So you are saying without such convertibility no money can be created by the gov't, it must be bonds or notes of some kind. I take it you also say the Fed system, owned and managed by the banks, do not accrue unfair profit or influence to private banks?
First of all, before the Fed was organized the banking system in America was entirely private, so it makes little sense to complain that the Fed is "owned and managed by the banks", which isn't accurate anyway. It has both public and private features, and it's far more accountable to the public than the pre-Fed banking system. As for "accrue unfair profit or influence to private banks", I'm not sure what you are asking.
You overrate the importance of the government in money creation. Most "money" in America is created by local banks when they issue loans. Technically it's "credit money", but it all looks the same to us since over 90% of the money we use is just journal entries on bank accounts. Currency is a tiny fraction of what we use as money. There is a limit to the money banks can create through loans, a function of their deposits and reserve balances with the Fed.
The money that the government controls is the monetary base, which is essentially the same as the national debt. The Fed gets to control the mix of this monetary base, juggling how much is held as bonds and how much is held as cash. It does this by buying and selling T-bills on the open market.
If so, that's a huge difference in gov't budget burden, and economy, if we eliminate interest on new money-creation, remove the gov't from competing in the bond market, and cut the debt cost of gov't. The banks and brokers wouldn't like it, but the people would.
The government debt burden is the result of past government spending in excess of tax receipts, it has nothing to do with "new money creation". Creating new money isn't generating the national debt. The fact that we use the national debt as a theoretical limit on the monetary base has no impact on the burden of the Treasury debt. But the interest paid on the Treasury debt does serve to give strength to the dollar, simply because investors want a safe and reliable place to put their money, and there is nothing that rivals American Treasury debt. At least until we default, which hasn't happened yet. |
