Here’s a fact. We the people, through our agent the US government, have an enforced monopoly on the creation of US dollars.
Every US dollar in circulation, every electronic US dollar in every bank account anywhere in the world, ties back to an account at the Federal Reserve (sometimes through a series of intermediary banks). Former Federal Reserve Chairman Ben Bernanke said, “The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed”. All US dollar accounts trace back to a Federal Reserve account like that. Bernanke went on to say this process is “effectively” printing money.
Every US dollar in your pocket, your mattress, your bank account, was created by we the people, through our agent, the US government. Every dollar got from government hands into the private sector by we the people spending it on something – paying out social security, paying for new fighter planes, paying medicare bills, paying for roads and bridges. That’s the only way US dollars get into private hands, your hands and my hands, Walmart’s and Amazon’s hands. The US government creates dollars, and buys stuff with them; pays those dollars to someone for goods or service. That person then has money in their hands and can spend in on stuff they need and want.
The capacity of our economic system to produce goods and services sets a limit on the number of dollars we can allow to exist.
Former Federal Reserve Chairman Alan Greenspan said, under oath, testifying before Congress, “There’s nothing to prevent the federal government from creating as much money as it wants and paying it to someone”. He goes on to explain that while “the cash itself is nice to have”, the “question is how do you set up a system which assures” our economy produces enough goods and services for the money to buy. The capacity of our economic system to produce goods and services sets a limit on the number of dollars we can allow to exist.
There’s nothing to prevent the federal government from creating as much money as it wants and buying stuff with it. The federal government doesn’t create money to go and buy things, it borrows the money. It borrows by selling US Treasury Bills, Notes, and Bonds.
What’s the functional difference between a Benjamin Franklin $100 bill and a $100 US Treasury Note? Functionally, the only difference is the Ben Franklin is worth $100 dollars today, tomorrow, and 10 years from now, while the Treasure Note is worth $100 dollars, plus interest. Suppose that interest is 10% over 10 years, so the US Treasury Note is worth $110 dollars ten years from now.
When the government sells Treasury Notes, it’s overspending for the cash. It’s paying for something it can create at no cost.
We’re told selling US Treasury Bills, Notes, and Bonds servers three purposes. First, to get cash so the government can buy stuff. Second, to provide a safe place to park money you don’t need right now and won’t need for some time. Third, to reduce the amount of cash in the economy, and avoid inflation. Lets take a closer look at these three reasons.
Getting Cash To Buy Stuff
“There’s nothing to prevent the federal government from creating as much money as it wants”, and buying stuff with it, according to Alan Greenspan. We the people, through our agent the government, don’t need to borrow money to spend, we can just created it, by typing numbers into a computer. This is the cheapest way the we the people can get money to buy stuff.
When the government sells Treasury Notes, it’s overspending for the cash. It’s paying for money it can create at no cost.
US Treasuries are subsidies to foreign governments, institutional investors, and wealthy individuals with enough money they don’t need to spend a bunch of it, they don’t need it liquid, the can afford to let it sit around for 2, 5, 10, or 30 years. US Treasuries are government handouts to the 1%.
US Treasuries are government handouts to the 1%.
There’s no good reason for doing this that serves the 99%. It serves the 1% at the expense of everyone else. We’re all paying interest on the debt, and the 1% are collecting it.
A Safe Place to Park Your Money
A safe place to park your money is a service. Why are we the people paying for the privilege of providing a service to the 1%? We the people should instruct our government to charge a fee for providing a safe place to park money. We don’t need the money. We can “create as much money” as we want.
Why are we the people paying for the privilege of providing a service to the 1%?
Perhaps it could be free to park up to a certain amount of money. Maybe the maximum amount of money you can park for free could be the median income across the population. After that, if you want a safe place to park your money, you can pay for it. That’s the way capitalism is supposed to work – when you use a service, you’re supposed to pay for it. You pay at the pump when you buy gas. When you used healthcare, you pay in premiums every month and in deductibles and co-pays at point of service (private insurance) or in taxes (medicare for all). The 1% can pay to park their money.
Taking Money Out of the Economy
If there’s too much money in the economy, it will cause inflation. Too much money chasing too few goods and services. This has a big impact on the wealthy, and a much smaller impact on everyone else. If you have a hundred billion dollars, a 2% increase in inflation costs you $2 billion dollars of value. If you only have a hundred dollars, a 2% increase in inflation costs you just $2 dollars.
The 1% accumulating large sums of money is the cause of the problem. From 1989 to 2018 the 1% increased their total net worth by $21 Trillion, while the bottom 50% saw their net worth drop by over $900 billion. The 1% are causing the problem of too much money in the economy, and they benefit the most from low inflation. They should cover the cost of the solution.
Treasuries don’t take money out of the economy.
Taxes do.
They can pay in higher taxes. Treasuries don’t take money out of the economy. They add money to the economy. A $100 dollar Treasury Note with a 10% yield over ten years pays out $110 dollars. It adds $10 dollars to the economy. Treasuries freeze the money for 2, 5, 10, or 30 years, and then it comes back into the economy, plus interest. The interest paid is created by typing numbers into a computer.
If the goal is to take money out of the economy to ward off inflation, selling Treasuries doesn’t do that. Treasuries don’t take money out of the economy. Taxes do.
Instead of paying the 1% for the privilege of solving the problem they create, and that affects the wealthy vastly more than anyone else, we should insist they bear the cost of the solution.
Managing the Number of Dollars in the Economy
In the USA, just 3 men are have more money and wealth than the bottom 50% of households, and 400 hundred individuals are have more than the bottom 64% of households. Just 8 men across the world have as much money and wealth as the bottom 50% of the global population. The risk of inflation doesn’t come from government spending. The stacks of cash accumulated by the 1% are the risk of inflation. Their wealth threatens the economic security of all.
Taxes are for managing the number of dollars in the economy. Not for raising money so the government can buy stuff. The economy can only produce so many goods and services at a given time. The government can produce as much money as it wants at any given time by typing numbers into a computer. These are just facts about how our system works. We need a mechanism to regulate the number of dollars in the economy relative to the capacity to produce goods and services.
Their wealth threatens the economic security of all.
We have a mechanism for adding dollars to the economy. The government buying stuff – healthcare and education, roads and bridges, fire departments and public safety – pumps dollars into the economy. The method we’re supposedly using for taking dollars out of the economy – Treasury Bills, Notes, and Bonds – doesn’t take money out of the economy, it adds money to the economy. It doesn’t serve the purpose. It’s a handout to the global 1%, making the problem worse.
Taxes permanently remove dollars from the economy. The government doesn’t keep tax dollars, it destroys them. Shreds them if they’re ink and paper, deletes them from the computer if they’re electronic. Short of the wealthy voluntarily shredding their dollars, there is no other way to remove dollars from the economy. The 1% aren’t going to voluntarily shred their dollars, no matter how much they threaten their own and everyone else’s economic security. Don’t sell them Treasuries. Tax them.