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Category Archives: Government Spending
My alternative proposal on trade with China
We can have BOTH low priced imports AND good jobs for all Americans
Attorney General Richard Blumenthal has urged US Treasury Secretary Geithner to take legal action to force China to let its currency appreciate. As stated by Blumenthal: “By stifling its currency, China is stifling our economy and stealing our jobs. Connecticut manufacturers have bled business and jobs over recent years because of China’s unconscionable currency manipulation and unfair market practices.”
The Attorney General is proposing to create jobs by lowering the value of the dollar vs. the yuan (China’s currency) to make China’s products a lot more expensive for US consumers, who are already struggling to survive. Those higher prices then cause us to instead buy products made elsewhere, which will presumably means more American products get produced and sold. The trade off is most likely to be a few more jobs in return for higher prices (also called inflation), and a lower standard of living from the higher prices.
Fortunately there is an alternative that allows the US consumer to enjoy the enormous benefits of low cost imports and also makes good jobs available for all Americans willing and able to work. That alternative is to keep Federal taxes low enough so Americans have enough take home pay to buy all the goods and services we can produce at full employment levels AND everything the world wants to sell to us. This in fact is exactly what happened in 2000 when unemployment was under 4%, while net imports were $380 billion. We had what most considered a ‘red hot’ labor market with jobs for all, as well as the benefit of consuming $380 billion more in imports than we exported, along with very low inflation and a high standard of living due in part to the low cost imports.
The reason we had such a good economy in 2000 was because private sector debt grew at a record 7% of GDP, supplying the spending power we needed to keep us fully employed and also able to buy all of those imports. But as soon as private sector debt expansion reached its limits and that source of spending power faded, the right Federal policy response would have been to cut Federal taxes to sustain American spending power. That wasn’t done until 2003- two long years after the recession had taken hold. The economy again improved, and unemployment came down even as imports increased. However, when private sector debt again collapsed in 2008, the Federal government again failed to cut taxes or increase spending to sustain the US consumer’s spending power. The stimulus package that was passed almost a year later in 2009 was far too small and spread out over too many years. Consequently, unemployment continued to rise, reaching an unthinkable high of 16.9% (people looking for full time work who can’t find it) in March 2010.
The problem is we are conducting Federal policy on the mistaken belief that the Federal government must get the dollars it spends through taxes, and what it doesn’t get from taxes it must borrow in the market place, and leave the debts for our children to pay back. It is this errant belief that has resulted in a policy of enormous, self imposed fiscal drag that has devastated our economy.
My three proposals for removing this drag on our economy are:
1. A full payroll tax (FICA) holiday for employees and employers. This increases the take home pay for people earning $50,000 a year by over $300 per month. It also cuts costs for businesses, which means lower prices as well as new investment.
2. A $500 per capita distribution to State governments with no strings attached. This means $1.75 billion of Federal revenue sharing to the State of Connecticut to help sustain essential public services and reduce debt.
3. An $8/hr national service job for anyone willing and able to work to facilitate the transition from unemployment to private sector employment as the pickup in sales from my first two proposals quickly translates into millions of new private sector jobs.
Because the right level of taxation to sustain full employment and price stability will vary over time, it’s the Federal government’s job to use taxation like a thermostat- lowering taxes when the economy is too cold, and considering tax increases only should the economy ‘over heat’ and get ‘too good’ (which is something I’ve never seen in my 40 years).
For policy makers to pursue this policy, they first need to understand what all insiders in the Fed (Federal Reserve Bank) have known for a very long time- the Federal government (not State and local government, corporations, and all of us) never actually has nor doesn’t have any US dollars. It taxes by simply changing numbers down in our bank accounts and doesn’t actually get anything, and it spends simply by changing numbers up in our bank accounts and doesn’t actually use anything up. As Federal Reserve Chairman Bernanke explained in to Scott Pelley on ’60 minutes’ in May 2009:
(PELLEY) Is that tax money that the Fed is spending?
(BERNANKE) It’s not tax money. The banks have– accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.
Therefore, payroll tax cuts do NOT mean the Federal government will go broke and run out of money if it doesn’t cut Social Security and Medicare payments. As the Fed Chairman correctly explained, operationally, spending is not revenue constrained.
We know why the Federal government taxes- to regulate the economy- but what about Federal borrowing? As you might suspect, our well advertised dependence on foreigners to buy US Treasury securities to fund the Federal government is just another myth holding us back from realizing our economic potential.
