3 ms·
"First, I could receive payment for a Treasury, and buy some other investment with it." You could. But that is just an asset swap. The person who gets your cas
by neilwilson 7y ago
"First, I could receive payment for a Treasury, and buy some other investment with it."
You could. But that is just an asset swap. The person who gets your cash is then faced with the same choice you were - spend it (which will result in taxation) or save the money (which ends up with a bond purchase).
Always remember that money doesn't stop at the first use.
- AnimalMuppet 7y agoNo, they are faced with the same choice I was - spend it, or invest the money in a bond, or invest it somewhere else. In particular, people in aggregate can decide to invest less money in Treasury bonds. This has in fact been happening - there have been Treasury auctions that have "failed", which in practice means that dealers buy the remaining bonds. But they can't do that forever, because the dealers don't have infinite money. And even the static picture that you present isn't enough, because the government is running a deficit, and therefore needs more money to come into Treasury bonds. The same amount isn't enough. Even the same amount plus the interest earned isn't enough.