How the banks create money

[drkitten]

Interesting. Does that mean that the government raided the social security treasure chest and replaced the money with bonds?

Yes.

If so, I can see an upcoming generation that won't be getting any social security.

I'm sure you can; the question is whether a rational observer can.

Why do you think the government is likely to default on its bonds in the next fifty years? Bearing in mind that most economist consider US government bonds to be the very type-specimen of a risk-free investment. Literally. If someone wants to evaluate the risk premium associated with a type of investment, such as corporate bonds or equities or real estate, they compare the return from that type of investment with the "risk free" return available from US Treasuries.

 

[The Central Scrutinizer]

Why do you think the government is likely to default on its bonds in the next fifty years? Bearing in mind that most economist consider US government bonds to be the very type-specimen of a risk-free investment. Literally. If someone wants to evaluate the risk premium associated with a type of investment, such as corporate bonds or equities or real estate, they compare the return from that type of investment with the "risk free" return available from US Treasuries.

Exactly. If you invest $1000 in US Treasuries, and the government defaults on paying, getting your $1000 back will be the least of your problems.

 

[Tippit]

Skeptic-PK tried to accuse me of advocating a system where money from repaid loans is not lent out again. If you read my posts, you would know that this is totally false.

He has a tendency to misunderstand things.

If you are not going to read my posts then at least read from your own Monetary Reform Act link:

I wasn't replying to your post, just his. It is true that simply going from a fractional reserve to a 100% reserve system is hyper-deflationary. If you use fiat monetary policy you can offset this, but only if.

 

[Tippit]

I'm sure you can; the question is whether a rational observer can.

Most rational observers see the massive systemic problems with the US entitlement system, apparently with the exception of you. You're "special" that way.

Why do you think the government is likely to default on its bonds in the next fifty years? Bearing in mind that most economist consider US government bonds to be the very type-specimen of a risk-free investment. Literally. If someone wants to evaluate the risk premium associated with a type of investment, such as corporate bonds or equities or real estate, they compare the return from that type of investment with the "risk free" return available from US Treasuries.

PIGS sovereign debt, like Greece and Spain used to be rated triple A. Rating agencies greatly understated the risk of securitized subprime mortgages before they collapsed, to the surprise of many. All fiat curriences throughout history come to a spectacular end, the US dollar will be no exception. How do I know this? Human nature.

It's not a question of doubting whether the US government can take everything we have, it's a question of doubting whether we will have anything left to give.

 

[respect]

Interesting. Does that mean that the government raided the social security treasure chest and replaced the money with bonds? If so, I can see an upcoming generation that won't be getting any social security.

BTW how much does the Fed actually hold in government bonds?

Yes, congress spends the extra cash on hand from FICA taxes and replaces it with Treasury IOUs. Likewise, Medicare is owed a lot as well.

And if you want to know what the Fed's Treasury Security holdings are read the link I gave you. It is less than 9% at the moment.

 

[psionl0]

And if you want to know what the Fed's Treasury Security holdings are read the link I gave you. It is less than 9% at the moment.

I can't see anywhere in that link a statement showing what percentage of bonds is held by the Fed. The closest bit of info is that of the $2,503,981,000,000 assets of the Fed, $1,167,087,000,000 is held in treasury securities which is 51.25% of its total assets.

 

[psionl0]

Exactly. If you invest $1000 in US Treasuries, and the government defaults on paying, getting your $1000 back will be the least of your problems.

Sure, the government can't renege on privately held bonds.

However, owing money to a government department is a slightly different kettle of fish. It doesn't take a crystal ball to realize that governments who can't balance a budget are not going to replace the borrowed money before it comes due. It will be up to the tax payers of the future to fund the needs of the social security department.

You can bet your bottom dollar that these tax payers won't sit idly by while most of their hard earned wages go to fund a department that is just keeping old geezers alive.

 

[respect]

I can't see anywhere in that link a statement showing what percentage of bonds is held by the Fed. The closest bit of info is that of the $2,503,981,000,000 assets of the Fed, $1,167,087,000,000 is held in treasury securities which is 51.25% of its total assets.

