I wouldn’t use the expression “misinformation campaign”. It is too coldwar-ish, I guess. And it brings the whole discussion to a Manichean conflict where it becomes more important to identify the good and the bad sides instead of having a rational and honest conversation about values and priorities. Instead, I would say it is an “ideological campaign” that the right is putting forward since the 70’s, at least.
We’ll have to agree to disagree on this. It isn’t necessary to identify the good and bad in our system. Fully half of the world’s literature and the output of Hollywood has done that for us. I’m not saying everyone in government and the media is knowingly colluding to subjugate the masses. It is too easy to accept an economic lie that resonates with everything one knows about money from the perspective of a “user” of the currency to assign such broad-brush labels.
I’m just saying that the people who make their fortunes by having money can’t not understand how money works, which is one-eighty from the common perception. Even many of those may see the “little people” as unable to manage self-governance and wish to unburden them, but I believe that the majority of the extremely wealthy are functioning from pure self-interest and purposefully fund such a misinformation campaign collectively. Considering the misery it has caused, not just here but in the world, it is only rational, in my view, to identify it as evil.
About “currency-issuing government never needing its own money back”, I would say that it is not that simple of a relationship.
At its core, it is that simple. Article 1, Section 8 of the Constitution gives Congress the power of the purse to tax and to “coin” the currency, making the US dollar self-funding. It places taxation first because the founders understood that taxation’s purpose is to drive “our need” for the currency the tax is denominated in but then the government has the responsibility to supply the means to settle that obligation by spending the currency into existence.
It needs us to need the currency and occasionally to have less of it to control inflation or achieve social goals. That is the sum total of the utility of taxation, which is never revenue for the issuing government because of the required order of processes. If you pay your federal tax obligation with cash at the IRS office they will literally shred it onsight, as it no longer exists in the monetary system beyond being a record of payment that reduces the debt.
So, despite the fact that the issuing authority logically has no need to get elsewhere something it can produce on its own, the usefulness of that product is affected by how often and why it is produced. Supply and demand ratio, as well as perceived collective confidence on the currency are the only factors determining its value.
Completely wrong, and an excellent example of the misinformation that is so widely accepted surrounding our monetary system. Monetary inflation, which you are describing, is not possible with a fiat currency unless all resources and labor are deployed in the economy, which hasn’t happened since WWII. The government, as the monopoly issuer and first spender of the currency, is the price setter.
While specific resource or skilled labor shortages may influence the price paid, production (supply) will always increase to capture spending (demand) up to its maximum potential before prices are increased. Even the shortage of a specific commodity will not affect the price of any other commodity and prior spending has no effect on future pricing beyond resource depletion.
The perceived collective confidence in the US dollar has never been an issue and is only a concern among those grossly misinformed about macroeconomics. “BECAUSE OF”, not in spite of, the fact that the US government can never run out of dollars to pay any obligation denominated in dollars it has never fallen short of selling a bond issue, even after the crash and being downgraded by Moodys.
Because of the order of processes required, similar to collecting taxes, the currency required to purchase Treasury debt is only available if spending is in excess of taxation, so debt cannot be a “funding” mechanism for the government and only serves to set Fed rates above zero and provide welfare to banks and big investors.
On the other hand, government isn’t the only employer to use currency to pay for work, and arguably it’s not even the only issuer of currency anymore, if we take into account the money-creation that takes place inside the lending system of private banks on the debt economy.
Wrong again, sorry. Banks in the private sector cannot “create” net currency. They use their superior credit to secure reserve creation only for the purpose of enabling interbank transfers of the proceeds of loans. Should the borrower default the lending bank is stuck paying off those reserves with “real” dollars that only Congress can create. This is what necessitated the bailouts in ‘08-’09 when defaults threatened the solvency of the private banking system. The public sector was never affected and kept on making payments on schedule.
Those created reserves are “obligations” to the lender, which are balanced to zero, as all private sector transactions are, by accounting for the borrower’s contract as an “asset”. Because the reserves cost the bank at the overnight interest rate, they are reduced as the borrower reduces their principal with public money or debt transfers. Only public money can “net” retire private sector debt, which is why GDP growth is required to “roll over” that debt in the absence of public money injections in the system sufficient to compensate for the drains of currency from wealth accumulation and trade deficits.
This and the protection of supply chains from collapse is the purpose of automatic stabilizers and most safety nets, not any compassion for the victims of the business cycle, showing just another of the many lies presented as common narrative around our monetary system. This is so consistent that the only seven times we have come within 2–3% of balancing the fiscal budget over a few quarters have resulted in almost immediate recessions or depressions as can be seen here in a graph of sectoral balances.
Deficit spending, thus, comes as a necessity because of the inflationary pressure and the confidence and scarcity problems with money issuing by the government, that, instead, borrows the money already available in the market and allows banks to create more of it by themselves.
I covered this above, but will do so again in context to make it clearer.
Borrowing, Treasury bonds, is an all but useless process now that we no longer have a gold reserve to defend. The only way excess reserves to purchase bonds are created is via the federal government spending in deficit. Any other transactions in the private sector are zero-sum by accounting entity. Deficit spending “funds” bonds, not the other way around.
The original purpose of Treasury bonds was to allow Congress to anticipate tax collections in its spending. They “remove” currency from circulation by balancing it with the debt that was created in the public sector to match the currency creation in the private sector. This is standard dual-entry spreadsheet accounting used worldwide to track money flows and error check. The bonds simply offer an asset swap for liquidity (reserves) that promise interest return after a specific time (maturity). Recapitalizing the bonds at face value requires new money creation from “debt service” in the non-discretionary budget.
(PS: This process of canceling currency with debt also applies to tax collections, only permanently where bonds do so only temporarily. Taxes don’t fund anything directly. No “money” can enter the public sector and survive being balanced by the debt entry that created it to go on and fund spending. The public sector can only hold debt and the private sector can only hold money (not counting private bank debt) This make the “national debt” nothing more than an accurate accounting of the money in circulation in the private sector. The Treasury debt doesn’t include all of it, but almost.)
Banks enable future resource use to be moved forward in time that wouldn’t otherwise be affordable, or even possible. They, however, cannot create the money necessary to retire the debt they create and depend largely on new debt creation to pay for old debt. Stepping back to view this in macro shows that it requires constantly increasing GDP or it all crashes. This, if overleveraged, makes the economy very fragile and susceptible to the business cycle. Recessions become more frequent and deeper.
Without a formal method of oversight of total bank debt the only mechanism to control this leverage is the interest rate, monetary policy. However, the banks always have a profit motive to run with scissors and the people resent the higher rates so problems often don’t get caught in time.
