Re: questions on Fed actrivity

On 2008-01-25, Lysander <lysander@xxxxxxxxxxx> wrote:
On Jan 25, 12:59 pm, "J.H.Boersema" <jo...@xxxxxxxxx> wrote:
"P. Maffia" <pmaf...@xxxxxxxxxxxxxx> wrote:
. Since the money supply is reduced when the U.S. Government pays down
. its /debt/, the unintended result of a government surplus could be a
. deflationary recession as the money supply contracts in the reverse
. of the process of monetization described above.
.

This is not true. The Fed attempts to sell any bonds that are about
mature. When Bonds mature, the Fed immediately uses the proceeds to
reinvest into new bonds. The decrease in the money supply is extremely
short lived. Any interest that is held that the Fed does not reinvest
goes back to the treasury. Any profits made from the Fed are paid to
the US treasury.

You know: whatever. I don't even need to know how it is set up, because
all I'd need to know is: does the Government/FED (which should be one)
go into debt, or doesn't it go into debt. If it doesn't go into debt,
then OK, let's look how it is all set up. If either the FED or the Government,
which should be one and the same, does go inte debt then: that whole
system /whatever it is/ can be thrown into the waste basket without even
wasting more time on it. Because it would by definition be a bad system.

Suppose I build a car, but it doesn't work. Would you be interested in
exactly "how it doesn't work" ? Of course not, same with the FED.

I'm reading: "... FED makes new dollars, acquires /bonds/ ... Government
pays down /bonds/ ...". I'm sorry for not feeling guilty for having
the idea that the USA Government buys bonds (I thought and read that
means "debt + interest") from the USA Central bank.

What? Buys bonds from the Fed? No they issue bonds. If a Fed held bond
matures the bond is gone when paid.

Typo, the Government sells bonds (aka corruption IMHO). At least
that's what I'm reading. This is where we are looking into "exactly
how this car doesn't run." Which really is not interesting. It
becomes interesting once the Government stops going into debt
altogether, then we're dealing with a system that has some legitimacy
and that would perhaps work.

While on the site
of the USA central bank I noticed how the idea is how to insulate that
central bank away from real democratic politics/control.

That is by design. That way the Fed can be objective as to policy

"Objective policy."

rather than doing what is politically expedient. Independent central
banks do not show the degree of inflationary bias like those control
from the legislature, ie. Italy prior to the EU currency.

Italy has a notoriously unstable Government, not only with respect to
currency. Secondly, even if they constantly mess up, eventually they
may learn. Just like the USA might one day learn that a Govermnent ought
not to go into debt, and that the value of the currency belongs under
democratic control. Mistakes can be used to learn something from.

This seems to
be a violation of the USA constitution, which says something like the
Senate "regulates the value of the currency" (IIRC).

My copy of the constitution in my copy of the Federalist papers is not
at hand at the moment so I can not verify this. Try looking at the
constitution and see what it actually says. I highly doubt this is the
constitution. At the time there was no official currency. Even in the
civil war banks were still printing currency. A quick scan of article
I showed no ocurrance of the word currency.

I did get it wrong: it was the Congress, not the Senate:
http://www.usconstitution.net/const.html

(...)
Section 8 - Powers of Congress

The Congress shall have Power To lay and collect Taxes, Duties,
Imposts and Excises, to pay the Debts and provide for the common
Defence and general Welfare of the United States; but all Duties,
Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several
States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on
the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and <--
fix the Standard of Weights and Measures; <--

To provide for the Punishment of counterfeiting the Securities and
current Coin of the United States;
(...)

http://www.law.cornell.edu/constitution/constitution.overview.html
With the Government
selling bonds to the USA central bank

The Government rarely if ever sells bonds to the Fed. T-bills are
bought and sold on markets.

That is worse. They should generate income through taxation, that is
the essential system that works: Government levies taxes, also providing
backing for the currency, and then spends this money in the common
interest. Since this makes the Government a monopoly-type "enterprise,"
it needs democratic controls over it.

This is the secondary market where owners
of bonds want to sell their bonds either because prices for the bond
have risen or because they need liquidity. The Fed buys and sells
bonds through bond brokers not directly to and from the government.

