When a Bank Purchases Debt from the Government - What money are they Using?

Simple question. I want to see if light bulbs will start going off in people's heads with this discussion.

Fact: 99% of United States debt when first auctioned off is bought by banks and foreigners. Including 70% are purchased by Primary Dealer banks who are mandated to participate in every auction and make a market for Govt debt.

Now my question is a very crucial question in my theory on money creation, what money is the bank using to purchase these treasury's?

 

I specifically said when the debt is first auctioned off. And there are couple ground rule statements we must abide by in this debate if it is going to get any where.

#1) Intragovernmental debt should not be included. It is the government issuing and selling debt to itself.

#2) The chart you showed is who currently owns the debt. My question is what money do banks use to purchase treasury's directly from the Government.

Show me how a bank balance sheet looks before and after a purchase of a treasury. What would be their liability?

 

Iriemon,

Check this out... here is a quote directly from the Treasury report on their finances.

So what this is saying is that banks use TT&L accounts to purchase Government securities. This is what I've been saying the whole time.

So when a bank purchases a treasury... it gains an asset (the treasury), loses an asset (TT&L Acct), and then gains a liability (TT&L Acct).

Click on "Account of the US Treasury". Let me know what you think.
http://www.fms.treas.gov/bulletin/index.html

 

A much better question is WHY can't the government live within it's means... WHY DO THEY NEED TO AQUIRE DEBT IN THE FIRST PLACE?


Clearly there is a lack of discipline in leadership to balance their spending with the taxes collected from citizens.

Rather than focusing on the real issue... creating a burden of debt that will be immorally forced upon our children ...if not resulting in a total economic meltdown/failure of the US economy first.... we are discussing "how" the leadership applies "fuzzy math" to accounting practices to defraud (us) citizens.

Why don't we just demand that the STOP it ? Are we too complacent,weak and intimidated to kick them out when we go to the polls and vote?

Apparently so.

 

Think about the accounting that goes on behind these transactions.

Primary Dealer Balance Sheet
Assets | Liabilities
Required Reserves 600 | Deposits 6000
Excess Reserves 400
Loans 5000

Now the bank decides to purchase a Treasury from the Government for $1000
Primary Dealer Balance Sheet
Assets | Liabilities
Required Reserves 700 | Deposits 6000
Excess Reserves 300 | TT&L Note Deposits 1000
Loans 5000
Treasury 1000

You notice that during this process the amount of deposits has not changed. The acquisition of a Treasury is no different than a loan. The liability the bank takes in return is an account with the Treasury.

So now the treasury has $1000 to spend and has not taken a dime out of the economy. Let's say hypothetically the Treasury spends $1000 to a recipient at the Primary Dealer bank. Watch the transformation of the balance sheet.

Primary Dealer Balance Sheet
Assets | Liabilities
Required Reserves 800 | Deposits 6000
Excess Reserves 1200 | TT&L Note Deposits 1000
Loans 5000 | NEW DEPOSIT 1000
Treasury 1000

Now there are $1000 in new deposits in the system with out any debit from the system at all. Now say that the account owner buys the Treasury from the bank for $1000

Primary Dealer Balance Sheet
Assets | Liabilities
Required Reserves 700 | Deposits 6000
Excess Reserves 300 |
Loans 5000 |

You noticed how magically it all disappeared? Not once during this process did the nonbank public lose any money.

Like I have been saying the whole time, the national debt is what we use to pay our taxes and to purchases treasuries on the secondary market. It is not how much the Govt has "borrowed", it is how much the Govt has spent.

 

You are focused too much on your partisan political beliefs. This is a discussion on economic realities. If the Government is crediting your account with out debiting your account, then you have more money. The "debt" we owe is the money you have in your pocket.

 

So technically, by cutting Government spending in a recession, all you are doing is cutting off even more liquidity from an economy that is suffering from not enough spending.

That is why every President in the past 70 years has spent it's way out of a recession and we come up bigger and better than before. Poor Obama is not allowed to follow the very same principles that have lead us to greatness in the past!

 

It's amazing how people will continue to perpetuate pure lies when given examples of the truth. I have repeated over and over again that the National Debt is how much money has been spent, not how much money has been borrowed.

You would think with this kind of knowledge people would change their mindsets on deficit spending and realize that it is actually helping us rather than hurting us.