> (email exchange)
> On Sun, Feb 7, 2010 at 8:45 AM, Seth wrote:
> scott brown was on TV this week saying we had to stop spending money we don’t have
> and are borrowing from the Chinese-that 40% of obama’s budget will have to be
> borrowed from Chinese and paid back by our children hopefully he is reading your stuff
Yes, hope to put that to rest Thursday, assuming that’s what CNBC wants me to discuss.
Hope to definitively dismiss the entire line of thought.
1. Taxation serves to regulate aggregate demand, not to collect revenue per se.
Govt doesn’t ever have or not have dollars- it’s the score keeper
It taxes by changing numbers down in our accounts, and doesn’t ‘get’ anything
It spends by changing numbers up in our accounts, and doesn’t ‘have less’ of anything.
China is not involved in this process.
There is no operational connection between taxing and spending.
2. China gets dollars by voluntarily selling things to us, presumably because they’d rather
have the dollars than what they sold.
Those dollars go into their ‘checking account’ at the Fed called a ‘reserve account.’
Treasury securities are functionally nothing more than a ‘savings account’ at the Fed
When China buys tsy securities to earn more interest the Fed debits their reserve account
and credits their securities account.
The $13 trillion of US debt is best thought of as the $13 billion held in savings accounts at
When China’s or anyone else’s tsy secs mature the Fed debits their securities account and
credits their reserve account.
This is operationally unrelated to spending and taxing.
3. The issues of concern include ‘inflation,’ but not dependence on foreign ‘investors’ and
not solvency nor funding issues.
All we owe China is a bank statement.