for your private business is HUGE, is it not?

        So if this is on the up and up, why can’t I open a “Critrical thinker” bank with the same beyond “the statutory dividend, in Reserve Bank “profits.”, so that I can use my own notes as legal tender?

        Like

        1. Who are the “private individuals” who have been “given public rights”? Anyway:

          You can open a “Critical thinker” bank any time you wish. And if you lend dollars, your notes will have the same value as — in fact, BE — dollars.

          See my response to Endisnear, below.

          Like

    2. If you think creating money helps the economy – than why are you not for everyone being able to create dollars. Think about that – it would make it even easier to increase the money supply. Need money? Not to worry – just pull out your dollar machine and create it at will. Need cash in your account – just access your account and market up by whatever amount you want. No need for someone in government to make any decisions about who receives and who doesn’t – everyone can create as many dollars as they wish. Everyone would be instantly rich….

      If monetary sovereignty is good – than allowing everyone to benefit from it would be even better. What do you say Rodger?

      Hahahahahahaha…………….

      Like

      1. Everyone does create money.

        Have you ever taken out a mortgage? Used a credit card? Put dollars into a checking account or savings account? Bought a travelers’ check?

        Each transaction created dollars. In fact, the vast majority of the dollars in our economy are created just that way.

        What’s with the dopey laugh??

        Like

        1. Putting dollars into a checking or savings account, or buying a travelers check, does not create money. They are exchanges of money things. The total amount of money doesn’t change. You can give me two tens for a five, and no new money is created.

          When you take out a loan (mortgage or credit card), it is the bank that creates money when it credits the seller’s bank account. Your debt to the bank is not accepted at face value as “money”. If the bank sells it, it is sold at a discount. In fact, in the case of the credit card, it is immediately discounted by 2-5% in the act of crediting the seller’s bank account.

          Like

          1. golfer,

            This goes to the difference between a loan and a gift.

            A gift creates no money. It merely is a transfer of dollars from one party to another. The recipient receives dollars and the giver loses dollars.

            Now compare this with a loan. The borrower receives dollars, but the lender does not lose dollars. (Otherwise no one would lend.)

            Before the loan, there existed X dollars. Then when the loan was consummated, there are 2X dollars, X owned by the borrower and X owned by the lender.

            That is why all loans create money.

            Checking and savings accounts are loans (not gifts) to banks. You, as a depositor, still own the dollars you deposit. But your bank also owns those dollars.

            A traveler’s check is a loan to American Express or whomever. You lend them dollars and receive the check in return. The check is dollars. But AMEX also has the dollars.

            This is fundamental to economics. EVERY FORM OF MONEY IS A FORM OF DEBT There is no money that is not debt.

            The U.S. dollar bill is a note. Both “bill” and “note” are words signifying debt.

            For a more complete description, see: Craziness

            Like

        2. I believe this was resolved further down in the comment stream but the only reason checking accounts or savings accounts can be thought of as creating money is because of fractional reserve banking and that they can then be lent out which is where the money is created. If we did not have fractional reserve banking then checking and savings accounts could not be lent out as they are now it would have to be under a different arrangement, the name of which escapes me at the moment.

          In any case it is obvious that you guys on here do not like Endisnear’s but I am glad down below some of you came clean on point because it was just ridiculous to say that an individual could create their own money, their own dollars, by taking out a loan vs being able to actually create their own money ie.. credit their your own bank accounts or “print money” in their basement whenever they need a few bucks.

          Also just an FYI, I think I read in the comments that people could create their own money, but that would only be by taking out a loan and as noted from the individuals perspective that is not really being allowed to create their own money. By law only the government can create money , no one else can. You could try to create your own “idiot” dollars (was that what they were called) but even if you could get people to accept them you would end up in jail in no time if enough people did accept them!!

