At some point within the last two years, as I devoted more and more time to understanding economics (some might say obsessively), I realized the Federal government was not constrained to spending based on tax revenue. The Treasury can issue as many bonds as needed, either borrowing from purchasers or as we saw in 2009, having the Federal Reserve Banks create money out of thin air to purchase bonds, something Bernanke said he would not do, then did in the amount of $300 billion.
Congress spends like tax revenue doesn't matter, and as Dick Cheney has been famously quoted "deficits don't matter". That is true, of course, until it is not.
But I don't want to get side tracked on Triffin's dilemma. This week, I stumbled on a 1946 speech by Beardsley Ruml, Chairman of the Federal Reserve Bank of New York titled:
"TAXES FOR REVENUE ARE OBSOLETE".
The first half of the speech discusses using the tax code to implement public policy. The second (less interesting) half focuses on the "evils" of the corporate income tax.
Clearly, the Federal Reserve has been thinking this way since the original Bretton Woods agreement. I think many people would be surprised or shocked to learn that governments and central banks operate this way, since leaders never [AFAIK] make the point explicit.
It's too bad Dick Cheney (along with most other US Politicians) don't understand that defecits DO MATTER.
ReplyDeleteThere's no way the US Government can pay off its debt and cover the future unfunded liabilities without printing insane amounts of money.
Saw a lecture on youtube recently from Dr Marc Faber...not sure if you've heard of him...but he was presenting to the Slovenian Parliament. He quote a figure that I found scary...if you count current US debt and future unfunded liabilities, the debt to GDP ratio is 650%.
The only question is...are the politicians to stupid to realize that for every $1 their country is worth, they owe $6.50...or are they just that corrupt that they're only interested in getting re-elected, even if its at the expense of destroying the country in the future?
I've seen Faber on various programs. I think some politicians don't understand, and others just kick the can. Since US debt is denominated in dollars, they can always print enough to make payments -- at the expense of the relative value of the dollar. Exciting times lay ahead.
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