More on a "car that doesn't work, and how exactly it doesn't."
I think you have to be careful not to loose sight of the bigger
picture, when delving into all these fine details that in the
end mean little or nothing. You shouldn't forget that you're
looking at a system of money laundering and corruption, a system
that is in plain sight because people apparently don't realize
that and why it is wrong for a Govermnent to go into debt.

The Government should not sell bonds (lend from the public/banks),
the Government should simply say: I will now take a bite out of
this/that money through taxation. Don't like it ? There is the border,
cya. Try to evade it ? Here we have a prison. The people controlling
the Government, will then have the job of making sure these taxations
are fair and such. Then the Govermnent does not go into debt.

It is weird, but people don't realize apparently: when the Government
goes into debt, it has to pay the interest later (in principle, if
this money laundering scheme were to continue). Then the Government
in the end only has to pay *more*. Where does that money then later
come from ? Taxation primarily, and in some cases perhaps war and
loot from war, such as perhaps conquest of oil fields. But those
are also bad sources of income. IN the end, the People pay the price
anyway. With the Government lending system, not only do the People
pay the price for Government taking care of the common interest, the
People also foot the bill for the interest to private individuals
who could spare the money to lend it away. The People are then taxed:
a) for Government spending, when the debts are due, and b) when the
Govermnent needs taxes to pay for those debts. Governments going into
debt solve nothing, just postpone the obvious need to levy taxation.
It seems to be a mechanism that transfers wealth to the rich, who
can 1. spare the money to lend it out, 2. get interest on top, and 3.
evade being taxed and instead are allowed to borrow their money out.

It is insanity, IMHO.

Hence, I don't know what you're talking about: the USA Government seems
to be selling bonds to the FED, gets dollars back.

No the government sells bonds on the open market. Usually to banks and
individuals. For the most part, the Fed buys previously issued bonds
from banks and individuals.

The Gov writes out a debt-certificate, say 1.000.000 dollar. Then
sells it to people who ought to be taxed instead and who can spare
the money apparently. The recipient street-bank/individual of the
debt-certificate gets interest on this loan, say 10%. Then after
some time the Government has to pay 1.100.000 dollars to the debt
certificate holder. How does this help the Government in any way !
It is an absurd system.

Then you say (I believe you): the FED buys the bonds, paying the
interest. But since the Central-bank is the Government (or ought
to be), it really is the Government paying.

Hence: not only does the Government not get any income because later
it has to pay it back, it actually loses income from paying the debt.
My conclusion would be: all these Governments that go into debt: they
are all corrupt. The level of debt may be a measure as to how corrupt
exactly.

The USA Government,
apparently not willing or able to use the proper method to acquire
funds, which is taxation, is apparently losing it, and is actually
buying money on interest from people within its own borders.

The interest is not just paid to citizens. Anyone can buy a bond. The
Chinese central banks holds a boat load of US bonds. They often buy
these to appreciate the yuan to the dollar so they can export more
easily.

At least those are loans to entities whom a Government (USA) can not
legally levy taxes on, and for whom it is not taking care of the
public interest. Still, it is a sign of corruption, because the future
is going to have to pay for the financial malpractice of the present.
Instead of going into debt with the Chinese (or whomever), the
Government (USA) should accept that it does not have funds for
everything. Of course in reality there is more then enough money that
can be taxed, and this would provide more then enough funds for just
about everything, and more.

opinionated claptrap deleted. Everyone is entitled to their opinion
and that is exactly what the rest of this message is.

I think my opinions constitute a logical economics theory.
Please enter your counter arguments, then it can be discussed.

Simply: if trade is about effort, only then are prices centered on fair.
When power-positions exist, prices come to reflect that and become
unfair. Land-ownership & money-investing are not activities of effort.
Trade is needed to combat crime, to provide a structure of manufactering
and distribution that is self-cleaning, adaptable, and distributes power.
Etc etc. Your basic economics, IMHO (not that they'd teach that on
Universities, obviously; Universities are more about producing "masters"
for what I know, that fit-in/work-with the given system).
--
http://www.jhwh.be
#89 http://www.xs4all.nl/~joshb/no-id-theft.html
.

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