I already quoted multiple Fed Chairman that explained the the government spends by marking up accounts in a computer.
The Fed sells bonds as an operation to decrease reserves and it buys bonds to do the opposite. But the simple fact remains that the Fed cannot buy or sell bonds if the government didn't circulate dollars via spending. Operationally I've already shown that the government spends at the beginning of the year and bond sales and taxes come
after, not before. Economists say, "'you can't do a
reserve drain (fed buying bonds) without first doing a
reserve add (government creating and spending money)
Here is a paper written by the Bank of England which is widely cited as how money is created in the 5 major sovereign money economies, the US, UK, AU, JP and Canada.
And another by
Deutsche Bundesbank, though you'll need to get this one translated:
https://www.bundesbank.de/resource/...1a/mL/2017-04-geldschoepfungsprozess-data.pdf
Correction, the Fed increases or decreases
reserves in the banking system. Dollars are increased when people borrow money, which looks like this:
View attachment 82151
Again, this is false. banks don't lend deposits as deposits are held as reserves, reserves aren't lent. Banks lend by creating credit, secured by investor capital. That is to say, banks are capital constrained, not reserve constrained.
Here's more information about how banks don't need your money to make loans, but they do want it to make those loans more profitable.
www.investopedia.com
Here's an article that I think explains money creation pretty well.
I began another post critical of Joe Stiglitz’s analysis with the caveat that I like Joe. I’ll add to that that I respect his intellect too, both because he’s very bright—you don’t win a Nobel Prize (even in Economics!) without being very bright—and because compared to some other winners, he [...]
www.forbes.com
And another for good measure.
The government, just like banks, creates money out of thin air, the difference is that bank money is secured by the borrowers promise to repay, or investor capital in the event that the borrower defaults.
All the limitations on government spending, taxing and bond sales are statutory limitations. They are self imposed rules. The government could stop selling bonds tomorrow (create new laws), and while I concede that would create shockwaves and fear in the global economic community because many believe as you do, functionally nothing would prevent the same operations we have right now. Spend first and tax after.
Exactly, this is why the Government sells bonds, $32 trillion worth, that's money that's not being used in the economy to drive demand. That is, selling bonds is a way to turn dollars in peoples accounts into reserves in the banking systems.
Every dollar spent each year on the federal budget is a dollar the government's created, every dollar taxed is a dollar that's taken back out of the economy and destroyed. Bond sales, don't give the government more money, it just creates fiscal space as every dollar in a bond is tied up in savings. It's money not driving demand (creating inflation).
If that's true, then you are claiming that fiat economies, pure fiat could never exist, right? Because as I've pointed out several times, the government cannot borrow or tax if money isn't created first and circulated via spending or transfer payments. It would be impossible, right?
And yet, there is nothing that would prevent exactly what I just said in a fiat economy, and in fact, that's exactly how modern fiat economies like the five I named earlier all work. There are slight differences, but fundamentally they all work the same.
Governments create and spend money into their respective economies. Spending is limited by real goods and services and the capacity for labor to make things or provide services.
This is exactly how it works, which is to say that the government creates money to make bond payments (though let's not forget that bond sales do the opposite, so all the government is really adding is the money to pay the interest.
Inclemently, let's look at that trend recently...Look at that spike.
View attachment 82152
This explains why the Fed raising rates hasn't slowed the economy as expected, because interest rate increases increase dollars in the economy, that is, raising rates is supposed to be deflationary, it's not, it's inflationary!
Evidence? If higher rates are supposed to decrease borrowing.....
View attachment 82153
The Federal government is the only body with the authority to create US dollars, The Fed does not create new dollars, it uses it's authority to manipulate the money supply though bond purchases and sales to achieve its policy objectives. It does this by increasing and decreasing reserves which in turn create abundance and scarcity of reserves which in turn influence the interest rate.
