Monday, April 2, 2012
A dollar bill is just a Treasury bond without duration
A dollar bill is just a Treasury bond without duration and without an interest payment. In other words, they're pretty much the same.
To get rid of the "debt," the Fed just exchanges dollar bills for Treasury bonds. The public has dollar deposits and the bonds get taken away. No more debt. Oh...that's what is has been doing when it conducts QE?
Yes, exactly. That's it.
Only difference is, the government keeps counting the bonds that it took back (and which it posseses) as a debt. But a debt to whom? A debt to itself? Totally nonsensical.
And we are getting rid of Social Security, Medicare, Medicaid, raising taxes, cutting education funding, science, basic research, infrastructure investment...all because of that!
Absolutely insane!
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2 comments:
Glad you said it. It is totally non sensical to,call,debt in possession of the fed, ie, the government, outstanding.
I agree with Mike 99%. Those disagreeing are likely to produce nothing more than moron arguments, but there ARE a couple of not totally stupid counter arguments. So it‘s as well to be aware of them.
First, QE does have a finite stimulatory effect, so the effect of a really large scale QE operation could be inflationary. But the government / central bank machine can in principle easily counteract that by raising taxes and “unprinting” the money collected. The tax increase WOULD NOT reduce living standards: it would merely keep AD at the highest level that is consistent with acceptable inflation. And people would be BETTER OFF that way than with rampant inflation.
Second, reducing the total stock of dollar denominated bonds would induce some investors to invest elsewhere in the world (an effect that QE has already had). The U.S. dollar would fall a bit relative to other currencies, which would mean a standard of living hit for U.S. citizens. However, the extent of this hit would be small, plus it could be reduced even further if all indebted countries QE’d at the same time: that would cause investors to soil their underwear. I examined these two counter-arguments in a bit more detail here:
http://mpra.ub.uni-muenchen.de/34295/1/MPRA_paper_34295.pdf
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