5 ms·

It’s quite simple: Anyone can borrow as much as someone is willing to lend. That said, the government doesn’t borrow money. They create it.

chii 6y ago
They _can_ create it. But they mostly borrow (via bonds like treasury bonds), rather than create. Only those countries' gov't who can't borrow at a low enough rate would create - such as venezuela.
- alexmingoia 6y ago
  Treasury bonds are bought with USD. Where does USD come? The government prints it. Borrowing doesn’t fund the government, the printing press does. At the bottom of the tower of USD is printing money. ~80% of treasuries are held domestically, and the foreign buyers purchase it with USD that came from the treasury.
  - mr_toad 6y ago
    They could opt to pay for it out of tax revenues. Or they can issue new bonds to repay old bonds. They can print money, but the optics are bad. The loss of confidence in the value of the dollar is as much a cause of hyperinflation as the actual money supply. Loss of confidence in the value of the dollar can rapidly increase the velocity of money, which means that less money supply is needed. This causes more inflation, which further weakens confidence, increasing the velocity further, causing prices to spiral out of control.
    - alexmingoia 6y ago
      It’s all printed money. Taxes are paid in USD. USD comes from... the government creating it from nothing. Tax revenue is old printed money. Bonds are future printed money. All government revenue is money they created.
      - mr_toad 6y ago
        What I mean is that they don’t need to necessarily print more money, or at least print 100% of the debt.
rojeee 6y ago
I think you are right. They can borrow as much as creditors are willing to provide. Also, borrowing money and creating it are the same thing! Indeed, when money is borrowed, money is created: DR Loan 100 CR deposit 100
- alexmingoia 6y ago
  To nitpick, I think it’s more accurate to say what government does isn’t borrowing. And fractional reserve banking isn’t lending, it’s accounting fraud.
  - rojeee 6y ago
    Wow! Accounting fraud? You do realise that if you kept personal accounts and you lent money to me, you would post exactly the same journals as the bank because you are carrying out exactly the same operation. The only difference between you and the bank is that the bank’s IOU is widely accepted and yours isn’t. I used to be an advocate of Austrian economics until I worked as a bank auditor and really got to understand operationally how they work. Now, I feel the Austrian economist movement has done the world a great disservice and it’s a crying shame because there’s nothing wrong or insidious about banking.
    - alexmingoia 6y ago
      I'm aware of how accounting and banking works. Borrowing does not create money in FRB, since all loans are deposits. Unless of course, the bank creates more certificates than deposits (but don't call it fraud!), which the Fed did prior to 1971, as did many private banks prior to the Fed. FRB always ended in bankruptcy and bank runs. A central bank was created to bail them out. And what happened? The central bank went bankrupt doing the same thing. In 1971 the US couldn't honor its foreign gold obligations – which is exactly what happens when you promise to deliver something you don't have. The US defaulted on their obligations.
      - rojeee 6y ago
        Can you cite your sources? There's a lot to unpack in your post but let's just focus on a couple of things. Firstly, borrowing _does_ create money - it's how most money comes into existence. Straight from the horse's mouth: > Most of the money in the economy is created, not by printing presses at the central bank, but by banks when they provide loans. [0] You said: > Borrowing does not create money in FRB, since all loans are deposits Loans are not deposits. Loans sit on the asset side of the balance sheet and represent an IOU from the borrower to the bank. Deposits sit on the liability side of the balance sheet and represent an IOU from the bank to the deposit holder - the borrower in this case. Banks are literally in the business of swapping IOUs... Our IOUs which are not widely accepted for their IOUs which are widely accepted. Furthermore, commercial banks make absolutely zero promises to redeem their IOUs for base money or central bank issued money, or anything else for that matter. Read the terms and conditions of your bank account to see for yourself! If the bank creates too many bad loans, then the value of their IOUs fall to take this into account. Lastly, Central banks were not created to bail out commercial banks. The first central bank (the Bank of England) was created by the Government at the time to fund the on-going war with France. The government gave the Bank of England monopoly rights over currency issue in return for financing the war - i.e. giving them a whole bunch of IOUs on the Bank of England to pay soldiers and factories because the credit risk of the government at the time was considered quite poor. [0] https://www.bankofengland.co.uk/knowledgebank/how-is-money-created https://www.bankofengland.co.uk/knowledgebank/how-is-money-c...

