How the US Government Actually Creates Money (No Private Banksters Involved)

[Dylan Lawrence Moore]

Nima Mahjour and I interviewed Warren Mosler again specifically to talk about how the US Government makes money and how Congress, the US Treasury, the Federal Reserve, and "primary bond dealers" interact to make this happen.

Also, the Federal Reserve isn't a private entity. At all. In the least little bit. Warren relates his experience of owning a bank and being a member of the Federal Reserve (a requirement to own a bank). Members get 6% on their "stock", but all the rest of the Federal Reserve's profit goes straight to the US Treasury.

 

STEPS:

1. Congress tells the Treasury to spend a certain amount of money on <whatever>.

2. The US Treasury, which doesn't have the money, begins a bond auction which is only available to primary dealers. (The bonds are created out the nothing.) In order to be a primary dealer, you are required to purchase a certain amount of market share in the treasury auctions.

3. The primary dealers sometimes don't have the reserves handy to purchase their market share of the bonds, so the Federal Reserve does a buy-back agreement with the primary dealers. In this agreement, the Federal Reserve exchanges reserves with the primary dealers' bonds (the reserves are created out of nothing), with the agreement that the dealers will buy back those bonds in the near-future (like, next day).

4. The primary dealers use the reserves they got from the Federal Reserve to buy the bonds from the Treasury. 

5. The Treasury can then spend its reserves on <whatever>.

 

The steps are clunky and anachronistic (Warren explains why in the video), but the point is: in the end the Treasury ends up with the reserves created by the Federal Reserve that it needs for its deficit spending. "Primary dealers" have been created as bureaucratic middlemen because Congress has decided that the Treasury can't simply have its own overdraft account with the Fed (probably mostly due to economic illiteracy and the banking lobby which makes bazillions off of trading treasury bonds), but they don't add anything to the sum effect of the interaction.

Important point: AT NO POINT are tax dollars used for deficit spending. Federal taxes do not fund federal spending. #LearnMMT

 

 

[grithin]

With "Modern Money Mechanics", an understanding of the primary mechanisms have been available for a very long time.

[vandoren]

Quote

The bonds are created out the nothing

I think that human stupidity is endless. Bonds are credit. What does it mean "created out of nothing"? If you ask me to lend you $100, and you give me an IOU - of course you create your IOU "out of nothing". All we need is an agreement between us. And if I have the money - then no money is created at this point. The reason why budget deficit permanently increases money supply - because governmental net borrowing is always positive, not because of money creation, which does not happen at this moment.

PS Please read Marcia Stigum's "MoneyMarket" before posting even more nonsense.

[ofd]

Quote

And if I have the money - then no money is created at this point.

Read up on endogenous money before embarassing yourself.

[Dylan Lawrence Moore]

On 6/28/2018 at 4:05 AM, vandoren said:

I think that human stupidity is endless. 

....

PS Please read Marcia Stigum's "MoneyMarket" before posting even more nonsense.

Open with insults and close with recommending reading. I will make reading this source my priority before aught else.

[Jsbrads]

Government doesn’t create money.

Government creates currency.