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Old 10th October 2019, 02:41 PM   #121
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Originally Posted by !Kaggen View Post
"And, again, should there be a default event, the investor will still get full value for his investment as the entire euro value of the defaulted securities can be used at any time for the payment of Greek taxes. So while this discussion concerns the case of default, the removal of the risk of loss means there will always be demand for them at near risk free market interest rates...
I know it's far too late for me to get into this, but.

Am I the only one who has concerns about this promise of risk-free investment?
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Old 11th October 2019, 01:21 AM   #122
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Originally Posted by Tippit View Post
The forum sort of looks like a ghost town, so maybe that's one reason.
You're not helping by limiting yourself to annual visits to this forum.

Originally Posted by Tippit View Post
I hope the censorship hasn't gotten worse.
It's about the same. Calling me an idiot won't get any complaints from me but you never know when a Tippit hater is going to report a post or yours - or a mod acts without a complaint.

Originally Posted by Tippit View Post
Anyway, does anyone have any thoughts about this? Is it an idea whose time has come, or just a final repudiation of any constraints on unchecked government power forever?
You have posted too much text to expect an intelligent response. It's almost as bad as posting links to a series of hour long YouTubes.

A nutshell summary is what is needed. To me it goes like this:
SMT: Government expenditure needs to be financed by a combination of taxation, government borrowings and printing money.
MMT: Government spending increases base money, government taxation decreases base money, government borrowing has a neutral* effect on base money.

It's a little like saying that (A + B) + C is different to A + (B + C)

* I know that foreign owned banks and governments print foreign money to buy bonds and that privately owned banks complicate everything.
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Old 17th October 2019, 07:38 PM   #123
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Originally Posted by psionl0 View Post
You're not helping by limiting yourself to annual visits to this forum.
It's not that I dislike the forum, I just sort of ran out of things to say, and I don't think I've convinced a single person of any of my points of view.

Quote:

You have posted too much text to expect an intelligent response. It's almost as bad as posting links to a series of hour long YouTubes.

A nutshell summary is what is needed. To me it goes like this:
SMT: Government expenditure needs to be financed by a combination of taxation, government borrowings and printing money.
MMT: Government spending increases base money, government taxation decreases base money, government borrowing has a neutral* effect on base money.

It's a little like saying that (A + B) + C is different to A + (B + C)

* I know that foreign owned banks and governments print foreign money to buy bonds and that privately owned banks complicate everything.
I don't think the associative property applies to SMT and MMT, as there are some (at least superficial) differences for sure. In particular are the "constraints" that apply to SMT as referenced in the macromania blogpost, the debt ceiling, no direct financing by the Fed, and no monetary power by the Treasury. I suppose the debt ceiling is a joke, as after a certain amount of drama it always gets revised upward. The no direct financing by the Fed doesn't matter too much, as they finance primary dealers who finance the Treasury. The no monetary power by the Treasury is no big constraint either, as it only means that Treasury has to either tax or borrow first before it spends. Clearly the Fed is an ally here and provides plenty of fiat money (indirectly) for it to borrow.

One of the biggest issues I have with the system, is that I view the creation of money as just another tax. This really should be obvious to everyone now with the advent of MMT (hi Francesca!). Given this and given the so-called "independence" of the Federal Reserve, we essentially have a quasi-private institution which wields the power to tax in an arbitrary and practically unlimited fashion for private benefit (such as extending fiat money credit to private borrowers around the globe with little-to-no oversight). This is the epitome of corruption, and I think I will be vindicated for recognizing this, perhaps in the next century or beyond.

I have mixed feelings about MMT because it would in one fell swoop abolish the independent monetary power of the Fed and restore it to the Treasury (to whom this unconstitutional power "rightfully" belongs), but at the same time it also appears to remove all of the perhaps superficial constraints that SMT has imposed on government spending, which is worrisome to say the least. I suspect given the growth of government spending, debt, and the monetary aggregates, it probably doesn't matter a whole lot anyway. But at least with MMT the private money spigot for elites would be shut off, with the exception of their ability to perhaps control the Treasury. It's for this reason that if I had to make a prediction, I predict that the elites will not allow MMT to come to fruition, or they will have absolute control of the Treasury before then.

One last note, if you read the macromania blog post, you will notice them discussing whether or not money is destroyed "in vacui" under the current SMT, as it would be under the proposed MMT. In other words, they're claiming that the Treasury has been destroying money via tax collection all along, a subject that has been touched upon previously in a few threads on this forum. The Treasury General Account apparently resides at the New York branch of the Federal Reserve, but the balance does not count towards the monetary aggregates. I would counter by saying that since the Treasury is spending base money into the economy in perpetuity, the net result is mostly a wash. What do you think?
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Old 18th October 2019, 04:17 AM   #124
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Originally Posted by Tippit View Post
...we essentially have a quasi-private institution which wields the power to tax in an arbitrary and practically unlimited fashion for private benefit (such as extending fiat money credit to private borrowers around the globe with little-to-no oversight).

... abolish the independent monetary power of the Fed and restore it to the Treasury (to whom this unconstitutional power "rightfully" belongs)
Over the journey I've asked you several times to distinguish between the US' (relatively unique) central banking structure vs dozens of other countries' wholly-government central banks. The latter are essentially the Treasury authority to which you refer but you've never acknowledged this in any of your long posts criticising central banking.

