Is the US national "debt" an illusion?

[acptulsa]

If I'm not mistaken, Social Security has about 3 trillion or so in Treasuries, rest of the specific figures are out there on the Internet.....

Government is supposed to be paying the interest but since it is also the one in-charge of the SS accounts, it's basically the interest "saved" for the government i.e. the interest that they actually have to pay.

I think you are mistaken. Dubya rather famously raided that in 2005 to pay for his splendid little wars in Iraq and Afghanistan. So, the question of whether Treasury IOUs constitute a real trust fund or not may be completely moot and academic.

Firstly, NO, all banks are NOT Federal Reserve Banks! Fed can create money at will, other banks can't period. The 90% thing that you're trying to describe doesn't work that way, it's merely the leveraging of the monetary base caused by re-lending of the money. As I've said, there are a lot of videos & articles out there that are misconstruing & misrepresenting facts about Fed due to lack of understanding. The best place to learn about these things would be Mises.org

They may not be able to print money at will, but they still bring it into circulation by borrowing it from the Fed, so they are an integral part of the system, and this is part of the reason why so many banking mergers have happened--there are not as many banks left which aren't Fed stockholders as you think there are.

Which I think was the point.

 

[Paul Or Nothing II]

I think you are mistaken. Dubya rather famously raided that in 2005 to pay for his splendid little wars in Iraq and Afghanistan. So, the question of whether Treasury IOUs constitute a real trust fund or not may be completely moot and academic.

ClydeCoulter had asked about Treasury securities held by SS & that amount is actually close to 3 trillion, as I've mentioned.

They may not be able to print money at will, but they still bring it into circulation by borrowing it from the Fed, so they are an integral part of the system, and this is part of the reason why so many banking mergers have happened--there are not as many banks left which aren't Fed stockholders as you think there are.

Which I think was the point.

I don't think that was devil21's point. He, like many people, has bought into the MYTH that banks immediately loan out $1000 for the $100 they receive from the Fed, which is totally incorrect. That's not how it works.

As you may know, when Fed lends $100 to bank A, it can lend $90 to the borrower, who buys stuff with it, the seller(s) deposit those $90 into bank B & lend $81 & so on & on this cycle (on 10% reserve ratio) can cause the initial $100 issued by Fed to be leveraged up to $1000. This is how it actually works, this isn't money-creation in the way Fed creates money, it's mere leveraging of the original money.

And, banks have to pay interest on the loans they take from Fed so there's a cost involved, & the money that gets lent depends largely on economic demand; people have to be willing to borrow in order for that money to enter the economy, which is why despite low interest, banks are sitting on piles of reserves because demand for money in the economy is low.

 

[devil21]

nm

Now I remember why I usually avoid topics that are wonkish in nature, since every word selection ends up being parsed to infinity. No point since it's an argument about the difference between six and a half dozen.

 

[Paul Or Nothing II]

nm

Now I remember why I usually avoid topics that are wonkish in nature, since every word selection ends up being parsed to infinity. No point since it's an argument about the difference between six and a half dozen.

Nope, money-creation & leveraging are NOT AT ALL the same thing. Lending money does NOT create new money. If you loan money to someone, will that mean you have "created" money?????

 

[Acala]

The US federal government is a corporation and therefore federal land, the resources on or under that land and the citizens (people are corporate entities under our monetary system) are assets of the corporate federal government. That is what backs the debt issued by the federal government,

Simply, no. Not even close. It is true that Federal lands - like national forests, BLM land, etc. - are assets of the Federal government. But Citizens are not Federal assets. And private land and resources are not Federal assets. But even if they were, your statement would still be wrong because for an asset to "back" debt, the lender would need to have a claim against the asset in case of default. No such claim exists in the case of Federal debt, even against Federal land. In other words, if the US defaulted on its debts, the holders of the notes in default would have no legal recourse against ANY Federal land or other asset, let alone private land or citizens. Federal debt has no backing whatsoever, in the sense of any recourse in case of a default.

