U.S. Treasury Data Lab(datalab.usaspending.gov)
datalab.usaspending.gov
U.S. Treasury Data Lab
https://datalab.usaspending.gov/americas-finance-guide/
78 comments
> Private banks create a good chunk of the new money that goes into circulation by issuing loans.
Even this is misleading private banks do not "create" money. They add to the supply but do not create. For every loan credit there is an equal loan debit. The total amount of money, the sum of all credits and debits, is the exact same.
Even this is misleading private banks do not "create" money. They add to the supply but do not create. For every loan credit there is an equal loan debit. The total amount of money, the sum of all credits and debits, is the exact same.
As the other commenter implied, in a fractional reserve banking system (where banks lend any amount > 0, and are not just acting as vaults), banks do indeed create money [0].
Printed dollars are necessary in an amount proportional to economic activity, and the sum of printed dollars is only loosely related to the total money supply as it affects the macroeconomy (and is becoming less relevant every year).
[0] https://en.wikipedia.org/wiki/Money_multiplier
Printed dollars are necessary in an amount proportional to economic activity, and the sum of printed dollars is only loosely related to the total money supply as it affects the macroeconomy (and is becoming less relevant every year).
[0] https://en.wikipedia.org/wiki/Money_multiplier
There is no fractional reserve system or money multiplier in the modern economy though, those concepts only really apply to commodity money, not fiat money. You even say banks create money by lending, which is not how a fractional reserve system works :) A bank with zero deposits can still lend money, although they might have a problem if people want to withdraw physical currency...
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
No, the concept still applies. Your link is attempting to describe nuance, but comes across as misleading.
The multiplier is an upper bound on money creation by banks, and it does not specify a timeline. That's a fact. Obviously, not every bank loans all the way to the minimum reserve ratio (for example, currently, the reserve ratio is zero in the US, which makes for a poor denominator). Nor does every recipient of proceeds from a loan put all of that money into a lending bank. However, the money supply is still increased via lending. The increase from the issuance of a loan is immediately reflected in total deposits.
What your link is stating is that central banks respond dynamically to the total number of bank deposits, and apply other policies (such as influencing interest rates) against that number directly, which can overpower the effect of the multiplier, if the central bank chooses. However, it does not nullify it, and it very much depends on a central bank taking that action. Your link also mentions regulations which may be specific to the UK about how banks lend, but the underlying principle of money creation remains unchanged.
The multiplier is an upper bound on money creation by banks, and it does not specify a timeline. That's a fact. Obviously, not every bank loans all the way to the minimum reserve ratio (for example, currently, the reserve ratio is zero in the US, which makes for a poor denominator). Nor does every recipient of proceeds from a loan put all of that money into a lending bank. However, the money supply is still increased via lending. The increase from the issuance of a loan is immediately reflected in total deposits.
What your link is stating is that central banks respond dynamically to the total number of bank deposits, and apply other policies (such as influencing interest rates) against that number directly, which can overpower the effect of the multiplier, if the central bank chooses. However, it does not nullify it, and it very much depends on a central bank taking that action. Your link also mentions regulations which may be specific to the UK about how banks lend, but the underlying principle of money creation remains unchanged.
From your link, wouldn't: "the multiplier being the maximum amount of commercial bank money created by a given unit of central bank money" be interpreted to mean that as soon as central bank monetizes it's debt, i.e. the money is initially created, it inherently is equal to a certain amount of commercial bank money, as long as it doesn't remain unlent? So it's not really the new creation of money, but rather the realization of it's value, upon being lent by a bank?
I'm not sure if I'm interpreting you correctly, but I think the answer is no. It's best to think of it as the creation of new money, which cannot significantly be reversed. The way the Fed prints money is by buying Treasuries, which increases the money supply in two ways:
1. It allows the government to spend more money, which ends up going to a bunch of places that can't be "unspent" (government worker salaries, contractors, equipment, etc.). That money goes into various banks and ends up getting irreversibly multiplied.
2. In order to fill bids for Treasuries, the Fed front-runs other market participants with artificially low interest rates (below market), forcing other major Treasury participants (like banks) to lower their commercial interest rates in order to do something with their deposits, resulting in more borrowing.
It should also be noted that the Fed sets the Fed Funds Rate, but my understanding is that this has a less pronounced effect. And it sets the minimum fractional reserve ratio, which as of COVID, is ZERO (infinite multiplier potential, although most big banks are pretty conservative with their reserves. Although IMO they do not need to be, since the odds of a run on the bank in an approaching-cashless society is nil).
