4 ms·

Literally funds the government lol

by PKop 4y ago

phkahler 4y ago
Taxes fund the government. Bonds are just a way to avoid managing a budget.
- PKop 4y ago
  Ok so you're saying it's bad that they fund the government. But given the large budget deficit we have, the statement is true.
- arez 4y ago
  government doesn't need taxes to fund anything, it can just create money and sell bonds. Taxes are just for steering money flows
  - nostromo 4y ago
    Inflation would like a word.
    - majewsky 4y ago
      Speaking from my German perspective. Our (European) central bank printed central bank money like crazy the last 10 years, and apparently it was not a problem. Prices only shot up once there were supply shocks due to Covid and Putin. And sure enough, the supply shocks are slowly waning, and hence YoY inflation rates are also rapidly declining. Yet everyone keeps talking about how the money supply is causing inflation, even though there is no plausible direct connection [1] between the amount of money in some bank account somewhere and consumer prices. The bakery down the street does not look at federal reserve rates when figuring out their bread prices. [1] I'm guessing that someone will be able to explain this to me. But keep in mind that your explanation should cover how we could have over a decade of near-zero interest rates and the respective money supply inflation without seeing any significant consumer price inflation.
      - Dalewyn 4y ago
        At a very basic level, more monies in circulation means each individual money is worth less than before. If each individual money is worth less than before, you need more monies to buy something. This is fine if you have more monies on hand to compensate, but generally this isn't the case for individual persons. Thus, you have inflation: The price of goods inflate(!) because the value of monies drops inversely to the monies in circulation.
        lxgr 4y ago
        Your model is missing money velocity. Creating money does not automatically cause it to circulate, as the ECB and others have demonstrated between 2008 and 2022.
        Dalewyn 4y ago
        What part of "very basic" do you not understand? If we want to get deep into the thickets of finances we absolutely can, but that's not what I'm here for.
      - nostromo 4y ago
        It's not accurate to say the EU has been printing money like crazy for 10 years, when for most of that time, the money printing was minor compared to 2020-2022. Europe, much like the US, was printing money, at a fairly steady rate from 2008 to 2020, at which point they doubled the money supply in a little over a year. That is, they printed more money in ~18 months then they had since the EU was formed. https://fred.stlouisfed.org/series/ECBASSETSW https://fred.stlouisfed.org/series/ECBASSETSW
  - phkahler 4y ago
    >> government doesn't need taxes to fund anything, it can just create money and sell bonds. This is a nice fiction a lot of people spout. The consequences of that are inflation or default. Inflation is very unpopular but defaulting ends the game because investors won't buy the bonds after that. There are consequences to ignoring debt.
    - andrepd 4y ago
      My country has an 8% budget surplus before interest payments, and 2% deficit after. What would be the consequences of ignoring/defaulting on that debt exactly? Seeing as how it's already doing fine with an 8% surplus. I can think of other (political) consequences, but not economical per se, if you assume that a loan has a risk of default priced into its interest rate.
      - JackFr 4y ago
        The obvious consequence of defaulting in your debt is that it becomes difficult to go to the capital markets in the future if you need to. Probably more politically disastrous is that if the debt is denominated in the domestic currency, it’s likely that a substantial portion of the bond holders are domestic and they will not be happy about having their wealth confiscated.
- deleted 4y ago
  [deleted]
- anonporridge 4y ago
