Monetary Sovereignty

[The Script]

Roger Mitchell claims that the United States is Monetarily Sovereign and therefore can fund unlimited programs because it can always print more money.

http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/

My understanding of the way the US "prints" money is that it actually sells US Treasury bonds to the Federal Reserve, and therefore at some point has to pay back those bonds with interest.  If this is true, this guy is completely nuts or just doesn't understand basic economics.  Thoughts?

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has to pay back

Why? Who will force them?

[benjamindees]

The United States thinks it is monetarily sovereign because 1) it would like to be and 2) it would be broke otherwise.  And the way it has rationalized this is by effectively nationalizing private banks (the Federal Reserve), loaning themselves unlimited funds from the nationalized banks (quantitative easing) and then claiming the power to arbitrarily re-distribute wealth (ie your house) for the benefit of the private banks (Kelo v. New London).  To cover this all up, they forced the banks to accept insignificantly tiny loans (that they didn't want) and pay them back immediately, and then had the corporate-owned media run stories about how the US is the one bailing out the banks instead of the other way around.  It's all ridiculous.

[The Script]

Roger Mitchell claims that the United States is Monetarily Sovereign and therefore can fund unlimited programs because it can always print more money.

http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/

My understanding of the way the US "prints" money is that it actually sells US Treasury bonds to the Federal Reserve, and therefore at some point has to pay back those bonds with interest.  If this is true, this guy is completely nuts or just doesn't understand basic economics.  Thoughts?

The answer to that question depends on who actually controls the Federal Reserve. There are several clues in Lewis v. United States of America:
http://bulk.resource.org/courts.gov/c/F2/680/680.F2d.1239.80-5905.html

Dude, I've been looking for definitive evidence that the Federal Reserve is a private organization and not under the Federal Government's supervision.  While I know this fact to be true I wanted something I could use to convince the nay-sayers.  And here it is.  I'm poor, but give me your bitcoin address and I'll send you 1 BTC as a token of thanks.

[The Script]

has to pay back

Why? Who will force them?

The Federal Reserve?  They could refuse to lend more money unless interest is payed.

[Jered Kenna (TradeHill)]

has to pay back

Why? Who will force them?

The Federal Reserve?  They could refuse to lend more money unless interest is payed.

Hmm that's interesting. I suppose they could but then what would the US do? The same thing they did before the fed?

[The Script]

has to pay back

Why? Who will force them?

The Federal Reserve?  They could refuse to lend more money unless interest is payed.

Hmm that's interesting. I suppose they could but then what would the US do? The same thing they did before the fed?

I think we have to look at "the Fed" and "the US" as the collections of individuals that they are, rather than acting entities.  I would guess that the reality is that the Federal Reserve has a LOT of influence in the United States government and will keep getting interest payments from the US government as long as the current system holds.  It wouldn't surprise me if wealthy members of the Federal Reserve cartel gave significant donations to election campaigns of US congress members. 

[The Script]

Roger Mitchell claims that the United States is Monetarily Sovereign and therefore can fund unlimited programs because it can always print more money.

http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/

My understanding of the way the US "prints" money is that it actually sells US Treasury bonds to the Federal Reserve, and therefore at some point has to pay back those bonds with interest.  If this is true, this guy is completely nuts or just doesn't understand basic economics.  Thoughts?

The answer to that question depends on who actually controls the Federal Reserve. There are several clues in Lewis v. United States of America:
http://bulk.resource.org/courts.gov/c/F2/680/680.F2d.1239.80-5905.html

Dude, I've been looking for definitive evidence that the Federal Reserve is a private organization and not under the Federal Government's supervision.  While I know this fact to be true I wanted something I could use to convince the nay-sayers.  And here it is.  I'm poor, but give me your bitcoin address and I'll send you 1 BTC as a token of thanks.

