Yes, Obama Did Triple The Deficit

ScreenHunter_1072 Feb. 17 07.05

TARP was a one-time off budget loan. It was intended to be paid back and should have counted as a credit in subsequent years. Obama and the Dems pushed through a $1 trillion stimulus Act during his first few weeks in office in 2009. Obama tripled the deficit and has borrowed more money than all other Presidents combined.

Don’t fall for Old Democrat Mind Tricks.

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36 Responses to Yes, Obama Did Triple The Deficit

  1. I find politics in USA is confusing and wonder where the country is heading. There is plenty of evidence that government spending in US at the time of the depression extended the depression. Communism in USSR, European countries (eg East Germany) and even China has been shown to be a failure. Voters in the USA should think that socialism will in the long term will lead to Dictatorships and ruin. Privatization in China and to an extent in Russia have improved the welfare of ordinary people. Obama is one of the worst Presidents USA ever had.
    On another track I tend to think putting financial restrictions on Russia could force Putin or some military replacement down the Hitler road. Russia should be encouraged to have a more open economy with more private investment, and government privatization.

    • SMS says:

      That is a very interesting graph. You can easily see how a war economy effects the debt and the time to recover. Usually the economy grows significantly following a major war. In Obama’s case there is huge debt and an economy that is struggling. The impact of Obama’s debt will be with us for a long time.

      • Crowbar of Daintree Forest says:

        The graph is misleading and nigh on useless. When Governments madly borrow and spend, they temporarily increase the GDP but it’s make-believe GDP. The death spiral occurs in the future when the borrowing is forced to stop, the fake GDP disappears in a recession/depression, and yet the massive debt remains. The next president will leave the highest Debt to GDP ratio of all or them, no matter how much they do to reign in deficits during their term(s).

    • Andy DC says:

      Every president since 1912 has piling up debt to artificially prop up the economy. As with all Ponzi schemes, it must eventually collapse under its own weight. Not a matter of if, but only a matter of when.

    • Crashx says:

      Since the House of Representatives has the “power of the purse” it would be interesting to see this type of chart include a breakout for the party in control of the House. Bush had lower annual deficits with the Reps in the House than the last couple years when the Dems took over. Similarly, Obama’s deficits began to contract only when the Rep House tried to put the brakes on spending. Clinton had lower deficits when the Reps with Gingrich were in the House. It’s always interesting to see various factions either complain about or take credit for actions that in historic hindsight are perceived different than their original position.

      The root of the current problem is the Dems circumventing the process of annual budgets negotiated by all three branches in lieu of the repetitive “continuing resolution” omnibus funding. The one-time-only stimulus spending was carried forward for several years. Until the process returns to regular order we get to watch the piecemeal destruction of the greatest economy the world has ever known.

  2. SMS says:

    Combine our debt with the lack of jobs, high taxes chasing corporations overseas, stifling regulations, uncertainty in the markets, an anti-business environment in Washington, out-of-control progressive social programs (that don’t work), weak foreign policy that threatens our safety and economy, and the result can only lead to a massive disaster in our country. Occams razor, like KISS, says that the simple solution most often works the best. Strip away all the spending programs and eliminate most of the administrative offices, starting with the EPA. Invite businesses back and welcome investment. Then the recovery can start.

  3. Don B says:

    There is a graph on the linked site of the running total of federal debt since the founding of the US. The Obama growth in debt is quite similar to the World War II debt growth.

    http://www.usgovernmentdebt.us/debt_deficit_brief.php

    • Neal S says:

      So how come all those charts from the above linked page extend all the way to 2020? Unless these are projections (which I would not care for) should not these charts end at 2015 at the most? This flaw detracts from what value they might otherwise have.

      • Mike D says:

        They very likely just use some forecast from the Congressional Budget Office or maybe the forecast from the last budget passed. The proposed Presidential budgets have 10 years of forecast in them, and I suspect the actual passed budgets have something similar.

  4. NancyG says:

    I remember all the liberals posting about how much debt GW Bush had caused, now that their guy is in office and has beaten GW’s record in half the time, I hear crickets.

