>At the risk being labeled a crank (and I figure what
>the hell, anyone who posts on this list is probably
>considered a crank by the larger world...) I would
>like to attempt once again to point out how crucial
>this "reverse flow" is to understanding governemt
>finance. Money is created when the gov spends it; it
>is destroyed when it is returned in taxes or in bond
>sales. Why does this matter? It matters because bond
>sales are done only to manage interest rates by
>controlling the money in circulation - they are NOT
>done to "finance" government spending (which has
>already happened by that point, otherwise there would
>be no money to buy the bonds) The conventional view
>is that the government goes, hat in hand, to the bond
>market begging them to favor it with nickles and dimes
>for the poor widows and orphans. That's what Bob
>Rubin (who, as a bond trader, had a typically inflated
>veiw of his own power) convinced Clinton was the case:
>"You must bow down before the almighty bond market!
>You must cut the deficit, or it will be displeased and
>refuse to finance all your mad liberal schemes!"
>
>But in reality, the government couldn't care less
>whether or not anyone wants to buy its bonds. It
>already has the money. All that's happening is that
>people are exchanging a government obligation that
>doesn't pay interest (money) for one that does
>(bonds). If people would rather hold onto
>non-interest bearing cash, why should the government
>care?
This is a series of assertions offered without any evidence. Do these rules apply equally to the U.S. government and that of Germany? To the U.S. government and that of Italy? To Italy and Zambia?
Are there any limits on this process, or can governments just create money and spend it indefinitely?
And how do hyperinflations happen?
Doug