Thanks, but you can give it to Nina Paley: http://bitcointalk.org/index.php?topic=5336.0;topicseen

Done.  At first I was irritated that the contribution had to be EXACTLY 1.29 BTC (?!??).  Then I looked at my Mt. Gox balance which was xxx.29.  It was meant to be.

[Teazer]

Figured I'd chime in on this one....

Roger Mitchell claims that the United States is Monetarily Sovereign and therefore can fund unlimited programs because it can always print more money.

http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/

My understanding of the way the US "prints" money is that it actually sells US Treasury bonds to the Federal Reserve, and therefore at some point has to pay back those bonds with interest.  If this is true, this guy is completely nuts or just doesn't understand basic economics.  Thoughts?

There are quite a few problems with the article:
1. While a fiat system allows as many units of that currency to be printed as the central authority requires, they cannot enforce an exchange rate. Countries that play fast and loose with coinage tend to end up having debts denominated in other countries currency, and so can become bankrupt. That said, if the US suddenly and completely unexpectedly decided to pay off all its bonds with printed money, and the Federal Reserve went along with the plan, they could do so. The long term costs of such actions have so far been sufficient to stop that from happening (except once, and that was to the French).

2. Prior to 1971, the US was on the Bretton-Woods system which had a lot in common with a bimetallic system, where value was dictated by the supply of both gold and $US. During this time there was little to restrain the US from expansionist currency policies since exchange rates with other currencies were fixed, but the supply of dollars was not. The problem then was that while the $us-gold exchange rate was fixed at a certain level, there was really nothing to stop that exchange rate being changed at the convenience of the US. The last proper gold standard was before WWI. That system did constrain money creation since a countries currency never deviated from its fixed value in gold, which was enforced through international trade.

3. The problems with the mentioned European countries was primarily due to their debt levels. Sure, they cannot print money to get out of the problem, but that would be somewhat equivalent to paying the debt off by taxing all their citizens in proportion to their wealth, but with additional consequences into the future.

4. The reason Japan can service its debt is through borrowing/issuing debt, which is bought mostly by Japanese. It has little to do with the ability to coin money. However, their overall level of debt is still growing so the problem is pushed down the road.

5. The stated lack of relationship between deficit spending and inflation he cites is missing a lot of detail. Part of it is from the created $US being vacuumed up by Japan, China etc in return for trade goods and also as investments in US treasury bonds by both those countries and other investors. There are lags in the relationship which make direct correlations sketchy. Looking at autocorrelations would be a better method. Increases in productivity can offset inflation effects. etc etc etc. Inflation is a much more long term phenomenon than deficits, but changes can most easily be detected in treasury bill prices after announcements of changes in government spending (for those interested see Balduzzi etal 2001).

6. The employment/fiscal stimulus issue ignores the case where a previous federal employee gained more productive employment in the private sector.

7. Money supply should be considered in relation to money demand, which is a function of the size of the economy which has grown by 1200% over that time frame.


In conclusion, the guy is, as you say, nuts.

[deadlizard]

US notes are still in circulation. US notes have been deemed lawful money by congress. the amount of US notes that can ever be printed is fixed. The US still mints gold and silver eagles as legal tender.
The government hasn't screwed the people, the people screwed themselves. Stop endorsing private credit.
http://bitcointalk.org/index.php?topic=4941.0

[Teazer]

The answer to that question depends on who actually controls the Federal Reserve. There are several clues in Lewis v. United States of America:
http://bulk.resource.org/courts.gov/c/F2/680/680.F2d.1239.80-5905.html

The Lewis case is interesting, but lacks some detail as to specifically why it is not considered a Federal agency wrt the FTCA. Some clarification can be found in the more recent:
http://ftp.resource.org/courts.gov/c/F3/226/226.F3d.1269.99-15301.html

