Yes he’s a gold standard advocate but he’s still right about how treasury bonds function in the real world. The ONLY reason there is a fight over the ‘debt ceiling’ is because congress has imposed its own constraint. This is totally unnecessary.

When someone buys a t-bond, either new or existing, what is actually happening in the real world is a transfer from an individual’s private checking to the Fed reserve account, and then from reserve to savings or “securities” account on the settlement date. This is reversed with interest at maturity.

Please note that issuing new bonds is not less inflationary than simply ‘printing’ money into the economy. First, although bonds cannot be redeemed until maturity, they can be traded on the secondary market at a higher value because they are interest-bearing. In this capacity, they function as a new type of fiat dollar. Second, the old fiat money ‘borrowed’ by the federal government is spent back into the economy. So you have effectively doubled inputs to private commerce plus interest value.

The upshot of this is that rather than borrowing money from the private sector, the government issues new fiat money in the form of t-bonds. And the Fed itself continues to create fiat money in order to meet liquidity demands.

Now there might be good reasons to issue bonds such as rewarding savers or something. But that’s a policy decision, not a necessity. And it doesn’t come with a reduced risk of inflation because, as we’ve seen, the influx of fiat money to the private sector is the same or higher under this system. Personally I think t-bonds should be mostly done away with because the primary holders of government ‘debt’ also tend to be the owners of capital. I don’t see why they should be further subsidized. Instead, we should issue fiat money directly to labor or some social program.

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

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