Wage Strikes Planned at Fast-Food Outlets

[Kimura]

So it issues the dollar based on what? It's own demand for fiat dollars, or against the productivity in the market to incur revenues from the issuance it creates? I'd call that printing money. What then exactly, is the public and government debt? Who is responsible for servicing that debt? Why are we paying interest on servicing said debt?

Under a fiat system, the dollar – or national unit of account – obtains demand trough legislative fiat. The government tells us that this is the currency and legislates it so. The dollar has no intrinsic value, but we have to use it since all tax obligations are denominated in dollars. If you live in the US, you must pay taxes in dollars. Demand for dollars, otherwise worthless pieces papers, stems from the fact that we pay all tax obligations in dollars. This helps to ensure that all prices, debts, and assets are denominated in dollars. One you let this sink in, you’ll realize that the US government is the monopoly issuer of dollars. It doesn’t need us or China to lend it the currency it issues.

US government debt represents the total savings of the US economy – or the propensity of the private sector to save. Ultimately, US public debt is private wealth and the interest payments should be viewed private income. In point of fact, it should be viewed as national savings or equity, not debt in the traditional sense.

Operationally, we no longer NEED to issue Treasuries, but the whole thing has been hijacked by politicians. This is a leftover from the gold standard. Here’s what we could do: the Federal Reserve could pay out on its target cash rate on all bank reserves. This would effectively guarantee the short-term rate target was met without the need to issue “US public debt”. It would then serve as the same function Treasuries – a savings vehicle for the private sector which is the same as short-term US bonds.

After it was issued, yes. Are treasury issuance the result
of monetizing debt?

Again, this is gold standard terminology. We no longer monetize debt under a fiat system.

Off from what wealth does the government issue dollars?

The government issues dollars by having the FED credit commercial bank acccouts.

Borrowing precedes borrowing, ok. Deficits are credits, loans aren't loans when the federal reserve makes them, or bank reserves are actually reserves in the sense of acquired wealth. It's all very clever and yet requires a masters in sophistry to "understand".

Yes, you shouldn’t distinguish between the FED and Treasury, since they should be viewed as part of the consolidated government sector. One doesn’t have access to a pool of funds the other does. Zero sophistry, all basic monetary operations.

And since loans aren't borrowing, this is the fourth way in which government can acquire revenue

From whom does the US borrow its own fiat? I’ve tried to explain this to you on multiple occasions.

 

[TakeAStepBack]

We no longer monetize debt under a fiat system

Economic Synopses - Research Publications - St. Louis Fed

Is the Fed Monetizing Government Debt?

Before proceeding, we have to be clear what we mean by “monetizing the debt.” To this end, we review some basic principles. The Fed is required by mandate to keep inflation low and stable and to stabilize the business cycle to the best of its ability. The Fed fulfills its dual mandate primarily by open market sales and purchases of (mainly government) securities. If the Fed wants to lower interest rates, it creates money and uses it to purchase Treasury debt. If the Fed wants to raise interest rates, it destroys the money collected through sales of Treasury debt. Consequently, there is a sense in which the Fed is “monetizing” and “demonetizing” government debt over the course of the typical business cycle.
What is usually meant by “monetizing the debt,” however, is the use of money creation as a permanent source of financing for government spending. Thus, to ascertain whether the Fed has in fact monetized its purchases of $1.2 trillion in government bonds since 2008, we have to know what the Fed intends to do with its portfolio of assets over time.2
If the recent rapid accumulation of Treasury debt on the Fed’s balance sheet constitutes a permanent acquisition, then the corresponding supply of new money would be expected to remain in the economy (as either cash in circulation or bank reserves) permanently as well. As the interest earned on securities held by the Fed is remitted to the Treasury, the government essentially can borrow and spend this money for free. If, on the other hand, the recent increase in Fed Treasury debt holdings is only temporary (an unusually large acquisition in response to an unusually large recession), then the public must expect that the monetary base at some point will return to a more normal level (through sales of securities or by letting the securities mature without replacing them). Under this latter scenario, the Fed is not monetizing government debt—it is simply managing the supply of the monetary base in accordance with the goals set by its dual mandate. Some means other than money creation will be needed to finance the Treasury debt returned to the public through open market sales.
For the record, Fed Chairman Ben Bernanke has repeatedly propounded this latter view (see, for example, Bernanke, 2012). The credibility of Fed policy is arguably reflected in the time path of inflation and inflation expectations. Since 2008, inflation has averaged less than the Fed’s official long-run inflation target of 2 percent per year. Moreover, market-based measures of inflation expectations remain well anchored (see Pasaogullari and Waiwood, 2012). So it seems that to this point, at least, the Fed’s credibility is passing the market test.