If the Fed was reduced to just another independent (government) statutory authority like the central banks in most other countries, do you think your criticisms would really disappear? Genuine question.
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Old 31st March 2020, 11:55 AM   #125
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Coronavirus update: Ok, now that governments all around the world, through their central banks, are starting to carry much of the private sector's monetary troubles on their consolidated balance sheet -- practically saving their arses --
... should we now consider it a relevant description of how the monetary system actually (or more or less) works?
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Old 31st March 2020, 08:56 PM   #126
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Originally Posted by lupus_in_fabula View Post
Coronavirus update: Ok, now that governments all around the world, through their central banks, are starting to carry much of the private sector's monetary troubles on their consolidated balance sheet -- practically saving their arses --
... should we now consider it a relevant description of how the monetary system actually (or more or less) works?
They're not "carrying the private sector's monetary troubles", they're subsidizing corporate bond (and stock) holders by destroying the currency, thus robbing savers, workers, people on fixed income, and taxpayers. There is no free lunch in economics. The losses that would have been endured by those bondholders have simply been transferred upon the nameless and faceless saver of US dollars. The pressure on the dollar has been offset by the incredible demand for dollars this crisis has generated around the world, but I have a bad feeling this is similar to how the shoreline recedes - just before a massive tsunami. With Russia and Saudi Arabia conspiring to destroy US shale, what happens to the petrodollar @ $10/barrel? Maybe it ceases to exist, and the exorbitant privilege enjoyed by the US as sole counterfeiter of Federal Reserve notes disappears with it.

In essence, the Federal Reserve is doing precisely what it was designed to do, loot and perpetuate vast wealth for its controllers, at the expense of virtually everyone else.
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Old 31st March 2020, 10:24 PM   #127
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Originally Posted by lupus_in_fabula View Post
Coronavirus update: Ok, now that governments all around the world, through their central banks, are starting to carry much of the private sector's monetary troubles on their consolidated balance sheet -- practically saving their arses --
... should we now consider it a relevant description of how the monetary system actually (or more or less) works?
I don't think that anybody has ever said that central banks don't print money.

BTW What has changed? Has the Fed started a new QE program or is it lending reserves directly to the banks or is the government just racking up more debt to bail out businesses and leaving the central banks to deal with the mess later?
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Old 31st March 2020, 11:41 PM   #128
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The US dollar residing at the top of the global money hierarchy keeps the demand for $ up; the more you use it, the more you’ll need it. During a crisis like this – just like during the previous financial crisis – we are once again witnessing the utter dominance of the “one currency to rule them all”. During the last financial crisis there were people crying out loud how the Fed was destroying the US dollar by printing (“diluting”) it into oblivion as a global reserve currency. Well, nothing of the sort happened. In fact, ten years later the dollar dominance seems to only have grown stronger … especially now that there’s permanent central bank swap lines between the Fed and the other big five (ECB, BoE, BoJ, SNB, BoC) and temporary ones with a handful of others.

So, now that much of the private sector’s balance sheets are on fire, we see a consolidated effort by the central banks and governments to mitigate the crisis by expanding their own balance sheets. Plenty of what is usually called “public borrowing” will in fact end up as being public money creation as the bonds end up on central bank balance sheets. And in so far as the private sector then continues to pay back their (private) loans, money will likewise disappear. So what in the first instance will look like an infusion of the quantity of money in general … might in the second instance only be a relative shift of the distribution between public and private money. Obviously, as private sector banks continue to lend (create their own private money) the relative distribution between public and private money tend to shift back again. Hence we are witnessing a continuous oscillation between public and private money.

MMT pretty much taps into this realization and then expands the same kind of logic to taxation. Taxation, they say, is not there to fund government expenditure in the sense that the government should need tax receipts in order to spend, nor does the government actually need to borrow from the private sector in order to spend. The government can just spend, full stop. Taxation is there to remove money from circulation thus keeping the oscillation alive. Or from another perspective: tax receipts are only needed to the extent the government decides to play the private money game while actually keeping it alive at the same time. Which consequently infuses a necessary political dimension into the political game often uttered in terms of: “how are we going to pay for that?” Say, for example: “how are we going to pay for universal healthcare” while still pretending it being contingent on the rules of the private money game.
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Old 1st April 2020, 12:49 AM   #129
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Originally Posted by psionl0 View Post
I don't think that anybody has ever said that central banks don't print money.

BTW What has changed? Has the Fed started a new QE program or is it lending reserves directly to the banks or is the government just racking up more debt to bail out businesses and leaving the central banks to deal with the mess later?
Both. There are some old Fed facilities being resurrected with slightly different names and then there are some new ones, like the Primary Dealer Credit Facility, the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility and the newly installed Special Purpose Vehicle (directly backed by the Treasury) which together pretty much expands the scope of eligible assets which can be thrown at the Fed. Obviously, Treasury securities will always be accepted as before.

Basically the $500bn Treasury’s Exchange Stabilization Fund included in the stimulus bill alone should allow the Fed to expand its balance sheet tenfold to that of the initial sum.
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Old 1st April 2020, 08:53 AM   #130
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Originally Posted by lupus_in_fabula View Post
MMT pretty much taps into this realization and then expands the same kind of logic to taxation. Taxation, they say, is not there to fund government expenditure in the sense that the government should need tax receipts in order to spend, nor does the government actually need to borrow from the private sector in order to spend. The government can just spend, full stop. Taxation is there to remove money from circulation thus keeping the oscillation alive. Or from another perspective: tax receipts are only needed to the extent the government decides to play the private money game while actually keeping it alive at the same time. Which consequently infuses a necessary political dimension into the political game often uttered in terms of: “how are we going to pay for that?” Say, for example: “how are we going to pay for universal healthcare” while still pretending it being contingent on the rules of the private money game.
In spite of the spin put on it by MMT, it is not the case that the government prints money, spends it then decides how much of the new money they withdraw via taxation.

It is still the case that the government must fund its expenditure either through taxation or through public borrowings. The Fed may print money to buy back some of the government debt (QE) but even if it is in response to how much the government has borrowed, it is still a separate thing.