Operationally, foreign governments have ‘checking accounts’ at the Fed called ‘reserve accounts,’ and US Treasury securities are nothing more than savings accounts at the same Fed. So when a nation like China sells things to us, we pay them with dollars that go into their checking account at the Fed. And when they buy US Treasury securities the Fed simply transfers their dollars from their Fed checking account to their Fed savings account. And paying back US Treasury securities is nothing more than transferring the balance in China’s savings account at the Fed to their checking account at the Fed. This is not a ‘burden’ for us nor will it be for our children and grand children. Nor is the US Treasury spending operationally constrained by whether China has their dollars in their checking account or their savings accounts. Any and all constraints on US government spending are necessarily self imposed. There can be no external constraints.
In conclusion, it is a failure to understand basic monetary operations and Fed reserve accounting that caused the Democratic Congress and Administration to cut Medicare in the latest health care law, and that same failure of understanding is now driving well intentioned Americans like Atty General Blumenthal to push China to revalue its currency. This weak dollar policy is a misguided effort to create jobs by causing import prices to go up for struggling US consumers to the point where we buy fewer Chinese products. The far better option is to cut taxes as I’ve proposed, to ensure we have enough take home pay to be able to buy all that we can produce domestically at full employment, plus whatever imports we want to buy from foreigners at the lowest possible prices, and return America to the economic prosperity we once enjoyed.
Greek Banks Plead for More Aid in Debt Crisis
It’s all falling into place with the austerity measures taking their toll on the financial equity that supports the credit structure in a euro wide banking system that does not have credible deposit insurance.
Greek banks plead for more aid in debt crisis
By George Georgiopoulos and Harry Papachristou
Apr. 7 (Reuters) — Greek banks, hit by a series of credit rating downgrades linked to the country’s debt crisis, have asked the government for more financial support, Finance Minister George Papaconstantinou said on Wednesday.
“The banks have asked to use the remaining funds of the support plan,” he told reporters, referring to a package first agreed by the previous conservative government in 2008.
About 17 billion euros ($22.72 billion), mainly in state guarantees, remain in the 28 billion euro support scheme, launched to help Greek lenders cope with the global credit crisis.
The Central Bank of Greece said non-performing loans in the banking system rose further in the last quarter of 2009, bringing the full-year ratio to 7.7 percent.
The banks’ plea for extra help highlighted the problems facing the entire Greek economy, which is expected to contract by at least 2 percent this year, partly as a result of austerity measures imposed to slash a huge budget deficit.
IMF officials began talks in Athens on Wednesday on implementing the austerity plan, just as the latest market jitters over Greece’s ability to manage its debt mountain eased slightly, despite uncertainty over a euro zone rescue plan.
China’s foreign debt grows 14.4% in 2009: SAFE
This is interesting- borrowing to add to reserves?
The debt has to be at higher interest rates than what they earn on reserves.
China’s foreign debt grows 14.4% in 2009: SAFE
(Xinhua) China’s outstanding external debt reached $428.6 billion by the end of 2009, up 14.4 percent from a year earlier, the State Administration of Foreign Exchange (SAFE) said. The figure excluded Hong Kong Special Administrative Region (SAR), Macao SAR, and Taiwan. The country’s registered foreign debt was equivalent to $266.95 billion by the end of last year, up 2.5 percent from the 2008 level. Outstanding trade credits stood at $161.7 billion, according to the SAFE. China’s foreign debt service ratio was 2.87 percent, while the foreign debt ratio and liability ratio stood at 32.15 percent and 8.73 percent, respectively, the SAFE said. Mid- and long-term external debt, accounting for 39.52 percent of all outstanding foreign debt, totaled $169.39 billion by 2009. Short-term external debt rose 23 percent to $259.26 billion year-on-year by the end of 2009, accounting for 60.48 percent of the total.
Tom Hickey on MMT
Tom Hickey Reply:
April 3rd, 2010 at 12:38 am
MDM, the key here is the MMT concept of vertical and horizontal in relation to money creation. This is sometimes called exogenous (outside) and endogenous (inside).
When the government “spends,” the Treasury disburses the funds by crediting bank accounts. Settlement involves transferring reserves from the Treasury’s account at the Fed to the recipient’s bank. The resulting increase in the recipient’s deposit account has no corresponding liability in the banking system. This creation is called “vertical,” or exogenous to the banking system. Since there is no corresponding liability in the banking system, this results in an increase of nongovernment net financial assets.
