First, I wanted to thank you for continuing our discussion and asking challenging questions.
Ok, so hopefully we've come to some agreement on the Feds role. The Fed has been given autonomy within the government and it's statutory requirement is to buy or sell bonds to meet whatever statutory obligations it has as well as exercising it's own independence in managing monetary policy to achieve the goals given to it as part of it's charter. In fact the Fed and Treasury work together, quite closely.
The inescapable fact that you've been unwilling to concede so far, is that the government spends
before the Fed sells bonds. In other words, there can never be a shortage of money to purchase bonds, because the government injects that money into the economy prior to any bonds being sold. Fiat economies could never exist if this weren't true. The Fed couldn't sell bonds if this weren't true.
That's not the way it works according to every source I look at including directly from the US Treasury web site. If the Fed wants to inject money into the economy it does so by buying US treasuries.
I think you're making this harder than it has to be. I'm trying to pull back the curtain here a bit and show how things work under the sheets.
My only argument here is that taxes and treasury sales do not make it possible for the government to spend. The fact is, the government could spend without taxes or Treasury sales.
Now, please, please don't misunderstand what I just said. I'm simply trying to establish the fact that taxes and treasuries are not for the reasons we are told. They are still necessary (though one could argue that you only need taxation, but that's for a latter time). The point is simply that taxes and bonds do not fund spending, they are required only for statutory reasons. They are a self imposition.
Look, I admit that my view aren't orthodox, but strictly speaking I'm right. Much of what the nation have come to believe exists, is because it is the way things were understood in prior money regimes. We stuck to a gold redemption/ gold backed theory of how to learn our system of money even after we changed the system. The fear was and still is that if Congress and the people learn that there's no
real (real being a fiscal term here, not an offhanded one) constraint on money creation, specifically that taxes and borrowing aren't the real constraint to money creation, that Congress and the people will go crazy with spending and drive the economy into a state of hyperinflation ignoring the fact that there are real limitations that people should be aware of.
Understanding the real constraints on the economy is the only thing that will prevent:
That yellow area is the difference between the nations capacity to produce before resulting in demand driven inflation pressure and what it is actually producing. Inflation happens when the bottom line in that graph meets or exceeds the top line.
Now what could have been done with all that lost productivity? How much infrastructure could have been fixed? How many schools, or playgrounds built? Hospitals, nursing homes, whatever? All productivity you can never get back because you've been told that debt someday (though no one ever says when, but it's always right around the corner) will all have to be repaid with taxes, despite the fact that your taxes don't pay a single dollar towards the debt, not $1.
However, I've pointed out that the government does in fact repay the debt, many times over every single year, mostly by rolling over existing debt and then selling new debt equal to whatever the defect is for that year. Not a system that will last forever for sure as things change, but that doesn't mean that future change will be the apocalypse.
I think that leads us to one of your responses, that I should address here.
People have to be willing to purchase the debt. If people stop being willing then the US government will have no choice but to default.
First, the US government CAN NEVER EVER be forced to default in its own currency. That is an abhorrent myth.
Don't believe me? Here are quotes from former Federal Reserve Chainman.
Alan Greenspan: “A government
cannot become insolvent with respect to obligations in its own currency.”
Alan Greenspan: “There is nothing to prevent the federal government from
creating as much money as it wants and paying it to somebody.”
Alan Greenspan: “The United States
can pay any debt it has because we can always [create] the money to do that.”
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to
produce as many U.S. dollars as it wishes at essentially no cost.”
Quote from former Fed Chairman
Ben Bernanke when he was on 60 Minutes:
Scott Pelley: Is that tax money that the Fed is spending?
Ben Bernanke: It’s not tax money… We simply
use the computer to mark up the size of the account.
Note how the former chairman of the Fed refer to the "Federal government" not the "Federal Reserve" when talking about creating money?