That is why the question still gets asked, "where is the money coming from"? The government can't order the Fed to print money to cover a budgetary deficit. Management of the money supply belongs to the Fed which is not what MMT is saying.
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Old 1st April 2020, 02:03 PM   #131
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Originally Posted by lupus_in_fabula View Post
The US dollar residing at the top of the global money hierarchy keeps the demand for $ up; the more you use it, the more you’ll need it. During a crisis like this – just like during the previous financial crisis – we are once again witnessing the utter dominance of the “one currency to rule them all”. During the last financial crisis there were people crying out loud how the Fed was destroying the US dollar by printing (“diluting”) it into oblivion as a global reserve currency. Well, nothing of the sort happened. In fact, ten years later the dollar dominance seems to only have grown stronger … especially now that there’s permanent central bank swap lines between the Fed and the other big five (ECB, BoE, BoJ, SNB, BoC) and temporary ones with a handful of others.
Here's a list of the last five global reserve currencies:

US Dollar 1920-present
UK Pound 1815-1920
France 1720-1815
Netherlands 1642-1720
Spain 1530-1641

All of these countries, without exception, relied on the use of military force to coerce the rest of the world into accepting their currencies, and at some point, accepting them became a matter of convention. The United States, in a twist, used the brilliant tactic of establishing the petrodollar - instead of using direct military force on the rest of the world, it instead focused its laserlike military attention on protecting the sale of oil in US dollars, while coercing the Saudi's, the largest producer of oil, to reinvest their vast profits back into US government bonds. This had the effect of forcing the rest of the world to carry dollar balances in order to purchase oil, the lifeblood of their economies, and allowed the Federal Reserve to begin its looting of the rest of the world. There is no question that the Federal Reserve has destroyed the US dollar, as it's lost more than 95% of its purchasing power since inception, when it was defined as 371.25 grains of fine silver. The fact that the Federal Reserve is the largest counterfeiting operation the world has ever seen, and manages to export its fiat dollars to the rest of the world in exchange for the world's real wealth, only obscures the fact that the dollar has been debased. The fact that the dollar's debasement is used to prop up and increase the value of stock and bond markets dominated by the super rich, enables these people to acquire rents and capital gains that they would otherwise not be due, and this in turn makes everyone else relatively poorer, with that much less money to spend in the real economy, thus further obscuring the effect on prices. While these facts may not be apparent to you, they are apparent to those who understand how this scam works.

Quote:

So, now that much of the private sector’s balance sheets are on fire, we see a consolidated effort by the central banks and governments to mitigate the crisis by expanding their own balance sheets. Plenty of what is usually called “public borrowing” will in fact end up as being public money creation as the bonds end up on central bank balance sheets. And in so far as the private sector then continues to pay back their (private) loans, money will likewise disappear. So what in the first instance will look like an infusion of the quantity of money in general … might in the second instance only be a relative shift of the distribution between public and private money. Obviously, as private sector banks continue to lend (create their own private money) the relative distribution between public and private money tend to shift back again. Hence we are witnessing a continuous oscillation between public and private money.
What we are witnessing, is the heat death of the so-called "free market". In no free market are stock and bond investors guaranteed the absence of losses in perpetuity, which is exactly what has happened (at least up until recently). In fact, absent this "intervention", capital markets investors would have suffered losses more similar to the great depression and the crash of 1929. They may yet. The sad irony of this is that the collapse won't be blamed on the corporations borrowing money at artificially low interest rates to buy back overpriced stocks and vastly enrich themselves and their shareholders. It won't be blamed on the commercial banks and the corrupt fractional reserve system which not only guarantees enormous unmerited profits for said banks, but also ensuring a fragile, unstable system subject to collapse at any hint of a real crisis. It will be blamed on capitalism and "free markets", which have not existed to any meaningful degree since the Fed's inception in 1913.

Quote:

MMT pretty much taps into this realization and then expands the same kind of logic to taxation. Taxation, they say, is not there to fund government expenditure in the sense that the government should need tax receipts in order to spend, nor does the government actually need to borrow from the private sector in order to spend. The government can just spend, full stop. Taxation is there to remove money from circulation thus keeping the oscillation alive. Or from another perspective: tax receipts are only needed to the extent the government decides to play the private money game while actually keeping it alive at the same time. Which consequently infuses a necessary political dimension into the political game often uttered in terms of: “how are we going to pay for that?” Say, for example: “how are we going to pay for universal healthcare” while still pretending it being contingent on the rules of the private money game.
MMT is a very simple concept to understand, once you understand the concept that money creation itself is the ultimate form of taxation (Hi, Francesca, are you there?) Government monetization of its expenses simply destroys the purchasing power of savers, workers, and those on fixed income, and places the burden of government on the price system. Conventional tax policy under MMT simply reallocates that burden from savers to taxpayers, and perhaps makes the scam of money creation less obvious to the uninitiated. The more money that is destroyed by conventional taxation, the less purchasing power taxpayers have to spend, and thus, the burden on the price system is reduced. That's really all there is to it, and, if you read my previous posts, you will see that there isn't really that much difference between MMT and what we have now, other than a few technical issues like the debt ceiling, and the fact that the central bank cannot directly monetize Treasury bonds (yet).
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Old 1st April 2020, 07:09 PM   #132
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Since this a skeptics forum, let me point out that over the last 10 years the monetary base has increased by 185%. Over that same period, the CPI has risen 19%. Those numbers ain't real close to one another.
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Old 2nd April 2020, 12:50 AM   #133
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Originally Posted by psionl0
In spite of the spin put on it by MMT, it is not the case that the government prints money, spends it then decides how much of the new money they withdraw via taxation.
I suppose an MMT:er would answer in two interrelated ways: First, it is best to look at the central bank and the government as a consolidated entity when it comes to the overall functioning of issuance and distribution of currency, the payment system and payment flows within the system. So, if taxes are eventually paid with public money, one must obviously ask the logical question, implying framing it in logical time, where the money came from in the first place? Secondly, the same goes for public sector bond issuance as well; given that buyers like primary dealers must purchase those bonds in public money, public money must have been issued first.

Originally Posted by psionl0
It is still the case that the government must fund its expenditure either through taxation or through public borrowings. The Fed may print money to buy back some of the government debt (QE) but even if it is in response to how much the government has borrowed, it is still a separate thing.
Depends on the rules and whether the government decides to play along existing rules or simply decides to change them if needed. Different jurisdictions have different mechanism spanning from direct overdrafts to direct restrictions but indirect coordination between central banks and treasuries. But even with existing rules in the US, the Treasury could frontload any taxation by directly issuing a platinum coin if it wanted to. This idea is actually not much different from the $500bn given to the Fed as government guarantees in the current stimulus package … a formality to safeguard the Fed from potential negative capital (purely an accounting convention) once the Fed expands its balance sheet with €5 trillion. That $500bn didn’t come from anything else but the government telling the Fed it will have its back covered if accounting rules become an obstacle.