          Like

      2. You are such an ***** it hurts my brain just reading your comments. The dollar is a unit of measurement. It measures social credit relationship, just like the inch measures distances. The appropriate analogy to “everyone creating dollars” would be “everyone creating their own unit of measurement for distance”. How productive and efficient would it be if every person used their own personal subjective measure of distance? It would be just as horrible as the scenario you describe. The monetary system is a public monopoly, created by the people and for the people. Just like our system of measurements is a public monopoly created by the people and for the people.

        Like

        1. Stop acting like you can’t think Auburn. You are trying to use words to somehow stupefy your readers to somehow make it believable that creating money doesn’t steal from anyone. That the clear point I made above makes no sense. Yet in your heart and in your brain – you know why I asked the question. You know that if everyone had the right to create dollars at will – the dollar would collapse in a second. This clearly proves that creating money is the same as counterfeiting – it’s a slow process – but the effect is the same. The purchasing power of every single dollar holder is devalued by the creation of more US dollars.

          Where did I say I wanted everyone to create their own version of the dollar? I don’t want everyone to create their own unit – I want everyone to be able to create the same unit you call dollars the US government creates. Of course, you will find an issue with that because, like I said, you know its bullshit.

          But I will paraphrase your thoughts – it’s fine for the US government to create dollars because this way – only a chosen few get the benefit of such action. And you are part of the chosen few. Screw the population at large and specially the workers – you don’t give a rats ass about any of us. Say it isn’t true?

          Like

          1. Hard to believe someone can be so dishonest and incompetent. Everyone can create money by taking out loans. We have a centralized unit of measurement system for everything else, why do you only complain about the money?

            Like

          2. Stop acting like you are incompetent – because you are not.

            So if you had the power to create money – you would opt to create money by asking a bank for a loan? You have to be kidding me.

            “why do you only complain about the money?” Auburn

            Isn’t it cowards that change the topic when cornered? I thought so….

            Like

  2. I’m sympathetic to your point, but your history/timeline seems to be a little off.

    “President Washington looked to people he knew and trusted to fill his small cabinet. Washington named Thomas Jefferson as his Secretary of State, Henry Knox as his Secretary of War, and Hamilton as his Secretary of the Treasury. Although Hamilton came to be known as the most important Secretary of the Treasury in U.S. history, he spent only five years in that position. Hamilton began his tenure as Secretary of the Treasury by drafting a report on the future of American economic stability entitled [A] Report on the Public Credit. This was the first of two such reports; the second was published just before Hamilton resigned from the cabinet in 1795. This first report outlined Hamilton’s recommendation to the President and to Congress concerning the best methods to eliminate the national debt. By the time the Constitution came into effect in 1792, the United States had borrowed nearly forty million dollars from other countries and from individual speculators, and in addition to this principal, owed an additional fifteen million in interest. During the early years, some states had paid off their debts, but the majority of them had not. This accumulation of debt was a huge problem for the new nation.”

    http://www.sparknotes.com/biography/hamilton/section7.rhtml

    And several quotes here from Thomas Jefferson about credit and borrowing.

    http://famguardian.org/Subjects/Politics/thomasjefferson/jeff1340.htm

    Our (the US) current obsession with the “national debt” is nothing new. It has been with us since the beginning.

    Like

    1. Thanks.

      This goes to the fact that any entity — person, business or nation — can be Monetarily Sovereign, merely by issuing its own currency.

      The success of that Monetary Sovereignty relies on the acceptance of that currency.

      If the time ever comes when American citizens and outsiders do not accept the America dollar (don’t hold your breath), then it will be time to worry about debt.

      Clearly, “start-up” America had that problem.

      Like

    2. Actually John your links prove RMM’s point. Throughout the entire breadth of the links you provided the word “dollar” is only used once, and thats in the first link and written by the present author, not a reference to something someone wrote at the time. We owed “debt” to various entities, debts that we could only repay using a non-sovereign currency (your links are not specific about this at all). The USA borrowed foreign currency and commodities during the revolutionary war, but they did not “borrow” dollars as they did not exist.

      Like

      1. Well, here’s a more authoritative link that uses $ all over the place.

        http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_18cent.htm

        It says that during the Revolutionary War, we borrowed from France and the Netherlands, but “By February 1792, interest-bearing government bonds were selling for $1.20-on-the-dollar.”

