Absolutely wrong. You don't know what a pure financial asset such as treasury bond is. Treasury bonds are Not a savings account at the Treasury. They are bonds that are backed by debt but it not in the end government debt. There is also no such thing as treasury bonds that are backed by debt of government because they are only pure financial assets that are backed by debts of the taxpayer. The treasury does not back bonds by anything other than the debt that it passes onto taxpayers who fund the payout and the interest because government does Not pay for anything but ultimately charges the taxpayer for what it spends. If the treasury could create financial assets without a debt it could create wealth without debt which is complete impossibility and never been done anywhere just as a privately created financial asset without debt could be created with is another thing that has never been done.

Thanks for listening. Douglas from our team recently went on Steve Keen's show: kzbin.info/www/bejne/j6jbi3qdlrqnaNE

Impossible! Thanks for listening.

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You said, "... new money ... is created from government's Treasury department selling treasury securities to the Federal Reserve bank." That's not quite right: The government's Treasury department cannot sell treasury securities to the Federal Reserve bank (the Fed). The Fed buys (previously issued) US Treasury Bonds from the (public) Bond Market. The Fed can't buy (newly issued) US Treasury Bonds directly from the US Treasury because it's "against the law". It'd be a conflict of interest for the Fed (an agent of the US Treasury) to be buying bonds directly from the US Treasury. The Fed has the power to --literally-- print money out of thin air. The Fed, thereby, has an unlimited amount of money, and thereby is insensitive to the price paid, unlike any other buyer. Sure, there "could" be other buyers bidding on the same newly-issued bonds from the Treasury, but the Fed would easily drown-out all other buyers, and the resulting price would hardly be a "market price" set by the bids of willing participants in the Treasury Auction. The market price of bonds is inversely related to it's yield-to-maturity (YTM), and the YTM is the actual "market-price signal". The market-price (i.e., interest rate) is a signal which informs the world about Uncle Sam's financial stability. If the YTM rises, one can surmise that there's a perceived increase in risk of default, and/or expected-inflation. If the signal is blurred, or eliminated, there could be a breakdown in financial markets. And this leads to the other question: What difference does it make if the Fed buys (previously-issued bonds) from the (public) Bond Market? Well, the public bond market is much larger than any Treasury Auction, and the Fed can only buy bonds until the market interest rate falls to the Fed's predetermined target. The Fed determines the "target interest rate" based on what they perceive to be "best" for the Economy, not what's cheapest for Uncle Sam.

@@neilanderson891 Yes, the law says US Fed buys Treasury bonds on the market but recently it has bought them directly from the government. It does not really matter if they buy them on the market because they actually buy them according to their agreement. Besides that all the law does is put in an intermediary which is the market. Just like me agreeing to buy your house through an intermediary. I still get the house and you get the funds and without an understanding of the whole situation there would be no bonds and no transaction that created new money for government to borrow. The key understanding of the whole money system today and paticularly since 1971 is the official sovereign money of countries is all based on credit and credit is financial asset as well as it being unable to exist in any form unless corresponding debt obligation held by another party also exists. All financial assets can only exist with this in place. Additionally all financial assets be they money (e.g. dollars) or other forms of financial assets are connected to each other because they are on the market and are exchanged with each other. e.g. like which was illustrated by the Sub prime mortgages of the GFC. I agree with what you say about the bond prices and the market but in addition to what you said there is always present the three combined components of the demand, supply, price mechanism in action. More newly created money therefore creates additional financial assets with a price shown on the face of dollars. Those dollars compete with other existing dollars and that forces prices up because all financial assets can bid for goods and services either directly or indirectly.

@@Rob-fx2dw - You said, "but recently [the Fed] has bought them directly from the government." Are you sure the Fed bought Treasury bonds directly from the Treasury, which I suppose would've been in an Auction? Where can I find confirmation of that? When was it? Why would they need to do that?

@@neilanderson891 I cannot immediately find the article now but ask why it would matter if they did not buy them on the market or directly. The idea of buying government treasuries from the market instead of directly was to demonstrate the independence of the Fed from government. It is just really smoke and mirrors. In either case the government creates them and the Fed buys them through the market or not. In either case they are financial assets that were created and paid for with newly created money therefore there is new money in the economy with new debt and no new goods produced because of it but along with that there is also a future obligation on the private sector (the public) which will have to be funded by them to pay off the treasury debt on maturity.

@@Rob-fx2dw When the Fed buys "old" bonds from the Bond Market, there's more money in circulation, and a price signal which indicates what the Bond Market thinks about the Government's debt burden and inflation, even though the burden has not changed. This is like driving a car by carefully assessing what can be seen in the rear view mirror. If the Fed were to buy "newly-issued" bonds from the US Treasury, there'd be more money in circulation, but no price signal to indicate what the Bond Market thought about the Government's increased debt burden, nor the prospects of inflation. In the last year, I've seen one or two others talk about the Fed "buying from the U.S. Treasury", but figured they simply mis-spoke. It was outlawed in 1981, I think. Why would the Fed need to buy from the Treasury - Was the Bond Market frozen in fear?

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Please tell me I'm not being naive: the basics tenets of MMT are quite simple to understand and are incontrovertible. Stuart Varney really doesn't understand that the Federal government spends U,S. dollars into existence and that taxes aren't needed to fund Federal government operations?

I think you answer my question in the episode with using the term “Fed”. Question - when you use the term “Fed” does it represent the Treasury and the Central Bank combined or is it one or the other? I can’t recall its technical meaning. Thanks

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