Re: The budget deficit creates wealth

On Fri, 27 Oct 2006 00:01:35 +0200, Herman Jurjus <h.jurjus@xxxxxxxxx>
wrote:

royls@xxxxxxxxx wrote:

[snip, snip, snip, snip]

Garbage .... Paying back the debt only led to the Great Depression

It did nothing of the kind.

The Treasury's paying off its bonds has no effect on the money
suppply. For every $1,000 bodn it pays off it collects $1,000 in
money from taxpayers, and pays the same $1,000 to a bond holder in
exchange for the bond. Net change in money held by the public = $0.

The US govt's role in starting the Depression and making it ever worse
through 1933 was the Fed's repeated increasing of interest rates in
the face of increaing economic weakness -- in no small part to
maintain the gold parities required by the gold standard. The more
tightly a nation was wed to the gold standard, the worse it's
experience during the Depression.

The Fed does not increase interest rates by having the Treasury redeem
it's debt. ;)

(In fact, rather the opposite -- the Fed increases rates by selling
gov't securities *to* the public, increasing their outstanding amount,
in exchange for the money the public pays it for them, which is then
removed from circulation, reducing the money supply, making money
"tighter" and rates higher. It's called "open market operations".)

One can read the whole tale from Ben Bernanke himself, whom we may
presume knows a little about the Fed and its history.
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm

Notice how he omits any mention at all of the gov't paying back its
debt.

because the US Federal Reserve money system _defines_ money as debt.

[snip, snip, snip, snip]

Not true at all. The change in my pocket sure is "US money" but is not
a debt of anyone.

So either the "definition" is refuted right there, or this would seem
to be one of those definitions that applies except when it doesn't.
;-)

Moreover, the $5 "federal reserve note" bill I carry in my pocket
isn't a debt of anybody's in any meaningful sense either.

If it was a real debt, the issuer would have an obligation to redeem
it to pay its debt off at some point -- the debt could be redeemed by
the holder of the debt instrument.

But what can we redeem our $5 bills for at the Fed? Exactly *what*
does the Fed as a debtor *owe* us holders of them on them?

If we do present our $5 bills to the Fed for redemption of the debt it
owes us represented by then, but it never, ever, pays us anything on
them in settlement of its debt, and says it never will, just refuses,
will it be in default, like a *real* debtor would be? ;-)

If not, then that leaves both currency and coins out of the "money is
defined as debt" definition -- two rather singificant exceptions.

(BTW, if anyone disagrees with these exceptions, the Fed has huge
informational and eductational presences on the web, so instead of
arguing just post the a link to a Fed web site where it gives the
particular...

the US Federal Reserve money system _defines_ money as debt

.... definition in its own words.)

Just curious: how else would you suggest they define money?

*People* define money by what they choose to use for the combined
"medium of exchange/measure of value/store of value" purpose.

Central banks like the Fed actually have several definitions of money
(base money, MZ ... M3, etc.) used for different purposes, derived
from watching how people behave in their use of the components. The
Fed changes it use of the definitions accordingly. For instance,
lately it's pretty much abandoned M3 ....
.

Relevant Pages

  • Re: The budget deficit creates wealth
    ... [snip, snip, snip, snip] ... For every $1,000 bodn it pays off it collects $1,000 in ... Net change in money held by the public = $0. ... to repay the short term debt. ...
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