        It’s not clear to me how the government could have spend Francs or Guilders to pay the soldiers of the revolution. There were Continental Dollars even then, and at Valley Forge they told me the soldiers were paid in scrip that would be redeemed after the war, if it were successful, and that scrip traded for other currencies, some of it making its way to the hands of speculators who made a good profit.

        Many of Jefferson’s quotes in the second link are from 1813 and later. I think by then the only currency in use in the US was the US dollar, and the government had been issuing dollar-denominated bonds for many years. Jefferson must have been quite persuasive, because by 1835 the entire debt was paid off.

        Like

        1. “It says that during the Revolutionary War, we borrowed from France and the Netherlands,”

          Exactly. What did we borrow from France and the Netherlands? Certainly not Continentals.

          ” because by 1835 the entire debt was paid off.”

          And a huge depression started immediately afterwords.

          Regardless, I’m still having a hard time wrapping my head around the operations of the period. And nothing you’ve said or linked shines any light on anything relevant to my line of inquiry.

          What did the TSY use to make payments?
          What were bond buyers using to purchase the bonds (private bank notes)?
          How did that work, and how did Govt payments clear?
          The USA was truly operating as a non-sovereign for a long time, thanks to Jefferson. Hard to overestimate just how much damage he and his fellow small Govt conservatives (in this specific case), caused through the entire 19th century by handicapping the nation’s monetary sovereignty.

          Actually, come to think of it. This all sounds eerily familiar to today’s libertarians and conservatives. So from the very outset conservatives have damaged the nation, thank god for progressives.

          Like

          1. Remember money at the time was gold and silver coins denominated in a particular governments currency ie.. the Spanish dollar or the English pound.

            Often however there was a lack of coins available and paper money or script as it was called was issued. The script was issued similar to bonds and was backed by gold/silver coins (they could be redeemed for gold and silver coins), land (that is where land banks came from, banks were created in order to borrow against land) or in some cases backed by goods.

            The script was then used as money, that is the script had value in and of itself it could be used to pay off debts, pay taxes or to buy goods and services.

            The continentals were script and where traded as money but could be redeemed for a certain amount of Spanish dollars ie..gold coins.

            One of the problems with script was that even though it could be redeemed for gold coins it also traded as money and its value when it was being traded as money depended on its supply and demand.

            During colonial times those issuing the script, whether it was the British or the individual states often abused the privilege and issued to much destroying its value.

            Because of this experience the founders and it was not just Jefferson were suspicious of paper money and that is why they wrote in the constitutions that only gold and silver was to used as money.

            I don’t believe there was any argument over using gold and silver or that it was just Jefferson who wanted to “operate as a non-sovereign” it was all of them. However The republican side of the revolution headed by Jefferson was also suspicious of a strong central government and a central bank while the Tory/democrat/mercantile side of the revolution favored a strong central government and a central bank basically wanting recreate the British system minus the monarchy.

            In any case @Auburn Parks I don’t know how you can say we were “handicapped” during the 19th century. Except for the civil war years the 19th century was marked by a tremendous amount of progress and prosperity and for the most part it was using gold/silver or on a gold standard and without a central bank. Just like this century and the 20h century it had its problems with recessions etc but after the civil war to the turn of the century was one of the most prosperous periods in our countries history!!

            Also @ Rodger, I know you were just trying to make a point but it is a bit of a stretch to say that our country, our laws and our money were created out of nothing. Our Laws for example based on many hundreds of years legal tradition, our money or at least the value of our money the Spanish dollar/gold coins. Yes there was not such a thing as American law or the American dollar but these things were not just created out of nothing!

            Like

  3. Wait a miniute, i thought you always claim only the federal government can create dollars and that states banks people cannot.
    So this is the problem, the private sector is in competition with the federal gov to create dollars which explains why the rich want to reduce gov spending forcing everyone to depend on banks.

    Right?

    Like

    1. “i thought you always claim only the federal government can create dollars and that states banks people cannot.”