Originally Posted by psionl0
That is why the question still gets asked, "where is the money coming from"? The government can't order the Fed to print money to cover a budgetary deficit. Management of the money supply belongs to the Fed which is not what MMT is saying.
This is, again, a question of whether the government decides to play along or not. There’s always the possibility of the Treasury issuing its own money, revoking the Fed’s charter or simply changing the rules as it sees fit. But there is hardly any need to do that because the Treasury and the Fed are always cooperating closely and thus coordinating payment flows so as to ensure the government never running out of bookkeeping entries (money). Once deficit spending is politically approved, the money will be there in one way or another.
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Old 2nd April 2020, 01:44 AM   #134
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Originally Posted by lupus_in_fabula View Post
. . . woulda . . . coulda . . . . shoulda . . .
This is basically what your post amounts to.

Yes, government could operate the way MMT describes if it wanted to. However, I seriously doubt that it would be politically acceptable to give politicians unlimited access to the printing press. Even if that hurdle could be overcome, the government would still have to finance at least part of its deficit by public borrowings to avoid hyper-inflation.

The other hurdle is that the constitution doesn't give the federal government the authority to make laws about banks or banking. That is why central banks in the US have always been privately owned. The Fed and the US government are definitely not in lock-step over monetary policy.
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Old 2nd April 2020, 02:17 AM   #135
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Money = trade accounting using currency as a store of value and net balance indicator.

Fiat currency = trade accounting backed by a government by setting standards and norms.

"Real money" = figment of alt-right imaginations, remnant of the use of items with intrinsic value (gold, sea shells) for trade accounting, which never can work very well owing to the mix of an actual trade good with record-keeping.

Bonus: In what wild and woolly ways is the use of the term "free" in "free markets" wholly and substantially unrelated to the meaning of "free" in "political freedom"? Corollary: How is the confusion between the two used politically?
Free escape-from-propaganda card for a correct answer.
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Old 2nd April 2020, 02:19 AM   #136
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Originally Posted by psionl0 View Post
This is basically what your post amounts to.

Yes, government could operate the way MMT describes if it wanted to. However, I seriously doubt that it would be politically acceptable to give politicians unlimited access to the printing press. Even if that hurdle could be overcome, the government would still have to finance at least part of its deficit by public borrowings to avoid hyper-inflation.

The other hurdle is that the constitution doesn't give the federal government the authority to make laws about banks or banking. That is why central banks in the US have always been privately owned. The Fed and the US government are definitely not in lock-step over monetary policy.
Well, the consolidation between central banks and treasuries has historically been a matter of scale rather than strict demarcation. For example, WWII was pretty much financed directly through the Fed. I.e., they should have, could have ... and actually did.

So there is still the mentioned conundrum: since taxes and purchases of government debt happens with public money ... where did that money come from in the first place?
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Old 2nd April 2020, 06:41 AM   #137
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Originally Posted by lupus_in_fabula View Post
snip
For example, WWII was pretty much financed directly through the Fed. I.e., they should have, could have ... and actually did.

So there is still the mentioned conundrum: since taxes and purchases of government debt happens with public money ... where did that money come from in the first place?
Two things:

(A) Could you point me to a data source about WWII being financed by the Fed. I can't find any data on how much money the Fed printed compared to what the government spent.

(B) The Fed can "print" as much money as it wants. Technically it makes open market purchases, but that comes to the same thing. The new money is a liability of the Fed, offset by whatever assets it bought.
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Old 2nd April 2020, 08:31 AM   #138
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Originally Posted by Startz View Post
Two things:

(A) Could you point me to a data source about WWII being financed by the Fed. I can't find any data on how much money the Fed printed compared to what the government spent.

(B) The Fed can "print" as much money as it wants. Technically it makes open market purchases, but that comes to the same thing. The new money is a liability of the Fed, offset by whatever assets it bought.
(A) The Fed chief Marriner Eccles testified before the Commitee on Banking and Currency in 1947 where the Fed argumented for direct purchases of government securities as being more efficient and transparent than the roundabout way. In that hearing he basically explained how the Fed financed the war effort by crediting the dealer banks so that they, in turn, could purchase government securities. The roundabout way was called “hocus pocus” and had the exact same effect as the Fed buying directly from the Treasury.

(B) Those assets balancing the Fed’s liabilities are, more or less, government securities … hence the MMT idea that practically the treasury and the central bank together ought to be viewed as a consolidate entity.

Also, an interesting quote from the same hearing:
Originally Posted by Marriner Eccles
So it is an illusion to think that to eliminate or to restrict the direct borrowing privilege reduces the amount of deficit financing. Or that the market controls the interest rate. Neither is true.
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Old 2nd April 2020, 09:04 AM   #139
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I was mostly wondering if someone had numbers about how much of WWII the Fed financed. I would think they'd be easy to find, but I can't.
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Old 2nd April 2020, 10:10 AM   #140
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Originally Posted by Startz View Post
I was mostly wondering if someone had numbers about how much of WWII the Fed financed. I would think they'd be easy to find, but I can't.
The Second War Powers Act of 1942 granted the Fed a permanent authority to purchase long-term government securities. Thus, in 1942 about 9 percent of the Fed’s assets consisted of government securities. By 1945 it was 50%, which amounts to about $21.7 billion purchased in total. But that’s only the direct portion of the story as the Fed facilitated much of the underlying buying power for private institutions which otherwise would not have been able to purchase government securities.

