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There is an additional player, the Federal Reserve. The Treasury can write a check, but that check is to be drawn against an account in an actual bank -- ordina

There is an additional player, the Federal Reserve. The Treasury can write a check, but that check is to be drawn against an account in an actual bank -- ordinary commercial banks. Those banks have to follow the rules of banking and can't just honor checks because they're the government. So in the scenario you describe, the Treasury writes checks, and they bounce. That would be... bad. The Treasury would have to collude with the Fed. Something like, the Treasury sells some bonds to the Fed, and the Fed buys them, putting the money into the Fed account. That's illegal, because Congress didn't authorize it, and they try to put the Treasury secretary in jail. The Supreme Court says "We have no idea what's going on, this is up to you jackasses. Go legislate something." A whole bunch of stuff happens, but it all comes down to DC in flames and the country gives up.

JumpCrisscross 3y ago
> Treasury can write a check, but that check is to be drawn against an account in an actual bank -- ordinary commercial banks The Treasury banks with commercial banks, but it also has an account at Fed. That said, banks aren't legally obligated to accept its cheques. > an additional player, the Federal Reserve That's what this memo describes [1]. In essence, the Fed says it will defer to the Treasury on whether debt is legally issued. > Treasury sells some bonds to the Fed The Fed can't do that [2]. What they can do is announce to the market that they won't treat post-ceiling debt differently from pre-ceiling debt. That's what this memo says. It may not be able to continue doing that if e.g. SCOTUS rules Treasury exceeded its authority. But at that point, the Treasury could start testing its minting power. In summary, the Fed isn't a player in the legal part of this game. [1] https://www.federalreserve.gov/monetarypolicy/files/FOMC20110719memo01.pdf https://www.federalreserve.gov/monetarypolicy/files/FOMC2011... [2] https://www.federalreserve.gov/faqs/money_12851.htm https://www.federalreserve.gov/faqs/money_12851.htm
function_seven 3y ago
This is a piece I was missing in my hypothesizing. It didn't even occur to me that Treasury needs the Fed in order to transact in this way. I kept thinking about the Fed doing maneuvers as "one possible path", and the Treasury doing maneuvers as "another path", but they're kinda the same. Thanks.
dragonwriter 3y ago
> The Treasury can write a check, Why write a check? https://en.m.wikipedia.org/wiki/Trillion-dollar_coin https://en.m.wikipedia.org/wiki/Trillion-dollar_coin

JumpCrisscross 3y ago

> Treasury can write a check, but that check is to be drawn against an account in an actual bank -- ordinary commercial banks The Treasury banks with commercial banks, but it also has an account at Fed. That said, banks aren't legally obligated to accept its cheques. > an additional player, the Federal Reserve That's what this memo describes [1]. In essence, the Fed says it will defer to the Treasury on whether debt is legally issued. > Treasury sells some bonds to the Fed The Fed can't do that [2]. What they can do is announce to the market that they won't treat post-ceiling debt differently from pre-ceiling debt. That's what this memo says. It may not be able to continue doing that if e.g. SCOTUS rules Treasury exceeded its authority. But at that point, the Treasury could start testing its minting power. In summary, the Fed isn't a player in the legal part of this game. [1] https://www.federalreserve.gov/monetarypolicy/files/FOMC20110719memo01.pdf https://www.federalreserve.gov/monetarypolicy/files/FOMC2011... [2] https://www.federalreserve.gov/faqs/money_12851.htm https://www.federalreserve.gov/faqs/money_12851.htm

function_seven 3y ago

This is a piece I was missing in my hypothesizing. It didn't even occur to me that Treasury needs the Fed in order to transact in this way. I kept thinking about the Fed doing maneuvers as "one possible path", and the Treasury doing maneuvers as "another path", but they're kinda the same. Thanks.

dragonwriter 3y ago

> The Treasury can write a check, Why write a check? https://en.m.wikipedia.org/wiki/Trillion-dollar_coin https://en.m.wikipedia.org/wiki/Trillion-dollar_coin