What you still aren’t getting is that the bonds (savings) existed first as reserves (cash) and simply revert back to reserves at their maturity. The only source of these high power reserves is government spending, so spending “funds” bond sales, not the other way around. The option for those reserves is to remain in reserves and earn nothing, so bond demand is always equal to, or greater than, the supply. The Fed handles close to $100 Trillion in any given year just moving reserves in and out of bonds. Spending doesn’t happen at one time, so bonds are strung out in their maturity and the maturity period varies according to investor goals.
If the government balances its budget there are no excess reserves or bond sales in the system. This means that there is no high power money created that is able to retire private sector bank debt or be net saved. Banks will create reserves, but only what is required to balance the loan principle to enable interbank transfers. As principle is paid down those reserves are also depleted. In the end analysis, only Congress can create durable money.
The wealthy will always find ways to accumulate wealth and their accumulation has the same effect on the economy as taxation as long as they don’t do mischief and invest productively. Historically, only the threat of extreme taxation has been able to assure that, otherwise, money could just pile up in their bank accounts endlessly as long as new money replaced it at the bottom of the economic food chain and moved upward.
Adding wealth accumulation to our trade deficit, also a drain of high power money, without compensating for both with new money creation by Congress places a slow squeeze on the economy and the poor and lower middle class are always the first to feel the crunch. The poor become more dependent on government assistance and the middle class becomes dependent upon bank credit until the effects become obvious. Then the government clamps down on safety nets, blaming the poor for their situation, and creates even less high power money to retire the increased bank debt the middle class must have to stay even.
This cannot give us anything except increased social cost in law enforcement, prisons, urban blight, and an unstable private debt driven economy that crashes at the slightest downturn of the business cycle. This is why GDP growth is so critical to our consumer economy. It must always grow to roll over debt to new debt or die. Monetary policy, the holy grail of conservative economics, cannot create durable money and can only attempt to maintain the growth and rollover of debt, which is much more dangerous than the judicial creation of durable money balanced by progressive taxation.
Bonds, sans the gold reserve to defend, are a tool of monetary policy, but certainly not worth the propaganda value they offer as “debt” to ignorant or corrupt politicians. They are not necessary if we simply acknowledge that balance requires fiscal policy. We cannot solve our problems by shifting money around in the economy and will need some robust spending initiatives to mitigate climate change and repair the damage unregulated capitalism has created.
