How the banks create money

[drkitten]

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.

Of course, the difference is that the $14.1 national debt actually exists, while the $100 trillion of unfunded liability exists nowhere except in your fever dreams of economic collapse.

If you get to pretend that $100 trillion of unfunded liability exists, I get to pretend that the Klingon Empire will send us enough credits to pay for it.

 

[respect]

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.

Well that would make sense, you are right that other lenders have bought more Treasury Securities, I doubt that the Fed's holdings have changed all that much. Unless the Fed starts buying them at the same rate the government is borrowing its holdings will continue to shrink in terms of percentage.

 

[Tippit]

Of course, the difference is that the $14.1 national debt actually exists, while the $100 trillion of unfunded liability exists nowhere except in your fever dreams of economic collapse.

Really? Demographic trends indicate there will be massive future shortfalls in social security and medicare, to the tune of roughly $100 trillion, none of this backed by actual assets in the US Treasury, unlike the national debt. While you can debate the size of the liability since it is based on forecasts of the future, disclaiming its existence is retarded. Who are you trying to clown, clown?

If you get to pretend that $100 trillion of unfunded liability exists, I get to pretend that the Klingon Empire will send us enough credits to pay for it.

I have no doubt the "Empire" will create credits to pay for it. Unlike you, I'm well aware of the consequences.

 

[psionl0]

How do you figure this?

The original data for the chart that I linked to earlier came from http://fms.treas.gov. The figures for June 2008 show that the Fed (and other intra governmental agencies) held nearly 50% of the government debt.

The figures for September 2010 show that of the total $13,561.6B public debt, $5,350.5B is held by the Fed et al (39.5%) while the rest is privately held.

If the Fed holds $1,167B in treasury securities itself then the rest must be held by other intra-governmental holdings. I don't know why the Treasury's FMS lumps the Fed together with the other intra-governmental holdings in its report - especially since with other agencies, it is not clear that money is being created when the government takes an agency's cash and replaces it with bonds. There is no such doubt with the Fed.

 

[drkitten]

The original data for the chart that I linked to earlier came from http://fms.treas.gov. The figures for June 2008 show that the Fed (and other intra governmental agencies) held nearly 50% of the government debt.

The figures for September 2010 show that of the total $13,561.6B public debt, $5,350.5B is held by the Fed et al (39.5%) while the rest is privately held.

If the Fed holds $1,167B in treasury securities itself then the rest must be held by other intra-governmental holdings.

Yes.

I don't know why the Treasury's FMS lumps the Fed together with the other intra-governmental holdings in its report.

Because there's no real reason to report it separately. The bulk of the money ($2.6 trillion) is in the Social Security Trust Fund and represents unspent tax revenues that are earmarked for future social security benefits. Other agencies have similar trust funds.

- especially since with other agencies, it is not clear that money is being created when the government takes an agency's cash and replaces it with bonds.

Why should it be clear? Why should it even be true?

 

[drkitten]

Really? Demographic trends indicate there will be massive future shortfalls in social security and medicare, to the tune of roughly $100 trillion,

No, they don't. You pulled this number out of thin air. Even the Cato Institute suggests that the shortfall, over infinitely long time, is closer to $10 trillion than $100 trillion.

I have no problem disclaiming the existence of a scary-large number that a proctologist found for you.

 

[respect]

The original data for the chart that I linked to earlier came from http://fms.treas.gov. The figures for June 2008 show that the Fed (and other intra governmental agencies) held nearly 50% of the government debt.

The figures for September 2010 show that of the total $13,561.6B public debt, $5,350.5B is held by the Fed et al (39.5%) while the rest is privately held.

If the Fed holds $1,167B in treasury securities itself then the rest must be held by other intra-governmental holdings. I don't know why the Treasury's FMS lumps the Fed together with the other intra-governmental holdings in its report - especially since with other agencies, it is not clear that money is being created when the government takes an agency's cash and replaces it with bonds. There is no such doubt with the Fed.

What is the discrepancy that you speak of?

By the way, when the Fed buys Treasury Securities it isn't congress spending a budget surplus and leaving behind IOUs, they buy them in the market because they want to increase the money supply in circulation. Likewise, they sell them when they want to reduce the money supply in circulation.