When banks create money by extending credit (loans create deposits), this occurs completely within the banking system and results in a liability for the bank (the deposit) and a corresponding asset (the loan). The customer has an asset (the deposit) and a corresponding liability (the loan). This nets to zero.
Thus vertical money created by the government affects net financial assets and horizontal money created by banks does not, although its use in the economy as productive capital can increase real assets.
The mistake that is usually made is comparing what happens in the horizontal system with what happens at the level of government accounting. At the horizontal level, debt is the basis for horizontal money creation. Therefore, it is often assumed that debt must be the basis for the creation of money by government currency issuance. This is not the case.
Reserve accounting uses the standard accounting identities, but the meaning of “liability” is not “debt.” The husband-wife analogy for CB-Treasury accounting relationships is apt. Since a husband and wife are responsible for each others debts, neither can be indebted to the other. That is to say, reserve accounting is a fiction that does not represent real relationships, such as exist between a creditor and debtor in the horizontal system.
Moreover, government debt is not true debt either. At the macro level, the reserves that are transferred to banks through government disbursement are used to buy Tsy’s. That is, when a Tsy is bought, this involves a transfer of reserves from the buyer’s bank’s reserve account at the Fed to the government’s account (consolidating CB and Treasury as “government”).
When the Tsy’s are sold or redeemed, the reserves that were “stored” at interest are simply switched back, creating a deposit again. It’s pretty much the same as buying and redeeming a CD. It’s just a switch from demand to time back to demand in a bank account, and a switch between reserves and securities at the government level. That is to say, the government doesn’t have to draw on revenue, borrow, or sell assets to cover its “debt,” as households and firms do. It’s just a matter of crediting and debiting accounts on the (consolidated) government books, even though it may appear that there is a financial relationship occurring between the CB and Treasury due to the accounting. However, it’s just a fiction.
Therefore, the key to understanding MMT is this vertical-horizontal relationship. When one understands this, then Abba Lerner’s principles of functional finance become obvious. (1) Currency issuance through government disbursement is used to increase nongovernment net financial assets, and taxation withdraws net financial assets from nongovernment. (2) Debt issuance by the Treasury is a monetary operation for draining reserves to permit the CB to hit its target rate.
These principles are then applied to Y+C+I+G+NX to balance nominal aggregate demand with real output capacity in order to achieve full capacity utilization, hence, full employment, along with price stability. This is based not on theory requiring assumptions but on operational reality that can be represented using data, standard accounting identities, and stock-flow consistent macro models.
All of this and much more is explained in considerable detail at Bill Mitchell’s billy blog
Rasmussen polls
65% Now Hold Populist, or Mainstream, Views
55% Favor Repeal of Health Care Bill
I find his polls as good as any. He shows 54% favor repeal of the new health care law, with 70% of seniors against the Medicare cuts.
The lack of understanding of the monetary system is taking an increasing both economically, politically and socially.
With almost 20% of the workforce unable to find full time work, and near record low capacity utilization in general, our leaders saw fit to raise taxes and cut spending which will lower demand and undermine their political careers to ‘pay for’ a very modest spending increase of about $100 billion a year, and with delays, of the perhaps additional $1 trillion of fiscal adjustment needed to get us back to full employment in a reasonable time frame.
Also, part of the rise in costs goes to insurance reserves which are a demand leakage.
The politics get uglier by the day, and from watching the news over the weekend the loudest health care protest seems to be over the expense and how it will add to the size of the deficit. Seems this means more ‘fiscal responsibility’ is on the way, including letting the tax cuts expire next year and maybe even a VAT which is an absurdity under any circumstances, apart from a desire to cut consumption.
Add to that the reality of the eurozone actually offering Greece nothing of value, opening the way for wider credit spreads spreading to the entire eurozone.
It also looks like their combined deficits are now large enough for the added non govt financial assets to now be driving down the euro independent of the credit issues. This continues until exports increase sufficiently for the automatic stabilizers to tighten fiscal balances. They aren’t anywhere near there yet.
Additionally, the dollar index chart is beginning to pick up a bid from commodities traders as well.
In paradigm Health Care criticism from the left
This Is Not The Way To Do Healthcare Reform: Democrats Propose Windfall For Insurance Industry
By L. Randall Wray
It is beginning to look like Congress is going to vote to pass health care legislation on Sunday. According to the NYTimes, Democrats are practically celebrating already. here
It is interesting, however, that no one is talking about providing benefits to the currently underserved.
