Dollars of any significance only exist in the reserve system and those who purchase Treasury bonds have dollars in that system. Their options are to use those dollars to purchase resources belonging to others in the system who desire dollars; purchase Treasury bonds in a simple asset swap exchanging more liquid assets for interest return; or leaving those dollars in reserves.

The fact that the US Congress “can” create dollars upon demand means that the bonds don’t actually fund anything and are simply a way to draw down reserves as if we were still defending a gold reserve between spending and collecting taxes. Why would a currency-issuing government “borrow” its own currency back? It is this ability that makes our Treasury bonds the preferred store of value in the world.

It is to be expected that the general population would be confused by the unique relationship of the federal government with the currency, as they must limit their spending to what currency they can obtain, either via earning or borrowing. Some even feel it is best to preserve the misconception our of a lack of trust in politicians to manage a fiat currency while under pressure from constituents. In any event, rest assured that the US government is not reliant upon its ability to borrow its own currency back and simply owning Treasury bonds gives no one any leverage over our economy.

Most MMT economists advocate either suspending bond issues and paying interest on reserves or setting a permanent zero rate. Once one realizes that this unique relationship requires creating currency before reserves are available to purchase bonds this becomes a matter of applied logic, not politics or ideology. Under the prescriptive value MMT offers to those who advocate for more spending, the core of the theory simply describes the reality of our monetary system and currency. It can be used to argue tax cuts as easily as it can be for spending.