      Thats true. As a very strict technical rule, only US Dollars aka US currency AKA Reserves can come from the Govt. Reserves can take 3 forms and 3 forms only:

      1) Reserves held in electronic reserve accounts at the Fed
      2) Physical cash
      3) Reserves held in electronic securities accounts at the Fed

      Thats it. Only the Govt can create or destroy any of these (obviously excluding individuals destroying cash).

      Everyone else creates private credit money that is denominated in dollars. Technically, my accounting entries at Chase are private bank credit-dollars. Before the Fed, banks often issued their own private bank cash (now we only use Federal reserve notes). The Govt’s guarantee and legal requirements allow private bank money to clear AT PAR with Govt dollars. Meaning its difficult to tell them apart, unless of course you have over $250K at a bank that fails, then you would understand the true difference between bank dollars (credits or promises) and Govt dollars (credits or promises with the rule of law behind them).

      This is one of the main reasons IMHO that the financial powers that be would never allow the Govt to stop issuing T-securities. T-securities are nothing but savings accounts at the Fed, but the key difference is Apple can put $60 Billion in the Fed bank and not have to worry about their money. Would Apple ever put $60 Billion into a private bank? Not on your life.

      Like

  4. I asked a simple question and nobody here can answer with a straight face.

    If more money is the solution – than give every woman, man and child the right to create dollars. Forget the technicalities of how this would occur – just give them the power to do so. Giving them the power will for sure increase the money supply – which according to all of you – is a great thing.

    What are all of you afraid of?

    Like

    1. Already answered. Everyone already has the power to create money. All you have to do is take out a loan from a bank.

      And the lowest unemployment rates (not coincidentally) coincide with the peak’s of the credit-money creation cycle aka bubbles. The Govt could spend enough money to keep our production at its peak, without the bubble bursting. But people like you are too dumb to understand even the basics.

      Like

    2. I’m not sure why this is so hard to understand, but let’s try it once more:

      YOU HAVE THE LEGAL RIGHT TO CREATE DOLLARS AND OTHER FORMS OF MONEY

      In addition to borrowing and lending, both of which create U.S. dollars, you have the legal right to create unlimited amounts of (shall we name them?) idiotbucks.

      All you need do is take some pieces of paper and write “ONE IDIOTBUCK” on each of them. Then take them to your car dealer and use them to buy a car.

      IF the car dealer will accept your idiotbucks, success!

      The ONLY difference between your idiotbucks and U.S. dollar bills is credit acceptance. Otherwise, they are identical.

      But, if your credit is good, perhaps the car dealer will accept your finance note, which being a loan, is U.S. dollars. All money is debt.

      Your note is a form of dollars, although it is doubtful your credit is as good as the U.S. government’s, so your debt isn’t as acceptable as the U.S. government’s.

      Like

      1. I thought you said that the government didn’t borrow the funds? I’ve had various discussions with you on the same topic – and I’ve always stated that the US government borrows the money into existence.

        You FINALLY agree with what I had said.

        Like

        1. Let’s look at some government operations and see which ones create dollars.

          To start with, we have to define what “creating” a dollar means. Dollars in the government’s checking account are not circulating in the economy, so increasing their number does not “create” dollars. Only dollars in the economy matter. (This is why QE – which is government lending, not borrowing – has been ineffective at stimulating growth, and has not caused massive inflation: the dollars “created” by QE are sitting in Federal Reserve accounts, not circulating in the economy.)

          First, taxing: Taxing takes dollars from your checking account and puts them into the government’s checking account. It removes dollars from the economy, destroying them. Taxes tend to reduce economic activity and growth and prosperity and inflation and employment.

          Second, borrowing: Borrowing by selling Treasuries to the public (some of them are sold this way) also takes dollars from the economy. The dollars go into the government account, removed from the economy. The bonds, though, go into the private sector, and are pretty much as good as dollars, better if you don’t want to spend right away, but save instead. They earn interest, where dollars do not. And when you want to spend, they are easily converted back to dollars in a very liquid marketplace. As far as the effect on the economy, it’s pretty much a wash.

