| These sorts of articles dont reflect how the US gov funds itself: 1. Gov spends $100 and taxes $90 2. Commercial banks then have $10 (100-90) in reserves at the Fed 3. Treasury is required to sell $10 of bonds to keep its account at the Fed at zero balance. (This collective tally of 'debt' is what everyone loses their minds over) 4. Commercial banks buy these bonds up immediately as long as the interest earned on the bond is greater than the interest earned on the reserves at the Fed. Important things to remember: - The $10 'borrowing' done by the government is funded by the deficit it created. - The treasury doesn't have to issue bonds to fund itself it can simply deficit spend as its done in every major war or during Covid. - When the treasury does choose to issue bonds the coupons dont need to match market interest rates (this is what the Bank of Japan is doing this very minute). The bonds will always be purchased so long as there is a positive interest rate differential between the bond and the Fed's reserve interest rate. - Bonds have secondary uses but funding the government is not one of them. - Government debt = private sector savings. Collectively it represents the excess of money paid into the pvt sector vs whats been taken out via taxation. - US gov bonds are extremely useful financial instruments used in all sorts of repo operations providing liquidity in the banking sector. They are better than gold! - Dont stress about government debt. It has never, and will never, be repaid and thats a good thing because it effectively translates to a massive destruction of pvt sector savings. |