How Economists Hide TRUE Money Mechanics To Sell Wars | Prof. L. Randall Wray (youtube.com)
The commons thinks the government ‘reserves’ means they wait for tax money to come in and they spend it. They take in money and spit it out. But not so.
How the government spends money is this. The operations the government goes through to spend. The Central Bank makes the payments for the Treasury electronically by crediting a private bank's reserves and that bank credit the demand deposit of the recipient of the government spending.
When you receive a social security cheque, you take it to the bank. The bank sends it to the Fed who credits the bank's reserves and the bank credits your bank deposit.
So the word ‘reserves’ is not a well-named concept. It's not something accumulated and held somewhere. It's a reference to this actually happening long ago, where banks would hold actual reserves, notes from international currencies etc.
All the banks have accounts at the Federal Reserve Bank. Just electronic entries just like the entry at your bank. That's the asset, and the demand deposit is the bank's liability, owing you the right to draw down on that. Your private bank makes payments for you.
The money comes from banks creating all the deposits. The Central Bank creates the Treasury's deposit. Your private bank cannot run out of desposits because it can always create more. Just like the Federal Reserve does for the Treasury. They can always allow a loan or overdraft (as long as it's within the rules of operation).
Defaults ('voluntary defaults') can occur but are rare because it is a stupid policy, it makes you not credible, it makes your debt not credible, so countries rarely do this. But ‘involuntary default’ is not possible, because the Central Bank cannot run out of its own asset. You can't run out of your own IOUs.
US ‘owes $33t’ which is a stupid metric to use anyway. US government debt has only been paid back one time, 1837. Sometimes US runs a budget surplus, which means you're retiring some debt. A balanced budget means your level of debt remains the same. There's been a budget surplus seven times in the US.
So it's not true ‘you have to repay the debt.’ It grows faster than the US economy for almost 250 years. There are always people who want to buy US bonds, there are always more than are for sale.
Public debt is private assets. The money supply (cash and bank deposits) typically grow with the economy. Bonds are more like savings.
...
Argentina and Greece have gone into default, because they use foreign-currency debt. They have to get hold of US dollars to pay their debt, so they can't just print at whim. IMF imposes conditions to give them dollars, such as downsize government sector, bust labor unions, lay off workers, increase unemployment rate. So the country says no thank, we prefer to default. But the debt in their own currency doesn't default.
Probably the ECB won't allow something like Greece to happen again.
Equador issues a USD-equivalent which have the same value as USD, but in order to do this they have to maintain a reserve of USD to make sure they don't get a run and can't convert them all.
In all wars before WWII, the result was inflation, because the government just bid the prices up (bid more than the common market for all goods it wanted to use in the war). Keynes wrote about how do you pay for a war (without inflation), and he didn't write about “Where do you find the money?” but rather “How do you release the resources?” You need to get the private sector to stop consuming. Some ways are patriotic saving, tax increases, rationing, wage and price controls. The big issue was Fighting Inflation. Government worked with labor unions and private firms so they would agree to hold wages steady throughout the war, even though they were at full employment and workers could have demanded more. Finding the money was not the problem (because the government can't run out), but rather finding resources.
... So most economists who came up were anti-government. It was understood the consumer faces a budget constraint ie they could spend their wages or borrow but be careful about borrowing because you can get into trouble. Economists applied that to the government in the 60s (because it was known that the government couldn't actually run out of the ability to print more money for itself, except on gold standards). Economists convinced politicians, a ‘reaction against Keynsian economics.’
It has long been understood that it is good for the population for the government to hold debt.
...
To own a sports team, you have to have other sources of revenue, said Cuban, who sold most of his share of the Mavericks, which he bought in 2000 when he was the tech guy with all the advantages. Now sports team owners are talking about having casinos, real estate developments, hotels. ‘That’s just not me' said Cuban.