Is the US Government Now Borrowing Entirely from Itself?

Most people would puzzle over this question. How can anyone borrow from himself or herself? That’s logically impossible for any of us to do.

The federal government, however, operates by different rules. The US  government can borrow from itself  because the Federal Reserve, a branch of the  government, simply prints new money and then buys the government’s bonds with the new money. If private individuals did this, it would be called counterfeiting, but governments get away with it.

The government has borrowed from itself ever since the Crash of 2008. By now the Fed, that is, the government, owns more US debt than anyone else, even more than Japan or China. And this excludes what the government holds in its phony social security trust funds. This just counts debt bought by the Fed.

Larry Lindsey, President Bush’s first chief economic advisor, points out the obvious in the CNBC article below. The Fed now plans to print enough new money to buy bonds equivalent to the government’s entire annual deficit. So we no longer need worry about interesting investors, domestic or foreign, in these bonds, since the government can just borrow 100% from itself.

Fed chairman Bernanke has hidden all this behind a fig leaf. The Fed won’t buy US treasury securities in its new QE 3 program. It will buy mortgage securities, usually backed by agencies of the government. In that way, the Fed can deny that it is buying up the government’s deficit directly.

But the QE3 program is ongoing. It need never stop and there is no prohibition against buying treasuries rather than mortgage backed securities. So if any treasury bond auction is looking shaky, the Fed can step in and quietly buy. This may be the real rationale for QE3. It is hard to believe that Bernanke really thinks it will increase employment. So his real motivation may be fear for the treasury bond market and a desire to be able to intervene to support it.

Well, what is actually wrong with the government printing the money it spends? Consider a little math. If national income consists of a dollar, and the government takes a third in taxes, government obviously gets to spend 1/3. If government doesn’t tax at all, but instead prints 50 new cents, government also gets to spend a third. So printing money is a kind of tax. Moreover it is a tax that creates inflation.

Let’s say that the $1 economy consisted entirely of three  apples. If there is $1 in money, then each apple would be expected to cost 33 1/3 cents. But if the money supply increases to $1.50 because of government money printing, each apple would be now likely cost  $50 cents. This is because the act of printing money doesn’t create any more apples, or other goods and services. It never does.

Here’s another way to look at it. If I have a cup of milk, and I pour a half cup of water into it, do I have more milk? It might look that way to the uninformed. But actually there is no more milk than before.

In actuality, the money printing tax is a stealth tax which eventually steals our money through inflation. Because it’s stealthy, and because the inflation may not come right away, the average person doesn’t understand what is happening. But wealthy people do understand; they often make money off the whole process while average people and especially the poor suffer.

Why is the economy so bad? The answer is simple. Because Ben Bernanke and others in government keep destroying it.

Click for more on this from CNBC.

12 comments
peppfer p
peppfer p

Most people would puzzle over this question. How can anyone borrow from himself or herself? That’s logically impossible for any of us to do.

 

Not if you have a printing press.  Now just imagine if everyone had a printing press in their house.  You run out of cash and you just flip on the switch and wala...money.  But the deal is, you do have to pay it back ....one day.   "Scerw that" you say,  I'm printing more money. 

 

 This is exactly how the government thinks.

Elma Mabry
Elma Mabry

Joe Thielbar: Whose koolaid have you been drinking? Every time the Fed prints a new dollar, the dollar in your pocket is worth less. This type of stimulus is pushing 'Granny", who is trying to live on her savings, right off the cliff. It's Barack Obama who is pushing the wheelchair, not Paul Ryan.

Joe Thielbar
Joe Thielbar

Now is a great time for the FED to borrow money. It's bonds are the most sought after in the world and the long-term interest on those bonds is mere pennies. Using QE3 to increase the money supply and buy back long-term expensive bonds will give the economy a quick shot of juice. The idea is that eventually, the shot will wear off, but hopefully enough stimulus will happen so that the short term pain will be forgotten. It's good policy.

Aidan Haggerty
Aidan Haggerty

The Fed is going to kill the economy unless Congress reduces everything. QE is one side, the other side is Congress, and their responsibilities with coining money.

Janet Day
Janet Day

This is all part of the plan. The economic fall. Do you honestly think O/D looks worried about it, or our people getting murdered...or unemployment...or anything?

TomBaxter1
TomBaxter1

Thank God a Republican in charge of the Fed and have had for decades. Thank how bad it would be if we had a Democrat.

Brooks Godwin
Brooks Godwin

Why don't we just quit the lies and admit that the majority of the population likes being slaves . The rich have always been and we like it this way . There really is no need to go thru this farce every fours years . Just let them assign who they like because they know best . We could save a lot of money . Anybody in the 99 % could be assigned jobs and we would all be the same . Course they may leave us a little after taxes to dine at Mcdonalds once a month . We could all wear uniforms , so there goes the headache in accessorizing . No more silly talks of freedom and individually. Volkswagons for everybody and no need for guns . The masses do not need them only the rich . We all have the same . I can just taste them government rations now . No more what's for dinner . The two parties united long ago and 95% of the people have spoken . So stop the lie " America hope of the free bull". We need the one world govt .

Brooks Godwin
Brooks Godwin

95 % have half a brain . They vote two party so they do not want freedom.

Annie LovesLiberty
Annie LovesLiberty

a nation would have sovereignty over it's currency if not for the central banking cartel

John Gardner
John Gardner

the US treasury and the FRAUD are running a circle-jerk ponzi scam. Everyone with half of a brain knows this.