1. It allows the government to spend more money, which ends up going to a bunch of places that can't be "unspent" (government worker salaries, contractors, equipment, etc.). That money goes into various banks and ends up getting irreversibly multiplied.
2. In order to fill bids for Treasuries, the Fed front-runs other market participants with artificially low interest rates (below market), forcing other major Treasury participants (like banks) to lower their commercial interest rates in order to do something with their deposits, resulting in more borrowing.
It should also be noted that the Fed sets the Fed Funds Rate, but my understanding is that this has a less pronounced effect. And it sets the minimum fractional reserve ratio, which as of COVID, is ZERO (infinite multiplier potential, although most big banks are pretty conservative with their reserves. Although IMO they do not need to be, since the odds of a run on the bank in an approaching-cashless society is nil).
The run-proof nature of an 'approaching-cashless society', is a facet of this I'd never considered, I suppose the point is that it'd be infinitely propped-up thanks to be so detached from any real world asset. I'll have to learn more about the other points and their relationships to money creation and supply though. I'd never thought about the reversibility of money, outside of normal means of destroying it, and I'm not completely sure if I understand it well enough to agree or disagree. That said I feel like if there's a context for these creations (or maybe realizations) that reminds me of a kind of monetary inertia and that puts me on the fence still. Always so much to learn about this kind of stuff :)
Yes, but also no.
Yes, a loan creates both a credit and a debit, and they offset exactly. In that sense, nothing is created.
But the credit spends just like cash. The debit, on the other hand, does not spend like negative cash. So in the sense of the supply of money in circulation, bank loans create money.
Yes, a loan creates both a credit and a debit, and they offset exactly. In that sense, nothing is created.
But the credit spends just like cash. The debit, on the other hand, does not spend like negative cash. So in the sense of the supply of money in circulation, bank loans create money.
Wouldn’t this ‘negative cash’ be a regular financial instrument like a stock short, reverse mortgage, credit default swap, etc., which they actually can use, precisely because nothing is created by this process? It is just less liquid than hard cash, which can affect the perceived trade-able value (but that too is already factored in as expected interest).
> The total amount of money, the sum of all credits and debits, is the exact same.
Can't banks lend something like 7X more money than they have in deposits?
Can't banks lend something like 7X more money than they have in deposits?
Only as a proportion of the total amount of money deposited in the bank. That 7x means that if $100 is deposited, the bank can loan out up to $87.5 and would have to keep $12.5, which equates to loaning out x7 the amount kept as reserve. In that scenario there still was only ever $100 dollars, but depending upon how you count the money supply the bank has now 'created' an extra $87.5 and the total supply is $187.5.
In practice it's a lot fuzzier than that, but the above is the basic concept people are usually talking about. The 7x doesn't mean the government or someone else is handing them extra dollar bills, it's just the ratio of what has to be kept in reserves vs. can be loaned out, and the amount that is loaned out effectively gets counted twice in terms of the money supply (and many more times over, since that money will get deposited into a bank and loaned out again at that 7x ratio).
In practice it's a lot fuzzier than that, but the above is the basic concept people are usually talking about. The 7x doesn't mean the government or someone else is handing them extra dollar bills, it's just the ratio of what has to be kept in reserves vs. can be loaned out, and the amount that is loaned out effectively gets counted twice in terms of the money supply (and many more times over, since that money will get deposited into a bank and loaned out again at that 7x ratio).
If that 87.50 is deposited at the bank, then they can now loan out against that as well, no? Then, on a 100$ initial deposit, they have lended out over 100$.
This is where it’s important to get pedantic about the technical details of what precisely we mean by “money” and “lending”. If money only refers to cash in vaults or reserves at the Fed, then a commercial bank loan doesn’t create money. But it does create a claim on money, which is (more or less) perfectly convertible to money on demand and thus all economic agents treat it as money.
In theory a bank could create an infinite amount of money claims, at least up to the point where nobody wants any more at the interest rate offered. However, the bank is also subject to capital requirements which determine how much risk it can take relative to the amount of equity it has (this used to be called the “reserve ratio” but that is an outdated concept).
In theory a bank could create an infinite amount of money claims, at least up to the point where nobody wants any more at the interest rate offered. However, the bank is also subject to capital requirements which determine how much risk it can take relative to the amount of equity it has (this used to be called the “reserve ratio” but that is an outdated concept).
