Re: The budget deficit creates wealth

"Les Cargill" <lcargill@xxxxxxxxxx> wrote in message
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The Trucker wrote:

"Arthur Dent" <fd4scy@xxxxxxxxxxx> wrote in message
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. 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.

I ain't real sure what "salient" means so I looked it up. And you are
correct in so far as it goes. Whether the initial money is created
by the Fed or by the private banking institutions is absolutely
paramount in any discussion of whether or not the banking sector
is ripping off the public. If this money is created in the private
banking sector and then transformed to interest bearing bonds
and T-Bills then the private banks are truly ripping the rest of
us off. If the Fed creates the dough by crediting the Treasury's
accounts at the Fed and then remitting any interest on this loan
to the Treasury then we have a much different situation in that
the private banking sector is NOT ripping off the real economy.
I was led to believe that my version was a fact by William Hummel
and others, including Mosler. If this is not the case then we have
a very serious problem. \

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

That is all well and good, but the facts are still as they are: Government
spending creates our fiat money and taxation is the only vehicle by
witch that money is destroyed. With insufficient taxation the amount
of money becomes extreme and loses its value. As the economy grows
there is plenty of room for new money. But taxation must still soak
up an appropriate amount of created money or you will have devaluation
of the currency.

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.

That is most certainly part of the equation. If government expenditures
actually do grow the _REAL_ economy then the need for taxation
is diminished. However, when the money is burned in a war furnace
or spent on welfare bums (including corporate welfare bums) then
you have massive looting of the common people by those who can
and do purchase the bonds that keep inflation at bay.

(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.

There was a time when I think that was actually true. But the Fed has
deluded itself into believing that bond sales (a case where liquid
money is removed from the economy and replaced by not quite
so liquid bonds) can prevent long run devaluation of the currency
AND outright slavery of the masses by the bondholders.

(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."

There is a correct amount of taxation. It is that amount where the
money supply grows apace with the _real_ economy. This _does_
allow the government to benefit from the creation of money. It is a
better way of increasing the money supply than is creation by the private
banking sector. If that is "Morning in America" then so be it.

Bur what a sane and honest person does not do is to take a
nation to war and cut taxes on unearned income at the same time.

--
"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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