Re: Money supply and national debt -- need help on this subject

"William F Hummel" <wfhummel@xxxxxxxxxxx> wrote in message
news:r78n42po7b5t21850cotv9r9evv2ccbesc@xxxxxxxxxx
On Sun, 23 Apr 2006 15:15:16 GMT, "Mark M." <markm@xxxxxxxxx> wrote:

S. Doo wrote:

True, lots of other countries have financed their fiscal deficts by
issuing new money to cover their bills, with results as seen in the
Weimar Republic, but the US has been quite good at not going that
route.

In any case, the system requires constant addition of money. As long as
too much money isn't introduced, the people greatly benefit from
government spending funds directly into circulation as opposed to debt
based money controlled by a central bank. This is the history of the
Civil War Greenbacks.

All fiat money is debt-based, whether issued by the central bank or
long ago by the Treasury, as in the case of Civil War greenbacks.

In a modern inconvertible money system, i.e. fiat money system, the
central bank creates it by monetizing the debt securities of the
Treasury. The Treasury simply recirculates it through its spending,
taxing, and debt sales to the public if necessary. On balance the
Treasury does not create new money.

This seems to say that the Fed creates clearing balances in the TTL
accounts of the Treasury in exchange for "debt securities" of the
Treasury. That is fine well and good if the Fed does not charge
any "interest" on this SHORT TERM loan. The fact that the Fed
technically created the money is irrelevant. It was the spending
needs of the Treasury that INVOKED the creation of the money.
The Treasury can, and I assume does, sell T Bills to the public
as well as its collection of taxes so as to control the amount of
money in the system thus controlling inflation.

In this scenario the "money supply" is what is left in the system
after taxation and sale of T Bills and government Bonds. The
debt is the amount of T-Bills and Bonds PLUS the clearing
balances and FRN's held by the private sector. The only way
to erase this enormous debt is to tax.

--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org


.

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