Of course, the claim that Fed policy is exerting downward pressure on interest rates, especially at the short end of the yield curve, has some merit. The quantitative impact of Fed policy on longer rates, however, is debatable. The reason for this is because an elevated worldwide demand for U.S. Treasury securities is keeping yields low independently of Fed policy. The possibility that forces outside the Fed have a large impact on yields is suggested by the data in the chart. As the chart shows, the vast majority (85%) of marketable U.S. Treasury debt is held outside the Fed and is close to the average ratio held over the past 20 years

 

[TakeAStepBack]

And what it intends to do over time and what it can actually do over time are two entirely different things. it must sell adn destroy the proceeds to remove the monetary inflation it created in the first place, by monetizing treasury debt.

 

[TakeAStepBack]

So to re-iterate, the government has 3 options for revenue.

1) tax the private sector
2) Borrow the money
3) Print the money

 

[Kimura]

We no longer monetize debt under a fiat system

Economic Synopses - Research Publications - St. Louis Fed

Is the Fed Monetizing Government Debt?

Before proceeding, we have to be clear what we mean by “monetizing the debt.” To this end, we review some basic principles. The Fed is required by mandate to keep inflation low and stable and to stabilize the business cycle to the best of its ability. The Fed fulfills its dual mandate primarily by open market sales and purchases of (mainly government) securities. If the Fed wants to lower interest rates, it creates money and uses it to purchase Treasury debt. If the Fed wants to raise interest rates, it destroys the money collected through sales of Treasury debt. Consequently, there is a sense in which the Fed is “monetizing” and “demonetizing” government debt over the course of the typical business cycle.
What is usually meant by “monetizing the debt,” however, is the use of money creation as a permanent source of financing for government spending. Thus, to ascertain whether the Fed has in fact monetized its purchases of $1.2 trillion in government bonds since 2008, we have to know what the Fed intends to do with its portfolio of assets over time.2
If the recent rapid accumulation of Treasury debt on the Fed’s balance sheet constitutes a permanent acquisition, then the corresponding supply of new money would be expected to remain in the economy (as either cash in circulation or bank reserves) permanently as well. As the interest earned on securities held by the Fed is remitted to the Treasury, the government essentially can borrow and spend this money for free. If, on the other hand, the recent increase in Fed Treasury debt holdings is only temporary (an unusually large acquisition in response to an unusually large recession), then the public must expect that the monetary base at some point will return to a more normal level (through sales of securities or by letting the securities mature without replacing them). Under this latter scenario, the Fed is not monetizing government debt—it is simply managing the supply of the monetary base in accordance with the goals set by its dual mandate. Some means other than money creation will be needed to finance the Treasury debt returned to the public through open market sales.
For the record, Fed Chairman Ben Bernanke has repeatedly propounded this latter view (see, for example, Bernanke, 2012). The credibility of Fed policy is arguably reflected in the time path of inflation and inflation expectations. Since 2008, inflation has averaged less than the Fed’s official long-run inflation target of 2 percent per year. Moreover, market-based measures of inflation expectations remain well anchored (see Pasaogullari and Waiwood, 2012). So it seems that to this point, at least, the Fed’s credibility is passing the market test.

Of course, the claim that Fed policy is exerting downward pressure on interest rates, especially at the short end of the yield curve, has some merit. The quantitative impact of Fed policy on longer rates, however, is debatable. The reason for this is because an elevated worldwide demand for U.S. Treasury securities is keeping yields low independently of Fed policy. The possibility that forces outside the Fed have a large impact on yields is suggested by the data in the chart. As the chart shows, the vast majority (85%) of marketable U.S. Treasury debt is held outside the Fed and is close to the average ratio held over the past 20 years

Wrong.

When we were under a gold standard, the US Treasury would print up certificate to buy gold from gold mines. The gold would be delivered to the government and the Treasury would cut a check to the miner. This would INCREASE the supply of money. DEBT MONETIZATION has its origins in the gold standard, but people, such the the link you posted, continue to perpetuate this MYTH, despite the fact we're no longer on a gold standard. The term is still used despite the FACT that the federal government can no longer operationally monetize its debt through the Federal Reserve.

When the US government spends, it doesn't call China to ask for a line of credit in dollars, nor do they site in a room and count tax receipts. And they sure as hell don't call the FED to ask if we have enough currency locked in a safe. The Treasury basically authorizes the FED to credit commercial banks accounts. We then issues bonds to drain excess reserves reserves from the banking system . Anyone whole states that the FED helps to fund the federal government is WRONG, and clearly doesn't understand the working of the monetary system, because it implies we're still under the DEFUNCT gold standard.