          Borrowing from banks (called Primary Dealers) that can credit the government’s checking account out of thin air, the same way they do when you borrow from a bank, puts dollars into the government’s account, but not into the economy. The Treasuries go into the PD’s account at the Fed, also not in the economy. Again, it’s a wash.

          Fed activities: If the Fed sells Treasuries, it’s just like when Treasury sells them: it’s a wash. When the Fed buys Treasuries, it’s also a swap, just in the other direction: if it’s a wash one way, it must also be a wash the other way.

          Finally, spending: Spending moves dollars from the government’s account to the account of someone in the private sector. Spending is what creates dollars.

          Over some period of time all of these things happen almost continuously. In the course of a year, Treasury might tax $3.4T, spend $3.8T, and (net) borrow $0.4T, and the Fed may (net) lend $0.4T. The economy has an additional $0.4T when it all shakes out.

          You might say that since the Treasury borrowed $0.4T, that was what created the dollars. But consider this: Suppose Treasury borrowed $0.4T but only spent $3.4T, the same as the taxes it collected: a balanced budget. Was $0.4T of new dollars still created by that borrowing?

          Like

  5. penny,

    Only the federal government can create UNLIMITED dollars.

    I don’t often quote myself, but apparently it’s appropriate here. Some of you still retain the belief that you can’t create dollars. But you can. As I said earlier:

    “Everyone does create money.

    “Have you ever taken out a mortgage? Used a credit card? Put dollars into a checking account or savings account? Bought a travelers’ check?

    “Each transaction created dollars. In fact, the vast majority of the dollars in our economy are created just that way.”

    The federal government creates only about 20% of the dollars in our economy.

    There is one difference, however. All dollars are a form of debt, but the federal government is the only entity that doesn’t need to “pay back” its debt/dollars, probably because the government never borrows dollars. (Oh, this will cause a riot. But it’s true.)

    So federal dollars might be considered “permanent” dollars, while all other dollars are “temporary” dollars.

    Like

    1. The Federal Govt “pays back” its debt, just not in the aggregate unless we run a budget surplus. They rolled over like $60T last year.

      The private sector does is the same way, the aggregate supply of private credit money continues to go up unless debtors run a “surplus” and pay back more loans then they take out.

      I dont think thats the best way to describe it. The difference I think you are getting at is that the private sector must pay back its debt out of income. Which is of course not a problem for the Govt.

      Like

  6. You folks need to stop it. Per Rodger, the US government has the power to create money without owing anyone anything and without limits.

    If you take out a damn loan, you will owe the money to the bank – which will earn the interest from you. You also have to have a solid and proven source of income, as well as established payment history (credit). Without these, the bank will not lend you money and you will not be able to create money.

    So the 2 are different things. If the US government can create money at will without owing anyone anything – than that’s what I want every single citizen to have. There is no other way for our government to be any more fair – and for everyone to be more equal.

    So liberals no longer want equality? Who would have thunk?

    Something tells me every single one of you knows full well why giving money away would not work. Why hide the truth then?

    Like

    1. So, create idiotbucks. Nothing stops you. Perfectly legal.

      Only the U.S. government can create unlimited U.S. dollars, but that’s only fair, since only you could create unlimited idiotbucks.

      And, just like the government, you wouldn’t owe anyone anything. They produce their money and you produce your money. What could be fairer?

      ” . . . every single one of you knows full well why giving money away would not work.”

      Oops, now you’ve switched subjects to “giving money away,” a completely different question.

      But of course, the government does give money away. Every day.

      Like

    2. Giving away money did work. In 2008 every taxpayer was given $250. It staved off the Great Recession for 3 months. Should have been done again the next quarter, but …

      At the risk of stating the obvious, if everyone could create money like the government can, then all the people whose only reason for working is to get money would stop working. We’d not be very rich with all that money and nothing to spend it on.

