by Summary:
Unveiling the Hidden Power of Government Debt
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Steve Keen considers the following as important:
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Unveiling the Hidden Power of Government Debt
Topics:
Steve Keen considers the following as important:
This could be interesting, too:
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| Unveiling the Hidden Power of Government Debt |
What do you think about this? Responding to the best comments.
They didn't borrow!
No. The government doesn't "borrow" private sector money by "floating bonds", it creates private sector money by spending more into the economy than it taxes back out. Like the scorekeeper in a game of cards, the Fed as the US treasury's bank credits the accounts of the banks at the Fed, and the banks then credit the accounts of the individual recipients of government checks. It then offers bonds in order to convert that spending power into interest-bearing bonds, which act like time deposits, in order to support the target interest rate. Since interest rates are the pricing of financial risk, the safe zero-risk government bond interest rate sets the floor. If a particular corporate bond sets a 3% risk premium, then that 3% has to jump from 4% to 6% when the Fed's interest rate policy makes safe government bonds rise from 1% to 3%. The issuance of government bonds once upon a time was the tool the government used to defend the gold peg when the dollar was on the gold standard. Now it's a tool to drain liquidity, defend the Fed's target overnight rate and defend the value of the US dollar, which is one factor that keeps import prices down for US consumers, thus supporting the Wal-Mart economy.
The money to buy those bonds came from deficit spending. The government only spends brand new money that it creates.
So much stammering…didn't help my understanding.