Rather, the “good news” is that the bill is supposed to be “the largest deficit reduction of any bill we have adopted in Congress since 1993,” according to House Democratic leader, Rep.Steny H. Hoyer of Maryland. “We are absolutely giddy over the great news,” said the House’s number three Democrat, Rep. James Clyburn of South Carolina. (Of course, deficit hysteria is nothing new. See here
Who would have thought that health care “reform” would morph into deficit cutting?
As Marshall Auerback and I argue in a new policy brief here
, the proposed legislation is not “reform” and it will not reduce US health care costs. I will not repeat the arguments there. But very briefly, the most significant outcome of this legislation is the windfall gain for insurance companies—who will be able to tap the wages of the huge pool of nearly 50 million Americans who currently do not purchase health insurance. Since many of these are too poor to afford the premiums, the government will kick in hundreds of billions of dollars to line the pockets of health insurers. This legislation has nothing to do with improving health services for the currently underserved—it is all about increasing the insurance sector’s share of the economy.
You might wonder how Democrats can call this a deficit reduction deal? Elementary, dear Watson. They will slash Medicare spending. No wonder—it stands as an alternative to the US’s massively inefficient private insurance system, hence, needs to be downsized in favor of an upsized private system.
There is nothing in the deal that will significantly reduce health care costs. At best, it will simply shift more costs to employers and employees—higher premiums, higher deductibles, higher co-pays, and more exclusions forcing higher out-of-pocket expenses and personal bankruptcies. As we show in our paper, the US’s high health care costs (at 17% of GDP, double or triple the per capita costs in other similarly wealthy nations) are due to three factors. As many commentators have argued (especially those who advocate single-payer) part of the difference is due to the costs of operating a complex payment system that relies on private insurers—resulting in paperwork and overhead costs, plus high profits and executive compensation for insurance executives. This adds about 25% to our health care system costs. Obviously, the proposed legislation is “business as usual”, actually adding more insurance costs to our system.
In addition, Americans spend more for medical supplies and drugs. Since the Democrats ruled out any attempt to constrain Big Pharma through, for example, negotiating lower prices for drugs, there will not be any savings there.
Finally, and most importantly, the biggest contributor to higher US health care costs is our American “lifestyle”: too little exercise, too much bad food, and too much risky behavior (such as smoking). here
This is why we spend far more on outpatient costs for chronic diseases such as diabetes—40% of healthcare spending and rising rapidly. Ending the subsidies to Big Agriculture that produces the products that make us sick would not only do more to improve US health outcomes than will the proposed legislation, but it would also reduce health care spending—while reducing government spending at the same time. That would be real healthcare reform! But, of course, no one talks about this.
Interestingly, according to the NYTimes article, President Obama likened the legislation to fixing the financial system or passing the economic recovery act. “I knew these things might not be popular, but I was absolutely positive that it was the right thing to do,” he said. That is an apt and scary comparison. This legislation will do as much to “fix” the US healthcare system as the Obama administration has done to “fix” the financial sector and to put the economy on the road to recovery?
Of course, we have not done anything to “fix” the financial sector, or to put Mainstreet on the road to recovery.
I think the President’s comparison is uncannily accurate. So far the main thing his administration has done is to funnel trillions of dollars to the FIRE sector in an attempt to restore money manager capitalism. The current legislation will simply continue that policy—the trillions spent so far to bail-out Wall Street have not been nearly enough. Hence, the effort to funnel billions more to the insurance industry.
But what is the connection between Wall Street and health insurers? As Marshall and I argue in our brief, they are “two peas in a pod” since the deregulation of financial institutions. We threw out the Glass-Steagall Act that separated commercial banking from investment banking and insurance with the Gramm-Leach-Bliley Act of 1999 that let Wall Street form Bank Holding Companies that integrate the full range of “financial services”, that sell toxic waste mortgage securities to your pension funds, that create commodity futures indexes for university endowments to drive up the price of your petrol, and that take bets on the deaths of firms, countries, and your loved ones. See also here
Hence, extension of healthcare insurance represents yet another unwelcome intrusion of finance into every part of our economy and our lives. In other words, the “reforms” envisioned would simply complete the financialization of healthcare that is already sucking money and resources into the same black hole that swallowed residential real estate. here
Just as the bail-out of Wall Street was sold on the argument that we need to save the big banks so that they will increase lending to Main Street, health care “reform” was initially promoted as a way to improve provision of healthcare to the underserved. What we got instead is a bail-out for insurers and cuts to Medicare. Funny how that happens.
