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Keep in mind, things are not as simple as some talking heads would have you believe: * More than a fifth of the treasury bond debt owed by the federal governme
by cs702 4y ago
Keep in mind, things are not as simple as some talking heads would have you believe:
* More than a fifth of the treasury bond debt owed by the federal government is owed to... none other than the Federal Reserve, which is financially part of the federal government. Every year, more than a fifth of the debt interest payments made by the US Treasury go to the US Federal Reserve, which dutifully sends them all back to the US Treasury every year.[a]
* If you own any US treasury bonds (whether directly, in a 401(k), in some other kind of retirement or pension plan, or in an index fund), that's your share of the US national debt: It's the amount the federal government owes you.
* A dollar is an obligation of the US government, backed by its full faith and credit, just like a treasury bond, but unlike the bond, a dollar pays no interest. When the Fed buys and sells treasury bonds in the open market, it exchanges non-interest-bearing US obligations with interest-bearing ones.
Our financial system is more complex than most people grasp, due to a general lack of education in and understanding of macroeconomics. Be very wary of simple, seemingly obvious, morally appealing narratives. Usually, they're not even wrong.
[a] https://www.wsj.com/articles/higher-interest-rates-fuel-losses-at-the-federal-reserve-11667208602 https://www.wsj.com/articles/higher-interest-rates-fuel-loss...
- pedrocr 4y agoFor the first point, why isn't that debt just cancelled?
- Ergo19 4y agoThe fed is not a part of the US Government financially. When the fed receives cash, it is destroyed. It does not go back into treasury coffers.
- cs702 4y agoCash received in the form of interest payments (income) is sent to the US Treasury.[a] Cash received in the form of principal payments is "destroyed" (by debiting outstanding assets with corresponding credits to outstanding liabilities in the Fed's balance sheet). [a] https://www.wsj.com/articles/higher-interest-rates-fuel-losses-at-the-federal-reserve-11667208602 https://www.wsj.com/articles/higher-interest-rates-fuel-loss...
- landoftheice 4y agoAnd if one ponders this dynamic for long enough, one realizes that there is not enough money in existence to pay all of the debt in existence. Or in other words, a pressure cooker type system of infinite growth is created. By no fault of their own, a certain number of debtors are guaranteed to default on their loans - the pressure cooker rat race. And in practice the next traunch of currency created through debt in say, a 10 year period, is necessary to pay off the previous 10 years of debt that otherwise would not have enough currency to pay off - the 'infinite' growth dynamic. In this system the only thing worse than creating more debt (currency) is to not create more debt (currency).
- barsonme 4y agoI may be misunderstanding, but from the linked article: > “We’ve returned close to $1 trillion to the Treasury over the last 10 years. We did not keep that revenue in the Fed,” St. Louis Fed President James Bullard told reporters last month.
- landoftheice 4y agoThe interest paid on debt is not destroyed but the principal is destroyed.
- walljm 4y agohttps://fred.stlouisfed.org/series/FDHBFRBN https://fred.stlouisfed.org/series/FDHBFRBN - for the exact number.