[nopassrecover]

So our banking system needs somewhere to park capital risk free, and it’s economically desirable that’s in a place that doesn’t create other distortions such as asset inflation or malinvestment. So we have treasuries as a tool for the financial system.

But there seems to be a premise in this thread that the US Gov needs (as in has no other possible choice, even via legislative change) to sell treasuries in order to fundraise.

I accept that’s sort of how the current system works in that effectively the US Gov creates capital/spend in the financial system via various programs and investments and attempts to offset inflationary effects / currency deflation effects by taxation and other revenue before finally encouraging other parties to allocate capital out of the system in the form of treasuries to make up the shortfall.

Effectively as I see it a treasury is then a promise not to spend capital for the term in exchange for the promise you’ll get the expected present value of that capital returned at the conclusion of that term (or in the case of TIPS/I-Bonds, the best approximation of the actual present value of that capital at that time).

Amongst other features, this neatly “allows” the US Gov to allocate an equivalent amount of capital to a purpose it considers appropriate while theoretically lessening impacts compared to simply spending that money without the offsetting treasuries.

But I’m not entirely sure there’s some sort of fundamental rule that the US Gov with the support of the Fed “needs” anyone to buy treasuries - together they could, as an example I’m not necessarily advocating, provide a safe haven facility for anyone who wanted it and continue to influence the monetary system and zero-risk rate of return (eg by the Fed paying interest on reserve accounts as they have since 2008) while otherwise having the Fed simply create the currency the government requires for deficit expenditure (eg by directly buying treasuries from the Gov if we perpetuate the illusion) and using other fiscal policy to control the inflationary/distortion effects of this spend.

That is, I’m not sure it’s the case that the US Gov exactly needs the banks to borrow treasuries because it could not afford them not to. Rather, the value of treasuries is as a measure to absorb excess liquidity, provide safe haven, and adjust risk behaviour in the financial system.

My open question is whether the current system is the only way, yet alone the best way, to practically achieve this goal?

[phpisthebest]

you think inflation is a problem now, wait until Congress has the literal power to order the Fed the print money which is effectively what you are proposing.

I do not trust the Fed, but I Sure as shit do not trust the US Congress.

[landemva]

The federal reserve does not print money, the Treasury does.

Supposedly the debt ceiling prevents runaway spending. That already doesn't work because money is loaned into existence in ever-increasing amounts.

[phpisthebest]

Wrong..

The Treasury makes coins.

Paper money is a "Federal Reserve Note". It comes from the federal reserve not the Treasury

The Treasury creates coins or bonds. This is one of the reasons congress has floated the idea of the 10 trillion dollar coin. As it is within their power to order the Treasury to mont that. They can not order the federal reserve to make a 10 trillion dollar bill

[331c8c71]

Of course it is the fed who prints the money in the US and has dual inflation/unemployment targeting mandate. In other countries this role is typically performed by the central bank.

https://www.federalreserve.gov/aboutthefed.htm

[mmusson]

The debt ceiling doesn’t control spending because it is a misnomer. The money has already been spent. The debt ceiling controls whether the government will honor the obligations it has already made.