Monday, July 13, 2009

Geithner to reassure Gulf allies on dollar assets

As Warren Mosler and I have said many times, the money to buy Treasuries (and for that matter, to pay taxes) comes from government spending itself. We don't need our "Gulf Allies," or the Chinese or anyone else.

"The Treasury is not a depository institution, so a payment by the Treasury to the public (for example, a Social Security payment) raises the volume of Federal Reserve balances available to depository institutions." -From the Federal Reserve System Purposes and Functions manual.

Reserve balances are used to "pay" for Treasuries and the sale of Treasuries function solely to support a desired interest rate. It is not borrowing, per se.

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