NO, NO, NO. The federal government does not borrow U.S. dollars.

And now comes Bloomberg, a respected fountain of financial information, with an article the effect of which (if not the purpose of which) is to confuse you.

Related image
Yes, I lie for the rich.

It starts out badly and only worsens.

U.S. to Start Issuing 20-Year Bonds to Fund Rising Deficit
By Saleha Mohsin,
January 16, 2020, 6:12 PM EST Updated on January 17, 2020, 7:03 AM EST

The U.S. Treasury will start issuing 20-year bonds in the first half of 2020, expanding its roster of securities as the government seeks ways to fund a ballooning deficit.

T-notes, T-bills, and T-bonds do not fund the deficit. Period.

The government funds its deficit spending by creating new dollars, ad hoc. The federal government (unlike state and local governments) never can run short of dollars. It does not use tax dollars. It does not borrow dollars. It is Monetarily Sovereign, i.e. sovereign over its own currency.

Amazing that Bloomberg does not understand this . . . or does he?

Now, for the real reason for the new 20-year bonds:

Institutional investors have been clamoring for more longer-dated, risk-free securities that offer some nominal yield, amid a global total of $11 trillion of debt with negative rates.

“The 20-year bond fits more easily into the existing market structure,” said Lou Crandall, chief economist at Wrightson ICAP LLC in New York.

Right. The purpose of federal bonds is not to fund anything. The primary purposes are:

  1. To give holders of U.S. dollars what they want: A safe, interest-paying parking place for unused dollars, and
  2. To help the Fed control interest rates.

“This is a way of taking advantage of long-term interest rates that are low by historical standards without introducing a wild-card such as an ultra-long bond, which would have had more growing pains.”

Nah, the Treasury doesn’t need to “take advantage of” low interest rates. It could pay any rate, simply by pressing a computer key. The Treasury, having infinite access to dollars, doesn’t need to hunt for bargains.

“It’s much more useful than a 50- or 100-year bond, which only really work for a pension portfolio,” said Gene Tannuzzo, deputy global head of fixed income at Columbia Threadneedle Investments.

“Twenty-year bonds are a much more natural fit in mutual funds and institutional bond mandates.”

Right. The whole issue has nothing whatsoever to do with “funding a rising deficit.” It’s strictly a financial deal for investors.

Treasury Secretary Steven Mnuchin said in the statement that “we will continue to evaluate other potential new products” to finance debt at the lowest cost over time.

As usual, Mnuchin shovels manure. The so-called “debt” is nothing more than deposits in T-security accounts.

The Federal government does not spend those dollars. The dollars are not “borrowed.” The dollars remain in the accounts until the security matures, at which time they are returned.

That is how the “debt” is financed.

If you buy a T-security, and at some time before maturity, you ask how much money is in your account, you will find that all of your dollars still are there. The government will not have used them to “fund” the deficit.

At President Donald Trump’s request, Mnuchin in August began a second review into ultra-long bonds since taking office. Trump has said repeatedly the U.S. should seek to take advantage of historically low interest rates.

Image result for mnuchin
Yes, I lie for Trump.

The usual Trumpian misstatement:

    1. The federal government does not benefit from low interest rates, but
    2. The economy benefits from higher rates, which cause the government to pump more growth dollars into the economy.

Issuing extremely long-term debt would limit the cost to taxpayers of plugging a budget deficit that’s headed to $1 trillion annually.

No, taxpayers do not fund the federal debt. It is paid off by returning the dollars in T-security accounts.

Taxpayers’ dollars do not help fund any federal expenditures. All federal taxes (unlike state and local taxes) are destroyed upon receipt.

There’s a large gap between the 10-year and 30-year bonds so “there will be demand for it,” said Tony Farren, managing director at broker-dealer Mischler Financial in Stamford, Connecticut. It will appeal to “people that don’t want to go all out to 30 years,” he said.

— With assistance by Chris Anstey, Emily Barrett, Vivien Lou Chen, Adam Haigh, Stephen Spratt, Liz McCormick, Benjamin Purvis, and Nick Baker

Right. The 20-year bonds fill the gap between the 10-year and the 30-year bonds. That is the reason these bonds are being introduced, not to fund anything.

My guess: Mr. Bloomberg knows all this.

Image result for trump
Yes I lie for me.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell


The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.


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