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Fiscal spending is still created as a loan though since the government has to sell bonds to finance it, no?
by licnep 2y ago
Fiscal spending is still created as a loan though since the government has to sell bonds to finance it, no?
- JumpCrisscross 2y ago> Fiscal spending is still created as a loan though since the government has to sell bonds to finance it, no Monetarily speaking, the government creates the money when it spends it. The loan then (and optionally) removes a similar amount of money from the system. This is an enormous power, so we try to legally limit the government in how it can do this. (If we removed the Fed's independence and put it under the Treasury, the Treasury could just add numbers to the bank accounts of the government's employees and vendors. This is analogous to its minting power. We separate the Treasury and the Fed in part to fracture this power.) I forgot one more creation/destruction mechanism above: the Fed's open-market operations. When the Fed buys assets, it creates money. When it sells them, it destroys money.
- licnep 2y agoThanks for the clarification, if you have any pointers to learn more about this I'd be interested to check it out.
- JumpCrisscross 2y agoOldie but a goodie: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...