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I see what you are trying to say ... but it's a bit misleading and actually technically wrong. "x=x for all x" - this is true if you mean to say everything on

I see what you are trying to say ... but it's a bit misleading and actually technically wrong. "x=x for all x" - this is true if you mean to say everything on the Fed's balance sheet is 'Debt' ... but that's wrong - it's referred to as 'Assets'. The currency itself is the 'Liability'. A Central Bank issues currencies for assets, in which case the 'currency' is 'backed by' those assets. Ostensibly, one could trade the currency back for those assets. That's not generally what we think of as 'debt'. Now, much of the 'Assets' are actually US TBills, which is 'debt' - but - not all of the Fed's Balance sheet is TBills. So 'x' does not equal 'x'. The US Fed Balance sheet [1] ECB Balance Sheet [2] Historically the asset would be gold - and that still makes up part of the Fed's balance sheet. Since 2008, the US Fed has issued currency based on mortgage securities, essentially, it owns homes. Otherwise, the Fed owns TBills, i.e. US Government debt, as assets, which is part of the basis of this article: The US Fed is one of the 'major owners' of TBills. Yes, it's legit to point out that 'Internal Operations' are relevant and partly why Japan is not having major inflation, but your denotation of 'Internal' as being 'Government Agencies' is not quite right: by 'Internal' what we really would mean is 'internal to the Japanese economy'. So Japanese debt is held by Japanese individuals and institutions of all kinds, public, private etc.. So 'Internal' means anything in their entire economy. For a breakdown of a Central Banks Balance Sheet have a look here [3] which breaks down ECB balance sheet growth over the last while. [1] https://www.investopedia.com/articles/economics/10/understanding-the-fed-balance-sheet.asp https://www.investopedia.com/articles/economics/10/understan... [2] https://www.ecb.europa.eu/pub/pdf/other/ecb.eurosystembalancesheet2020~0da47a656b.en.pdf https://www.ecb.europa.eu/pub/pdf/other/ecb.eurosystembalanc... [3] https://gaeeuk.org/blog/jcc77k9fbhfymchj94edzbahjd5zbe https://gaeeuk.org/blog/jcc77k9fbhfymchj94edzbahjd5zbe

anthony_r 5y ago
Yes there are also "genuine" things on the CB's balance sheet. But notice how small they are, except in some weird cases (like the SNB, the Swiss National Bank, which hoards a ton of equities). My overall point was that the central bank, the public pensions system and the treasury are all a part of the federal government. When they "trade" with each other and maintain separate balance sheets that really means very little. What's the large scale difference between a tbill and base money if the Fed maintains an open market operations center and guarantees to trade them in unlimited quantities (repo and reverse repo) to keep them priced 1:1 to enforce their monetary policy? I mean I know you cannot take a tbill to a drugstore, but you can trade it back to a spendable private bank account balance in an instant, and you will always be able to.
- jollybean 5y ago
  Yes, I think I get what you are trying to say and it's a valid point, just the words are a bit confusing. So yes - 'most of the assets that back currency is just government debt' and 'much of that debt is held not just by the Central Bank but also by other government agencies'. Which makes a good chunk of the system just a matter of accounting. But: "balance sheets that really means very little" No, it still means a lot. Both the 'internal accounting' stuff matters, and you can't forget that most TBills are not held by 'other government agencies'. Yes - the fact that the value of currency cay be 'fuzzy' is relevant, but it's not entirely fuzzy. All of that accounting matters still.
  - anthony_r 5y ago
    To simplify a bit: the key difference between our thinking is that you think tbills and base money are different things. I think they're the same thing - because they are guaranteed to be always convertible from one into another, at unlimited quantities.

anthony_r 5y ago

Yes there are also "genuine" things on the CB's balance sheet. But notice how small they are, except in some weird cases (like the SNB, the Swiss National Bank, which hoards a ton of equities). My overall point was that the central bank, the public pensions system and the treasury are all a part of the federal government. When they "trade" with each other and maintain separate balance sheets that really means very little. What's the large scale difference between a tbill and base money if the Fed maintains an open market operations center and guarantees to trade them in unlimited quantities (repo and reverse repo) to keep them priced 1:1 to enforce their monetary policy? I mean I know you cannot take a tbill to a drugstore, but you can trade it back to a spendable private bank account balance in an instant, and you will always be able to.

jollybean 5y ago
Yes, I think I get what you are trying to say and it's a valid point, just the words are a bit confusing. So yes - 'most of the assets that back currency is just government debt' and 'much of that debt is held not just by the Central Bank but also by other government agencies'. Which makes a good chunk of the system just a matter of accounting. But: "balance sheets that really means very little" No, it still means a lot. Both the 'internal accounting' stuff matters, and you can't forget that most TBills are not held by 'other government agencies'. Yes - the fact that the value of currency cay be 'fuzzy' is relevant, but it's not entirely fuzzy. All of that accounting matters still.
- anthony_r 5y ago
  To simplify a bit: the key difference between our thinking is that you think tbills and base money are different things. I think they're the same thing - because they are guaranteed to be always convertible from one into another, at unlimited quantities.