Is that why we pay interest on it?
Congress chose to fund spending by issuing Treasury debt, but it isn’t required as a function of Treasury. We could create currency by simply marking up accounts as needed. Treasury bonds serve a couple of purposes. They provide an interest rate floor for investors to backstop portfolios while also setting interest rates to provide monetary policy room.
Bonds don’t actually create currency unless they are retired with “new” currency, as they must be purchased with existing currency. This allows monetary policy to be adjusted within the terms of the bond as Keynes suggested. I’m not a fan of this method of funding, as it generally serves as welfare for the wealthy. I would use tax policy to push investment back into the economy instead with a carrot/stick policy that makes it less attractive to make money from money.
This is a deception from the MMT, that a sovereign country can create all the money it wants, which of course they can, but what will it be worth to the world?
It (the dollar) will be worth what the government/Treasury says it is worth, which is always one dollar. The idea that gold somehow has more intrinsic value than a fiat currency is a holdover from the days of feudal economies and one of the silliest things modern man has done. All currencies represent debt and no commodity will shore up a failed economy because the original debt will always exist.
Inflation of a fiat currency is not a direct result from increasing the currency supply as it is with a currency pinned to a commodity or exchange rate. As long as the economy possesses the potential to produce goods and services for the currency to purchase inflation will not result from increasing the currency supply. Japan has been trying to weaken its currency in foreign trade for some time without success, in spite of its debt now being over 200% of its GDP.
The debt is what gives currency value, the promise of repayment… or of the payment of interest anyway
Nope. Taxes give the currency value. Interest merely shuffles currency from one account to another. No currency is created in the process of accruing interest except that paid on Treasury instruments with new currency created by Congress to retire them. This is an entirely optional thing that Congress has the power to skip. If the debt is an obligation that must be paid by the future collection of taxes please tell me who would be the beneficiary of those taxes. The government?? What would the government do with currency it collected from taxpayers that it can’t do with currency it creates? You do realize that the “debt” represents “ALL” currency in existence, right?
There is clearly some semantic thing going on that obscures reality
If the bank writes a check to loan money that didn’t currently exist, it doesn’t much matter how it is to be repaid, the money was created…
Anyone can issue currency/debt. A store discount coupon is a form of currency. The trick is to get others to accept it in exchange for some benefit in the present. As long as the contract calls for repayment of the amount borrowed in existing currency the net effect is not the creation of any money. The bank holds the contract (and likely sufficient collateral) as an asset to balance the initial expense. Unless government determines that a bank is “too big to fail” and creates currency to pay off its gambling debt a bank should never create any currency. This is just evidence that banking should not be a function left to the private sector, or that banks should be so tightly regulated that they become extensions of Congress.
Did you know that the government bonds bought by the fed for QE were bought from Goldman-Sachs and not the government?.. funny
It is against the law for the Fed to purchase bonds directly from Treasury. Any Treasury instruments bought by the Fed are from the open market and the QE was actually a wash between reserves and bonds anyway with little actual impact on the money supply. I don’t know what was supposed to be accomplished by moving money between accounts, but it didn’t happen as planned.
