Re: The budget deficit creates wealth


.. Doo wrote:
On Tue, 24 Oct 2006 08:25:36 -0400, "Jacques Gambu"
<123jgambuxyz@xxxxxxxxxxx> wrote:

The budget deficit creates wealth

Such nonsense ideas never stop circulating.

The public debt is a liability for Uncle Sam but it is an asset for the
people who own Treasury bonds. If they feel rich they go out and buy stuff.

Let's see. To buy a $1,000 Treasury bond from Uncle Sam one must first
Ø have $1,000 cash to pay for it.



This is not really true.

It works kind of like this. The US government is not allowed to create
money. To raise money the governmentt collects taxes or issues bonds.

A bonds issued by the govt is a form of debt. A bond is a government
promise to pay the money back with at a fixed rate of interest. Bonds
are backed by taxes.

Here's the magic. The Federal Reserve buys these bonds with money it
creates entirely out of thin air.

If the Federal Reserve had no money at all it would just print some on
a printing press.

The Fed uses its magic money to buy govt bonds. It can say govt bonds
back the money the fed has fabricated. The good people of the Federal
Reserve Bank then pocket the interest on the bond.

The process is described right here on the Fed's own web site

http://www.federalreserve.gov/monetarypolicy/reservereq.htm


This is also the reason that income tax was introduced at the same time
as the federal reserve act. Before the fed there was no income tax. As
long as you have privatly issued notes you will always have tax
increases.


"If the American people ever allow private banks to control the issue
of their currency, first by inflation, then by deflation, the
banks...will deprive the people of all property until their children
wake-up homeless on the continent their fathers conquered.... The
issuing power should be taken from the banks and restored to the
people, to whom it properly belongs."

Thomas Jefferson

.

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