  Na, taxes create demand for currency, which maintains the currency's value. Then you just print or borrow the currency into existence to fund the government. People are forced to acquire the currency to pay their taxes or risk being assaulted by the violence of state and dispossessed of a lot of their stuff and/or freedom.
  - junofan 4y ago
    This is complete bullshit. There’s no model with explanatory power.
    - hackandthink 4y ago
      "Fiscal Theory of Money" is a nice story. Economists often tell worse stories about money (Graeber). Fiscal Theory of Price Level seems to be inspired by Fiscal Theory of Money. "The literature on the fiscal theory of the price level (FTPL) integrates discussion of monetary and fiscal policy, recognizing that fiscal policy can be a determinant, or even the sole determinant, of the price level" Christopher A Sims: Paper Money https://scholar.google.com/citations?view_op=view_citation&hl=de&user=uXNOHdAAAAAJ&cstart=20&pagesize=80&sortby=pubdate&citation_for_view=uXNOHdAAAAAJ:p2g8aNsByqUC https://scholar.google.com/citations?view_op=view_citation&h... https://en.wikipedia.org/wiki/Christopher_A._Sims https://en.wikipedia.org/wiki/Christopher_A._Sims
  - taneq 4y ago
    Is this MMT? There was a flurry of articles about it a couple of years ago, airily explaining that it’s fine for all the governments to print unlimited money now because they can just curb any inflation by raising taxes. Ignoring the fact that elected governments do not, of course, do that.
Jensson 4y ago
But why would you need a private corporation to put peoples money in T-Bonds? Why not just make the government do that directly? I don't see how these corporate profits benefited society. They didn't fill some hard to do function, they just risked others money and planned to skim the gains for profit, why should society encourage that? And they didn't even risk the money in growth areas, they just gave it to the government, I could see their value if they actually took some valuable risks, I don't see the value of a private corporation that skims profits by investing into the government.
- PKop 4y ago
  Well now you're questioning the necessity of banks in general. Additionally, the government regulates them into these securities. >Why not just make the government do that directly? If I understand, do you mean why not cut out the middle-man and have people buy the T-Bills/Bonds themselves? If so I completely agree, to some degree, that banks nowadays are nearly complete scams as far as warehousing your money, while providing near 0% interest, with the backdrop of 4 to 5+% risk free short term rates from the government as alternative. I myself have taken out a bunch of cash and deposited into various tenors of treasuries at TreasuryDirect.gov And many others have as well, which is why depending on which data you look at there has been a massive withdrawal of cash from commercial banks in recent months, with people either buying treasuries or putting the cash with their brokers (who are buying treasuries etc). I don't know the answer to how this is resolved, or banks place in the economy... they are supposed to provide credit and money creation for business investment. Since the 2008 crisis, lending has been subdued... there are probably many causes for this. Banks have terrible apps, user interfaces, user experience moving money quickly (in the US) and terrible returns provided to you for lending them money (most people don't realize this is what you're doing when you deposit). So yea, they are a legacy, protected industry that scams their customers out of the spread between the treasury yields they are getting.
  - delfinom 4y ago
    :shrug: The alternative to banks is a credit union where you are a shareholder and their rates aren't necessary exciting either. There's a cost to maintaining infrastructure both digital and physical. Not to mention providing various financial services to shareholders. The moving money problem is a bigger issue with the American financial system as a whole and basically the business mentally of underinvestment and "don't break what works". FedNow will hopefully reduce alot of the time delay related friction in the coming year or two that comes with ACH.

