An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Tuesday, April 17, 2018
Trump's currency tantrum dooms the dollar
I would say the opposite... we need to keep an eye on this...
BLOOMBERG: “The U.S. relies on foreign investors to buy its debt to finance the growing budget deficit.”
Wrong. The US government does not borrow one penny of its spending money from anyone, foreign or domestic. Instead, the US government finances itself by creating its spending money out of thin air, simply by crediting bank accounts.
Each fiscal year the US government creates about $4 trillion out of thin air (and taxes back about 95% of that). $4 trillion in hundred-dollar-bills would weigh 44,000 TONS. The US government does not ship in 44,000 TONS of money every year. Money is not physical. Money is strictly a mental entity, like points on a scoreboard.
Meanwhile the so-called “national debt” is simply money that investors have deposited in Fed savings accounts by purchasing Treasury securities. The process is exactly like buying a CD at a regular bank. You leave your money in a bank for an agreed-to period of time for an agreed-to rate of interest. When your CD (or your Treasury security) matures, you get your money back, plus interest. None of this has anything to do with the US government’s ability to continue creating infinite spending dollars out of thin air.
BLOOMBERG: “If investors believe that the dollar will weaken, they may be less inclined to buy U.S. debt because their holdings would be worth less over time.”
In that case the Fed compensates by increasing the interest it pays on Fed savings deposits (i.e. on the “national debt”). This indeed is what is happening. No crisis here.
BLOOMBERG: “The U.S. relies on foreign investors to buy its debt to finance the growing budget deficit.”
ReplyDeleteWrong. The US government does not borrow one penny of its spending money from anyone, foreign or domestic. Instead, the US government finances itself by creating its spending money out of thin air, simply by crediting bank accounts.
Each fiscal year the US government creates about $4 trillion out of thin air (and taxes back about 95% of that). $4 trillion in hundred-dollar-bills would weigh 44,000 TONS. The US government does not ship in 44,000 TONS of money every year. Money is not physical. Money is strictly a mental entity, like points on a scoreboard.
Meanwhile the so-called “national debt” is simply money that investors have deposited in Fed savings accounts by purchasing Treasury securities. The process is exactly like buying a CD at a regular bank. You leave your money in a bank for an agreed-to period of time for an agreed-to rate of interest. When your CD (or your Treasury security) matures, you get your money back, plus interest. None of this has anything to do with the US government’s ability to continue creating infinite spending dollars out of thin air.
BLOOMBERG: “If investors believe that the dollar will weaken, they may be less inclined to buy U.S. debt because their holdings would be worth less over time.”
In that case the Fed compensates by increasing the interest it pays on Fed savings deposits (i.e. on the “national debt”). This indeed is what is happening. No crisis here.