Alright. Well then why does [the government] sell bonds?
What are bond sales all about? It’s not selling bonds to cover a shortfall because it needs to borrow money from us. A lot of people have argued, and Bill talked about this a little bit earlier with the Rogoff and Reinhart piece, that there’s a
tipping point out there. Won’t we sell too many bonds? Won’t the debt get too large? Isn’t there some point of no return beyond which, right, the whole system collapses. What if the interest payments become too large? What if the rest of the world decides they don’t want to buy the bonds?
Bonds are nothing more than a savings account at the Fed. We give up dollars
today and we receive dollars plus interest at a future date. Okay, so if the government sells bonds
today, funds get moved from checking accounts. People who have money buy the bonds. Funds moved from the checking account into what’s effectively a
savings account. It’s the interest-earning asset, IOU of
the government, so that’s what we hold now. When the bonds mature the government credits our account, principal plus all of the remaining interest and the funds are
converted back into checking accounts, right? They move from saving back into
checking accounts. So if you want… I couldn’t get the 12 trillion. I wanted
the actual number, right? 12.4 wherever we are today but this is as recent as i could find. This is the National Debt Clock, right? The sum total of all of the outstanding bonds that the Treasury has issued and what we would argue is that we shouldn’t call that the National Debt Clock we should just rename it. It’s the national World dollar savings account, right?. All it does is keep a record of the total amount that’s invested in savings as opposed to checking
accounts at the Fed. It’s nothing more than that Alright something about the issue of
solvency, the tipping point problem. Can the government run out of money? The US government can’t run out of money any more than the Washington Nationals baseball team stadium can run out of
points. Okay. Every time a ball game is played at
Washington Nationals stadium some team score some points and they appear on the
screen and then the other team scores and some more points appear on the
screen and there’s nobody behind the screen going, Hey Johnny! We’re running out of points here!” You know? Right? “Look in the trust fund!” That’s not the way it happens. You just
add the points, okay? Same exact thing with the way the government operates and this is the quote that Marshall brought up earlier
and the one that Warren likes to use a lot and I like it too, so here it is in
writing so that you know we didn’t make it up. This is Ben Bernanke in an interview on 60 minutes just last year when Pelley asked him, “is
that tax money the Fed is spending?”, and Bernanke says, “it’s not tax money the
banks have accounts at the Fed much the way that you do have an account a
commercial bank so when we want to lend to a bank we simply use the computer to mark up the size of the account they have with the Fed”. It’s exactly like putting points on the screen at the baseball game. They just mark up the balance. Can you run out of points? Can the
government run out of money? No. There is no solvency issue when you are the issuer of the currency.