 

[Tippit]

What is the discrepancy that you speak of?

By the way, when the Fed buys Treasury Securities it isn't congress spending a budget surplus and leaving behind IOUs, they buy them in the market because they want to increase the money supply in circulation. Likewise, they sell them when they want to reduce the money supply in circulation.

Right. Primary bond dealers like Goldman Sachs and JP Morgan are "the market", unlimited federal spending and Fed funny money are unrelated, and in other news, that whole "lender-of-last-resort" designation is meaningless (just ignore what happened during the financial crisis.)

 

[respect]

Right. Primary bond dealers like Goldman Sachs and JP Morgan are "the market", unlimited federal spending and Fed funny money are unrelated, and in other news, that whole "lender-of-last-resort" designation is meaningless (just ignore what happened during the financial crisis.)

Calm down little fella, if the Fed were really financing the governments debt don't you think their Treasury Securities holdings would be increasing as a percentage and not declining? Something you acknowledged is happening.

 

[Tippit]

Calm down little fella, if the Fed were really financing the governments debt don't you think their Treasury Securities holdings would be increasing as a percentage and not declining? Something you acknowledged is happening.

I acknowledged nothing of the sort. The fact that that number is lower than it was in the late nineties doesn't mean it's declining now. It means that it has declined over that period, and the reason why (China's lending) isn't a mystery. So in spite of QE1 and 2, and in spite of China's reluctance to buy our paper as of recently, are you really claiming that the Fed isn't financing the government's debt now? Because the evidence indicates the exact opposite.

 

[respect]

I acknowledged nothing of the sort. The fact that that number is lower than it was in the late nineties doesn't mean it's declining now. It means that it has declined over that period, and the reason why (China's lending) isn't a mystery. So in spite of QE1 and 2, and in spite of China's reluctance to buy our paper as of recently, are you really claiming that the Fed isn't financing the government's debt now? Because the evidence indicates the exact opposite.

Calm down little fella, if the Fed were really financing the governments debt don't you think their Treasury Securities holdings would be increasing as a percentage and not declining? Something you acknowledged has happened.

Happier?

Their goals are not a secret, they want to pump money into circulation. It isn't a devious plot between the Fed and congress to print their way out of the debt. If that were the plan one would suspect that they would have been doing a much better job of it.

 

[Tippit]

Happier?

Oh, I'm estatic. Thanks for being honest and correcting your mistake. At least you're doing better than drkitten.

Their goals are not a secret, they want to pump money into circulation. It isn't a devious plot between the Fed and congress to print their way out of the debt. If that were the plan one would suspect that they would have been doing a much better job of it.

So, presumably they want to "pump money into circulation", and they do this by subsidizing bond holders to the tune of hundreds of billions. Is this the trickle down theory of "money pumping"? And why should taxpayers be happy about bond subsidies, and how do bond subsidies help the economy? Of couse, they don't. It's just the inflation tax being used to prop up asset prices. Nothing new here. The Fed is doing a great job. The only issue here is in the difference between the job they're actually doing, and the job that they claim, and you think they're supposed to be doing.

 

[respect]

Oh, I'm estatic. Thanks for being honest and correcting your mistake. At least you're doing better than drkitten.



So, presumably they want to "pump money into circulation", and they do this by subsidizing bond holders to the tune of hundreds of billions. Is this the trickle down theory of "money pumping"? And why should taxpayers be happy about bond subsidies, and how do bond subsidies help the economy? Of couse, they don't. It's just the inflation tax being used to prop up asset prices. Nothing new here. The Fed is doing a great job. The only issue here is in the difference between the job they're actually doing, and the job that they claim, and you think they're supposed to be doing.

Their actions now are based off the ideas of Milton Friedman, are you seriously trying to suggest that he was an evil, totalitarian statist?

 

[Tippit]

Their actions now are based off the ideas of Milton Friedman, are you seriously trying to suggest that he was an evil, totalitarian statist?

No. Do you agree with Friedman and Schwartz who claimed that the Fed caused the Great Depression? Are you claiming that everything the Fed did or does was or would be implicitly done with the consent of Friedman?

Alan Greenspan wrote Gold and Economic Freedom. Is that text consistent with his actions as Chairman of the Federal Reserve?

