How The Federal Government Actually Spends
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- Опубліковано 20 вер 2024
- Professor L. Randall Wray, on with Steve Grumbine of Real Progressives, explaining what actually happens when the Treasury spends.
Wray goes through a simplified version that leaves out some intermediate steps, but these intermediate steps all cancel out of the final process, and the end result is exactly what he describes. (Sort of like how if I gave something to you to give to your cousin for me, the net result is that I gave something to your cousin).
When the Treasury goes to spend, it tells its bank, the Federal Reserve, to credit (turn a number into a larger number) the reserve account of a bank (banks all keep "reserve accounts" with the Federal Reserve, which they use to settle payments), and then the bank credits the checking account of whomever is receiving the payment. So, the Fed credits a bank's reserves and a bank credits a customer's account.
The reverse happens when the Treasury receives a tax payment. The Federal Reserve debits (turns a number into a smaller number) the reserve account of a bank, and the bank debits the checking account of whomever sent the payment.
The net result here is that federal government spending adds to the quantity of reserves and deposits, while taxing decreases from it (as do bond sales, aka government "borrowing"), and it all happens via keystrokes. Or in short, the government does all of its spending by simply crediting bank accounts. There is no possibility of it being unable to make a payment, no possibility of it being forced into bankruptcy or default, no possibility of interest rates being forced up because of government deficits (on a floating exchange rate), and no purely financial limit on government spending, only real resource limits.
If you want to know more details about the exact procedure, all of the steps, as well as citations to back it up, check out these links:
The Greatest Myth Propagated About The Fed: Central Bank Independence (Part 2): neweconomicpers...
Treasury And Central Bank Interactions: neweconomicpers...
Treasury Debt Operations: papers.ssrn.co...
And see how this incorporates into a broader heterodox worldview on the nature of money, as contrasted with the establishment orthodox views: neweconomicpers...
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Watch the whole video here: • Busting Myths about Ec...
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Love this. Would love references to papers substantiate the claims for academic use. Thanks if anyone’s reading this.
Also confused - the treasury doesn’t vanish taxes etc they sit in treasury accounts on the feds balance sheet ?
Love this interview. Very informative!
And you guys did! Great Stuff! Keep them coming.
Bravo!
In accounting-wise that means when the UST wishes to spend money they send a request to the FED and the FED credits the UST account with the FED using a single entry (no double entry since there is nothing to debit as in tax payments). Then the FED debits UST bank account and credit the bank accounts of various government departments so they can spend the money. Also when the FED does open market operations and buy bonds from financial institutions they do that with a single entry bookkeeping since the digital money to buy bonds come from stroke. In other words money creation in this situation is a single entry accounting. Please note, I am using debits and credits in the POV of the bankers and it is the opposite from POV of the bank account-holders.
No, this is not quite correct on the accounting.
First of all, we should distinguish between whether or not we are consolidating the government's books onto a single balance sheet or not. Since you're talking about the Treasury and central bank separately, we'll take the non-consolidation approach.
In terms of the record-keeping, both bank reserve balances and the Treasury's "account balance" are recorded as liabilities of the Fed. When the Treasury receives a credit to its account, that's an increase in the Fed's liability to Treasury, and increase in the Treasury's asset claim on the Fed. When the Fed buys bonds from the market (or lends through overdraft or the discount window), that's an increase in the Fed's asset claim on the Treasury (or on a private bank in the case of lending) and an increase in the Fed's reserve balance liability.
See this for much much more detail: neweconomicperspectives.org/money-banking
Thanks I will go through New Eco Perspective text to see if there is a better answer to this. Let's talk in the POV of the account holders in a non-consolidated basis. In the POV of the UST When the FED debits the UST account they have with them so that UST can spend, the only entry I see being made is a debit to the UST account with the FED for what UST is requesting and then they credit the UST account and debit the individual govt institutions to pay for the budgeted expenses while the UST debit expenditure accounts, as I can see it. But the first debit to the UST has to be a single entry bookkeeping since it came from nowhere. Or it can just increase capital acct as if the FED is an equity owner. The same thing when the FED buys bonds (POV of the FED as account holder). The FED debits its balance sheet with the cost of the bonds and cannot credit anything since money came from nowhere so it has to be another single entry bookkeeping. Or they create some special name for money creation such as increase the capital as if the money came from somewhere. There cannot be a liability to the banks (or the FI the FED buys it from) since the FED has technically given them cash to buy the bonds.
Cash is a liability of the Fed. In corporate accounting, "cash" is often treated as its own special asset, with no matching liability anywhere else. MMT (certainly not the first to do this, but makes a strong point of it) emphasizes that cash is just another financial asset, and is therefore somebody's IOU. In this case, it's the IOU of the Fed.