That 7x that is lent will be deposited by the people it is spent on. The bank can then lend 7x that and keep fabricating money as long as there are people to profitably lend too. The rate of currency growth is then correlated to velocity for how fast it’s turned over from debt to deposit to debt minus the counter flow of debts being retired.
Yes, but doesn't that strictly invalidate:
> The total amount of money, the sum of all credits and debits, is the exact same
?
> The total amount of money, the sum of all credits and debits, is the exact same
?
As the sibling noted, the order of borrowing and deposits does not matter. The summation will always be zero.
This gets to the heart of why there can be negative dynamics in a credit cycle. If I’ve lent 1 real dollar 100 or 1000x then there is a real risk of everyone needs that dollar back today. Similarly if creditors become risk averse and stop redepositing the money into the banking system, the velocity of money will tank and the number of dollars available to lend/spend will collapse. Growing the money supply only through fractional reserve dynamics also poses risks if a systemic imbalance emerges between creditors and debtors requiring some individuals/corps to be permanent borrowers e.x the Great Depression, and Recession.
In many ways the US is using treasuries to counterbalance the above by having the federal reserve purchase treasuries which will never be paid back in real dollars. However until the pandemic the government had limited ability to place those trillions of dollars in the hands of people who needed the surplus.
This gets to the heart of why there can be negative dynamics in a credit cycle. If I’ve lent 1 real dollar 100 or 1000x then there is a real risk of everyone needs that dollar back today. Similarly if creditors become risk averse and stop redepositing the money into the banking system, the velocity of money will tank and the number of dollars available to lend/spend will collapse. Growing the money supply only through fractional reserve dynamics also poses risks if a systemic imbalance emerges between creditors and debtors requiring some individuals/corps to be permanent borrowers e.x the Great Depression, and Recession.
In many ways the US is using treasuries to counterbalance the above by having the federal reserve purchase treasuries which will never be paid back in real dollars. However until the pandemic the government had limited ability to place those trillions of dollars in the hands of people who needed the surplus.
The sum of all credits and debits is zero (by the double-entry accounting definition), so seems like this is tautologically true, though not very useful.
The economic principle at work is you can have $1 in the bank and loan that to 7 people sequentially (who each redeposit it), or have $7 and loan it to those same people simultaneously (who each redeposit it), but in both cases the same transactions happened ($7 out and $7 in).
The economic principle at work is you can have $1 in the bank and loan that to 7 people sequentially (who each redeposit it), or have $7 and loan it to those same people simultaneously (who each redeposit it), but in both cases the same transactions happened ($7 out and $7 in).
The Bank of England disagrees with you, when a bank loans money it adds a figure to the creditors account (a liability) and adds an equivalent loan to its books (an asset). There's no transfer of funds from somewhere to somewhere else, that's a "common sense" concept that doesn't apply to fiat money, the same as "fractional reserve banking".
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
> Although some view the Fed's QE as a form of "money printing," it's not. It's an asset swap in which the Federal reserve buys a Treasury from a bank, issuing a reserve asset as a credit to the bank. Reserve assets thereby become "trapped" inside the banking system. They are not cash and can only be used under very restricted conditions (not unlike a laundry token) at least according to some sources.
According to the lede of [1], "[Federal Reserve Deposits] are interchangeable with Federal Reserve Notes", i.e. cash. But you are claiming the opposite. Do you have a source?
[1] - https://en.wikipedia.org/wiki/Federal_Reserve_Deposits
According to the lede of [1], "[Federal Reserve Deposits] are interchangeable with Federal Reserve Notes", i.e. cash. But you are claiming the opposite. Do you have a source?
[1] - https://en.wikipedia.org/wiki/Federal_Reserve_Deposits
I think they have a weird definition of creating money. Because they did say "The Federal government (through the Treasury) creates still more by issuing bonds to cover deficit spending.". So, they imagine the treasury printing the money, while the bonds are actually an IOU.
This is how I see it. Treasury makes new treasuries, and the Federal reserve buys them (through a bank, but it is a middle man only). Essentially, Federal reserve created money and loaned it to the government, holding the treasuries as IOU. This is further complicated as the Federal reserve is also mandated to give all profits to the treasury. So, essentially, the treasury did not create the money, only got a loan, but its loan payments are going to come back to itself.
I personally find it easier to dispel with the illusion of an independent fed, and just say the government (which includes both fed and treasury) prints money.
