Japan’s Waning Appetite for Treasurys Fuels Anxiety on Wall Street ---> Japan’s Waning Appetite for Treasurys Fuels Trading opportunities on Wall Street
U.S. Government finances operate in a fiat money, floating exchange paradigm. Private sector finances are very different from this. The Government does not rely on tax income, or cash flow, for spending. Congress funds deficits by "printing" and subsequent to that the Treasury issues securities in amounts matching the amount printed. In other words, the spending occurs before the "borrowing" and the "borrowing" amounts to "borrowing" back the money just printed. Another way to characterize this is to see it as simply an exchange of one form of government created money for another. It is through deficits that new money finds it's way into the private sector economy. That new money is later converted to U.S. Treasuries (savings!). Then still later the Fed will adjust the ratio of bank reserves to Treasury securities in the private sector as it sees fit.
Isn't this refered to as kiting in other financial areas? It is ok to do it when you can ink the legislation to stay within the law. Long silver, Akuma
This is a good observation. It is in fact almost like kiting. What makes it different from kiting in the private sector is the U.S.'s ability to legally create as much money as it sees fit. If I write a bad check in U.S. dollars, I am in trouble because I don't have a money machine that can create an unlimited amount of new U.S. dollars. The U.S. government, however, is incapable of writing a bad check. There will always be money in the Treasury's reserve account to cover any check the Treasury writes. However what happens to the purchasing power per unit of U.S. money is a different matter entirely. By the way, the same considerations explain why countries like the U.S., Canada, Australia and Japan actually have no real debt. If you took out a loan from a bank, but had a money machine in your basement that could print as much money a you wanted, you too would have no real debt! On the other hand, countries like Russia, for example, actually have real debt. They borrowed in debt instruments denominated in U.S. dollars, but their money machine only prints Rubles. What one concludes is how terribly important it is for Congress to understand fiat money and recognize the importance of responsibly controlling the size of deficits relative to productivity. It is OK, for example, for Congress to run large deficits if the money created buys investments that will return correspondingly greater productivity. Nevertheless the rate of deficit spending to produce productivity gains remains a critical factor. On the other hand, running big deficits to create money spent on wasting assets and that will not produce returns in the form of greater economic productivity, is a dangerous game that can lead to destruction of the unit purchasing power of a currency. Wasteful spending can be masked and its ultimate effect delayed by the sidetracking of newly created excess money in the form of future Treasury liability, i.e., bonds. The side-tracked money is not a part of bank reserves and therefore not a part of current circulating currency.
What does the Government actually DO with all the tax revenue it receives, if not to offset it's deficit spending?
It does of course set off revenue against deficits, but this is not the most important role of revenue. It's most important role is to safeguard the value of U.S. money. You will always work to earn U.S. dollars to pay your taxes or go to jail. It is not by accident that the only legal tender the U.S. government will accept in payment of taxes is the U.S. dollar.
Yes, that is printed right on the paper notes. "This note is legal tender for all debts, public and private" or some such.
Ah HAH @piezoe and there is it...You like the post. But are the paper notes we have in our wallets good for anything OTHER THAN PAYING OFF DEBTS?
Almost true...., asset seizure does occur to cover tax revenue not collected. Whatever will fill the coffers and make a profit. Akuma