      The difference is between giving some money and giving unlimited money. Money is like gravity. Some gravity is good, it keeps us (and our atmosphere) from floating out into space, but infinite gravity wouldn’t be so nice. MMT strives for the happy medium of money creation, not unlimited.

      Like

      1. golfer,

        You are right, of course. The fact that the federal government CAN create unlimited dollars does not mean the federal government SHOULD create unlimited dollars.

        The debt hawks simply cannot understand that difference.

        Some day, we all will be able to 3-D print our needs, or get them from StarTrek replicators, and money will have no value, but meanwhile . . .

        . . . I hope one member of our little community will create those “Idiotbucks” I’ve mentioned.

        Like

        1. I wouldn’t put it all on the debt hawks. In response to “We can’t afford it” the MMT/MS rhetoric doesn’t claim just that we can safely spend a bit more, or tax a bit less, it claims there is no limit to what can be “afforded”. Only later does inflation come up, and it is sort of buried in the footnotes. I think if the story could be changed to allay fears of inflation up front, MMT would gain more acceptance.

          In addition, most MMTers are Progressives, and advocate large government programs in areas where government has not had much of a role in the past. For many of them MMT/MS is attractive only because it seems to nullify some of the objections to their politics. When they bring up MMT only as an adjunct to their politics, anyone who doesn’t share that political bent will also be predisposed to reject MMT, just because. A story more tuned to persuasion and learning rather than debate between closed minds, and name-calling, would help.

          Like

          1. How’s this:

            1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)

            2. All deficit spending grows the supply of dollars

            3. The limit to federal deficit spending is an inflation that can’t be cured with interest rate control.

            4. The limit to non-federal deficit spending is the ability to borrow.

            That about covers it.

            Like

      2. It only appeared to have worked, if giving money away worked, we’d have no poor today – yet – today we have more than before.

        Its ma mirrage. What the giving has done, however, is create more poor people.

        Since the rich can protect their wealth, middle income workers end up footing the bill. With time, those middle income folks end up having their savings demolished.

        Like

        1. ” . . . if giving money away worked, we’d have no poor today,”
          Actually, this should read: If deficit cutting worked, we’d have no poor, today.

          ” . . . middle income workers end up footing the bill.”
          After all this time, he still believes federal taxes pay for federal spending.

          Like

          1. Rodger i would put this summary at the top of your homepage or somewhere very visible. I think skeptics are put off by the free lunch no limit spending meme.

            1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)

            2. All deficit spending grows the supply of dollars

            3. The limit to federal deficit spending is an inflation that can’t be cured with interest rate control.

            4. The limit to non-federal deficit spending is the ability to borrow.

            Like

          2. You have a lot to drop from Mitchell’s laws. I would keep these;
            ●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
            ●Austerity is the government’s method for widening the gap between rich and poor, which ultimately leads to civil disorder.
            ●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

            Add this new summary with some reference links

            Like

        2. The primary reason for poverty is the lack of a job. The reason some don’t have jobs is that there is not enough demand to purchase the entire potential output of the economy. Too many demand leakages: to savings, to imports, and to taxes. Only one of those is a policy choice, in a trade-dependent world. Mosler puts it best: unemployment is the evidence that the deficit is too small.

          There are more poor today than before (more in number, about the same in percentage of population) is that there are more unemployed, and that is because of excessive taxation.

          I don’t know what “ma mirrage” means, or what you mean by saying it only appeared to work. Do you think GDP really did go down that quarter, and we just didn’t know it? The evidence is the other way: that the Great Recession happened because we stopped giving away $250 per person, not because we did it once.

          Like

  7. The stupidity is coming to an end Rodger. You can only fool the population for so long. And the Fed/the entire government, the rich and you are the ones doing the fooling. The funny thing is that the middle/poor income classes that believe your nonsense are a sign of how zombified our nation is. To be told that having your savings stolen from you is a good thing (a little inflation is good as per your “analysis”) – and to believe it too – is astonishing. Even monkeys would be able to tell.

    http://www.marketwatch.com/story/the-fed-is-deliberately-stealing-from-savers-2014-10-22

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s