Paper:
Originally Posted by Bao & Paine 2018
On April 11, 1942, the Federal Reserve introduced a uniform discount rate of 1 percent and a 0.5 percent preferential rate for loans collateralized by short-term government securities.6 By July 1942, the Board also removed reserve requirements on war loan deposits, which allowed banks to determine the volume of the reserves by buying or selling Treasury bills. Because banks were selling Treasury bills at such high prices after the announcement fixing interest rates, the Federal Reserve acquired all outstanding bills by 1945. By the end of the war, short-term government securities had become the Federal Reserve’s principal asset.
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Old 2nd April 2020, 10:26 AM   #141
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Originally Posted by lupus_in_fabula View Post
The Second War Powers Act of 1942 granted the Fed a permanent authority to purchase long-term government securities. Thus, in 1942 about 9 percent of the Fed’s assets consisted of government securities. By 1945 it was 50%, which amounts to about $21.7 billion purchased in total. But that’s only the direct portion of the story as the Fed facilitated much of the underlying buying power for private institutions which otherwise would not have been able to purchase government securities.

Paper:
First, I really appreciate both the summary and the link to the paper.

I looked at the paper, and it looks like Fed assets increased by around $25 billion during WWII. That's a fairly modest fraction of what the government spent.
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Old 2nd April 2020, 12:03 PM   #142
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Originally Posted by Startz View Post
First, I really appreciate both the summary and the link to the paper.

I looked at the paper, and it looks like Fed assets increased by around $25 billion during WWII. That's a fairly modest fraction of what the government spent.
Well, depends on how we define modest, I suppose? That’s still about the same amount as the holdings of commercial institutions like banks etc. at war end (about $24 billion). Taxation financed little under 50% of the spending bill … although, of course, the government was also itself an indirect employer (through companies and the War Production Board) whereby income tax was then payed back to the state.
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Old 2nd April 2020, 12:15 PM   #143
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Originally Posted by lupus_in_fabula View Post
Well, depends on how we define modest, I suppose? That’s still about the same amount as the holdings of commercial institutions like banks etc. at war end (about $24 billion). Taxation financed little under 50% of the spending bill … although, of course, the government was also itself an indirect employer (through companies and the War Production Board) whereby income tax was then payed back to the state.
I think it's about 10 percent of federal spending during the war, although I'm not real sure of my numbers. My only point, which I think is consistent with your numbers, is that WWII mostly wasn't paid for by the Fed printing money. Don't think I'm disagreeing with anything you've said.
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Old 2nd April 2020, 12:25 PM   #144
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Originally Posted by Startz View Post
Since this a skeptics forum, let me point out that over the last 10 years the monetary base has increased by 185%. Over that same period, the CPI has risen 19%. Those numbers ain't real close to one another.
What does the CPI fail to measure? How much have asset prices risen over that same period?

I already alluded to the fact that asset price inflation consolidates wealth in fewer and fewer hands - concentrated monetary inflation begets consumer price deflation. As the rich get richer, they collect more and more rents. The average consumer must necessarily consume less as their rents get higher, and this is CPI deflationary. This concept shouldn't be too hard to understand.

There is a real price to be paid for letting a few people get exorbitantly wealthy via asset price inflation. Even if 50% of US households own stocks, and 50% don't, diluting the currency of one half of the population to enrich the other presents numerous ethical and social problems. This is why socialist candidates like Bernie Sanders and AOC are taken seriously.
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Old 2nd April 2020, 12:32 PM   #145
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Originally Posted by psionl0 View Post
This is basically what your post amounts to.

Yes, government could operate the way MMT describes if it wanted to. However, I seriously doubt that it would be politically acceptable to give politicians unlimited access to the printing press. Even if that hurdle could be overcome, the government would still have to finance at least part of its deficit by public borrowings to avoid hyper-inflation.
Now I have to direct my criticism to you. If it isn't politically acceptable to give politicians "unlimited access to the printing press", then how could it possibly be acceptable to give a quasi-private central bank "unlimited access to the printing press". Are central bankers magically and ethically exempt from the Lord Acton-like corruption that will necessarily arise given the power to counterfeit infinite amounts of money, legally? No one on this forum has ever answered this question satisfactorily. How are unaccountable central bankers magically less corrupt than politicians? How many times have I asked this question, and how many times have you dodged it? Please elaborate.

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The other hurdle is that the constitution doesn't give the federal government the authority to make laws about banks or banking. That is why central banks in the US have always been privately owned. The Fed and the US government are definitely not in lock-step over monetary policy.
A major flaw in the constitution, for sure. The power to create infinite money, is the power to tax (or steal) infinitely. The notion that central banks should be "independent" (or exist at all) is absurd on its face.
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Old 2nd April 2020, 12:40 PM   #146
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Originally Posted by Hlafordlaes View Post
Money = trade accounting using currency as a store of value and net balance indicator.

Fiat currency = trade accounting backed by a government by setting standards and norms.

"Real money" = figment of alt-right imaginations, remnant of the use of items with intrinsic value (gold, sea shells) for trade accounting, which never can work very well owing to the mix of an actual trade good with record-keeping.
This is nonsensical. Gold and silver functioned as money for millennia. The fact that gold and silver have independent, intrinsic value as opposed to fiat is a feature that prevents unlimited deficit spending (taxation), which Alan Greenspan observed in his essay "Gold and Economic Freedom"

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Bonus: In what wild and woolly ways is the use of the term "free" in "free markets" wholly and substantially unrelated to the meaning of "free" in "political freedom"? Corollary: How is the confusion between the two used politically?
Free escape-from-propaganda card for a correct answer.
I reject your premise that they're unrelated. Political freedom is utterly dependent on the economic freedom provided by free markets. We have neither free markets, nor political freedom. Furthermore, we cannot have free markets without a free market in money itself.
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Old 2nd April 2020, 12:58 PM   #147
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Originally Posted by lupus_in_fabula View Post

(B) Those assets balancing the Fed’s liabilities are, more or less, government securities … hence the MMT idea that practically the treasury and the central bank together ought to be viewed as a consolidate entity.
It's crucial to note that under MMT, not only must the Treasury have the exclusive right to emit fiat money (Treasury/CB consolidation) it must also necessarily destroy its tax receipts, or else it isn't strictly MMT. If it doesn't destroy its tax receipts, it's essentially engaging in two forms of taxation, seigniorage, and conventional.

