You still don’t get it. Congress and federal law prevents the Treasury from over drafting the TGA not the Fed. The Treasury does not take instructions from the Fed. They have to follow rules set by congress and directed by the Executive.

Please re-read my article. I explicitly say this in the article. Quoting now from my piece, “By mandate of Congress, federal expenditures must be made from a positive TGA balance. The Fed cannot overdraw the TGA”. The point MMT makes is that this restriction is a political decision, not a necessary constraint.

The Fed does manipulate the bond market (and interest rates) but only after the Treasury auctions and issues the bonds it needs to finance the general fund within limits set by congress. If the FId bought every Treasury Bond out there they would still count against the debt limit.

This is consistent with MMT and does not contradict anything in my article or response.

Well, maybe but they don’t control the spread between bond rates and mortgage and auto loan rates.

The National Debt has no impact on these rates.

Where do these reserves come from if not deposits. Aren’t reserves the portion of deposits the banks are not allowed to lend out.

No. Banks do not ‘lend out’ reserves. Deposits are created when banks extend credit, or the Federal government spends. Reserves are confined to the inter-bank market and are used for clearing transactions. The volume of reserves in the system is unrelated to the volume of deposits. It is true that banks must maintain a ‘reserve ratio’ to the amount of deposits they have, but this is virtually obsolete now since banks are flush with reserves and the Fed began paying interest on excess reserves (IOER) to help hit its rate target.

That is right, taxes fight inflation by removing dollars from the economy.

My answer that “bond issuance doesn’t fight inflation” is in response to this from your original reply “ You have to remember that today that government spending is almost completely offset by the removal of money from the money supply. There is very little “printing of money.” Taxes and bond issues cover almost all government spending”. This is incorrect because bond issuance is not ‘removal of money’ in the same way taxes are. Taxes reduce deposits. Bond issuance does not, because they are paid for exclusively in reserves by banks on the primary market. This is why taxes fight inflation and bond issuance does not. Government spending is all ‘printing money’. Taxes and bond issuance are conceptually separate from spending and are only operationally joined by political mandate.

Yes, I was not saying we should not give more to the poor even if it causes prices to rise. It goes back to my point that federal spending mostly ends up in the hands of the rich. It trickles down but it rushes, even geysers up.

This is because the poor immediately spend their incomes back into the economy out of necessity. Cash payments to the poor reduce, income inequality while boosting economic activity. Unless your argument is that cash payments to the poor increase inequality; in which case I have nothing further to say to you on the matter.

Corporate accountant and former auditor with degrees in philosophy and accounting.

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