The Eurozone Solution For Greece Is A Very “Clever Bluff”?
The Eurozone Solution For Greece Is A Very “Clever Bluff”?
The Guardian is today reporting that, after weeks of crisis, the Eurozone has agreed to what appears to be a multibillion-euro assistance package for Greece that will be finalized on Monday. Member states have apparently agreed on “coordinated bilateral contributions” in the form of loans or loan guarantees to Greece, but only if Athens finds that it is unable to refinance its soaring debt and asks for help. Other sources said the aid could total €25bn (£22.6bn) to meet funding needs estimated in European capitals that Greece could need up to €55bn by the end of this year.
Once again, however, since funding is a function of interest rates, this proposal has the appearance of a very “clever bluff”. It says nothing about how high interest rates for Greece would have to go before the Greek government is somehow declared unable to refinance, and asks for additional help. The member nations probably structured the loan package and terms this way hoping to try to draw in lenders who would rely on this member nation as a back stop when making their investment decisions. However, if this ploy fails, Greek rates will go sky high in an attempt to refinance, and as Greece asks for more help, the spike in rates will make it all the more difficult for the entire Eurozone monetary system to function. Additionally, the prerequisite austerity measures will subtract aggregate demand in Greece and the rest of the Eurozone, and, to some extent, the rest of the world as well.
I have a very different proposal. It is designed to be fair to all, and not a relief package for any one member nation. It is also designed to not add nor subtract from aggregate demand, and also provide an effective enforcement tool for any measures the Eurozone wishes to introduce.
My proposal is for the ECB to distribute 1 trillion euro annually to the national governments on a per capita basis. The per capita criteria means that it is neither a targeted bailout nor a reward for bad behavior. This distribution would immediately adjust national government debt ratios downward which eases credit fears without triggering additional national government spending. This serves to dramatically ease credit tensions and thereby foster normal functioning of the credit markets for the national government debt issues.
The 1 trillion euro distribution would not add to aggregate demand or inflation, as member nation spending and tax policy are in any case restricted by the Maastricht criteria. Furthermore, making this distribution an annual event greatly enhances enforcement of EU rules, as the penalty for non compliance can be the withholding of annual payments. This is vastly more effective than the current arrangement of fines and penalties for non compliance, which have proven themselves unenforceable as a practical matter.
There are no operational obstacles to the crediting of the accounts of the national governments by the ECB. What would likely be required is approval by the finance ministers. I see no reason why any would object, as this proposal serves to both reduce national debt levels of all member nations and at the same time tighten the control of the European Union over national government finances.
self imposed constraints vs external constraints
I don’t think anyone thinks it would not make any difference to Greece if it was dealing in it’s own currency with the same types of self imposed constraints the US has rather than its current externally composed constraints.
US has legal obligations to pay and self imposed constraints aren’t a valid excuse for not paying.
Response to Dem debate
I arrived in Connecticut to begin a ‘listening tour’ before making the decision to run in the Democratic primary for United States Senate. Tonight I listened carefully to the Democratic candidates as they put forth their agendas for restoring the US economy and both fell far short of the mark. Neither had a credible economic agenda, and what they did propose- tax increases- would only make matters worse.
Making sure that people working for a living are paid enough to be able to buy the goods and services they produce has long been a core economic value of the Democratic party. And what drives the lion’s share of business, both large and small, is the competition to attract the consumer’s dollars by producing the goods and services working people want. Unfortunately, the current situation is clearly one where people working for a living are not taking home enough money to buy what business is desperately trying to sell. Consequently, business has been contracting and laying people off, which makes matters even worse.
The Republican response has traditionally been to give tax cuts and other monetary incentives to business rather than to the people doing the work. That does not result in new hires for the businesses, as business only hire when orders and sales pick up. Instead, it results in higher profits with the hope that those profiting will hire more domestic help and more gardeners, and produce a few jobs that way, which is known as trickle-down economics.
So while, in addition to tax hikes, both Democratic candidates for US Senate proposed tax relief, it was for small businesses- the traditional Republican approach, and indeed, the approach of the Obama administration. Note that last week’s jobs bill featured a $5,000 payroll tax reduction for businesses, and not for employees. In contrast, I have long been proposing a full ‘payroll tax holiday’ where a couple earning a combined $100,000 per year would see their take home pay rise by over $650 per month. That would be enough to fix the economy as people could then make their mortgage payments and car payments, and even do a little shopping. This is the Democratic approach which also gives businesses what they really need- people with enough money to spend to buy their products. It’s people with money to spend that creates the backlog of orders which then quickly results in the millions of new jobs we need to restore our economy to full employment levels and prosperity. The payroll tax holiday also reduces costs for business. In a competitive environment this translates into a combination of both lower prices and better cash flow for business that can be used for the new investment the recession has long delayed.