This is how I see it. Treasury makes new treasuries, and the Federal reserve buys them (through a bank, but it is a middle man only). Essentially, Federal reserve created money and loaned it to the government, holding the treasuries as IOU. This is further complicated as the Federal reserve is also mandated to give all profits to the treasury. So, essentially, the treasury did not create the money, only got a loan, but its loan payments are going to come back to itself.
I personally find it easier to dispel with the illusion of an independent fed, and just say the government (which includes both fed and treasury) prints money.
You’re missing a key detail: the Fed returns profits, but not loan principal. If the Fed keeps a T-bill until maturity and doesn’t roll it over, then the Treasury must actually pay the principal so the money is destroyed. It is only if the Fed actually cancels government debt that we could call it outright printing.
When the base money is itself an IOU, then debt issued by the privileged party is indeed printing money, albeit money with an expiration date.
When the base money is itself an IOU, then debt issued by the privileged party is indeed printing money, albeit money with an expiration date.
It is true that a bank can convert reserves to notes, but that doesn’t mean the bank will actually do so. And if it does, it is merely facilitating the withdrawal of cash for its depositors, which means that the money already exists (in the form of a demand deposit account balance).
New money is created by debt issuance. This comes from both the federal government, which supplies the monetary base, and from commercial lenders, which leverage the monetary base through loans to the “real” economy—business startup loans, mortgages, supply chain finance, revolving lines of credit, etc.
New money is created by debt issuance. This comes from both the federal government, which supplies the monetary base, and from commercial lenders, which leverage the monetary base through loans to the “real” economy—business startup loans, mortgages, supply chain finance, revolving lines of credit, etc.
A government bond (eg. a treasury) is a financial asset already, like cash but not as liquid. The swap was done to help avoid the "solvent but not liquid" scenarios, not to create new net assets (in first order effects).
> Although some view the Fed's QE as a form of "money printing," it's not.
I think you’re technically right; I would only call it outright printing if the Fed actually canceled the debt rather than rolling it over.
I think you’re technically right; I would only call it outright printing if the Fed actually canceled the debt rather than rolling it over.
Providing liquidity via loans does not mean private banks are creating money!
Would be great if we could dive in deeper, breaking it down by expense purpose, regions, etc.
I've never tried their APIs, but I believe their API would be the only way to get more granular information you are looking for:
* https://github.com/fedspendingtransparency/usaspending-api
* https://api.usaspending.gov/docs/endpoints
* For geography based spending - https://github.com/fedspendingtransparency/usaspending-api/b...
* https://github.com/fedspendingtransparency/usaspending-api
* https://api.usaspending.gov/docs/endpoints
* For geography based spending - https://github.com/fedspendingtransparency/usaspending-api/b...
Have you seen USA Facts?
https://usafacts.org/data/topics/government-finances/spendin...
Edit: looks like they’re not as up to date, unfortunately.
https://usafacts.org/data/topics/government-finances/spendin...
Edit: looks like they’re not as up to date, unfortunately.
[deleted]
When it comes to comparing the amounts of US gov spending to US household spending (not that I could propose a better mechanism, meaning I understand the value of framing things in such a way, and fully admit I can't think of a more salient way to do it) I'm just not a fan of comparing state level spending to household or personal finance.
It leads to other examples being used that just are not true. Like: "It is similar to a person using his or her credit card for a purchase (rather than cash, check, or a debit card) and not paying the full credit card balance each month".
I cannot sell access to my debt to pay for past debts, which is how the government has paid it's debts since 1837 (probably so long ago because that the last time we sought to destroy debt and not pay for things by monetizing debt, it caused the longest depression in American history due to Jackson's monetary policy in 1835). Nor can I create credit out of thin air, by buying treasuries my member banks. Also, I most definitely do not owe 50% of my non-intergovernmental debt to my own central bank and state and local governments and their pensions. Much less, all the while operating with a currency I control.
So yeah, I don't love it, but I get it.
It leads to other examples being used that just are not true. Like: "It is similar to a person using his or her credit card for a purchase (rather than cash, check, or a debit card) and not paying the full credit card balance each month".
I cannot sell access to my debt to pay for past debts, which is how the government has paid it's debts since 1837 (probably so long ago because that the last time we sought to destroy debt and not pay for things by monetizing debt, it caused the longest depression in American history due to Jackson's monetary policy in 1835). Nor can I create credit out of thin air, by buying treasuries my member banks. Also, I most definitely do not owe 50% of my non-intergovernmental debt to my own central bank and state and local governments and their pensions. Much less, all the while operating with a currency I control.
