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Posted by Warren Mosler (207.69.137.23) on 14:54:44 03/27/04
In Reply to: Re: National Review Online - Questions posted by Uwe Burkheiser
: : : 4. If tax increases are no option how will the Treasury pay for the Treasury securities at maturity? In other words is the Treasury simply able to credit the balance due on the Fed account (as outlined above) without issuing new Treasury securities?
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: : Yes, at maturity the security account is debited and a member bank reserve account credited. Again, there may be 'self imposed constraints' but no operational constraints.
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: Thanks Warren - for working on a Saturday!
: Follow up question:
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: Is not, what you call 'self imposed constraints' a prudent safeguard for preventing the government from being financed directly by the Fed?
No, at best that's a throw back to the gold standard, when issuing net convertible currency or deposits risked loss of gold reserves.
And if that would ever happen (financing by the Fed) how would it affect the chartalist reasoning?
It is best thought of as not applicable. All govt spending is via crediting member bank accounts, and is operationally independent of taxing or borrowing, etc.
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: Have a pleasant weekend & thanks again
: Uwe
No worries! You might want to re read 'soft currency economics' where the point was first made govt is best thought of as spending first and then borrowing, to support interest rates, etc.
The analogous question might be 'what if nyc issued subway tokens without first collecting them?'
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