<< The FTCA defines "employee of the Government" to include "officers or employees of any federal agency ... and persons acting on behalf of a federal agency in an official capacity, temporarily or permanently in the service of the United States, whether with or without compensation." 28 U.S.C. 2671. As this definition makes clear, even private individuals who are not on the Government's payroll may be considered employees for purposes of establishing the Government's liability under the statute.
22

To determine whether an individual is an employee of the Government, this Court in Means adopted the "control test." 176 F.3d at 1379. Under this test, a person is an employee of the Government if the Government controls and supervises the day-to-day activities of the alleged tortfeasor during the relevant time. Id. (citing Logue v. United States, 412 U.S. 521, 526-32, 93 S.Ct. 2215, 2218-2222, 37 L.Ed.2d 121 (1973)). Notably, it is not necessary that the Government continually control all aspects of the individual's activities, so long as it has the authority to do so given the nature of the task. >>

While the Fed is not a direct part of the government, that doesn't mean the government does not have oversight over its activities. The current incarnation was created out of a wholly independent version by legislation during the 1930's. It is audited regularly, though not without some restrictions wrt its decisions to create money. It needs to report regularly to Congress on its actions. Any profit it makes  is returned directly to the US Treasury to offset government spending.  As an ultimate threat, Congress retains the ability to redefine the relationship any time it wants, as has been seen in the last couple of years regarding required disclosures. Fundamentally it is an organization created by Congress to do the work that needed to be done, but at a distance from elected officials who would have a greater interest in pumping up the economy to get reelected rather than in the long term health of the economy. This long term interest in stable prices constrains the Fed to raise interest rates when it sees the market being over inflated or at risk of serious inflation. Due to this distance, legislated by Congress, the government does not control the day to day activities of Fed employees and so they are not subject to the FTCA.

Hopefully that clarifies the issue a bit

[Teazer]

US notes are still in circulation. US notes have been deemed lawful money by congress. the amount of US notes that can ever be printed is fixed. The US still mints gold and silver eagles as legal tender.
The government hasn't screwed the people, the people screwed themselves. Stop endorsing private credit.
http://bitcointalk.org/index.php?topic=4941.0

LOL. Any time you want to sell your "legal tender" for the $1 printed on it, go right ahead.

[grondilu]

It's all ridiculous.

+1

[goatpig]

Roger Mitchell claims that the United States is Monetarily Sovereign and therefore can fund unlimited programs because it can always print more money.

http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/

My understanding of the way the US "prints" money is that it actually sells US Treasury bonds to the Federal Reserve, and therefore at some point has to pay back those bonds with interest.  If this is true, this guy is completely nuts or just doesn't understand basic economics.  Thoughts?

US Treasury bonds that the congress "sells" to the Fed don't hold a debt, since even though there is interest on it, the Fed returns that interest back to the Treasury. If the congress wants to reduce the outstanding amount of bonds in the economy, it buys a few back from the Fed, but interests aren't involved. There is an ongoing scam on the selling and buying of US Treasury bonds to individuals though, on which the government has to pay interest. The Fed can't just print money on its own accord, but they get to control the interest rate of the (fake) money they loan out to the financial institutions.

"Monetary sovereignty" holds no power. The government has 3 ways of raising funds: tax money, outright printing money through the fed, or borrowing on the market, by selling Treasury bonds to whoever wishes to buy them and paying interests on it to the holder.

This "monetary sovereignty" delusion is just a scam when you understand those points: Any interests collected by the Fed is returned to the treasury, and taxes are an interest free supply of money, which means the only source of outstanding Federal debt is from loans taken on the market. Why would a country with the power to print as much money as it wants borrow so much money on the market that the interest on it will exceed its GDP? Certainly if they can print money, they don't need to borrow this much, do they?

Hell, why would the government even need taxes if it can just make all the dollars it needs out of thin air? Simply because if the government printed every dollar it needed, the inflation would destroy the economy. To prevent that, they borrow already existing money. The problem is, when the interest becomes too big, they start inflating the monetary mass to ease up the payments.