 

[Zippyjuan]

It is only backed by "the full faith and credit of the US Government" - just their promise to pay (and their ability to tax citizens).

https://www.fidelity.com/fixed-income-bonds/individual-bonds/us-treasury-bonds

Treasuries are debt obligations issued and backed by the full faith and credit of the U.S. government. Because they are considered to have low credit or default risk, they generally offer lower yields relative to other bonds.

 

[acptulsa]

Federal debt has no backing whatsoever, in the sense of any recourse in case of a default.

It is only backed by "the full faith and credit of the US Government" - just their promise to pay (and their ability to tax citizens).

Nice to see you two are in complete agreement.

 

[devil21]

Nice to see you two are in complete agreement.

I barely even try to break people out of the matrix anymore. Some are just destined to stay inside of it. The realization of how this system really works is not for the faint of heart.

 

[Paul Or Nothing II]

Some people have a hard time separating facts from fiction.........it's like they live in their own world, in their own mind, impervious to reason & facts......

 

[Paul Or Nothing II]

I barely even try to break people out of the matrix anymore. Some are just destined to stay inside of it. The realization of how this system really works is not for the faint of heart.

Are you in the habit of neg-repping others when you can't grasp the facts laid down by them? You're really pitiful.......

 

[devil21]

Are you in the habit of neg-repping others when you can't grasp the facts laid down by them? You're really pitiful.......

 

[Paul Or Nothing II]

If one were to believe that fractional-reserve-banking "creates money" then one would have to believe that lending money itself "creates money" but does it really??? I mean if we take the banks out of the argument for a moment, & imagine a bankless world, where people saving money (or even Fed-created money, for that matter) lend it to other people - say person A has $100 & he loans it to person B (or assume that B got a loan from Fed), now, person B buys stuff from person C, person C lends the whole $100 to person D & so on & on the cycle goes, just like it does when banks lend; except when banks lend (at 10% reserves), the leverage is capped close to 900% but when there's no reserve-requirement, as it would be the case with individuals lending to one another directly, the potential leverage is theoretically infinite, so would these people be "creating" money??? So, again, does lending create money? If someone (erroneously) believes so, then do they hope to outlaw all lending itself? If yes then that would be a huge blow to the whole concept of free market capitalism because people saving & lending is a very important part of capitalism & the prosperity it is able to generate, if anything, it's the most important aspect of capitalism.

 

[Acala]

I barely even try to break people out of the matrix anymore. Some are just destined to stay inside of it. The realization of how this system really works is not for the faint of heart.

So you are saying that the treasury bonds I own give me a right to seize your assets (or even your person) in the event of a government default? Hahahahaha! I never knew I held so much power. Please try to live a clean life so you will be able to work my fields efficiently.

 

[Acala]

Nice to see you two are in complete agreement.

If somebody makes a correct statement, I will agree with the statement regardless of how often I disagree with them otherwise. I understand that some people develop an emotional aversion to other people which prevents them from recognizing or acknowledging a correct statement. I don't operate that way. If he's right, he's right. And he is right about this.

US treasury paper is non-recourse. I own some. There is no collateral. If the government defaults, I'm screwed. Do you really think that as a government bond-holder I could go to court and seize private property or enslave people because my bonds were not paid? Please . . .

 

[helmuth_hubener]

If one were to believe that fractional-reserve-banking "creates money" then one would have to believe that lending money itself "creates money" but does it really?

Your if-then statement is not true, and yes, fractional reserve banking really does create money.

You say that through loaning and through buying stuff, the money goes from A to B to C to D. Here's the kicker though: it moves through those people, one at a time. You never get a situation where A and B and C and E and N and Z all are holding the same $100 dollar bill in their hands. The $100 is moved, it is not copied.

In banking, in contrast, it's copied. What happens is that A keeps his money, not loaning it to anyone, and can spend it whenever he likes. He asks B to keep it safe for him. B says "OK, I'll keep it safe for you," and puts the $100 into the vault. Then, based on the existence of that $100, they virtually "loan out" $900 or so, by creating $1,000 or so in new checking account balances ($100 of which is A's account). That's the mind-boggling truth that's the key to understanding the banking system. That $900 of checking account balances is indeed new money. Where did it come from? Nowhere! Poof! It just appeared. It is, in fact, fraudulent. If A and whomever the other $900 went to all showed up at the same time to get their money, it would become clear that the money was fraudulent. There's only $100 sitting in the vault. The rest is new, phantom money created by the fraudulent act of B.