So yeah, I don't love it, but I get it.
The problem with unconstrained government deficit finance is not inflation, it is cronyism and corruption. When 638 individuals decide how $3 trillion gets spent, almost any amount of lobbying expense will yield a positive NPV.
> When 638 individuals decide how $3 trillion gets spent
Just a small correction. Federal Government spending was $4.4 trillion in 2019. It was $6.6t for 2020 [2], with $4.6t of that being mandatory spending; tax revenue was $3.4t for 2020 by comparison. We wish outlays were only $3t, we'd have a nice budget surplus right now.
[1] https://www.cbo.gov/publication/56324
[2] https://www.cbo.gov/publication/57170
Just a small correction. Federal Government spending was $4.4 trillion in 2019. It was $6.6t for 2020 [2], with $4.6t of that being mandatory spending; tax revenue was $3.4t for 2020 by comparison. We wish outlays were only $3t, we'd have a nice budget surplus right now.
[1] https://www.cbo.gov/publication/56324
[2] https://www.cbo.gov/publication/57170
The analogies are good to help people see that government debt is bad. When a person is in over their head, they can possibly file for bankruptcy. When a government gets in over their head bad things happen too, up to and including wars. Comparing government debt to personal debt is just a way to make it more comprehensible how bad the situation is.
These are the exact sentiments I believe personal/household finance analogies evoke, and basically why I oppose their use. It evokes comparisons to some kind of possibility of something happening analogous to bankruptcy when in fact:
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan
So yeah, it's just my opinion but to me the mechanics and context of the US's federal debt is so departed from that of household finance, that it's more detrimental than beneficial to even use them in the first place. But again, I understand the desire to anchor it to something people recognize.
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan
So yeah, it's just my opinion but to me the mechanics and context of the US's federal debt is so departed from that of household finance, that it's more detrimental than beneficial to even use them in the first place. But again, I understand the desire to anchor it to something people recognize.
Not to mention unless you print money everyone can't save money at the same time - so the "saving is good / debt is bad" intuition from the household analogy can't hold up mathematically.
In reality, savings and debt are basically two sides of the same coin - one is a promise for future consumption, and the other is a promise to forgo future consumption that balances it out.
One of my favorite simple models is sectoral balances - you can divide US dollar holders into domestic and foreign categories, and then divide up the domestic category into the private sector and the government (leaving 3 categories total).
If you don't print money, the net saving should all add up to zero. If the government is running a surplus, that means the combination of the private and foreign sector is going into debt. If there's a trade deficit, then the combo of the private sector and government are going into debt. Etc.
People can still be against government deficits with such a model, but it's not because everyone should save up at the same time (they literally can't). It's because they want the private sector to go into more debt, and are worried about government debt "crowding out" private sector debt. And more private sector debt isn't always a bad thing - in practice it might mean more housing, factories, and other sorts of investments that debt finances.
In reality, savings and debt are basically two sides of the same coin - one is a promise for future consumption, and the other is a promise to forgo future consumption that balances it out.
One of my favorite simple models is sectoral balances - you can divide US dollar holders into domestic and foreign categories, and then divide up the domestic category into the private sector and the government (leaving 3 categories total).
If you don't print money, the net saving should all add up to zero. If the government is running a surplus, that means the combination of the private and foreign sector is going into debt. If there's a trade deficit, then the combo of the private sector and government are going into debt. Etc.
People can still be against government deficits with such a model, but it's not because everyone should save up at the same time (they literally can't). It's because they want the private sector to go into more debt, and are worried about government debt "crowding out" private sector debt. And more private sector debt isn't always a bad thing - in practice it might mean more housing, factories, and other sorts of investments that debt finances.
^This is correct, demonstrably.
Unlike at the micro level, at the macro level your spending is my income.
That alone changes (almost every) received microeconomic intuition.
Unlike at the micro level, at the macro level your spending is my income.
That alone changes (almost every) received microeconomic intuition.
This is the exact framing that's worked to get things across to friends that have gotten confused by some fear mongering propaganda using the personal finance metaphor. It naturally leads into explaining how potential deflation needs to be address in a way very from being thrifty personally.
> "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan
While this is partially true:
1. Sovereign nations absolutely can and do default. See, Russia in the 1990s and the LTCM fiasco.
2. Even though they do not have to default and can always print money to pay their debts, doing so causes inflation. How much inflation it causes is proportional to how much money is printed.
