Skip to main content

View Diary: China Cuts US Credit Rating. Obama Cuts Hawaii Vacation Short. (171 comments)

Comment Preferences

  •  This is even less clear than before (0+ / 0-)

    "Step back a moment and consider that all federal spending is done by crediting bank reserves, as the bank credits the payee's account."

    This may be true is some meta sense but it seems like nonsense on a day to day operational level. That is the Treasury is not legally or operationally the same as the Fed. Nor is the IRS the collection agency for the Fed. That is the federal government collects taxes on its own account and issues checks from its own accounts with Fed member banks only operating in a pass through clearinghouse function. As such to say that "all federal spending is done by crediting bank reserves" is meaningless in day to day context. Yes the ultimate recipient of that TREASURY check, whether that be federal employee or major defense contractor will negotiate that check either directly or indirectly with a Fed charted bank, and a certain amount of the total deposited could trigger an addition to actual reserve requirements. But to say that "all federal spending" immediately credits "bank reserves" does a certain violence to the agents in the process and the function of member bank reserves. Which are NOT the same as 'deposits'.

    And the confusion only gets deeper from there. As I understand the original QE the Fed was going into the public markets and buying long bonds FOR CASH, that is injecting dollars into the economy. This was offset in part (or perhaps for a while in whole) by selling off its portfolio of short bonds FOR CASH. But neither the long or the short bond is in fact an instrument of the Fed, from the perspective of the public bond market the Fed is simply another player, although one that is not effected by bond prices as such, since any profits get returned to Treasury.

    I plan to read up some on MMT but good parts of it seem to just be mirror images of the Austrians with infinitely soft money being substituted for the latter's hard. But both operating at the theoretical Cloud Cookoo Land level.

    Or maybe I just need that "layman-friendly primer" referred to later in the thread. Because to me the simple unqualified statement that "bonds are a savings account at the Fed" when something like 80% of total federal bonds are legally held by individuals, foreign sovereigns and federal Trust Funds not under control of the Fed seems like gibberish.

    At a minimum you need to slow it down for the rubes out here. Which apparently includes me. Despite my belief that I kind of know something about this stuff.

    socialsecuritydefender.blogspot.com - SocSec.Defender at gmail.com - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

    by Bruce Webb on Wed Dec 26, 2012 at 09:43:00 PM PST

    [ Parent ]

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site