[wat0n]

OK, you are halfway to understanding.
With all due respect, Sir, the US Gov. can choose what interest rate it chooses to pay. Someone somewhere will buy them at 1.5%. If this is not the case somehow, then the Gov. can sell them to the Fed. directly as it did during WWII, see the thread about this I posted a year ago. "I said this before, but now I have proof," or something close to that.
. . . But, selling them to the Fed. is more inflationary, so more taxes or spending reductions will be necessary.
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You should have told that to the US government in WWII for example.

[Steve_American]

You should have told that to the US government in WWII for example.

Sir, you clearly misunderstood me.
In the thread I told you to go to, the thread was about how the Fed. in secret directly bought about 50% of all war bonds sold in WWII. They had changed the law right after Dec. 7th, and then changed it back after the war was over.

[wat0n]

Yeah, and even the the US government had a huge campaign to get the private sector to buy bonds too. That's my point.

[Steve_American]

Yeah, and even the the US government had a huge campaign to get the private sector to buy bonds too. That's my point.

OK, I can agree that back then the ad campaign was neceassary.
Can you agree that NOW it is different? Because --
1] The world is off the gold standard.
2] The world has seen 30 years (1991 to 2021) of the fiat dollar working with no inflation.
3] The US dollar is now the reserve currence of the world, while in 1940 it was the Pound.

[Potemkin]

Yeah, and even the the US government had a huge campaign to get the private sector to buy bonds too. That's my point.

"Gee, thanks Mom!"

[SueDeNîmes]

That's not why the government may prefer to issue debt. The real reason is to avoid losing control of inflation, which can be regarded as a kind of tax in this dynamic.

Which central banks do via monetary policy, i.e. what I said, which is indeed "why the government may prefer to issue debt". They aren't separate reasons.

A separate reason would be obtainment of its own currency, which is not why a govt with a sovereign fiat currency issues debt.

[SueDeNîmes]

Well it's the central bank's job actually, it sells bonds it previously bought on the market and destroys the money it gets. Minor distinction to make.

For which some arm of govt must issue them in the first place. The central bank is another arm of govt anyway.

[Rugoz]

For which some arm of govt must issue them in the first place. The central bank is another arm of govt anyway.

Just saying that your formulation is somewhat questionable given the prevalent institutional arrangement.

[Steve_American]

SueDeNîmes wrote:
For which some arm of govt must issue them in the first place. The central bank is another arm of govt anyway.

Just saying that your formulation is somewhat questionable given the prevalent institutional arrangement.

IMHO, it's you who don't understand "plausible deniability" when you see it.
My MMT sources claim that the Fed. and the Treasury Dept. must work 'hand in glove' everyday to do their jobs. That the Fed. follows orders from the Pres., thru the Treasury Dept.

I have done some research and learned that 97% of the Fed's *revenues* is paid into the US treasury and all the governors on its Board are appointed by the US Gov. If all the money and all the power goes to or comes from the US Gov. it seems like they are not separate.
.

[JohnRawls]

IMHO, it's you who don't understand "plausible deniability" when you see it.
My MMT sources claim that the Fed. and the Treasury Dept. must work 'hand in glove' everyday to do their jobs. That the Fed. follows orders from the Pres., thru the Treasury Dept.

I have done some research and learned that 97% of the Fed's *revenues* is paid into the US treasury and all the governors on its Board are appointed by the US Gov. If all the money and all the power goes to or comes from the US Gov. it seems like they are not separate.
.

The moeny goes to the US Gov or the people. But the decision making process is more or less independent. The same way as the courts more or less give and take to the government or local governments but their decision making is also more or less independent.

I guess in the modern world there are 4 independent branches now: Judiciary, Executive, Legislative and the Fed/ECB.

[Steve_American]

The moeny goes to the US Gov or the people. But the decision making process is more or less independent. The same way as the courts more or less give and take to the government or local governments but their decision making is also more or less independent.

I guess in the modern world there are 4 independent branches now: Judiciary, Executive, Legislative and the Fed/ECB.

Federal judges serve for life.
IIRC, Governors on the Fed. Board can be fired. If so, they are not independent.
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[JohnRawls]

Federal judges serve for life.
IIRC, Governors on the Fed. Board can be fired. If so, they are not independent.
.

Executive and legislative branches also don't serve for life.

[SueDeNîmes]

Just saying that your formulation is somewhat questionable given the prevalent institutional arrangement.

No, actually.

If the govt 'deficit' spends $10bn, Treasury issues $10bn worth of bonds which must be sold in the primary market (the central bank cannot buy them). This removes $10bn worth of reserves from the banking system without the central bank buying or selling bonds.

If the central bank wants to keep interest rates low, it then buys the bonds back. If it wants to raise interest rates it sells bonds acquired in the secondary market, whether Treasury is in deficit or surplus.

The purpose in all cases is preserve an interest rate to hit an inflation target. Not for the govt to obtain its own currency in order to spend.

[wat0n]

OK, I can agree that back then the ad campaign was neceassary.
Can you agree that NOW it is different? Because --
1] The world is off the gold standard.
2] The world has seen 30 years (1991 to 2021) of the fiat dollar working with no inflation.
3] The US dollar is now the reserve currence of the world, while in 1940 it was the Pound.

Sort of. I agree that the US has plenty of room to spend more, at least for now.