Well of course not, it is a balance sheet. But it does give you half the information you need to determine how much of the US debt it holds in terms of percentage. The other half is the size of the debt. Look that up and do some basic division and you will see the percentage of US debt held by the Fed.

 

[psionl0]

Well of course not, it is a balance sheet. But it does give you half the information you need to determine how much of the US debt it holds in terms of percentage. The other half is the size of the debt. Look that up and do some basic division and you will see the percentage of US debt held by the Fed.

I see, you want me to do the work you need to do to prove me wrong. I don't know if that is possible.

It would appear that there is a massive discrepancy between the national (government) debt and the amount of treasury securities issued. Either you can explain it or not.

 

[respect]

I see, you want me to do the work you need to do to prove me wrong. I don't know if that is possible.

It would appear that there is a massive discrepancy between the national (government) debt and the amount of treasury securities issued. Either you can explain it or not.

Oh, sweet Jesus again...the Fed holds about 8.2% of US debt. Actually an unusually high number for them because they have been buying Treasury Securities to pump cash into the system. At this point, I have to ask, do I need to make a coloring book for you to understand how to divide the Fed's Treasury Security holdings with the national debt? The answer is about 8.2%, if you cannot understand why, go back to the third grade and get an education.

 

[respect]

$1,167,087/14,148,216 equals about 8.2%. I don't know what is hard to understand about this.

 

[Tippit]

Oh, sweet Jesus again...the Fed holds about 8.2% of US debt. Actually an unusually high number for them because they have been buying Treasury Securities to pump cash into the system. At this point, I have to ask, do I need to make a coloring book for you to understand how to divide the Fed's Treasury Security holdings with the national debt? The answer is about 8.2%, if you cannot understand why, go back to the third grade and get an education.

I don't think it's unusually high, the last time I researched it it was about 14%. It's lower because of the massive amount of debt bought by China and other foreign central banks over the past decade, but it should climb higher as their appetite for our paper wanes, and QE3 kicks in.

 

[psionl0]

$1,167,087/14,148,216 equals about 8.2%. I don't know what is hard to understand about this.

This is going to be a lot harder than you thought. You don't even seem to be aware that you have answered a different question to the one I asked.

(Refresher: "It would appear that there is a massive discrepancy between the national (government) debt and the amount of treasury securities issued. Either you can explain it or not").

 

[drkitten]

It would appear that there is a massive discrepancy between the national (government) debt and the amount of treasury securities issued.

How do you figure this?

 

[The Central Scrutinizer]

Sure, the government can't renege on privately held bonds.

However, owing money to a government department is a slightly different kettle of fish. It doesn't take a crystal ball to realize that governments who can't balance a budget are not going to replace the borrowed money before it comes due. It will be up to the tax payers of the future to fund the needs of the social security department.

You can bet your bottom dollar that these tax payers won't sit idly by while most of their hard earned wages go to fund a department that is just keeping old geezers alive.

Huh?

 

[drkitten]

Huh?

I think that psion10 is suggesting that the government will selectively renege on government bonds. Or more likely will simply direct that the Social Security Administration deliver the contents of the "lockbox" to the general fund instead of paying it out to retirees.

That's not as absolutely far-fetched as it sounds; many companies have reneged on their promises to retirees before. But it's still pretty out there.

 

[respect]

This is going to be a lot harder than you thought. You don't even seem to be aware that you have answered a different question to the one I asked.

(Refresher: "It would appear that there is a massive discrepancy between the national (government) debt and the amount of treasury securities issued. Either you can explain it or not").

How do you figure this?

I have the same question.

 

[respect]

I don't think it's unusually high, the last time I researched it it was about 14%. It's lower because of the massive amount of debt bought by China and other foreign central banks over the past decade, but it should climb higher as their appetite for our paper wanes, and QE3 kicks in.

When is the last time you researched it? Just a few years ago it was less than 8%.

 

[Tippit]

When is the last time you researched it? Just a few years ago it was less than 8%.

In the late nineties, the Fed owned roughly 14% of all outstanding Treasuries. I'm not prepared to say this is the norm, but I suspect 8% is fairly low.

 

[Tippit]

I have the same question.

This hardly matters in light of what does matter, the some 100 trillion (by some estimates) of unfunded liability. The $14.1 trillion national debt pales in comparison.