Association is not necessarily causation. I don’t see the logic of needing government deficit spending to retire mortgages
While an understanding of Fed operations helps, simple logic applied in the macro view shows that money created by bank credit can’t ever balance to zero by itself as new debt must be created to replace existing debt. This division of money’s powers is based in the patent on the US dollar given to Congress via the Constitution that absolves it from debt encumbrance beyond promising a tax credit for every dollar created. It never has to be paid and past spending has no bearing on future spending when the ability to create money is unlimited within the ability of the economy to produce goods and services.
This is somewhat obscured by constant GDP growth that allows for rolling over old debt by creating new debt within the banking system, but it bites us in the ass any time that growth slows significantly. A proper understanding of this fact reveals how misguided the attention paid to government debt while praising private sector debt as progress really is. Once in the wild of the private sector economy, both have the potential for inflation, but only government debt gets the blame in spite of it being rather minuscule in comparison.
The money supply is in the multiple trillions, all available to make mortgage payments or pay off mortgages.
The “net” (after settling all accounts) money supply is exactly the national debt, although that isn’t accurately reflected in Treasury bonds. Excess reserves held at the Fed and “off balance sheet” spending for war and disaster costs actually double outstanding bond issues according to many economists. Accurate auditing is all but impossible, especially at the Pentagon, but a deep dive into actual Pentagon spending by the University of Michigan econ dept in ’15 supports this claim.
Budget appropriations are the purview of Congress, but the Executive has considerable spending authority as well, especially when Congress hands it a blank check when it authorizes war powers. While most attention is directed to Congress abdicating its power to declare war, the instruction to the Fed to make sure checks don’t bounce without needing to sell debt probably offers a better explanation of our perpetual war stance. Both Bush and Cheney let the cat out of the bag with comments like “spending off the books in Iraq” (Bush) and “deficits for war don’t matter” (Cheney).
Can’t see why the fact that the treasury would destroy old cash used to make tax payments implies that the treasury destroys all tax payments. The treasury needs to cut hundreds of billions in monthly checks, why would it not credit its accounts with the hundreds of billions it receives tax payment checks it receives and then write treasury checks against those credits?
It kinda does, but that is a deflection from the reality of spending and taxing/borrowing that only serves the banks to level out their reserve position between government spending and actual collection of taxes. Both taxes collected and receipts from bond issues stop being “money” the moment they are collected. The money is deducted from the payer’s account and then the account of payer’s bank, but isn’t then transferred to an account that can be spent from.
We often view Fed and Treasury transactions in aggregate, but they occur continually over an accounting period. The extreme variance of reserve holdings between budget appropriation and tax collecting is problematic for the banking system and bond sales don’t provide sufficient dampening of that to provide maximum stability. It really isn’t that much of a problem with a fiat currency compared to a gold standard, but our system was designed to defend the gold reserve.
Each bank has an account at the Fed that holds the funds from tax collection and bond sales made from their books, but that account (TTL) isn’t deemed “money” and only represents placeholder credit to the banks that is depleted as actual spending occurs with new money creation. If insufficient credit is held in the bank’s TTL account to cover spending, new money is created by the Fed that adds to the debt and bond issues must be sold to “match” (not fund) the money created.
I understand the confusion this may cause, and how much it looks like tax and bond revenue are funding spending, but that is because from our perspective money is always positive revenue which is the opposite of many banking functions. The primary use of the TTL accounts is to spread out the cancelations of reserves for Fed member banks and track contributions from each. In aggregate, the accounts make it possible to determine new money distribution to each account holder as their accounts run out of credits.
Those reserves then require Treasury bond issues as deficit spending by Treasury. Each member bank in the Fed system is contractually required to purchase Treasury bonds to match their share of the distribution of deficit spending, so the government provides them with the reserves necessary to purchase bonds, thus funding its own debt. I think if most understood this they would agree that paying any interest on bond issues is little more than welfare for banks.
It isn’t a big deal to our ability to pay the debt as the Fed and Treasury share a balance sheet and the money represented by bonds is never spent by government, so it all washes out except the interest paid remains in the banking system. I know I have probably confused the heck out of you, but I always try to pass along more information than needed.
The main thing to remember is the time spread between spending and collecting taxes means that spending “funds” taxation and borrowing, not the other way around as most believe. Congress should target spending to accomplish whatever goals it deems beneficial and tax as required to prevent inflation. The act of “paying for” the debt is already accomplished by spending because it is spending that provides excess reserves needed to purchase bonds. Bonds are nothing more than an asset swap exchanging high liquidity (cash) money for interest-bearing bonds.