Edit to add: I need like 3,000 words to explain the bolded errors and inaccuracies.

 

[G.T.]

--or it would be if the world was poker. It ain't, it's not even a zero-sum game. China bought trillions of U.S. debt because it was it was a good deal for them --safe solid bonds. The U.S. was happy to sell the bonds because it was a good deal for us --ready money, practically no interest. What's not to like?

That was my point cheenius.

Good to know I've made myself clear and you stand corrected. Next time show up for class on time and have all your homework done.

I don't stand corrected I wasn't in contrast in the first place.

Argument ocd?

 

[Kimura]

So to re-iterate, the government has 3 options for revenue.

1) tax the private sector
2) Borrow the money
3) Print the money

1) Wrong
2) Wrong
3) Wrong

Again, for the 3,456th time, the FED credits commercial bank accounts. Bond sales are then triggered to drain any excess reserves from the banking system.

The following papers, from the Federal Reserve, will explain how bond purchases simply don't increase reserves in the banking system, and how they drain any excess reserves in the banking system.

Click Here

Click Here

Your limited understanding of monetary operation seems to stem from the dead sociologist you have as your avatar. We're no longer on a gold standard. Print those papers out, and read them, so you can do yourself a favor.

 

[TakeAStepBack]

An annual report of the sec of treassury from 1955?

Why then, is the feds balance sheet grown to such proportions since 2008? And furthermore, is crediting banks who then lend NOT the creation of money? Is that your contention?

 

[Kimura]

If the Fed wants to lower interest rates, it creates money and uses it to purchase Treasury debt. If the Fed wants to raise interest rates, it destroys the money collected through sales of Treasury debt. Consequently, there is a sense in which the Fed is “monetizing” and “demonetizing” government debt over the course of the typical business cycle.
What is usually meant by “monetizing the debt,” however, is the use of money creation as a permanent source of financing for government spending. Thus, to ascertain whether the Fed has in fact monetized its purchases of $1.2 trillion in government bonds since 2008, we have to know what the Fed intends to do with its portfolio of assets over time.2
If the recent rapid accumulation of Treasury debt on the Fed’s balance sheet constitutes a permanent acquisition, then the corresponding supply of new money would be expected to remain in the economy (as either cash in circulation or bank reserves) permanently as well. As the interest earned on securities held by the Fed is remitted to the Treasury, the government essentially can borrow and spend this money for free

So wrong it’s almost laughable….

The FED can engage in asset purchases when it makes an attempt to influence the economy. For example, it purchases an asset from someone (a Treasury) and then it will replace it with a credit which is a reserve balance. This individual is then stripped of one asset – a US bond – then receives a cash deposit. Total net worth has not changed, but we have a longer duration (bond or note) to zero duration (currency). This individual would also lose coupon income which would have accumulated if the bond was held. No new net money was created.

Basically, the Federal Reserve created reserves, but then removed the Treasuries. Both are essentially dollar denominated liabilities of the federal government. They are simply different in terms of duration (bonds have some duration, but reserves do not), and accrued interest (bonds pay some interests, reserves pay a tiny amount). The total net amount of financial assets held by the public at large did not change at all. No new $$$$ was created.

Lastly, the Treasury doesn't “borrow” from the Federal Reserve in any sense of the word. The author seems to imply the FED has a source of funds which isn’t available to the US Treasury, and that the FED will only loan money to the Treasury at some determined market rate. This is completely incorrect and bonkers. All the FED does is supply the monetary basis for the US Treasury’s fiscal policy.

 

[Kimura]

An annual report of the sec of treassury from 1955?

Why then, is the feds balance sheet grown to such proportions since 2008? And furthermore, is crediting banks who then lend NOT the creation of money? Is that your contention?

Yes, it's a very good overview from 1955.

Banks don't lend out reserves, they're used as a clearing mechanism.

 

[TakeAStepBack]

The FED can engage in asset purchases when it makes an attempt to influence the economy.

Yes, I realize exactly what you're trying to say here, and do. The problem is, you're acting as though the federal reserve will easily be able to renew its balance sheet back by selling or 'dropping' maturities when i feels "the time is right".

For example, it purchases an asset from someone (a Treasury) and then it will replace it with a credit which is a reserve balance. This individual is then stripped of one asset – a US bond – then receives a cash deposit. Total net worth has not changed, but we have a longer duration (bond or note) to zero duration (currency). This individual would also lose coupon income which would have accumulated if the bond was held. No new net money was created.