That so called monetary sovereignty is not only powerless at keeping the economy healthy, it gives power to the government to largely exceed its outstanding funds by taking a huge dump on the economy.

[PLATO]

The government at least partially owns banks like JP Morgan. Banks like JP Morgan own the fed.

There's something called a 'CAFR', or comprehensive annual financial report, that corporations have to file... including corporations like 'SALT LAKE CITY CORPORATION', 'BOSTON, CITY OF', and in fact, every municipal government.

The CAFR includes data on government holdings that are not mentioned in the municipal budget... things like pension funds, slush funds, 'special financing district' revenues. That money doesn't just sit there, the municipality buys stocks. We have absolutely no idea how much of corporate america is owned by the US government through these fund because these CAFR's are not publicised.

Clint Richardson traced out about a hundred million shares of JP Morgan in various funds (see here.)

Anyway - the govt still has the right to print it's own money. There's no good reason to keep the Fed around (as long as you don't mind ignoring mobs of terrified economists), the government could simply issue dollars themselves.

[barbarousrelic]

My understanding of the way the US "prints" money is that it actually sells US Treasury bonds to the Federal Reserve, and therefore at some point has to pay back those bonds with interest.  If this is true, this guy is completely nuts or just doesn't understand basic economics.  Thoughts?

You are correct as to how money is normally printed. And yes, the US government pays interest on this to the Federal Reserve. However, the Federal Reserve returns all profits it makes beyond operating costs back to the Treasury each year. So the US government is not exactly worried about interest it pays to the Fed because it's mostly coming back to the Treasury in the end.

[lymricist]

A Bitcoin Haiku:

      Cranky Bernake
will break the Banky.  Rejoin
 purloins with...Bitcoins!

[MoonShadow]

My understanding of the way the US "prints" money is that it actually sells US Treasury bonds to the Federal Reserve, and therefore at some point has to pay back those bonds with interest.  If this is true, this guy is completely nuts or just doesn't understand basic economics.  Thoughts?

You are correct as to how money is normally printed. And yes, the US government pays interest on this to the Federal Reserve. However, the Federal Reserve returns all profits it makes beyond operating costs back to the Treasury each year. So the US government is not exactly worried about interest it pays to the Fed because it's mostly coming back to the Treasury in the end.

It's like moving cash from your left pocket to put it into your right pocket, except IRL your left pocket can't make more at will.

[wb3]

They don't actually have to "print" anymore. But buying your own Treasury bills to "print" more money isn't really good fiscal policy. The fear isn't the money, it is the flow of money. If people start to save, our system is in dire consequences. The contraction of 10% towards savings is devastating, on taxes, consumer goods, etc...

To put it bluntly, we have crossed our fingers with the flood of cash, that we will make up initial loses with future gains. However, I don't expect there will any good coming out of future gains before the bills come due.

Just my fiscal prediction; I expect another collapse at $120-130 /bbl for oil. Oil will then tumble until $50-60 /bbl which will hurt certain countries relying on high dollar barrel for exploration. Mainly offshore oil requires high dollar barrels in order to justify investment. Mexico will be the most hurt with almost half of it economy based on Oil, and a 3rd based on imported dollars from overseas workers. Venezuela also needs high dollar barrels, as do some Middle East and Africa nations.

My play would to buy PUTS at 6-12 months out. and then convert to an intrinsic value system.

The cycle we are in is very dangerous, because this will eventually cause hyper-inflation. But before that happens we will sacrifice the poor countries to bolster our economy.  I.E. Zimbabwe really doesn't need any oil and gas, and since they can't buy food, they really don't need it. That leaves more food and oil for us, which will bring the price down.

And it will, temporarily.  Until another needs to be sacrificed.

Look on the bright side, if you are in the U.S., we are in a good position. We produce tons of food, we can defend ourselves from others. And when the wars start, and they will start, we are in a good position.