Okay your terms and definitions make sense. However I am talking about the GAAP terms. A cash in the account of an account holder is considered an asset and cash coming in is a debit and cash going out is a credit. Keeping that in mind, when tax revenue comes in, the UST acct with the FED is debited (the balance sheet acct) and tax revenue account in the income statement is credited. But when the FED is debiting the cash account of the UST with the FED increasing the electronic digits, it has to be a single entry in the cash acct of the UST or could increase (or crediting) the capital acct of the UST balance sheet as if the money stock has increased. Regardless there is no corresponding liability or increase in revenue. It has to be the same when the FED buys bonds. Their assets will be debited but there is no corresponding liability or an expense as required by double entry bookkeeping. The money is just created electronically. In both cases the cash in circulation will increase. We have to find a way to spread this increase in money in an equal manner or this income inequality will continue to go higher and higher. In other words there is no genius in those who are super wealthy they have been born right or have the super salesmen skills and have placed themselves right to get the funds being created by the FED and the UST into their hands only.
The problem with GAAP is they don't see the viewpoint of a currency issuer as being complementary to that of all the currency users, but try to treat the issuer like a user. This creates confusion with terms like national debt, for example.
If you picture all the users in a big interconnected circle and the government outside that circle, it may make more sense logically. The government can spend into the circle and tax out of the circle as needed. Its role, though, is not as a currency user.
Only 90 views.
We are doomed.
Hey, it's only been like 8 hours :)
Now it's 194.
It got about 10,000 views on Facebook, so that's not so bad!
@@deficitowls5296 damn that is not enough! People need to see this everywhere.
I’m from the future, 2023 to be exact. Almost 4K views. And yes, we have flying cars
Question: if I owe a tax, it gets moved from my personal account to my banks Reserve account. Then what happens to the tax?
if you owe taxes, you owe to treasury, the treasury says to fed, please debit/ takeout money owed from this guys reserves, So the fed debits/takes out money from your bank(lets say citibank)reserves. Then your bank (citibank) debits your checking account you have with them. so in the end, the treasury can either basically delete your dollars that you sent them or do something else with them. In either case they want to control the supply of money for inflation/deflation reasons. When it comes to local or states taxes, the state has its own treasury where they actually need your dollars to spend on infrastructure, schools, etc... if it doesn't have enough money from taxes, the state/city usually just goes to the private market and buys bonds at interest.
@@militaryforcestv1 If you 'owe taxes', the lowering of your bank account and the raising of the Fed's bank account happens, but only till the Federal Reserve requires payment of the 'interest' on the borrowed money. Which is EVERY dollar in existence. It's like having a no limit credit card that you are only required to pay the interest on the card to remain in 'good standing'. Once you reach the 'credit limit', you simply decree a new 'debt ceiling', but the interest on the previously spend money is still collecting interest to the card issuer. Eventually, your 'earnings' wind up being used to pay the interest only, forcing you to borrow more. This is when the bubble bursts.
There is no reason to even have the US Federal Reserve Bank. No reason to pay interest on previously borrowed money (money system). The US Treasury could simply issue small denominations of T Bills, that would replace the US Federal Reserve Notes, and be totally interest free.
The banksters at Jekyll Island knew the trick, and had been enslaving Europe for centuries, and wanted to trick us into the same Feudalism that Europeans have been living under for centuries.
@@atheplummer 😆
This is misleading in a way in my opinion. When the government wants to make a payment, it is right that the Fed credits the persons bank reserves and the bank then credits the persons deposit account.WHAT WAS NOT SAID is that the Fed also needs to DEBIT the governments account, which the government holds in the Fed, in order to credit the proceeds into the comerrcial bank reserves. So government needs to have something in its account by the Fed before it orders FED to make spending for them. Same way as you have to have money in your account. When paying taxes, the taxes are DEBITED from your acc and FED debits your bank reserves, but than CREDITS the government account, it holds with the FED. The government can than again spend those money. The money does not dissapeat, it is not "burned". It is this "detail" you are "purposedly" ommiting from your videos, that creates illusion that the government can spend unlimited amount by giving order to the FED to credit someones account. It needs to have "money" on its account in the FED to do that in the first place and so the government is not creating the money out of nothing, like the FED can do, but the FED is not the government.
I have been trying to find someone with MMT knowledge to explain this to me also. The treasury has an account at the Fed that taxes and proceeds from bond issuance go to. So the Fed doesn’t just create the money, it debits this treasury account and credits the private banks reserves.