What did the federal reserve use to buy that asset? What happens when the federal reserves decides it is time to sell said asset?

 

[TakeAStepBack]

Monetize Definition | Investopedia

To monetize is to convert an asset into or establish something as money or legal tender. The term monetize has different meanings depending on the context. It can refer to methods utilized to generate profit, while it also can literally mean the conversion of an asset into money. For example, the U.S. Federal Reserve can monetize the nation's debt; this involves the process of purchasing debt (treasuries) which in turn increases the money supply. This essentially turns the debt into money (monetization).

OK, I'm bored of this now. Have fun.


Lastly, go argue it with investopedia.

 

[Kimura]

Yes, I realize exactly what you're trying to say here, and do. The problem is, you're acting as though the federal reserve will easily be able to renew its balance sheet back by selling or 'dropping' maturities when i feels "the time is right".

What did the federal reserve use to buy that asset? What happens when the federal reserves decides it is time to sell said asset?

We’ll try this again.

Any FED purchases, whether MBS or Treasuries, adds/increases reserves which are financial assets, but the purchases also removes MBS or Treasuries, so the net amount of financial assets stay the same. Reserves are bank assets and/or investments.

We’re dealing with asset swaps. Net financial assets would be only be added to the general economy if the government sector bought something real (a financial asset for a real good or service).

We’re talking debits and credits to the Federal Reserve balance sheet. It’s that simple. As US bonds amoritize or mature, the FED’s balance sheet will shrink as do any corresponding reserve balances which are then debited.

 

[Kimura]

Monetize Definition | Investopedia

To monetize is to convert an asset into or establish something as money or legal tender. The term monetize has different meanings depending on the context. It can refer to methods utilized to generate profit, while it also can literally mean the conversion of an asset into money. For example, the U.S. Federal Reserve can monetize the nation's debt; this involves the process of purchasing debt (treasuries) which in turn increases the money supply. This essentially turns the debt into money (monetization).

OK, I'm bored of this now. Have fun.


Lastly, go argue it with investopedia.

Nice appeal to authority.

Again, this is gold standard group think.

The FED doesn’t have the operational ability to monetize outstanding debt or newly issued debt. As long as the FED continues to a have mandate to hit the target fed funds rate, its buying and selling of debt isn’t discretionary. Once the FED sets the funds rate, the composition of government sector securities will chance due to the required transactions. The FED’s inability to control the QUANTITY of reserves demonstrates that debt monetization is now impossible. The FED can’t monetize debt because buying US securities at whim would cause the funds rate to hit zero. In the event the FED bought securities straight from the Treasury, and the Treasury spent the $$$$, it’s total expenditures would be excess reserves. The FED would then have to sell an identical amount of Treasuries to hit the fed funds target rate. The FED would act only as a middle man.

The term monetize means to convert to $$$$. We used to “monetize” gold when Uncle Sam issued gold certificates to buy gold. In a way, public debt is $$$$, and deficit spending is a way of “monetizing” whatever the federal government buys. Foreign currency purchases could be defined as monetizing. Foreign currency purchases monetizes/converts a foreign currency into dollars.

 

[The Rabbi]

lol leverage to....what?

Rly? Srsly?

Yea, really.

They continue to have full faith and interest in lending.

How come? Are they not cognizant that they're helping build the very military superpower that would deplete them out of existence if their future plan was to ever come "break our knee caps?"

There's a part of the picture you're missing.

It's that WE hold the cards, not China.

there's a mutual interest there. But if their interests and intentions changed, it could be catastrophic for the US economy.
If you owe the bank $10,000 and can't pay it, you're in trouble.
If you owe the bank $1.2T dollars and you can't pay it, the bank is in trouble.

 

[TakeAStepBack]

You want to avoid the FEDs balance sheet. I get it. I'm bored. Sell it to someone less aware of whats going on.

 

[The Rabbi]

If the Fed wants to lower interest rates, it creates money and uses it to purchase Treasury debt. If the Fed wants to raise interest rates, it destroys the money collected through sales of Treasury debt. Consequently, there is a sense in which the Fed is “monetizing” and “demonetizing” government debt over the course of the typical business cycle.
What is usually meant by “monetizing the debt,” however, is the use of money creation as a permanent source of financing for government spending. Thus, to ascertain whether the Fed has in fact monetized its purchases of $1.2 trillion in government bonds since 2008, we have to know what the Fed intends to do with its portfolio of assets over time.2
If the recent rapid accumulation of Treasury debt on the Fed’s balance sheet constitutes a permanent acquisition, then the corresponding supply of new money would be expected to remain in the economy (as either cash in circulation or bank reserves) permanently as well. As the interest earned on securities held by the Fed is remitted to the Treasury, the government essentially can borrow and spend this money for free

So wrong it’s almost laughable….