 

[Acala]

Your if-then statement is not true, and yes, fractional reserve banking really does create money.

You say that through loaning and through buying stuff, the money goes from A to B to C to D. Here's the kicker though: it moves through those people, one at a time. You never get a situation where A and B and C and E and N and Z all are holding the same $100 dollar bill in their hands. The $100 is moved, it is not copied.

In banking, in contrast, it's copied. What happens is that A keeps his money, not loaning it to anyone, and can spend it whenever he likes. He asks B to keep it safe for him. B says "OK, I'll keep it safe for you," and puts the $100 into the vault. Then, based on the existence of that $100, they virtually "loan out" $900 or so, by creating $1,000 or so in new checking account balances ($100 of which is A's account). That's the mind-boggling truth that's the key to understanding the banking system. That $900 of checking account balances is indeed new money. Where did it come from? Nowhere! Poof! It just appeared. It is, in fact, fraudulent. If A and whomever the other $900 went to all showed up at the same time to get their money, it would become clear that the money was fraudulent. There's only $100 sitting in the vault. The rest is new, phantom money created by the fraudulent act of B.

Unable to plus rep you again

 

[Paul Or Nothing II]

Then, based on the existence of that $100, they virtually "loan out" $900 or so, by creating $1,000 or so in new checking account balances ($100 of which is A's account)..

Let me say, over the years, I've read many of yours posts & I've to say they tend to be very well-informed & I can't recall particularly disagreeing with any of them but sorry to say, I've to disagree with the above.

Now, I see that you've had a discussion about FRB with Zippyjuan, & in my opinion, he made the right arguments but you summarily dismissed his arguments. So, we can talk about what "money" is & whether FRB is fraud, etc but FIRST, let's at least agree on the basics. Banks do NOT lend $900 when someone deposits $100 with them period. Now, I don't expect you to take my word for it but I'll link Joseph Salerno's video about FRB, just to make the point that banks actually only lend $90 when someone deposits $100 with them.

You can skip to about 10 minutes into the video, which is where he explains that banks lend $90 out of $100 & the lending cycles thereafter; as opposed to your assertion that banks lend $900 if someone deposits $100.



Now, after watching the relevant part of the video, you may agree with the fact that banks lend $90 out of $100 (not $900) OR you may come to the conclusion that Salerno is an idiot (& so am I)
for thinking that banks only lend $90 out of $100 (& not $900); if it's the former then we can continue the discussion, if it's the latter then any discussion on the topic would be a waste of both of our time since we don't even agree on the basics.

 

[The Gold Standard]

You aren't getting the whole picture. If someone deposits $100, the whole system, regardless of which banks are involved, can multiply that by 10.

Depositor A deposits $100, bank lends $90 of it.
Borrower B deposits this $90 (or spends it and whoever they gave it to deposits it), of which $81 is loaned out to Borrower C.
Borrower C deposits this $81, of which $72.90 is loaned out.
Borrower D deposits the $72.90, of which $65.61 is loaned out.

And so on until you get $900 additional dollars on top of the original $100 deposit, all of which are in demand accounts that these people expect to be able to spend at any time.

 

[Paul Or Nothing II]

You aren't getting the whole picture

Sorry but you should have read earlier posts.

I don't think that was devil21's point. He, like many people, has bought into the MYTH that banks immediately loan out $1000 for the $100 they receive from the Fed, which is totally incorrect. That's not how it works.

As you may know, when Fed lends $100 to bank A, it can lend $90 to the borrower, who buys stuff with it, the seller(s) deposit those $90 into bank B & lend $81 & so on & on this cycle (on 10% reserve ratio) can cause the initial $100 issued by Fed to be leveraged up to $1000. This is how it actually works, this isn't money-creation in the way Fed creates money, it's mere leveraging of the original money.

 

[Danke]

That is how they expand currency, not create money.