I doubt anyone is naive enough to assume that the US Treasury is interested in destroying tax receipts. Under the current system, the rate of seigniorage and the rate of conventional taxation are both maximized in terms of what the petrodollar saving world, and US taxpayers, will bear.
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Old 2nd April 2020, 01:11 PM   #148
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Originally Posted by Startz View Post
I think it's about 10 percent of federal spending during the war, although I'm not real sure of my numbers. My only point, which I think is consistent with your numbers, is that WWII mostly wasn't paid for by the Fed printing money. Don't think I'm disagreeing with anything you've said.
Obviously the aggregate spending bill wasn’t ending up on the Fed’s balance sheet. That would make no sense as the economy and payment system consists of all other actors in the economy as well – private money being the major monetary aggregate. But the government transacts with the private sector mainly through public money, thus any financing of transactions like taxation and selling securities (by which the war effort was funded) must therefore also take place through such money … i.e., public or state money, if you like. The facilitator for all such transactions was the Fed. Hence the MMT idea that the government does not need to collect taxes before the government can spend. MMT also tend to conflate Fed reserves and government securities as practically fulfilling the same function.
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Old 2nd April 2020, 10:47 PM   #149
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Originally Posted by Tippit View Post
It's crucial to note that under MMT, not only must the Treasury have the exclusive right to emit fiat money (Treasury/CB consolidation) it must also necessarily destroy its tax receipts, or else it isn't strictly MMT. If it doesn't destroy its tax receipts, it's essentially engaging in two forms of taxation, seigniorage, and conventional.

I doubt anyone is naive enough to assume that the US Treasury is interested in destroying tax receipts. Under the current system, the rate of seigniorage and the rate of conventional taxation are both maximized in terms of what the petrodollar saving world, and US taxpayers, will bear.
Accountinwise that might be the case:
  • When you pay your taxes the Treasury’s tax and loan account (TT&L) in a commercial bank is credited by the bank in question | debit your account, credit TT&L | i.e., no change in the quantity of private money and no change in the quantity of public money.
  • However, when the Treasury spends it does not spend from the TT&L (private money); it uses the TGA account at the Fed.
  • Thus the Fed will credit the TGA account and debit the commercial banks’ account at the Fed | private money has now disappeared and so has public money as “funds” in the TGA is not considered being part of the monetary base. This is where MMT says that taxes destroy money.
  • Once the Treasury spends, the Fed will credit a commercial banks’ account at the Fed and debit the TGA | the quantity of public money goes up once again, and so will private money provided the spending target is not a commercial bank itself but someone banking with it.

So much of this boils down to how we define money, i.e., what bookkeeping entries are considered money, and furthermore, what bookkeeping entries signify public or private money.
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Old 3rd April 2020, 02:01 AM   #150
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Originally Posted by Tippit View Post
Now I have to direct my criticism to you. If it isn't politically acceptable to give politicians "unlimited access to the printing press", then how could it possibly be acceptable to give a quasi-private central bank "unlimited access to the printing press". Are central bankers magically and ethically exempt from the Lord Acton-like corruption that will necessarily arise given the power to counterfeit infinite amounts of money, legally? No one on this forum has ever answered this question satisfactorily. How are unaccountable central bankers magically less corrupt than politicians? How many times have I asked this question, and how many times have you dodged it? Please elaborate.
Members on the board of the Fed don't have to buy votes to keep their position so they have less pressure on their decisions about the money supply.

More importantly, the Fed exists to protect the interests of banks - not the government. And it is not in the interest of banks for the Fed to hyper-inflate the USD away. So if the federal government gets in over its head due to its profligacy, they can't assume that the Fed will bail them out by buying their bonds. The fed will more likely give them the finger if it is not in the interest of the banks to do so.

Originally Posted by Tippit View Post
It's crucial to note that under MMT, not only must the Treasury have the exclusive right to emit fiat money (Treasury/CB consolidation) it must also necessarily destroy its tax receipts, or else it isn't strictly MMT.
Good point!
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Old 3rd April 2020, 02:04 AM   #151
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Originally Posted by lupus_in_fabula View Post
So much of this boils down to how we define money, i.e., what bookkeeping entries are considered money, and furthermore, what bookkeeping entries signify public or private money.
Maybe we shouldn't be so caught up about whether this is MMT then. The name of the theory doesn't change what happens in practice anyway.
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Old 3rd April 2020, 07:36 AM   #152
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Originally Posted by psionl0 View Post
Maybe we shouldn't be so caught up about whether this is MMT then. The name of the theory doesn't change what happens in practice anyway.
Sure, naming does not make a change.

But comprehending the mechanisms in terms of what are in fact only self-imposed restrictions, what current restrictions are illusory already, and so forth ... obviously makes a difference in terms of the underlying premises by which economic policy operates from and how it ought to be judged.

So for example, just looking at how difficult it seems to send people money during the current corona-crisis in the U.S. right now seem surprisingly pathetic as to how the current institutional setup is arranged.
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Old 3rd April 2020, 08:32 AM   #153
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Originally Posted by lupus_in_fabula View Post
Accountinwise that might be the case:
  • When you pay your taxes the Treasury’s tax and loan account (TT&L) in a commercial bank is credited by the bank in question | debit your account, credit TT&L | i.e., no change in the quantity of private money and no change in the quantity of public money.
  • However, when the Treasury spends it does not spend from the TT&L (private money); it uses the TGA account at the Fed.
  • Thus the Fed will credit the TGA account and debit the commercial banks’ account at the Fed | private money has now disappeared and so has public money as “funds” in the TGA is not considered being part of the monetary base. This is where MMT says that taxes destroy money.
I was aware of the TGA account, and that it is presumably not counted in the monetary aggregates. I was not aware of the TT&L accounts. If, upon receiving taxes the taxpayer's account is debited and the TT&L account is credited, and assuming the Treasury doesn't spend from that account, what happens to that money?

As I understand the Fed is prohibited from buying bonds directly from the Treasury, so under what circumstances would the Fed ever credit the TGA account directly? The Fed is supposed to sell and purchase bonds to and from primary dealers, exclusively.