The FED can engage in asset purchases when it makes an attempt to influence the economy. For example, it purchases an asset from someone (a Treasury) and then it will replace it with a credit which is a reserve balance. This individual is then stripped of one asset – a US bond – then receives a cash deposit. Total net worth has not changed, but we have a longer duration (bond or note) to zero duration (currency). This individual would also lose coupon income which would have accumulated if the bond was held. No new net money was created.

Basically, the Federal Reserve created reserves, but then removed the Treasuries. Both are essentially dollar denominated liabilities of the federal government. They are simply different in terms of duration (bonds have some duration, but reserves do not), and accrued interest (bonds pay some interests, reserves pay a tiny amount). The total net amount of financial assets held by the public at large did not change at all. No new $$$$ was created.

Lastly, the Treasury doesn't “borrow” from the Federal Reserve in any sense of the word. The author seems to imply the FED has a source of funds which isn’t available to the US Treasury, and that the FED will only loan money to the Treasury at some determined market rate. This is completely incorrect and bonkers. All the FED does is supply the monetary basis for the US Treasury’s fiscal policy.

You're either the greatest economic genius since Keynes or the most hopelessly ignorant poster here.
I'll play it safe.

 

[Kimura]

You want to avoid the FEDs balance sheet. I get it. I'm bored. Sell it to someone less aware of whats going on.

I'm not avoiding a thing about the balance sheet. I've discussed it multiple times. The FED thinks it's in a QE trap. It doesn't need to taper and can INDEFINITELY expand its balance sheet using POMO as long as it pays interest on reserves (IOR). There is nothing the "free market" can do change this operational reality.

 

[TakeAStepBack]

 

[Kimura]

If the Fed wants to lower interest rates, it creates money and uses it to purchase Treasury debt. If the Fed wants to raise interest rates, it destroys the money collected through sales of Treasury debt. Consequently, there is a sense in which the Fed is “monetizing” and “demonetizing” government debt over the course of the typical business cycle.
What is usually meant by “monetizing the debt,” however, is the use of money creation as a permanent source of financing for government spending. Thus, to ascertain whether the Fed has in fact monetized its purchases of $1.2 trillion in government bonds since 2008, we have to know what the Fed intends to do with its portfolio of assets over time.2
If the recent rapid accumulation of Treasury debt on the Fed’s balance sheet constitutes a permanent acquisition, then the corresponding supply of new money would be expected to remain in the economy (as either cash in circulation or bank reserves) permanently as well. As the interest earned on securities held by the Fed is remitted to the Treasury, the government essentially can borrow and spend this money for free

So wrong it’s almost laughable….

The FED can engage in asset purchases when it makes an attempt to influence the economy. For example, it purchases an asset from someone (a Treasury) and then it will replace it with a credit which is a reserve balance. This individual is then stripped of one asset – a US bond – then receives a cash deposit. Total net worth has not changed, but we have a longer duration (bond or note) to zero duration (currency). This individual would also lose coupon income which would have accumulated if the bond was held. No new net money was created.

Basically, the Federal Reserve created reserves, but then removed the Treasuries. Both are essentially dollar denominated liabilities of the federal government. They are simply different in terms of duration (bonds have some duration, but reserves do not), and accrued interest (bonds pay some interests, reserves pay a tiny amount). The total net amount of financial assets held by the public at large did not change at all. No new $$$$ was created.

Lastly, the Treasury doesn't “borrow” from the Federal Reserve in any sense of the word. The author seems to imply the FED has a source of funds which isn’t available to the US Treasury, and that the FED will only loan money to the Treasury at some determined market rate. This is completely incorrect and bonkers. All the FED does is supply the monetary basis for the US Treasury’s fiscal policy.

You're either the greatest economic genius since Keynes or the most hopelessly ignorant poster here.
I'll play it safe.

I'm just trying to explain monetary operations. 99% of pundits and politicians are still operating under the belief we're still on a gold standard/convertible currency. It then creates some weird cultural meme of misinformation.

I'm not saying a fiat monetary system is the end all be all of great ideas. If anyone has any better ideas, I'd be willing to exchange some ideas. All I'm doing is explaining the operational realities of our monetary system.