  5. Thank you Mr. Heller. What are the sources of this chart and it’s figures, please?

  6. Mike D says:

    TARP was off budget, but was included in spending and receipts. TARP just wasn’t as large as the headline figures, and was paid back over a few years. I was watching figures in somewhat real time over the years, and the 2009, 2010, and 2011 deficits were all forecast each year to be more like $1.5 trillion to $1.7 trillion, then would just drop down at some point to the $1.3 trillion to $1.4 trillion reported.

    It was hard to get any straight numbers on where TARP stood at any point, or where it is today. Maybe it was all put together in one spot, but I never found where they reported that data in any intelligible way.

    But it says here that only $411 billion was disbursed. So if that came back in over the next 3 years or so, that’s only $137 billion per year, plus a little bit of “profit”. Hardly noticeable.

    http://www.treasury.gov/connect/blog/Pages/TARP-By-the-Numbers.aspx

    TARP was absolutely swamped by the “stimulus” program in terms of magnitude, except the stimulus was straight spending never intended to be repaid. Even worse, the intent of TARP was to firm up the bank balance sheets so they could increase lending. Instead, when the show berating of bank CEOs started by Congress, banks reduced lending in order to scramble to pay it back. TARP was intended to be long term funding, but once banks found out there were ridiculous strings attached, no one wanted to keep it.

    In my opinion, that is one of the key reasons the economic recovery has been as weak as it is. The commercial paper market fell of by about $700 billion by Oct. 2008, so companies had to rely on the banks for borrowing. Coincidentally, about the same size as TARP? Likely no. But instead of increasing, lending constricted. Only the most creditworthy companies were able to borrow, while others just went under or shrunk to fit what they could borrow. In late 2008, there literally was talk on Wall Street that banks had to take TARP whether or not they needed it, in order to stay competitive. Because it was such cheap funding and if other banks took it, those banks had a competitive advantage. Well, elections have consequences, and that talk went 180 degrees in just a few months.

  7. DD More says:

    Obama and the Dems pushed through a $1 trillion stimulus Act during his first few weeks in office in 2009.

    And because Harry used Omnibus Bills, instead of passing a budget for the next 3 years, the level of spending was near the same level and resulted in the Stimulus Act being paid out three times.

    Crowbar above notes the effect of spending on GDP. If you take just the borrowed 40% of the budget & compare to the $14T of GDP, it works out to 2 to 3 percent of our current level of GDP growth is spending borrowed money. So not only is Obama leaving your kids and grandkids a ton of debt, when / if they do start paying it back, those payments will not be listed in the GDP growth rates. This is one of the reasons many conservative presidents have lower GDP growth rates. They are paying for the big spenders.

    P.S. – is it really just $17 Trillion or will the Fed pay back there $4 T and the college loans of $1.13T. Oh wait.
    It was the result of legislation Congress passed and Obama signed in 2010. The law also allows for loan forgiveness after 20 years of payments, and after 10 years for those in “public service” — a broad category that includes government and nonprofit workers.

    “They didn’t account for the market risk in making these loans,” said Romina Boccia, a budget fellow at the conservative Heritage Foundation.

    In 2013, 124,000 people enrolled in the PAYE plan. A year later, Obama directed the secretary of education to propose regulations to potentially cap loans for another 5 million people. The loan program changes and expansions tacked on the extra $22 billion to the price tag.
    http://www.foxnews.com/politics/2015/02/12/taxpayers-getting-education-obama-student-loan-forgiveness-program-swells-by/

    • KTM says:

      Yes, most of the economic growth over the last 6 years has been phony, fueled by government deficit spending. It is also phony because the Fed has kept our monetary policy hyper-inflationary throughout, the size and duration of which is truly unprecedented.

      Meanwhile, middle class household income has actually gone DOWN since the recession officially ended. Millions have gone from gainful employment onto SSI Disability, further tanking the finances of that program.

      Back in 2008/2009, people talked about how the stimulus would run up a lot of debt, but the price would be worth it because the economy would spring back to life. We got all the debt, but never did see the economy come roaring back.

