President Lincoln saved taxpayers four billion dollars...how can we do this in 2013?

actually we were teaching you the difference between monetary policy and fiscal policy after your totally illiterate comment, not discussing Lincoln. Do you understand now?

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yes , all agree so why are you pointing it out with the glee of child who just learned that 1+1=2???????????????????????????????????????????????

 

Because if an alteration in monetary policy,
in the time of President Lincoln, could save American taxpayers four billion dollars in
interest payments, then some variation of this method would be
helpful in assisting our governments to finance the research needed to
transition over to a truly green and sustainable economy.


http://www.politicalforum.com/curre...ald-trump-must-shut-down-federal-reserve.html
Why Donald Trump must shut down The Federal Reserve

 

Americans are more productive than ever........
except American farmers in California during a time of severe drought.....
which hopefully is over.....

 

Obviously the issue here is the Federal Reserve system. Basically how it works now, the U.S. Treasury borrows money from the Federal Reserve Bank. A portion of all that interest debt is going to big banks that have ownership stakes in the Federal Reserve Bank.

Now obviously the U.S. Treasury printing money in its own name wouldn't completely solve all the problems, since you'd still have inflation, but it could potentially reduce the interest payments.

The deeper more underlying issue though is the government continuing to run huge budget deficits year after year. That can't continue on without causing problems.

 

The treasury doesn't borrow money from the FRB. The treasury borrows money from people who purchase treasury bonds.

The FRB purchases treasury bonds on the secondary market, not directly from the US government.

 

In recent years the FRB has become the largest purchaser of treasury bonds.

Here's an article that gives an overview of how it all works:
https://www.thebalance.com/how-is-the-fed-monetizing-debt-3306126

From mid-2010 to mid-2014 the FRB was buying over 50% of new treasury debt.

 

The Federal Reserve Act specifies that the FRB may only purchase treasury bonds on the open market, not directly from the US Treasury.

 

What's really the difference? All that really means is the Treasury has to sell its securities to the Fed on equal terms with the rest of the open market.
Are you aware that the FRB is actually the one who sells the bonds on the open market, on behalf of the Treasury?

It's the Treasury's debt, and yet the FRB is selling it for them.
U.S. dollars are issued by the FRB, and yet it's the Treasury printing it for them.
The roles of these two agencies are very confused and intertwined.

 

What's the difference? You said, "Basically how it works now, the U.S. Treasury borrows money from the Federal Reserve Bank." This is factually incorrect, so I pointed out your error.

 

That's correct. How is what I said in error?
I pointed out to you that you were misunderstanding the law and how things work.
The Fed does buy debt from the Treasury. It's considered "open market" because the Treasury auctions off the debt, and the rest of the market has a chance to bid on the debt. (or rather the Fed auctions off the debt for the Treasury, so in that case the Treasury is basically giving the securities to the Fed to auction off to any buyers)

 

It's incorrect because the FRB doesn't purchase bonds from the Treasury, which is to say that the Treasury doesn't borrow money from the FRB. The FRB buys bonds on the secondary market from people who have already purchased bonds from the Treasury (i.e. loaned money to the treasury). Therefore, the treasury doesn't borrow money from the FRB. Your statement was factually incorrect.

 

How is that any different? The Fed gets some third party bank to buy the bonds for them, then it buys from them. It's the exact same economic effect.

Page 5 of this document basically says as much:
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr684.pdf

As the House Banking Committee observed, “There is no logic in discriminating against obligations which, being in effect obligations of the United States Government, differ from other such obligations only in that they are not issued directly by the Government.”​

 

His statement was correct. Every Treasury bond the FRB owns represents money it has lent to the Treasury. That's just a fact. Who else is going to pay the money back, hmmmm? If the Treasury pays the bond principal and interest to the FRB, which it does, then the FRB is the lender. Period.

 

Let me just give a quick economics analogy here. Suppose country A puts an oil embargo on country C. But country B buys more oil on the world market than the amount of oil exported by country C. If country A decides not to buy any oil from country C, it basically won't have any effect. Purchases from country B will pick up the slack, and world oil prices won't change. In other words, you basically can't buy oil off the world market without that indirectly propping up the price of oil exports from country C, even if you're deciding not to directly buy from them. There's basically no difference where your oil is coming from.

 

@kazenatsu said "the U.S. Treasury borrows money from the Federal Reserve Bank". This is not factually correct.

 

Technically you were right, I was wrong. It took me a few minutes to look it up.
But overall I'm still basically right, since it effectively makes very little difference and is practically the same thing. (the end economic effect being the same)

 

Then why does the Treasury pay the FRB principal and interest on the bonds the FRB holds???

 

I agree that the FRB's ability to create money out of thin air to purchase bonds on the secondary market enables the US gov to issue bonds for which there would otherwise be no market.

I am just a stickler, which probably comes off as being kind of a dick. Sorry.

 

Because that's how a bond works?

 

Ok, we were basically just arguing over semantics then.

 

Not semantics. Just being accurate. The Treasury doesn't borrow money from the FRB.

 

Ok, the FRB doesn't lend money to the Treasury. But the Treasury owes money that it borrowed to the FRB.
Is that more accurate?

 

Yes. The treasury has a liability to its bondholders.

 

Right: the bond issuer pays THE LENDER the principal and interest. So your claim that the FRB is not the lender even though it is getting those payments is absurd and disingenuous.

 

Germany has strict laws against the fed buying up bonds.
Due to the problems it has had in the past with super inflation.

As such the EU is unable to bail out Greece by printing money to buy Greek bonds.
It's work around is the same method. It buys them second hand.

Essentially it is money printing to give to the government.