Literally funds the government lol

by PKop 4y ago

Literally funds the government lol

phkahler 4y ago

Taxes fund the government. Bonds are just a way to avoid managing a budget.

PKop 4y ago
Ok so you're saying it's bad that they fund the government. But given the large budget deficit we have, the statement is true.
arez 4y ago
government doesn't need taxes to fund anything, it can just create money and sell bonds. Taxes are just for steering money flows
- nostromo 4y ago
  Inflation would like a word.
  - majewsky 4y ago
    Speaking from my German perspective. Our (European) central bank printed central bank money like crazy the last 10 years, and apparently it was not a problem. Prices only shot up once there were supply shocks due to Covid and Putin. And sure enough, the supply shocks are slowly waning, and hence YoY inflation rates are also rapidly declining. Yet everyone keeps talking about how the money supply is causing inflation, even though there is no plausible direct connection [1] between the amount of money in some bank account somewhere and consumer prices. The bakery down the street does not look at federal reserve rates when figuring out their bread prices. [1] I'm guessing that someone will be able to explain this to me. But keep in mind that your explanation should cover how we could have over a decade of near-zero interest rates and the respective money supply inflation without seeing any significant consumer price inflation.
    - Dalewyn 4y ago
      At a very basic level, more monies in circulation means each individual money is worth less than before. If each individual money is worth less than before, you need more monies to buy something. This is fine if you have more monies on hand to compensate, but generally this isn't the case for individual persons. Thus, you have inflation: The price of goods inflate(!) because the value of monies drops inversely to the monies in circulation.
      - lxgr 4y ago
        Your model is missing money velocity. Creating money does not automatically cause it to circulate, as the ECB and others have demonstrated between 2008 and 2022.
        Dalewyn 4y ago
        What part of "very basic" do you not understand? If we want to get deep into the thickets of finances we absolutely can, but that's not what I'm here for.
    - nostromo 4y ago
      It's not accurate to say the EU has been printing money like crazy for 10 years, when for most of that time, the money printing was minor compared to 2020-2022. Europe, much like the US, was printing money, at a fairly steady rate from 2008 to 2020, at which point they doubled the money supply in a little over a year. That is, they printed more money in ~18 months then they had since the EU was formed. https://fred.stlouisfed.org/series/ECBASSETSW https://fred.stlouisfed.org/series/ECBASSETSW
- phkahler 4y ago
  >> government doesn't need taxes to fund anything, it can just create money and sell bonds. This is a nice fiction a lot of people spout. The consequences of that are inflation or default. Inflation is very unpopular but defaulting ends the game because investors won't buy the bonds after that. There are consequences to ignoring debt.
  - andrepd 4y ago
    My country has an 8% budget surplus before interest payments, and 2% deficit after. What would be the consequences of ignoring/defaulting on that debt exactly? Seeing as how it's already doing fine with an 8% surplus. I can think of other (political) consequences, but not economical per se, if you assume that a loan has a risk of default priced into its interest rate.
    - JackFr 4y ago
      The obvious consequence of defaulting in your debt is that it becomes difficult to go to the capital markets in the future if you need to. Probably more politically disastrous is that if the debt is denominated in the domestic currency, it’s likely that a substantial portion of the bond holders are domestic and they will not be happy about having their wealth confiscated.
deleted 4y ago
[deleted]
anonporridge 4y ago
Na, taxes create demand for currency, which maintains the currency's value. Then you just print or borrow the currency into existence to fund the government. People are forced to acquire the currency to pay their taxes or risk being assaulted by the violence of state and dispossessed of a lot of their stuff and/or freedom.
- junofan 4y ago
  This is complete bullshit. There’s no model with explanatory power.
  - hackandthink 4y ago
    "Fiscal Theory of Money" is a nice story. Economists often tell worse stories about money (Graeber). Fiscal Theory of Price Level seems to be inspired by Fiscal Theory of Money. "The literature on the fiscal theory of the price level (FTPL) integrates discussion of monetary and fiscal policy, recognizing that fiscal policy can be a determinant, or even the sole determinant, of the price level" Christopher A Sims: Paper Money https://scholar.google.com/citations?view_op=view_citation&hl=de&user=uXNOHdAAAAAJ&cstart=20&pagesize=80&sortby=pubdate&citation_for_view=uXNOHdAAAAAJ:p2g8aNsByqUC https://scholar.google.com/citations?view_op=view_citation&h... https://en.wikipedia.org/wiki/Christopher_A._Sims https://en.wikipedia.org/wiki/Christopher_A._Sims
- taneq 4y ago
  Is this MMT? There was a flurry of articles about it a couple of years ago, airily explaining that it’s fine for all the governments to print unlimited money now because they can just curb any inflation by raising taxes. Ignoring the fact that elected governments do not, of course, do that.

Jensson 4y ago

But why would you need a private corporation to put peoples money in T-Bonds? Why not just make the government do that directly? I don't see how these corporate profits benefited society. They didn't fill some hard to do function, they just risked others money and planned to skim the gains for profit, why should society encourage that? And they didn't even risk the money in growth areas, they just gave it to the government, I could see their value if they actually took some valuable risks, I don't see the value of a private corporation that skims profits by investing into the government.

PKop 4y ago
Well now you're questioning the necessity of banks in general. Additionally, the government regulates them into these securities. >Why not just make the government do that directly? If I understand, do you mean why not cut out the middle-man and have people buy the T-Bills/Bonds themselves? If so I completely agree, to some degree, that banks nowadays are nearly complete scams as far as warehousing your money, while providing near 0% interest, with the backdrop of 4 to 5+% risk free short term rates from the government as alternative. I myself have taken out a bunch of cash and deposited into various tenors of treasuries at TreasuryDirect.gov And many others have as well, which is why depending on which data you look at there has been a massive withdrawal of cash from commercial banks in recent months, with people either buying treasuries or putting the cash with their brokers (who are buying treasuries etc). I don't know the answer to how this is resolved, or banks place in the economy... they are supposed to provide credit and money creation for business investment. Since the 2008 crisis, lending has been subdued... there are probably many causes for this. Banks have terrible apps, user interfaces, user experience moving money quickly (in the US) and terrible returns provided to you for lending them money (most people don't realize this is what you're doing when you deposit). So yea, they are a legacy, protected industry that scams their customers out of the spread between the treasury yields they are getting.
- delfinom 4y ago
  :shrug: The alternative to banks is a credit union where you are a shareholder and their rates aren't necessary exciting either. There's a cost to maintaining infrastructure both digital and physical. Not to mention providing various financial services to shareholders. The moving money problem is a bigger issue with the American financial system as a whole and basically the business mentally of underinvestment and "don't break what works". FedNow will hopefully reduce alot of the time delay related friction in the coming year or two that comes with ACH.