[gph1]

The primary dealer banks will always be a ready funding agent for the US government--why wouldn't they be? Treasuries offer a risk free place for excess reserves to earn interest. It's literally free money.

It's instructive to remember that we match our deficit spending with debt issuance by legal fiat and not for any real operational reason. We could just as well deficit spend freely with no debt issuance (and no, it would not be more inflationary.

Of course, treasuries are a risk free savings vehicle for the private sector and world at large, and they play an important role in managing the payments system (though not one that couldn't be replace), so I'm not suggesting that we stop issuing debt. But it's important to understand how the system works so we can stop with the silly notion that we are just scraping by on the good graces of Treasury buyers.

[natural219]

What's the mechanism for this spending through legal fiat? It seems to me that any spending that doesn't come from taxes or debt would probably have some adverse affects on the economy. I'm still a student of institutional economics, so I'm eager to learn more about this whole process.

[chernevik]

Go read zerohedge.com. There is a fair chunk of tinfoil hat baloney and traders talking their book, but they have some serious analysis on the government debt / banking / monetary system.