You Are Part of the Conspiracy!
Every time you use your credit card, you increase the money supply. Yes, by buying “instantly talk with your cat” fruit gum online, your “innocent” credit card charge actually creates money out of thin air. Behind the curtain, a computer secretly creates a loan to pay the exact amount of your purchase to the seller, without using real money! They just create the money using “accounting” inside the computer! And if you just pay interest, the money you accidentally-on-purpose created never actually disappears! Only if you pay your credit card bill is the secret “accounting money” destroyed! Always use your debit card or cash or barter! Otherwise you are part of a global conspiracy of strange looking gnomes who live under the Swiss Alps and insanely profit using the following foolproof dastardly scheme!
- Create “money” by having people use their credit cards.
- ????
- Profit insanely at the expense of the global economy!
The Fed and the Money Supply
The Fed also can increase the money supply similarly. It creates a loan on its balance sheet, sends banks money by buying their bonds, and banks, feeling flush, create more loans, further increasing the money supply. Or they can do the reverse. And they can change the overnight interest rate that they charge banks to try to make the banks more or less aggressive. And they buy actual cash from the US Mint to maintain the physical money supply, and they even shred old dollars.
They do this (so far) independently of the maladministration in order to maintain economic stability, neither for profit nor to benefit their friends via any imaginary popular conspiracies.
The Treasury
The maladministration’s Treasury has to finance the national debt and cover the annual budget deficit, using the full faith and credit of the US to sell Treasury securities at public auction. When confidence is low, they have to offer higher interest rates.
Since we have a lot of debts, the Treasury frequently sells a wide variety of securities including short term <1 year bills, medium term notes and 10-30 year long term bonds, to a very wide variety of customers, who also trade amongst themselves.
The US treasuries market is the largest, deepest and most liquid securities market in the world, with the US government on the hook for over $30 trillion in outstanding loans, and it’s growing fast.
Again, the Treasury has to pay the government’s bills, keep the books balanced and they can’t cheat.
The Maladministration
The maladministration believes that by deporting people and trading less with other countries our country will magically become greater. I believe their logic goes like this.
- Shrink the economy by deportations, tariffs and cutting benefits and jobs while taking in less revenue due to low taxes and more corruption.
- ????
- The whole $38 trillion national debt including that held by Social Security and other government agencies will be paid off by the end of his 2nd term, plus there will be $2000 per gullible voter maybe more, plus all the farmers will be bailed out, plus a beautiful ballroom and lots of money spent on deporting people and ruining quinceañera parties, money for crypto currencies, and maybe a new war with Venezuela and also lots of cocaine for Jr, all without any inflation, which is down like 500% or 800% or more.
Confidence
Yes, but what if something goes wrong? Won’t the Fed just bail out all the rich people again?
Well, obviously things are already going wrong. The price of gold is up over 60% in the past year, a classic signal that confidence is at or near a record low. The US dollar has lost ~10% of its value against major currencies this year. Inflation is still high, but the slowdown in the economy keeps a sad sort of lid on it.
And honestly, who really knows? The economic data that tells us what’s going on has big gaps in it that may never be fully reconstructed. The last time that we had so little confidence in the data on the US economy, Frances Perkins called Hoover a liar. And we all remember how great those days were.
The Fed can’t save us from Trump
When Republicans deregulated finance, Wall Street greedily broke the mortgage debt market, leaving taxpayers with the bill. Not trusted on the economy sufficiently by voters, Democrats failed to stop Republicans and failed to impose a moral hazard penalty on the Wall Street perpetrators. But that problem was relatively easy, because ‘serious’ people stepped in and solved it, messily and poorly, but solved. The Fed took the bad loans on their books and they have since mostly aged out. And the rest of the world was in sorry shape too, so nobody minded that the Fed balance sheet got really big. Again, it’s just “accounting” for bad debt.
But shrinking the economy while growing an already large national debt without any rational plan to fix any of the major structural problems we face now and in the immediate future (e.g. carbon pollution) is not a problem that any central bank can easily fix. If the maladministration and Congress keep creating problems, then the Treasury will have to keep selling more securities. If the rest of the world moves on without the US fully competing and participating in trade willingly, then our economy will continue to shrink and inflation will continue to be a problem.
The Fed has two main jobs: employment and low inflation. The maladministration is worsening both. The Fed maintains the money supply, and they are NOT responsible for financing the government’s debts. Sure, the Fed can temporarily soak up some excess debt in the treasury market and might even be able to prevent a treasury securities auction from going badly, if they believe that’s good for economic stability. But they can’t just buy all the US treasuries that investors around the world are unwilling to buy, because that would mean that people no longer believe that the US will make good on its debts.
The US treasuries market is much bigger than the Fed’s balance sheet of $6.6 trillion. If the Fed has to grow to cover for the fiscal irresponsibility of the maladministration, then the global treasuries market will notice, and they will punish the US dollar, US treasuries, US stocks, US real estate, US businesses, and all Americans indirectly.
A successful owner of a large old global bank once told me that “we never lend money to people who need it”. If the US ruins its reputation—its full faith and credit—by showing that it is incapable of growing its way out of its bad debts, both economically and through increasing tax revenues, then the folks who still have money elsewhere won’t keep lending us money, especially not at reasonable interest rates. If this is just another corrupt, mismanaged country, why wouldn’t they go anywhere else in the world. The world is full of corrupt, mismanaged countries that still manage to pay their debts on time. The Fed can’t put lipstick on a pig.
