« Modern Monetary Theory - Fraud 4 - Social SecurityModern Monetary Theory - Fraud 2 - Debt »

3 comments

Comment from: Adumbrator [Member]

“tommy belesis” links to the NYT article describing how brokers at John Thomas Financial spent one lunch time in a “rally” in support of Wall Street. If the point is that Wall Street financial concerns are often beneficiaries of budget deficits, then I agree.
NOTE: I doubt whether the author of that comment is the same person as the President and CEO of JTF, but appreciate the irony of the attribution.

11-18-12 @ 19:39 Reply to this comment
Comment from: Adumbrator [Member]

There are a couple parts in answer to the remark by Mr. Mulaik.

Fed purchase of Treasury obligations, doing so with money that comes “out of thin air", starts the inflationary cycle. Those funds did not previously exist; now they do, and their recipients can spend them on goods and services, diluting the value of other dollars in the economy as they bid up prices in the market.

Forcing taxpayers to redeem the Treasury debt obligations, even after they have been purchased by another division in the same government entity, sucks some of those additional dollars back out of the system, thereby mitigating the inflationary effect of the earlier purchase by the Fed.

However, that the dollars are withdrawn in this way does not eliminate the problem. It is not a value-neutral operation, because the people giving and taking are completely different, and circumstances have changed between the two times. These aspects make the effect a wholesale transfer of wealth from one part of the population to another, from the general taxpayers to the bankers who buy and sell those securities.

If the Fed creates money out of nothing, ad infinitum, the value of the currency will collapse; that it has not yet happened is I think a consequence of the growth in productivity that our economy has sustained in the intervening years.

Finally, while the Fed is in some ways independent of the rest of the US Government, it could not exist without explicit government support. Fed policy is not formally tied to Administration policy, but politics drive it towards typically more expansionist monetary policy, which not coincidentally is what the Administration usually wants. The separation between Treasury and Fed is a product of history, not rational design, and I won’t try to defend it.

09-13-12 @ 23:05 Reply to this comment
Comment from: Stanley Mulaik [Visitor]  
Stanley Mulaik

Why is it that we must assume that when the Fed buys the Treasury securities issued to finance deficit spending, that the Treasury owes both the principal and the interest to the Fed to redeem those securities. Is not the debt between government and private citizens, but once a government agency buys the securities from a private citizen the debt has been redeemed. The Fed, by it current admission, is a government agency. Government is one entity, not multiple entities. Once a government agency redeems a debt on a security, no other agency of the same government should be obliged to pay the same amount to the Fed by raising tax revenues from the private citizens to finance the purchase. That amounts to government’s paying twice for the same securities.

Perhaps when the United States backed its money with gold, the Fed used its money backed by its gold, and it needed to replace that with gold backed money from elsewhere. But once we went onto a fiat money system, where the Fed simply creates its money out of nothing, out of thin air, there is nothing that the Fed has lost when it created the money to purchase the securities. Any entity that can create money out of thin air is different from entities that must get their money from elsewhere. Any debt obligations to entities that create money out of thin air are absurd. The whole idea of redeeming a person for expenditures he/she has made presumes that the person gave up something he initially possessed in making the expenditures. If a person can create the money out of thin air, ad infinitum, he/she has not lost any money he expends, that he/she cannot immediately recreate.

09-13-12 @ 00:28 Reply to this comment


Form is loading...