4 ms·

Governments can't just print money (at least not those with central bank independence, like the EU, US, etc.). However they can raise taxes. Central banks can p

by jcfrei 7y ago

Governments can't just print money (at least not those with central bank independence, like the EU, US, etc.). However they can raise taxes. Central banks can print money but their mandate is to use their tools for the benefit of the whole economy and not just the government. If the US government took over the Fed (to make an example) that would harm investor confidence in Treasuries and cause them to pay much higher interest rates on newly issued debt.

DickingAround 7y ago
Agreed with you, but also worth noting the US gov would likely take over the fed in a time of crisis. If interest rates hit 10%, the fed was refusing to buy bonds because of inflation risk, and the US gov's choices were between 'default on debts' and 'take over the fed and make them do it' there would be some emergency clause pulled out by whitehouse lawyers and they would do it. My evidence for this is the extreme measures other governments have done in the past when faced with debt crises; they do print more, they seize private assets, the run price controls, etc. They'll do anything to survive and taking over a private monopoly over money printing (even if that loses the trust of the bond market and greatly reduces their ability to issue debt in the future) is well within things the US government seems willing to do.
- jcfrei 7y ago
  If you look at the history the preferred way for the US government (and others) to raise lots of money in times of crisis was through "war bonds" (named "Liberty Bonds" in the US during WWI). Back then the government financed itself by encouraging people to safe more and invest that money into such bonds. Your scenario has definitely played out in other countries - for example by forcing banks to invest the money in saving accounts into government bonds.

4 ms·

Governments can't just print money (at least not those with central bank independence, like the EU, US, etc.). However they can raise taxes. Central banks can p

by jcfrei 7y ago

DickingAround 7y ago
Agreed with you, but also worth noting the US gov would likely take over the fed in a time of crisis. If interest rates hit 10%, the fed was refusing to buy bonds because of inflation risk, and the US gov's choices were between 'default on debts' and 'take over the fed and make them do it' there would be some emergency clause pulled out by whitehouse lawyers and they would do it. My evidence for this is the extreme measures other governments have done in the past when faced with debt crises; they do print more, they seize private assets, the run price controls, etc. They'll do anything to survive and taking over a private monopoly over money printing (even if that loses the trust of the bond market and greatly reduces their ability to issue debt in the future) is well within things the US government seems willing to do.
- jcfrei 7y ago
  If you look at the history the preferred way for the US government (and others) to raise lots of money in times of crisis was through "war bonds" (named "Liberty Bonds" in the US during WWI). Back then the government financed itself by encouraging people to safe more and invest that money into such bonds. Your scenario has definitely played out in other countries - for example by forcing banks to invest the money in saving accounts into government bonds.