This is not quite right “The Fed and Treasury work in close co-ordination, so there may be some…
Tim Knowles

Some of the U.S. Revenue ends up in Fed accounts and the Treasury does depend on the Fed to execute some foriegn currency transactions but my refund check comes from the Treasury not the Fed and the Fed makes to payments to settle authorizations of Congress, the Treasury manages the U.S. cash flows. Direction comes from Congress, Implementation is by the Treasury and the Fed is only a Tool for some Treasury business.

If I write a check to you it will have my name at the top, but the check will be drawn on the account described by the routing number at the bottom, even if my bank’s name isn’t on it. That routing number can be traced back to the member bank of the Fed that has authority over my bank where the actual debit will take place. Accounts will then be electronically marked up or down as the transaction requires until your account at your bank shows the increased balance and my account displays the debit.

The Federal Reserve is the bank/clearing house for all government payments and your refund will have come from one of the Fed’s member banks, which depending upon which region you reside in. Because your refund represents taxes paid in error it had to be returned to you before the IRS/Treasury account at the Fed could be reconciled with correct numbers. The portion of your payment that represents the corrected tax obligation being paid is similarly debited from the proper accounts, including your individual account, but no positive transfer/credit is made and your dollars end their life as “money”, all within the Fed’s system.

The inclusion of the phrase “grade school math literacy” is insulting and in this discussion the “Math” is not at issue.
Regarding “this opportunity to point out that you have also posited the issuing of bonds as a terrible thing that will lead to the death of modern civilization” I never said or even implied any such thing. I never even said that a deficit was bad or that deficit spending was bad. I will claim that improper management of the deficit will lead to dangerous inflation. It is not only how much we borrow but how we spend it that matters.

I sincerely apologize for the tone and accusation here. I wrote this in the wee hours and confused our discussion with another where both were applicable to the situation.

Yes, of course we must be wise in spending. I never intended to imply that just spending in deficit is a cure all, although any deficit injects currency into the private sector and the simple presence of currency has never caused inflation in a fiat system. Inflation is the result of an insufficient amount of goods and services to absorb the currency available to purchase it (demand). Before we throw a trillion dollars into infrastructure we must be sure that there is sufficient supply, or potential supply, of materials and labor to accomplish the goal or all related materials and labor will become more expensive in chasing the increased demand.

I’m not sure that this applies to healthcare in the same way though. If you know you have a bad road leading to work you can take an alternate, but if you know you have a bad ticker you don’t have many options except to treat it. I don’t believe that there is a lot of surplus demand in healthcare that will drive prices upward. The demand is for preventative and early treatment, which is well known to drive overall costs downward. There is also a lot of excessive waste in the present system due to administrative costs driven by too many players making the rules that providers must follow to get paid. On top of that there is a similar problem in the government that has evolved multiple agencies doing redundant tasks just to accomplish sending out checks. None of these people will ever stitch a cut or diagnose an illness, but they control who gets paid and how much. Consolidation of administration will save a bundle for both the government and private sector.

When we borrow from the private sector or foreign National Banks to fund the deficit it does not create new money so no inflation threat is incurred but when that debt is purchased by the Federal Reserve that purchase results in the creation of new money and that could increase the rate of inflation. That is not always a bad thing.

Every transaction of the Fed balances to zero. I know that is difficult to grasp, and I don’t have that completely handled myself, but I have talked with some top bond traders and macroeconomists that are comfortable with it and they verify this. No “currency” is created by the Fed as an agent of the government. All of the reserve banks are also independent in their own separate banking functions and may create “accounts” when they loan, but Treasury bonds can not be purchased on credit. Swaps of reserves and bonds can appear to create currency, but they always balance unless the spending is by direction of the Congress.

It is incorrect to say that increasing “the money supply doesn’t create inflation until the economy has reached 100% of its potential to create goods and services and spending continues above that.” Each increment of production comes with is own cost so it is not a step change at 100% but a sliding scale and actually no spending could occur after 100% production is achieved, you can’t buy what can’t be produced. As you approach 100% capacity prices will rise dramatically thus diminishing demand.

This could be somewhat true, but we are so far from potential maximum production that we wouldn’t know for sure for decades. Then we have tools available, taxes, etc. to mitigate the problem. The only time we experienced such was during WWII when every able body was working at good wages and most of the production was going to the war effort. FDR raised taxes, but he also initiated the “War Bond” campaign. People thought they were helping fund the war while also being responsible savers, but they were really only dumping off excess reserves that were removed from the economy. His efforts to control inflation are largely responsible for the error in economic thinking that views taxation and bond sales as “revenue” today.

My concerns are not about the cost but about the impacts to my quality of care. If the government is going to pay the bills they will likely be deciding what is covered and what is not and they will be deciding how much things cost. I am not convinced that will make things better for me. If the government is paying my health care bills is my employer going to give me a pay raise? Is the government going to cover all the medication and treatments that my employer provided coverage provides.

This mistrust of our government runs deep in Americans, and most of it is political BS rhetoric. Government has to be watched, but not nearly as closely as we should be watching for profit companies that we don’t elect and have little recourse with if they purchase our government. Who’s going to have the most incentive to deny your recommended treatment, the politician who is going to be asking for your vote in the next election, or the Insurance company CEO that is only really answerable to shareholders and puts every dollar taken from your care into their, and his, pockets? Add to that the impact that our current model of providing coverage via employers has on focus on cost control to cut cost of employment, which never should have been connected, and the answer is a no-brainer for me.

Government is extremely inefficient and inept, which is why I would never approve of a system of government managed care, such as the Brits have. We have evidence of that outcome in the VA which probably gives us less bang for our buck than any government agency. Single payer is not government management of our health care, especially when it can be given a practically open ended budget without impacting anything. Talk to a Brit and a Frenchman about their healthcare and you’ll see the difference. I hear a lot of propaganda about the Canadian system from my rightwing friends, but my Canadian friends say it’s simply not true, and don’t even think about inflicting our system on them. They have their problems that have more to do with logistics in a large country with less population than California, but they aren’t economic.

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