Re: National Debt

"Lantern" <lantern01@xxxxxxxxxxxx> wrote in message
news:1178814910.835545.175130@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
On May 9, 6:12 pm, "Dan in Philly" <d...@xxxxxxx> wrote:
"Steve Campbell" <SteveCampb...@xxxxxxxxxxxxx> wrote in message ...
The Fed needs some national debt to conduct open market operations
with bonds that are its primary tool for regulating the economy with
the money supply and, thereby, controlling inflation. Some criticism
of a very large national debt follows:

1. ...
2. ...
3. ...
4. ...

These responses might have been a little too clear & logical for many
sci.econ participants.

5. The compulsory sale of bonds by the Fed to finance the debt reduces
the money supply and increases the value of the dollar against foreign
currencies.

That's why the Fed is a net *buyer* of bonds. The *Treasury* sells bonds to
finance the debt.

Dan in Philly

What about the notion that if you can carry the debt, the debt is no
problem.


For years I have been trying to explain this stuff in a way that even the
minimally aware can understand it. Perhaps the best way to look at it
is to (in you mind) coalesce the Fed and the Treasury into a single
harmonious group. That is the reality anyway. These two institutions
work hand in hand to do the job of government finance and monetary
control.

Money (dollars in bank accounts of the Treasury) is CREATED when
the government spends money into existence. The Treasury accounts
in the central bank (spelled Fed) are NEVER overdrawn or insufficient.

The problem then becomes the control of all this money that has been
created and thrown into the helicopter blades of government to come
to rest we know not where. If the money is allowed to slosh around
in the economy for too long then the amount of actual dollars
will grow too large and the value of the dollars will erode. That is
why we have taxes and the sales of various types of "interest"
bearing mattresses called government bonds. What else will the
rich people who already have all the money they could ever use
do with this extra money but to put it into bonds?

That is what keeps dollars scarce and keeps them worth something;
this sale of bonds and this taxation. If interest rates on the bonds
are very low and there is inadequate tax revenue then the amount
of real live spendable money increases and the currency is devalued.
That is what has been happening since 2000. And if short term
rates are kept l,ow and government borrows on the sort term
(lots of 6 month bonds) then both money and bonds continue
to lose value. Over time this _SHOULD_ attend to trade
imbalances.

The time of reckoning is put off by the current bond holders. If
they refuse to buy more bonds at low interest rates then the value
of the bonds they already own at low interest rates will
deteriorate even more than that value has currently deteriorated.
You must always remember that the only thing you can get for
a bond is money. And if the value of the money has eroded then
so too has the value of the bond.

I keep using the word "value" and it is time to address what it
means. Value is measured in ones control of labor and natural
resources. Money buys both land and resources. As these
prices rise we are actually witnessing the decline of the value
of the dollar. The apparent stock market rise is also a part
of that.

--
"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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