Quote:
[*]Once the Treasury spends, the Fed will credit a commercial banks’ account at the Fed and debit the TGA | the quantity of public money goes up once again, and so will private money provided the spending target is not a commercial bank itself but someone banking with it.[/list]
This is clear.

Quote:

So much of this boils down to how we define money, i.e., what bookkeeping entries are considered money, and furthermore, what bookkeeping entries signify public or private money.
I understand that this is getting into the "sausage-making" aspect of monetary and fiscal policy and that it's not well understood, but do you have any authoritative links that explain this process and how it affects the aggregates?
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Old 3rd April 2020, 09:03 AM   #154
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Originally Posted by psionl0 View Post
Members on the board of the Fed don't have to buy votes to keep their position so they have less pressure on their decisions about the money supply.

More importantly, the Fed exists to protect the interests of banks - not the government. And it is not in the interest of banks for the Fed to hyper-inflate the USD away. So if the federal government gets in over its head due to its profligacy, they can't assume that the Fed will bail them out by buying their bonds. The fed will more likely give them the finger if it is not in the interest of the banks to do so.
Forgive me, but this is patently ridiculous. I agree that the Fed exists to protect the interests of banks, as the banks are restricted stockholders in the Fed, and that it's not in the interests of either the banks or the Fed to "hyper-inflate the USD away". Recall that the power to create infinite money is the power to infinitely tax (or steal, depending upon whether and how much the money benefits the public). If you disagree with this premise, which seems to be the case given your response, then please explain why not.

The problem, is that very few people seem to understand the relationship between money creation and price inflation. If you give me the power of the Fed, I'm not going to use the power of money creation to directly finance my consumer lifestyle. I'm going to use the power of money creation to lend or gift myself the money to buy financial assets, and increase my net worth, and my rents (dividends, bond coupons, real estate rents, trading profits, etc...) You simply cannot ignore the fact that the Fed is a parasitical actor, exchanging phony, cost-less fiat money for assets which generate real cash flows paid by real people doing real work and creating real wealth in the economy!!!

The *share* of real economic rents is a zero-sum game. As the economy is financialized and monetized with fiat money, these real rents flow away from productive, non-parasitical actors in the economy to the parasitical, non-productive financial actors who have the apparently divine right of unlimited credit and money, courtesy of the Fed!

What is crucial to understand here is that this is actually deflationary. It is a massive offsetting factor to the incredible inflation of the money supply itself. The fact that I have to pay rents in the form of real estate rents, taxes used to service government debts, and monopolistic corporate profits, necessitates that I will have less money to spend on consumer goods for myself, and as a result, this keeps somewhat of a lid on CPI. There are of course offsetting factors to this (consumers also own assets, which they sell for nominal profit and use to increase consumption), but the fact remains.

The net result is that monetary inflation arises in the form of zeros in the bank accounts and net worth of the people close to the Fed, by the consolidation of real economic rents, and after paying these rents, virtually everyone else has nothing to spend on anything else! Hyperinflation of financial assets benefiting the few = deflation/disinflation of consumer prices. As a corollary, it doesn't matter how low prices are if you have nothing left over from paying the rentier class.

I think this is key to understanding the "mystery" of how there can be unparalleled money creation than has ever before been seen in history, and yet have price indexes remain almost subdued (but certainly understated!) We're told constantly that there is not enough inflation, not enough inflation, we're at risk of deflation. How does providing the lion's share of unlimited credit to a relative few elites, who then use it to buy everything that produces rent, result in inflation? The answer is, it doesn't. It results in a wealth gap which has hardly been seen before, and poverty and misery on a global scale for most. I should probably write an essay on this topic because I am beginning to realize it's crucial for people to understand. It's probably too late, given current events.
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Old 3rd April 2020, 09:50 AM   #155
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Originally Posted by Tippit View Post
Forgive me, but this is patently ridiculous. I agree that the Fed exists to protect the interests of banks, as the banks are restricted stockholders in the Fed, and that it's not in the interests of either the banks or the Fed to "hyper-inflate the USD away". Recall that the power to create infinite money is the power to infinitely tax (or steal, depending upon whether and how much the money benefits the public). If you disagree with this premise, which seems to be the case given your response, then please explain why not.
You are all over the place here. You call my post ridiculous then agree with it. Then you conflate the Fed with the government.

If I remember rightly, the most recent rounds of QE didn't have anywhere near the desired (by the banks) effect. The banks didn't create new money by way of loans overall.

Originally Posted by Tippit View Post
How does providing the lion's share of unlimited credit to a relative few elites, who then use it to buy everything that produces rent, result in inflation? The answer is, it doesn't. It results in a wealth gap which has hardly been seen before, and poverty and misery on a global scale for most. I should probably write an essay on this topic because I am beginning to realize it's crucial for people to understand. It's probably too late, given current events.
The highlighted is not correct. The wealth gap has been even bigger in the past. The 20th century was unique in that there was a more equitable wealth distribution than there had been previously. We are just returning to pre 20th century wealth gaps as the elite find new ways to overcome the earning power that the masses had acquired in the 20th century.

Yes, money creation by flooding the economy with debt (credit cards etc) is part of the reason but banks are not the only mega-corporations that are implementing the wealth grab.
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Old 3rd April 2020, 10:04 AM   #156
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Originally Posted by Tippit
I was aware of the TGA account, and that it is presumably not counted in the monetary aggregates. I was not aware of the TT&L accounts. If, upon receiving taxes the taxpayer's account is debited and the TT&L account is credited, and assuming the Treasury doesn't spend from that account, what happens to that money?
Prior to the great financial crisis the money at the TT&L would mostly stay there and only a small portion would revolve through the TGA at any time. The Treasury actually targeted a constant $5 billion at the TGA so as to help the Fed with its interest rate policy by reducing unnecessary volatility in reserves. After the financial crisis the TT&L program seems to have been paused and now the Treasury is reallocating everything to the TGA directly. The balances and volatility of the TGA can be viewed here.