Now, the dynamics of inflation are pretty complicated, so in certain circumstances you can get away with it for a while. But it is not the case that the government can print money indefinitely with zero consequences.
While this is partially true:
1. Sovereign nations absolutely can and do default. See, Russia in the 1990s and the LTCM fiasco.
2. Even though they do not have to default and can always print money to pay their debts, doing so causes inflation. How much inflation it causes is proportional to how much money is printed.
Now, the dynamics of inflation are pretty complicated, so in certain circumstances you can get away with it for a while. But it is not the case that the government can print money indefinitely with zero consequences.
Sovereign nations can default if the debt is nominated in a different currency (which was the case of Russia, but is not the case for US)
No, they can default even when it is denominated in their own currency, which is what Russia did.
https://en.wikipedia.org/wiki/1998_Russian_financial_crisis
Most countries just choose not to do this. They weren't forced to default. They could have chosen to monetize their debt. They just didn't choose to do that.
https://en.wikipedia.org/wiki/1998_Russian_financial_crisis
Most countries just choose not to do this. They weren't forced to default. They could have chosen to monetize their debt. They just didn't choose to do that.
A sovereign could choose to default even if they somehow had a net surplus. Because, you know, sovereign literally means you can do whatever you want up to some more powerful foreign sovereign invading, because you have a local monopoly on violence.
Point 2 is extremely debatable, especially if you're a reserve currency. The balance of payments also matters.
It's really not debatable at all. What is debatable is how much printing it takes. It is not debatable that there exists an amount of printing that will cause inflation.
It very much depends where the money ends up and what it's doing. See the past 13 years in the US and western world generally.
And the line between “acceptable consequences” and “catastrophic consequences” is basically unknowable, so it’s not a bad idea to err on the side of caution.
> so it’s not a bad idea to err on the side of caution
Over time it's gotten harder for me to figure out what the side of caution even is. If they are too aggressive in stimulating the economy, they risk inflation. If they are not aggressive enough they risk a persistently weak economy, escalating political dysfunction, and (if history is a guide) eventual collapse of the status quo and usually even-more-inflationary policies.
It doesn't seem like there is a safe path anywhere - errors on either side seem like they could be potentially catastrophic.
Over time it's gotten harder for me to figure out what the side of caution even is. If they are too aggressive in stimulating the economy, they risk inflation. If they are not aggressive enough they risk a persistently weak economy, escalating political dysfunction, and (if history is a guide) eventual collapse of the status quo and usually even-more-inflationary policies.
It doesn't seem like there is a safe path anywhere - errors on either side seem like they could be potentially catastrophic.
This assumes that the us has an unlimited ability to monetize its debt. If this is not true than there could be a hard landing for federal borrowing. This was briefly tested in the 1970s when the carter administration issued debt in foreign currency.
The fed could find itself in the position of fighting a structural imbalance such that for every dollar lent to the government the deficit increases by 1.X dollars. This would be the case under rampant corruption, rampant inflation, or an economy collapsing.
The fed could find itself in the position of fighting a structural imbalance such that for every dollar lent to the government the deficit increases by 1.X dollars. This would be the case under rampant corruption, rampant inflation, or an economy collapsing.
More history on the Carter administration's actions if anyone's curious. I'd never heard of this before:
https://en.wikipedia.org/wiki/Carter_bonds https://www.treasury.gov/resource-center/international/ESF/P...
https://en.wikipedia.org/wiki/Carter_bonds https://www.treasury.gov/resource-center/international/ESF/P...
>> "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan
That has negative consequences that are papered over by making simplistic statements like that. The debt is still bad and going to result in bad things happening, and no platitudes from the Fed are going to change that.
That has negative consequences that are papered over by making simplistic statements like that. The debt is still bad and going to result in bad things happening, and no platitudes from the Fed are going to change that.
I mean no platitude necessary, by your logic if debt is bad then no debt is good. But last time that was the case it caused the longest depression in American history. How does that add up?
> When a government gets in over their head bad things happen too, up to and including wars.
Do they? I havent looked in a while but my recollection (of south america in particular) is that the impact of government bond default is actually pretty low. A couple years without good international bond market access, higher premiums for a few years, maybe some wrangling with the IMF and surface level "restructuring." But sooner rather than later its back to issuance on the open market with willing buyers after those premiums.
Do they? I havent looked in a while but my recollection (of south america in particular) is that the impact of government bond default is actually pretty low. A couple years without good international bond market access, higher premiums for a few years, maybe some wrangling with the IMF and surface level "restructuring." But sooner rather than later its back to issuance on the open market with willing buyers after those premiums.
