Zero Hedge — The Fed Sent $76BN To Treasury In 2022; It Is Now Sending $650 Million To Banks Every Day Instead

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Mike Norman
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More handwringing over "losses." Well, one party's loss is another party's gain.

They still don't get that QE involves fiscal withdrawals comparable to taxes by transferring interest payments to government while the raising rate involves a fiscal injection comparable to deficit spending by increasing interest payments to nongovernment. That is, the former decreases aggregate net financial assets of non-government (reduces nongovernment net savings in aggregate) while the latter increases aggregate net financial assets of non-government (increases nongovernment net savings in aggregate). QT acts like raising rates in that when the Fed sells bonds or lets them mature, then interest payments to nongovernment increase as a consequence, hence aggregate net financial assets of nongovernment also increase. 

MMT 101. To understand the basics of reserve accounting and bank accounting, see MMT economist Eric Tymoigne's primer on money and banking here.  

See in this light, "losses" to government accounts are simply transfers (monetary flows) from government to nongovernment (through congressional appropriations and corresponding "spending") or "gains" to government accounts are transfers (monetary flows) from nongovernment to government. These flows alternatively increase or decrease the stock of nongovernment net savings in aggregate).

Note that "saving" denotes flow that increases a stock and "savings" denotes a stock. So a credit from government to nongovernment, while it appears to be a "loss" for government, if just a transfer in that government issues the currency, typically through the central bank simply by crediting nongovernment accounts. The act of crediting those accounts is currency issuance as a sole prerogative of a sovereign government. The notion that a government that is sovereign in its currency needs to get the currency it is constitutionally empowered to issue is a nonsense. 

Note also that not all governments are sovereign in their currency. To be sovereign in its currency, the government must be the monopoly issuer of a floating rate currency and also must not create obligations in currency it doesn't issue. US states and municipalities are not sovereign monetarily; only the federal government is. Members of the EZ ceded currency sovereignty to the ECB in the Maastricht Treaty and are subject to the rules of the treaty. Government that use other government's currency (Ecuador uses the USD) or fix the exchange rate (for example, by pegging to another currency) are not monetarily sovereign either. 

Incidentally, Russia is monetarily sovereign so it doesn't need to get rubles by exporting its resources. It funds itself. Moreover, it doesn't need foreign currency since it is mostly self-sufficient, being resource rich and having developed its own technology-based industry. Thus, the idea on which NATO strategy is based, namely, that sanctions or price caps are going to prevent Russia from prosecuting its military campaign, are simply wrongheaded. It won't of itself, although Russia could make mistakes. For instance, the fly in the ointment could be Elvira Nabiullina, head of the Central Bank of Russia, who is a neoliberal. On the other hand, she did wisely float the currency in 2015 when sanctions were first imposed.

Finally, this doesn't mean that governments have no constraints. The real constraint is availability for real resources including natural resources and capital resources, that is, industry and technology as well as institutions to support them, e.g, education and training, legal institutions, etc. The financial constraints are inflation and the variable exchange rate for governments that float their currency.