But those three things you mention happen precisely because the US has generally tried to keep its public finances in relatively decent shape. They happen because the US never fails even a single bond payment and because it also doesn't experience runaway inflation.

One good thing though is that we can actually see when should the US government become less fiscally expansionary by simply looking at the bond markets. Right now, inflation adjusted rates are at super low levels relative to historical trend:

https://www.treasury.gov/resource-cente ... alyieldAll

So I'd not worry about it too much for now. Yet at some point, these rates could go up if it looked like the US government will have trouble keeping its finances under control at some point.

@SueDeNîmes as @Rugoz and @JohnRawls said, the institutional arrangement is important here. The Fed is independent from the federal government and as such it makes sense to treat it as a different entity or branch for practical purposes.

[Steve_American]

Sort of. I agree that the US has plenty of room to spend more, at least for now.

But those three things you mention happen precisely because the US has generally tried to keep its public finances in relatively decent shape. They happen because the US never fails even a single bond payment and because it also doesn't experience runaway inflation.

One good thing though is that we can actually see when should the US government become less fiscally expansionary by simply looking at the bond markets. Right now, inflation adjusted rates are at super low levels relative to historical trend:

https://www.treasury.gov/resource-cente ... alyieldAll

So I'd not worry about it too much for now. Yet at some point, these rates could go up if it looked like the US government will have trouble keeping its finances under control at some point.

@SueDeNîmes as @Rugoz and @JohnRawls said, the institutional arrangement is important here. The Fed is independent from the federal government and as such it makes sense to treat it as a different entity or branch for practical purposes.

Sir, once people hold dollars, they must do something with them. Parking them in US bonds at least earns interest. If the bonds are worth 10 cents on the dollar, the dollar will also have crashed. The US can create dollars to pay interest and principal, so zero risk of default.
. . . On the other hand, the dollar can drop on the international money market. This will be because of inflation. It will cause inflation in things we buy from the world, but it will make stuff we sell be cheper to foreigners.
. . . MMTers assert that inflation is THE CONSTRAINT. That, it *must* be contained, if it starts. It asserts that you must wait until it starts though, because the mass of the people will benefit from deficit spending unless it is given to the rich directly (as the Repuds have done many times lately).
. . . MMTers assert that right now there is room for what you will see as MASSIVE deficit spending. This is because we start from the Neo-liberal limit on deficit spending; once we reach the MMT limit, the Gov. will have to reduce the deficit a lot (more taxes and/or less spending).
. . . MMTers also point out that Neo-liberal capitalists see efficiency as a good thing and inefficiency as a terrible thing. BUT, they ignore the massive economic inefficiency that is 15% unemplotment, for example in Spain. Or the 8% under-employment that we had in Jan. 2020 before covid. They ignore it because it only hurts the poor, and it massively benefits the rich. [But then, I see most economists as having been trained to be sociopaths who are trolls or shills for the rich and have been, at least, since 1880, i.e. for 140 years.]

.

[Rugoz]

If the govt 'deficit' spends $10bn, Treasury issues $10bn worth of bonds which must be sold in the primary market (the central bank cannot buy them). This removes $10bn worth of reserves from the banking system without the central bank buying or selling bonds.

No, it doesn't. The govt spends the money and consequently it ends up in the "banking system", it doesn't remove any reserves. Only the central bank can remove (i.e. destroy) reserves.

[Steve_American]

No, actually.

If the govt 'deficit' spends $10bn, Treasury issues $10bn worth of bonds which must be sold in the primary market (the central bank cannot buy them). This removes $10bn worth of reserves from the banking system without the central bank buying or selling bonds.

If the central bank wants to keep interest rates low, it then buys the bonds back. If it wants to raise interest rates it sells bonds acquired in the secondary market, whether Treasury is in deficit or surplus.

The purpose in all cases is preserve an interest rate to hit an inflation target. Not for the govt to obtain its own currency in order to spend.

My MMTers say that when the US Gov. deficit spends things happen in this order.
1] The Treasury spends the money.
2] Then the Treasury sells the bonds to cover the checks it kited.
3[ Then the Fed. can buy some of the bonds back, if it needs to.

#2 is currently required by law, but it isn't really necessry. Pres. Lincoln printed and spent greenbacks into the economy without selling bonds because the interest rate demanded was TOO high for him.
.

[SueDeNîmes]

No, it doesn't. The govt spends the money and consequently it ends up in the "banking system",

As I said.

it doesn't remove any reserves. Only the central bank can remove (i.e. destroy) reserves.

Not what I said. It is purchase of the bonds that removes reserves from the system, and the central bank cannot buy bonds directly from Treasury.

[Rugoz]

As I said.

Not what I said. It is purchase of the bonds that removes reserves from the system, and the central bank cannot buy bonds directly from Treasury.

Only if the bonds are purchased from the central bank. Only the central bank can remove reserves from the system.

[Steve_American]

As I said.

Not what I said. It is purchase of the bonds that removes reserves from the system, and the central bank cannot buy bonds directly from Treasury.

Sue, I wish there was a way for me to say this in private.

I'm no expert. However, it seems to me that when the Gov. sells bonds to the public, this removes cash, aka reserves, form the banking system.
It then follows, that when the Fed. buys bonds from the public, this would add cash, aka reserves, to the banking system.
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