      It’s kind of like the Great Society programs that were originally proposed as a War on Poverty. The idea was that poverty was self-reinforcing, so if we could break the cycle of poverty then people would escape dependency. Now, trillions of dollars later, the statistics show that if they ended all those programs today, poverty would be WORSE than it was back in the 70’s before they were enacted. In other words, the spending has not ended poverty or broken the cycle. It has simply made poverty more comfortable without doing anything to reduce the underlying problems.

      It’s very troubling to me that people can look at these clear examples of utter failure, but claim that these programs actually succeeded because things would be nominally worse without them. They are institutionalizing very expensive government bandaids that don’t address the underlying problems, then declaring victory.

      • Gail Combs says:

        The Progressives created a new job catagory — Unwed Mother.

        The new job category pays better than flipping burgers so many have gone that route. It has completely killed off marriage in the inner city black community. Why get married when Uncle Sam will foot the bill if you do not? On top of that, at least in Taxechusetts it is illegal to pay surprize visits on unwed mothers. Therefore it is quite common for the unwed mother to have a boy friend living off her. I know one guy who had 52 children out of wedlock. His females were terrified of him and rightly so since he had been up on murder charges.

  8. An Inquirer says:

    The deficit story is more complicated than one might expect, and it can be a great question whether we are talking about the same numbers. First question: does the deficit number come from the budget, from appropriations, from authorization, or from disbursement? Those are different numbers. Then are we talking about fiscal year or calendar year? And are we talking about the unified budget? — for the last 35 years, we have been talking about the unified budget. Some Democrats say that Obama should not be saddled with 2009 since fiscal 2009 year was 3 months old when he took office. The 2009 Stimulus Bill did not all get spent in 2009, so disbursements would not reflect the entire Stimulus Bill. However, if FY2009 includes TARP spending, then FY 2009 is way overstated. TARP was actually an investment, not spending, that was repaid with a nice profit in later years.

  9. Cam says:

    Total addition to the deficit from the stimulus in the last months of fiscal 2009 was $185 Billion (according to CBO) the remainder of the deficit ($1,228 Billion) falls on Bush as it was his budget and spending that were still in effect when Obama took office. Obama’s deficits begin in 2010 and will continue until the end of fiscal 2017.

    • gator69 says:

      Bush brought Obama in on the negotiations, knowing that Obama would be dealing with whatever decisions were made, and Obama OK’d the deal. Obama is indeed responsible for that debt, as he signed off on it. I guess you were not paying attention.

      Acting at Barack Obama’s behest, President George W. Bush on Monday asked Congress for the final $350 billion in the financial bailout fund, effectively ceding economic reins to the president-elect in an extraordinary display of transition teamwork.

      Obama also sharply criticized Bush’s handling of the money and promised radical changes.

      Bush’s move sets the stage for Obama to get swift access to the $350 billion and the opportunity to overhaul the much-criticized rescue package after taking office next Tuesday. Obama said that it would be “irresponsible … to enter into the administration without any potential ammunition should there be some sort of emergency or weakening of the financial system.”

      http://www.cbsnews.com/news/bush-agrees-to-obama-bailout-request/

      • Cam says:

        If you read the full article, congress approved $700 billion in October 2008 and Bush had already spent $350 billion. The other $350 billion was already there, just not spent yet and Obama wanted to direct it to programs he wanted. The full $700 billion is on Bush. As well, I notice the graph only goes to 2011. I guess the fact it dropped to $486 Billion in FY 2014 wouldn’t go so well when attacking Obama. I guess this is a “Republican” mind trick.

        • gator69 says:

          If you remember events correctly, Bush consulted with both candidates, and was doing exactly what they wanted on the stimulus. Obama had the opportunity to make the stimulus his own, and he did.

  10. gator69 says:

    ST. PETERSBURG — An armed man was shot and killed by security guards at a south St. Petersburg convenience store early Tuesday, police said.

    Jhai-quel Rai-Tez Black, 23, of St. Petersburg was arguing with another man as they entered the Obama Express Food Market at 1400 18th Ave. S around 3:30 a.m., police said.

    Black refused orders to leave and, at some point, produced a gun and started waving it around. The security guards, who had been patrolling the area outside of the store, came inside and shot him, according to police.