And here’s a short description by the Fed: Fiscal Flow Volatility and Reserves

But to be very specific: there were two different kinds of TT&L agreements for the accounts: (A) Remit Option Depositories whereby the commercial bank was obligated to transfer the funds to the TGA the same day or the following day; (B) Note Option Depositories whereby the bank could hold TT&L deposits for an extended period of time. Usually any flow from A to the TGA would then flow back from the TGA to B where deposits would be waiting to be called upon by the Treasury.

Originally Posted by Tippit
As I understand the Fed is prohibited from buying bonds directly from the Treasury, so under what circumstances would the Fed ever credit the TGA account directly? The Fed is supposed to sell and purchase bonds to and from primary dealers, exclusively.
Yes, although there might be some exceptions in terms of roll-over of some existing securities for cash management operations. The only current way for the Fed to directly credit the TGA seems to be through coinage as the Treasury has the sole privilege to mint coins (which can be deposited with the Fed). Then again, as the Fed is the bookkeeper and many payments within its books are cleared multilaterally intraday, I suspect the Fed does not really even need to credit the TGA before any outflow may take place as long as it can produce a record of the settlements/transactions at days end (i.e., as if the TGA was first credited and then debited)

Originally Posted by Tippit
I understand that this is getting into the "sausage-making" aspect of monetary and fiscal policy and that it's not well understood, but do you have any authoritative links that explain this process and how it affects the aggregates?
Not exactly what you are looking for but maybe start here anyway?
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Old 3rd April 2020, 12:04 PM   #157
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Originally Posted by lupus_in_fabula View Post
The only current way for the Fed to directly credit the TGA seems to be through coinage as the Treasury has the sole privilege to mint coins (which can be deposited with the Fed).
I would have thought that it worked in a similar way to when a bank customer transfers money from their bank account to an account at another bank.

When a bank customer pays their tax bill, the bank's balance at the Fed is reduced. However, instead of the Fed increasing the balance of another bank, the Treasury's TGA balance is increased instead.
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Old 3rd April 2020, 12:32 PM   #158
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Originally Posted by psionl0 View Post
I would have thought that it worked in a similar way to when a bank customer transfers money from their bank account to an account at another bank.

When a bank customer pays their tax bill, the bank's balance at the Fed is reduced. However, instead of the Fed increasing the balance of another bank, the Treasury's TGA balance is increased instead.
Sure, as the bookkeeper the Fed obviously debits the banks’ account and credits the TGA if such a transfer is made. But prior to the great financial crisis, that transfer would immediately flow back to a TT&L again so as to maintain a steady $5b TGA balance (and not remove reserves from the system needlessly).

I was, however, mainly thinking of how the Fed might credit the TGA excluding direct transfer from another entity (such as tax payment flow from another bank or bond auction). Hence, the Treasury has the ability to create money ex nihilo by way of minting a coin … and then have the TGA credited by the Fed as a result of such money creation.
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Old 3rd April 2020, 02:51 PM   #159
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Originally Posted by psionl0 View Post
You are all over the place here. You call my post ridiculous then agree with it. Then you conflate the Fed with the government.
Obviously I don't think that the point that I agree with is patently ridiculous. What's patently ridiculous, is the idea that you think that public counterfeiting (seigniorage) is unacceptable, but private counterfeiting is acceptable. Please, allow me exclusive access to reproduce the global reserve currency. I promise you that I will not hyper-inflate consumer prices. I will just buy all of the valuable rent-producing assets in the world, and then you will have no money to buy food after you pay me to live on my global plantation. No hyperinflation, I promise! Do you even remotely see the point I'm trying to make?

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If I remember rightly, the most recent rounds of QE didn't have anywhere near the desired (by the banks) effect. The banks didn't create new money by way of loans overall.
All QE has an effect. There is no economic free lunch, except for the people doing and benefiting from the QE. If the desired effect was to fully transfer stock market losses to the petrodollar saver, it "failed". But it still offset what would have otherwise been an even bigger crash, at the cost of the saver. Gains in productivity occur much of the time, and offset monetary inflation. This doesn't mean that purchasing power wasn't stolen, it just means that it offsets the effect on the price level, and makes it less obvious if you're gauging monetary policy by consumer price level!

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The highlighted is not correct. The wealth gap has been even bigger in the past. The 20th century was unique in that there was a more equitable wealth distribution than there had been previously. We are just returning to pre 20th century wealth gaps as the elite find new ways to overcome the earning power that the masses had acquired in the 20th century.
That's fine, I haven't done historical GINI coefficient analyses, so I don't know how to put this era in perspective. What I can say, is that the unyielding growth of government and corporations, and the corresponding popularity of socialist (communist) politicians, is probably indicative of latent social unrest.

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Yes, money creation by flooding the economy with debt (credit cards etc) is part of the reason but banks are not the only mega-corporations that are implementing the wealth grab.
It's not credit card debt that is the problem. It's asset price inflation by way of insane monetary debasement, which mostly benefits the super-rich who own the lion's share of these rent-producing assets, some of the upper and middle class who happen to own shares and bonds, at the direct expense of everyone else who works for and saves dollars, and who get perpetually diluted.
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Old 3rd April 2020, 03:18 PM   #160
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Originally Posted by lupus_in_fabula View Post
I was, however, mainly thinking of how the Fed might credit the TGA excluding direct transfer from another entity (such as tax payment flow from another bank or bond auction). Hence, the Treasury has the ability to create money ex nihilo by way of minting a coin … and then have the TGA credited by the Fed as a result of such money creation.
This reminds me of the Trillion-dollar coin proposed during the Obama administration regarding the debt-ceiling impasse. Interestingly enough, socialist congresswoman Rashida Tlaib reintroduced this last month, which I did not know about.

Apparently it can only be minted in platinum, as the other metals have statutory requirements for denominations. Of course, this "idea" is no less constitutional than the Federal Reserve itself, since the constitutional US Dollar is the spanish mill dollar (371.25 grains of fine silver). How does the prospect of a government issuing 1 trillion dollar coins suit you, psion?
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