Government debt is “our” savings to the extent the sorts of people who buy treasury bonds — institutional investors, the rich, foreign governments — are “us.”
All money is generated by either the issuing government or private banks via loans. However, bank-created reserves are not high power money that is required to 1) pay taxes/purchase bonds, 2) be net saved, or 3) net retire the debt that created it. Only money created by Congress can do those things. This should inform us that Treasury bonds are the basis of “all” savings in the private sector and that those require deficit spending by the government.
A balanced budget is an effective 100% tax rate and provides no currency for the private sector to store the value from the exchange of resources with the government. It is “theft” of resources.
It is simultaneously “our” liability for the “us” who pay taxes — the rich, the middle class, and the poor. This group is currently paying $390 billion per year to the first group to service just Treasury bonds. Interest on the debt is a regressive wealth transfer.
The “real” debt is not the Treasury bonds issued, although that, plus any excess reserves not invested in bonds, is a reasonable approximation. When money is created in the private sector, dual entry spreadsheet accounting standards require a balancing entry in the government sector to enable error checking and tracking of the money. As money enters the government sector it is immediately canceled/balanced to zero by this “debt” entry.
When your check to the IRS clears your bank the “money” it represents disappears from the system. If you get a refund that is “new” money created by the Fed and injected into your account via keystrokes, not a return of any money “held” from your overpayment.
This is because the dollar is not “money” to the government. It is simply a denomination for tax credits. Any such tax credits the government collects cannot be used both to reduce the debt and to be respent by Congress. Taxes collected serve an accounting function and provide information to determine deficit levels, but they are never revenue for spending. Ditto for bond receipts.
Our monetary system was built around defending a gold reserve when we did that nonsense. Since the government held the gold it could not also hold and reuse the currency that represented that reserve. The “placeholder” debt entry satisfied this problem by providing a means of accounting that destroyed the money as it was collected from any source. Not holding “money” also allowed more to be held in the private sector and additional policy space for spending. In this sense, our money has always been fiat.
My understanding of bond issuance was that government spending is not needed to create the reserves, that’s just a Fed operation. The Treasury auctions off a bond, and some big bank buys it. Then (perhaps an hour later, perhaps a year) the Fed buys it from the bank, and pays for it by writing a check on itself, creating the additional reserves at that moment.
The Fed has probably created more conspiracy theories than UFOs. It is entirely a creature of Congress and operates via license given by Treasury. It satisfied the need for a gateway point between the government and private sectors with tax credits on one side and money on the other. Treasury never has money, being on the government side, so any money flowing from the private sector to Treasury can only serve to reduce debt.
The Fed making this exchange is the source of misinformation involving the creation of money. The Fed can purchase bonds on the secondary market with money it creates, but its balance sheet is shared by Treasury, so no actual money is created in the process. The Fed does make some profit, but that is not its purpose and all its profit is returned to Treasury where it is canceled/destroyed. In 2016 that was $94 Billion.
Another source of misunderstanding is the license to create reserve currency “within the banking system” that allows the Fed managed banks to create money to satisfy the demand for loans. However, this is also not “net” currency creation. It simply facilitates credit to the private sector without restriction from existing currency. This was the major change that resulted from leaving the gold standard.
Reserves created by banks are always “obligations” to them on their books, not assets. They are therefore balanced with high power money as the loan principal is paid off, decreasing the total money supply. The only “net” source of money, after bank obligations are balanced out, is money created by Congress. Bank reserves are mostly an accounting function that allows interbank transfers of loan proceeds.
You’re right that the government is the source of the money the private sector uses, but that doesn’t mean it’s good for us when the government creates more of it. Like any other counterfeiter, any new money it creates comes at the expense of our money’s purchasing power.
It’s very telling of your concept of money from your use of the derogatory term “counterfeiter” in describing a Constitutionally mandated function of our government. Article 1: Section 8 charges Congress with “coining the currency for the common welfare” and makes no mention of gold or other measures of “value”. The US dollar, not gold, is the most accepted measure of value in the world. Take a break from YouTube.
We’ve functioned with a fiat currency and the “debt” that creates since we suspended the domestic convertibility of the currency to gold in ’34. As a net importer of goods and energy (fracking is a Ponzi scheme), we would be a third world country if we retained the archaic gold standard while the world moved to fiat money. The debt is not an issue for taxpayers to deal with, so relax.
Without a commodity pinning the currency value (gold) or fixed exchange rate, the quantity of money in the system is not the cause of inflation. In fact, “monetary” inflation is not possible with a fiat currency until all reserve productivity is used up and the last worker is employed. Only at that point can further money creation drive prices upward across the board.
Commodity shortages and supply chain disruptions may increase individual commodity prices and the degree to which the economy depends on those commodities will determine inflation. This is what makes our continued dependence on oil so dangerous to our economy. Energy independence should be our primary goal in the coming decades.
