Re: The budget deficit creates wealth

The Trucker wrote:

"Arthur Dent" <fd4scy@xxxxxxxxxxx> wrote in message news:1163013023.195511.252930@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

. 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.

(BZZZZZZZZZZZZZZZZZZZZZZZZZZZZZT!!! As a matter of fact
the US government is the only institutuon in the USA that _can_ create
money. It simply does not do so an instead assigns that function to
the Fed. In the initial stages the Fed buys bonds from the Traesury
with money created from thin air. The Treasury spends the money
into existence and THEN ISSUES T_BILLS TO THE PUBLIC OR
LEVIES TAXES TO KEEP INFLATION AT BAY. Ask yourself
where the money came from that was used to buy the T-bills and
bonds that now represent the naional debt. You can't "borrow" money
that does not yet exist.)


I don't think that is completely true. And I think this is entirely
salient.

Look, markets are not automata. They are not just self-refererential,
they are *self aware*.

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.


They are *really* backed by faith in the expansion of the economy.

(The money removed from the economy in step 2 is used to retire
the original loan from the Fed that came first. And yes, this is a loan
from the bond/T-bill owner to the government)

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


But it does so to reflect the best-faith estaimates of the growth of the economy.

(yes. And it does so in such a way as to control the money supply and/or
to fund the original spending of oney into the economy by the elected
government).

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

(normal proceedure)

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.

(that interest is refundedto the Treasury)

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.

(that does not compute)



Truck, you just reinvented Ronald Reagan's "Morning in America."

--
Les Cargill
.

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