I suspect some Argentinians and Venezuelans would disagree with you about the degree of consequence.
Argentina: decades of inflation and economic stagnation.
Venezuela: societal collapse.
With game theory, you can see how a certain amount of debt, especially when borrowed from foreign lenders, can be the optimal choice for long term relative national growth. That's pretty much what the US did for most of its history up to ~2001. But unsustainable, growing debt, certainly has consequences.
Argentina: decades of inflation and economic stagnation.
Venezuela: societal collapse.
With game theory, you can see how a certain amount of debt, especially when borrowed from foreign lenders, can be the optimal choice for long term relative national growth. That's pretty much what the US did for most of its history up to ~2001. But unsustainable, growing debt, certainly has consequences.
So the original comment was that When a person is in over their head, they can possibly file for bankruptcy. When a government gets in over their head bad things happen too, up to and including wars.
For a government default is *very* similar to the US personal & commercial bankruptcy process. Its generally structured, governed by contracts, creditors take a negotiated "haircut", payments are deferred or restructured, etc.
In light of this yes, Argentina is a great example of teh real effects. This quick hit from WSJ[1] highlights argentina issuing a new 100-year bond in 2017, with massive subsciption, 3 years after a default and 3 years before the next.
Looking at the articles infographic[2] the timeline actually includes two different defaults, 2001 & 2014. There are 4 lean years of little to no issuance in 02-05, and a tiny hit in the number of issuance in 14-15. My recollection is that larger studies across time and geography actually show minimal impact to yields ~7 years after default.
So yes, governments absolutely have access to mechanisms similar to bankruptcy. And no, default is absolutely not catastrophic to future funding, debt management, or spending. And yes again, the people of places like argentina & venezuela have suffered greatly for generations but that seems to be a different proposition than "governments cant manage huge and/or unsustainable debts without drastic outcomes."
[1] https://www.wsj.com/articles/argentina-sells-2-75-billion-of... [2] https://si.wsj.net/public/resources/images/BF-AR635_ARGENT_1...
For a government default is *very* similar to the US personal & commercial bankruptcy process. Its generally structured, governed by contracts, creditors take a negotiated "haircut", payments are deferred or restructured, etc.
In light of this yes, Argentina is a great example of teh real effects. This quick hit from WSJ[1] highlights argentina issuing a new 100-year bond in 2017, with massive subsciption, 3 years after a default and 3 years before the next.
Looking at the articles infographic[2] the timeline actually includes two different defaults, 2001 & 2014. There are 4 lean years of little to no issuance in 02-05, and a tiny hit in the number of issuance in 14-15. My recollection is that larger studies across time and geography actually show minimal impact to yields ~7 years after default.
So yes, governments absolutely have access to mechanisms similar to bankruptcy. And no, default is absolutely not catastrophic to future funding, debt management, or spending. And yes again, the people of places like argentina & venezuela have suffered greatly for generations but that seems to be a different proposition than "governments cant manage huge and/or unsustainable debts without drastic outcomes."
[1] https://www.wsj.com/articles/argentina-sells-2-75-billion-of... [2] https://si.wsj.net/public/resources/images/BF-AR635_ARGENT_1...
Government debt is not bad. Government debt is a net private surplus.
Government debt does not exist in a vacuum: it comes into existence because the government spent more money than it took in. What did it spend that money on? Ask the lobbyists.
> Government debt does not exist in a vacuum: it comes into existence because the government spent more money than it took in.
No, it exists because government issued commitments to pay people money in the future. A government that creates its own currency has no need to do this to spend more than it takes in in revenue, and even a government that doesn't create its own currency is free to issue such commitments without a deficit.
No, it exists because government issued commitments to pay people money in the future. A government that creates its own currency has no need to do this to spend more than it takes in in revenue, and even a government that doesn't create its own currency is free to issue such commitments without a deficit.
This makes no sense. The government doesn’t issue debt and then just sit on the cash. The debt ceiling is constantly being raised here in the US because every cent is spent.
The two events (1) Congress deciding to spend money (in excess of receipts), and (2) the Treasury issuing debt, are directly causally related. If event (1) doesn’t happen, then event (2) won’t happen. In theory it could, but in reality it does not, period.
The two events (1) Congress deciding to spend money (in excess of receipts), and (2) the Treasury issuing debt, are directly causally related. If event (1) doesn’t happen, then event (2) won’t happen. In theory it could, but in reality it does not, period.
