Actually, it is the opposite. When the private sector primary dealers buy new issues of bonds via Treasury auctions, private sector bank reserve accounts are debited and government accounts are credited. The Treasury, however, always cash finances government purchases of goods and services. If the Treasury's reserve account has a net overdraft the Fed will always cover it by crediting the necessary amount to the Treasury's account. This is the fundamental step which increases the amount of money in the private sector.* Later, often much later, the Treasury will issue new securities in the amount of it's overdrafts (that amount is the "deficit"). But at this point, the Private sector money that is used by primary Dealers to purchase Treasuries has previously been spent into the private sector by the Treasury, so this later operation of auctioning bonds is in reality the removal of deficit money from the Private sector by replacing it with an interest-paying I.O.U. (the bond). If the Central Bank should decide that monetary policy goals require putting back into the private sector some of the money removed by sale of government bonds to primary dealers. They will themselves purchase bonds on the secondary market. The Fed uses the secondary market for this purpose because they want the results of their purchases to register in private sector reserve accounts rather than in government accounts. When the Fed buys Treasuries they increase the net private sector reserve balance, this makes more money available for private sector commerce and thus pushes down interest rates. Ultimately, the demand for credit in the private sector versus the money available affects rates. Under the circumstances where there exists an excess of money to loan but too few takers, the funds rate, i.e., the wholesale rate that banks pay when they borrow, can be forced rapidly toward zero. To prevent rates going virtually to zero in this circumstance, the Fed may elect to pay a small positive interest rate on reserves. No bank will then lend below this rate. This is what the Fed is doing presently. One might wonder where the money comes from that the Fed uses to buy an unlimited, if they want to, number of Treasuries on the secondary market. They can create this money as needed. However, and this is quite difficult to understand, this creation of money by the Fed when they buy previously auctioned bonds on the secondary market does not constitute an additional deficit. The only deficit creating step occurs when the fed covers a Treasury account overdraft. When the fed creates money to buy Treasuries on the secondary market they are in effect acting as a stand-in for the Treasury by simply reversing the Treasury's previous exchange of a bond for money. Both the money and the bond were already created by a Treasury overdraft and the Treasury's subsequent Auction of Bonds in the same amount. I don't have time and space to explain this in detail, however once you realize that both the Fed and Treasury are, today, thoroughly government operations and recognize that bonds held to maturity by the Fed will redeemed by the Treasury, the but resulting proceeds will be credited right back to the Treasury. These operations only become clear when the consolidated Federal reserve and Treasury books are viewed. Deep understanding of the net of these operations was the great contribution of the Modern Money Theory Economists whose foundational principles go back to the mid-Twentieth Century economist, Abba Lerner. Sadly, it's taken until the twenty-first Century for many classically trained economists to began to understand the work of the MMT economists. The reason there is no national debt is because the government never borrows in borrows in the first place. Treasury bond sales that look for all the world like borrowing are actually just the exchange of an interest-paying kind of money for a non-interest paying kind of money that was previously "created out of thin air." This is why the only risk is inflation risk. There is zero risk of default. So bond rating agencies, when it comes to money issued by governments with deep sovereignty over the money they issue, should only consider the risk of inflation and depth of sovereignty. These agencies would do well to develop an entirely new approach to evaluating government bonds based on their estimate of the "depth of sovereignty" a country has over the currency it issues. Of Course the Congress could decide to try and order the Treasury not to grow the deficit but this could lead to deep recession and financial chaos. The annual fight over the deficit and fictitious "national debt" is, to make an massive understatement, just silly politics. If the United States wanted to "pay off" it's entire "National Debt," it could do so at least in principle, starting Monday Morning. But economists differ on what the effect of this would be. Most think it would lead to inflation, but others say it wouldn't because it would cause, they say, a massive decrease in private sector income. Interestingly, Japan, another Country with deep sovereignty over its money, has already retired roughly fifty percent of its "debt" when The Central Bank bought back about half the JGBs issued. __________________ *This creation of new "outside" money should not be confused with what we refer to as the money supply which is heavily dependent on the amount of credit issued via fractional reserve banking. This latter money is sometimes referred to by economists as "inside money". Inside money is created when loans are made and disappears when loans are paid off.
LOL the JCB "bought" back the bonds (made of paper or modern day equivalent, electronic paper) with .... yet more paper. CMTSU Don't have to.
Every time someones talks about inflation or the central banks, @piezoe magically appears and writes a freaking book (to defend the Elite of course), have you noticed? Quick example from his post above : "If the Central Bank should decide that blah blah blah..." Note that he does not explain WHY central banks should exist in the first place, even though our Founding Fathers were clearly against them (for good reasons). Anyway.
Yup. "Zero risk of default" LOL as long as they keeping raising debt limit and printing machines on overdrive. Once the music and printing presses stop better run for the hills .... the day week month year before. Too late.
Unintended consequences. FED forgets asset bubbles don't differentiate. Crude getting close to $75 on its way maybe to $100 and beyond. If so stick that transitory chit up the wazoo.
Nah, they will simply say, after the global financial collapse : "Well, the only way to prevent this problem from happening again is to create a global bank and a one world government". Create a problem and then offer a "solution", it works all the time.