The reason the Democrats don’t propose this kind of tax cut is because they can’t answer the question of ‘how are you to replace the lost revenues.’ And, in fact the Obama administration has currently put Medicare and social security cuts on the table to ‘pay for’ what they’ve already spent. What both Democratic candidates are displaying is a failure to understand the difference between the function of Federal taxation and State and local government taxation. I grew up on the money desk at Banker’s Trust on Wall St. in the 1970’s, ran my own investment funds and securities dealer for 15 years, currently own a small Florida bank, and visit the Fed (Federal Reserve Bank) regularly to discuss monetary policy and monetary operations. I know how the payment system works, as does the Fed’s operations staff.
What we all know is that when Federal taxes are paid, all the Fed does is change the numbers down in our bank accounts. For example, if you have $5,000 in your bank account, and you pay a Federal tax of $1,000, all the Fed does is change the 5 on your bank statement to a 4, so you then have only $4,000 in your account. With online banking you can watch exactly that happen on your computer screen. The Fed doesn’t ‘get’ anything. It just changes the numbers in your account. And when the Federal government spends, it just changes numbers up in our bank accounts. It doesn’t ‘use up’ anything. In fact, the Federal government (unlike State and local governments and the rest of us who do need money in our accounts to be able to spend) never has nor doesn’t have dollars. Think if it as the score keeper for the dollar. When a touchdown is scored and 6 points go up on the scoreboard, does anyone ask where he stadium got those 6 points? Can the stadium run out of points to post on the score board? Of course not!
So why then does the Federal government tax, when it doesn’t get actual revenue (it just changes numbers down in our accounts) and it does not use up anything when it spends (it just changes numbers up in our accounts)? The fact is, taxes function to regulate the economy by controlling our take home pay. If taxes are too low, the result is excessive spending and the strong upward pressure on prices we call inflation. If we are over taxed, as we are today, and the Federal government is taking too much out of our paychecks, the result is a drop off in sales by businesses, and rising unemployment. Federal taxes are like the thermostat. If the economy is too hot (something I have never seen in my 37 years in the financial markets), they can be raised to cool it down. And when the economy goes ice cold, like it is now, my full payroll tax holiday is in order. The Federal government’s job is to keep the economy just right by keeping taxes low enough so people working for a living can afford to buy the goods and services they are capable of producing.
That’s what fiscal responsibility is all about. But until our politicians understand the difference between State finances and Federal finances, the will continue to fail to make sure our take home pay is high enough to sustain the high levels of output and employment that are the hallmarks of American prosperity.
Let me conclude with a word about China. It was stated in the Democratic debates and not disputed that the US was borrowing $4 billion from China to pay for the war in Afghanistan. However, close examination of monetary operations shows this is not at all as it seems. China has what amounts to a checking account at the Federal Reserve Bank. China gets its dollars by selling goods and services to the US, and those dollars are paid into that checking account at the Fed. And US Treasury securities are nothing more than fancy names for savings accounts at the Fed. So when China buys US Treasury securities, all the Fed does is shift China’s dollars from its checking account at the Fed to a savings account at the Fed. And when those Treasury securities become due and payable, all the Fed does is shift the dollars in the savings accounts (plus interest) back to China’s checking account at the Fed. That’s it. Debt paid. And it happens exactly this way every week as billions of Treasury securities are purchased and mature. And this process has no connection to Federal government spending for the war or anything else. Spending is always nothing more than the Fed changing numbers up in people’s bank accounts, no matter what China might be doing with their Fed accounts. That’s why the ‘national debt,’ which is nothing more than dollars in savings accounts at the Fed, has never created a financial problem, and never will, either for us or for our children. Yet the administration, the media, and the two Democratic candidates for US Senate from Connecticut have the story completely wrong as well, which results in proposals which are bad for Connecticut and bad for America.
America is grossly overtaxed and needs a full payroll tax holiday NOW to stop the bleeding and restore the American dream. The only thing standing in the way of economic prosperity is a lack of understanding of our monetary system.
Sincerely,
Warren Mosler