The US Congress chooses to behave (approximately) as if it had a commodity rather than self-issued fiat currency, but this is a choice, not some kind of necessity.
Exactly. Just because we have a debt-guided mechanism does not make the currency not fiat. Those self-constraints can be changed or removed at any time.
I saw this on the page:
>Why can’t the government just print more money?
and thought “because the treasury is not the central bank” LOL
>Why can’t the government just print more money?
and thought “because the treasury is not the central bank” LOL
Thanks for sharing this! I spent almost an hour going thru the site. I saw all the Debt and Treasury data but didnt see anything on the Fed Balance sheet. Does anyone have good data on what the Fed owns on their balance sheet (e.g., from QE[n] and POMO)?
You can find info about it here - https://www.federalreserve.gov/monetarypolicy/bst_fedsbalanc...
This is their balance sheet released on 9th Sep, 2021 - https://www.federalreserve.gov/releases/h41/current/h41.htm
This is their balance sheet released on 9th Sep, 2021 - https://www.federalreserve.gov/releases/h41/current/h41.htm
Please don’t tell me they spent millions in govt contract money so some recent college grad can practice Plotly/Bokeh.
> Your Guide to America's Finances is a re-invention of the Citizen’s Guide to the Financial Report of the U.S. Government. This site was created in response to the public’s desire to learn more about the financial picture of the United States. Where does the money come from? Where does it go? What are the trends over time, and how does the U.S. compare to other countries? This guide was created to make federal financial information open and accessible to all - reflecting the very principles that our founding fathers set forth when the United States was formed.
The underlying data has been available. This is just a cosmetic wrapper. And I guarantee you they spent well in excess of $10M to create this website.
I know a US Treasury employee that has an active felony arrest warrant in their name in a US State. They told me they only have to tell their boss if they’re arrested, not before. This person continues to wield power over mere mortals like us. The government is a joke.
It should be required on a site like this to show how much it cost to make and maintain it.
Interesting findings:
1. "Amazon Restaurant & Bar Inc" received 1.3M in FY2021 while apparently empolying only 8 people and taking a revenue of 96k (https://www.manta.com/c/mhx084z/amazon-restaurant-bar-inc).
2. Google received 11k in the last 12 months, less than a Florida man named Christian Google.
3. Palantir Technologies Inc. 231.3M, versus Microsoft Corporation 357.5M in the last 12 months.
1. "Amazon Restaurant & Bar Inc" received 1.3M in FY2021 while apparently empolying only 8 people and taking a revenue of 96k (https://www.manta.com/c/mhx084z/amazon-restaurant-bar-inc).
2. Google received 11k in the last 12 months, less than a Florida man named Christian Google.
3. Palantir Technologies Inc. 231.3M, versus Microsoft Corporation 357.5M in the last 12 months.
TL;DR:
>In 2020, the federal government collected $3.42 trillion in revenue.
>In 2020, the federal government spent $6.55 trillion.
One wonders why they bother with the effort of collecting taxes.
They should just borrow the entire budget and let everyone get on with their lives.
They'd save money in the long run: no more IRS budget.
>In 2020, the federal government collected $3.42 trillion in revenue.
>In 2020, the federal government spent $6.55 trillion.
One wonders why they bother with the effort of collecting taxes.
They should just borrow the entire budget and let everyone get on with their lives.
They'd save money in the long run: no more IRS budget.
Taxes are necessary to curb inflation.
shameless plug: https://us.wikibudgets.org/w/united-states-budget-2016
Bonus question: can you find the judicial branch and the legislative branch?
Bonus question: can you find the judicial branch and the legislative branch?
I can't help but think this is confusing as heck to most Americans.
I'm not sure all of the quoted statements are true. Private banks create a good chunk of the new money that goes into circulation by issuing loans. The Federal government (through the Treasury) creates still more by issuing bonds to cover deficit spending.
The Fed can influence the rate of money creation by setting short term rates. But the Fed can't force banks to loan money, so its power is limited. Especially so with short term rates pegged at zero for most of the last 13 years or so.
Although some view the Fed's QE as a form of "money printing," it's not. It's an asset swap in which the Federal reserve buys a Treasury from a bank, issuing a reserve asset as a credit to the bank. Reserve assets thereby become "trapped" inside the banking system. They are not cash and can only be used under very restricted conditions (not unlike a laundry token) at least according to some sources.