chii 6y ago

They _can_ create it. But they mostly borrow (via bonds like treasury bonds), rather than create. Only those countries' gov't who can't borrow at a low enough rate would create - such as venezuela.

alexmingoia 6y ago
Treasury bonds are bought with USD. Where does USD come? The government prints it. Borrowing doesn’t fund the government, the printing press does. At the bottom of the tower of USD is printing money. ~80% of treasuries are held domestically, and the foreign buyers purchase it with USD that came from the treasury.
- mr_toad 6y ago
  They could opt to pay for it out of tax revenues. Or they can issue new bonds to repay old bonds. They can print money, but the optics are bad. The loss of confidence in the value of the dollar is as much a cause of hyperinflation as the actual money supply. Loss of confidence in the value of the dollar can rapidly increase the velocity of money, which means that less money supply is needed. This causes more inflation, which further weakens confidence, increasing the velocity further, causing prices to spiral out of control.
  - alexmingoia 6y ago
    It’s all printed money. Taxes are paid in USD. USD comes from... the government creating it from nothing. Tax revenue is old printed money. Bonds are future printed money. All government revenue is money they created.
    - mr_toad 6y ago
      What I mean is that they don’t need to necessarily print more money, or at least print 100% of the debt.

rojeee 6y ago

I think you are right. They can borrow as much as creditors are willing to provide. Also, borrowing money and creating it are the same thing! Indeed, when money is borrowed, money is created: DR Loan 100 CR deposit 100

alexmingoia 6y ago
To nitpick, I think it’s more accurate to say what government does isn’t borrowing. And fractional reserve banking isn’t lending, it’s accounting fraud.
- rojeee 6y ago
  Wow! Accounting fraud? You do realise that if you kept personal accounts and you lent money to me, you would post exactly the same journals as the bank because you are carrying out exactly the same operation. The only difference between you and the bank is that the bank’s IOU is widely accepted and yours isn’t. I used to be an advocate of Austrian economics until I worked as a bank auditor and really got to understand operationally how they work. Now, I feel the Austrian economist movement has done the world a great disservice and it’s a crying shame because there’s nothing wrong or insidious about banking.
  - alexmingoia 6y ago
    I'm aware of how accounting and banking works. Borrowing does not create money in FRB, since all loans are deposits. Unless of course, the bank creates more certificates than deposits (but don't call it fraud!), which the Fed did prior to 1971, as did many private banks prior to the Fed. FRB always ended in bankruptcy and bank runs. A central bank was created to bail them out. And what happened? The central bank went bankrupt doing the same thing. In 1971 the US couldn't honor its foreign gold obligations – which is exactly what happens when you promise to deliver something you don't have. The US defaulted on their obligations.
    - rojeee 6y ago
      Can you cite your sources? There's a lot to unpack in your post but let's just focus on a couple of things. Firstly, borrowing _does_ create money - it's how most money comes into existence. Straight from the horse's mouth: > Most of the money in the economy is created, not by printing presses at the central bank, but by banks when they provide loans. [0] You said: > Borrowing does not create money in FRB, since all loans are deposits Loans are not deposits. Loans sit on the asset side of the balance sheet and represent an IOU from the borrower to the bank. Deposits sit on the liability side of the balance sheet and represent an IOU from the bank to the deposit holder - the borrower in this case. Banks are literally in the business of swapping IOUs... Our IOUs which are not widely accepted for their IOUs which are widely accepted. Furthermore, commercial banks make absolutely zero promises to redeem their IOUs for base money or central bank issued money, or anything else for that matter. Read the terms and conditions of your bank account to see for yourself! If the bank creates too many bad loans, then the value of their IOUs fall to take this into account. Lastly, Central banks were not created to bail out commercial banks. The first central bank (the Bank of England) was created by the Government at the time to fund the on-going war with France. The government gave the Bank of England monopoly rights over currency issue in return for financing the war - i.e. giving them a whole bunch of IOUs on the Bank of England to pay soldiers and factories because the credit risk of the government at the time was considered quite poor. [0] https://www.bankofengland.co.uk/knowledgebank/how-is-money-created https://www.bankofengland.co.uk/knowledgebank/how-is-money-c...