So respectfully, no, the US government can never be insolvent in its own currency. Every single member of the European Economic Union can, any nation that borrows money in another nations currency can, but the US government cannot default. I know that politicians tell us that we can, but that's because they, quite literally, don't understand economics much better than the average business owner.
But let's go back to what you said about people being willing to buy US debt. The key word here is "if". First, most of the "debt" purchased inside the US is purchased by the government itself.
But let's focus on the foreign sector.
Why do you think China, of all places is the whole world, that is increasingly being seen at the US' primary rival would "fund" our debt?
You said it in an answer to another question I asked when I said, where does China get the money it purchases US debt and you said:
Quite right. So, the US doesn't "borrow" China's yuan, China reinvests the dollars is acquires though trade, as opposed to trading them for yuan on FOREX (foreign exchange). As a matter of fact, China creates it's own money, ex-nihillo to purchase US dollars from the FOREX market!
Now I wonder why it does that? As I'm sure you are aware, China buys US dollars to keep the value of it's own dollar low in comparison.
But why? Again, I'm sure you know that keeping the value if it's dollar low keeps prices on its good low here in the US. How nice!
So what if China stopped buying US debt?
Would the government be unable to spend?
No!
Under the current law, as you've pointed out, it would be problematic for sure. If the government maintained current levels of spending and China stopped buying US debt, then deficits and debt would increase substantially.
Which leads us to another of your concerns.
The issue is that the workers are not creating enough value through their labor to cover government spending so they are obligating future generations to pay for a debt they didn't create.
There's a lot to unpack here. How exactly would you define "value" in this statement.
I mean, if I need a welder, that has a very specific set of skills, I mean one that only a tiny fraction of all welders have, is his value measured in dollars or in the skill he possesses?
The other thing I really don't understand that you keep repeating is the claim that future generations will have to repay debt.
I might be showing my age here just a bit, but the debt was $370 billion dollars when I was born, it is $32 trillion dollars today. Yet taxes are lower, not higher. Is it your belief that at some point debt will reach some tipping point, like the climate where it must be repaid?
As I've stated and you didn't disagree, the purpose of taxes is:
1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;
3. To express public policy in subsidizing or in penalizing various industries and economic groups;
4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.
There's nothing in there about financing spending. or repaying debt, That's not the purpose of taxes. As a matter of fact, today, zero dollars collected in taxes are used to pay debt.
The problem is that people like yourself tend to look at the debt or said another way, the national surplus all by itself.
You also haven't acknowledged that the roughly $31.7 trillion dollars of debt (national surplus) as also bought a lot of stuff that my kids benefit from. Trillions of dollars in high tech infrastructure, trillions of dollars in educating the population that has lead to one of the highest standards of living in the world and for better or worse, depending where you sit, the worlds most powerful miliary just to name a few.
And none of the three things I mentioned, would have been possible unless the government created debt asset pairs totally trillions of dollars.
Respectfully, you are so close, but you're unnecessarily buying into the myth that debt is a "ticking time bomb" that will explode.
If the economy crashes it will be a lack of productivity that causes the problem, just like almost any other hyperinflation that's occurred in the last 100 years. Weimar, Zimbabwe, Argentina, Hungry (Venezuela being the exception, that was a crash in energy prices, corruption and poor planning).... If you want to exacerbate that problem, call for reductions in government debt......
Why? Because the government's debt adds net fiscal assets to the economy and allows it to grow. No debt creating, no growth. And no, the Fed cannot induce growth, it can only increase
reserves. Reserves do not circulate in the economy.
How do we know this?
I think it's pretty evident by something like this chart:
When we look at year-over-year changes to the amount of bonds purchased and brand spanking new reserves created by the Fed, peaking at $4.1 trillion had no correlation to the growth of the economy. The reason is, the Fed can't make purchases of real goods and services in the economy. The Feds money creation only increases or decreases reserves within the banking system. The Fed uses reserves as a way to manipulate the interest rate.
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