 

[respect]

No. Do you agree with Friedman and Schwartz who claimed that the Fed caused the Great Depression? Are you claiming that everything the Fed did or does was or would be implicitly done with the consent of Friedman?

Alan Greenspan wrote Gold and Economic Freedom. Is that text consistent with his actions as Chairman of the Federal Reserve?

They played a role, in large part because of your beloved gold standard. If Greenspan believed in bigfoot when he was ten, does it prove that bigfoot exists today? Even you should be ashamed to propose such a thing.

 

[Tippit]

They played a role, in large part because of your beloved gold standard. If Greenspan believed in bigfoot when he was ten, does it prove that bigfoot exists today? Even you should be ashamed to propose such a thing.

Except, the Fed was tightening the money supply - the cause of the Great Depression according to Friedman (and he was right) through 1937, well after the gold standard was trashed in 1933. How do you explain this? Gold was the scapegoat.

Are you really equating Gold and Economic Freedom with "bigfoot", and claiming that >I< should be ashamed? Clearly, the profits of free money were worth more than Greenspan's integrity.

 

[respect]

Except, the Fed was tightening the money supply - the cause of the Great Depression according to Friedman (and he was right) through 1937, well after the gold standard was trashed in 1933. How do you explain this? Gold was the scapegoat.

Are you really equating Gold and Economic Freedom with "bigfoot", and claiming that >I< should be ashamed? Clearly, the profits of free money were worth more than Greenspan's integrity.

Awww...the little guy wants to make up history.

 

[psionl0]

What is the discrepancy that you speak of?

By the way, when the Fed buys Treasury Securities it isn't congress spending a budget surplus and leaving behind IOUs, they buy them in the market because they want to increase the money supply in circulation. Likewise, they sell them when they want to reduce the money supply in circulation.

The discrepancy came from the incomplete information in your link. Combining your source with mine removed the discrepancies. (I really DID prove your case!)

The figures are a cause for worry however. From June 2008 to September 2010, the national debt increased from $9,492B to $13,561B (an average annual increase of 16.2%). Of the $4,069B increase, $3,405.5B or 83.7% went to private hands which means that the government debt to the private sector soared from $4,806B to $8,211.5B - an increase of 70.9%!

Unless the government can raise enough money from taxes to service this much debt (sound of pigs' wings flapping), the only other option will be to devalue the debt. This means that far from merely managing the money supply, the Fed will be forced to buy up a lot of this debt just to bail the government out and when this happens, Tippet's "inflation tax" will cease to be an academic term and become part of everyday reality. The party is coming to an end folks!

This all demonstrates that it should be unconstitutional for governments to borrow money on the credit of a nation. Politicians are only interested in winning the next election and can't be trusted with a nation's long term future.

 

[respect]

The discrepancy came from the incomplete information in your link. Combining your source with mine removed the discrepancies. (I really DID prove your case!)

The figures are a cause for worry however. From June 2008 to September 2010, the national debt increased from $9,492B to $13,561B (an average annual increase of 16.2%). Of the $4,069B increase, $3,405.5B or 83.7% went to private hands which means that the government debt to the private sector soared from $4,806B to $8,211.5B - an increase of 70.9%!

Unless the government can raise enough money from taxes to service this much debt (sound of pigs' wings flapping), the only other option will be to devalue the debt. This means that far from merely managing the money supply, the Fed will be forced to buy up a lot of this debt just to bail the government out and when this happens, Tippet's "inflation tax" will cease to be an academic term and become part of everyday reality. The party is coming to an end folks!

This all demonstrates that it should be unconstitutional for governments to borrow money on the credit of a nation. Politicians are only interested in winning the next election and can't be trusted with a nation's long term future.

Interesting. I showed you what the Fed's Treasury Security holdings were (you lacked the knowledge to convert it to percentage and complained), I showed you how and even converted it for you and you think you showed me something? Cry me a river.

P.S.

There was no discrepancy in the information I provided, you just lacked the intelligence to understand it. That is different.

 

[psionl0]

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.

There was no discrepancy in the information I provided, you just lacked the intelligence to understand it. That is different.

Your source only provided part of the information - you expected me to do the rest of the research.

Still, if you want to claim all of the credit for this analysis, go ahead. It's a lot easier than speculating about how we will deal with the national debt.