    Troy Jones, who owns a barber shop nearby, said he’s not surprised by what happened, and that rowdy crowds and calls to the police are the norm for that area.

    “They’re piled up in my parking lot, the post office parking lot, just hanging out, 3 o’clock in the morning coming from the clubs,” he said.

    Police have been called to the location 206 times since August for things like crowd issues, fighting, trespassing and even other shootings.

    “This has been going on for some time now,” police spokesperson Yolanda Fernandez said.

    Fernandez said the department is fully aware of the problems at the store.

    http://www.baynews9.com/content/news/baynews9/news/article.html/content/news/articles/bn9/2015/2/17/police_security_guar.html

    I just cannot wait for the library!

  11. policycritic says:

    All of you people are absolutely clueless about macroeconomics. A deficit is an ACCOUNTING ARTIFACT that records the difference between expenditures (government spending appropriated by congress per the Constitution) and the taxes received. The “deficit” is the difference between the two.

    It is NOT A DEBT. A debt, as you and I know it–when we borrow from banks or friends–is something that must be paid back on a schedule, requires collateral, and produces interest for the lender.

    The US federal government does not have that constraint.

    The US federal government produces interest-free money when it spends (again, by congressional appropriation per the Constitution). State (national) finance is spending (expenditures) by money creation.

    The non-federal government sector (state and local govts, businesses, households, banks, foreign governments and banks) cannot create the US dollar. It is revenue-constrained when it want to spend (or net save) in USD.

    Unemployment is an indication that the deficit is too small.

    • Gail Combs says:

      “The US federal government produces interest-free money when it spends “
      …………
      SAY WHAT? Where the devil did you get that malarkey?

      Ever hear of a United States SAVINGS BOND??? I have several and the government pays interest on them. Of course thanks to inflation the amount of buying power I gave to the US government is less than the amount of buying power I get at maturity even when the interest is included. NO ONE lends money without the expectation of getting back the money plus interest and that goes for governments too.

      The Relation between Deficits and Debt

      If we ignore liabilities such as Social Security and Medicare and focus instead just on the actual bonds issued by the Treasury when it borrows money, then each year the outstanding federal debt increases by that year’s budget deficit. For example, if the government starts the year off owing $10 trillion to bondholders, [that is the starting DEBT]and then runs a $300 billion deficit,[that is the amount of taxes recv’d vs the amount of money spent in the year] it ends the year owing $10.3 trillion. In order to keep the federal debt constant in absolute dollar terms, the government would (obviously) need to balance its books, and only spend each year (including interest payments on the existing debt) what it takes in as taxes and other revenues.

      If we move from absolute dollar terms into percentages of GDP, things get a little trickier. Because the economy grows over time, it’s possible for the government to run perpetual deficits while maintaining a constant debt/GDP ratio.

      For example, using inaccurate but nice round numbers, suppose the debt is $10 trillion and GDP is $20 trillion. That means the debt-to-GDP ratio is 50 percent. Suppose further that the economy will grow on average 5 percent (in nominal terms) each year. In that case, the government can perpetually run a deficit equal to 2.5 percent of the entire economy, and keep the overall debt-to-GDP ratio constant at 50 percent….

      The general pattern is that to maintain a constant debt as a fraction of the economy, the deficit as a share of the economy has to be the debt fraction multiplied by the growth rate of the economy. (With our numbers, 50 percent debt multiplied by a 5 percent growth rate meant a 2.5 percent deficit was needed to maintain a constant debt load.)

      Interest rates don’t directly affect this calculation, but they do make it harder to keep the deficit limited to a particular share of the economy….

      “Unemployment is an indication that the deficit is too small.”
      ROTFLMAO!!!!! Unemployment is due to:

      #1. The World Trade Organization,
      #2. Shipping US technology to China,
      #3. Minimum Wage,
      #4. Crippling regulations.

      AND the big point you are missing
      #5. Taxpayers are still on the hook for the federal debt, with or without massive interest rates. The wealth taken out of my paycheck and given to a welfare druggie means the wealth gets snorted up the nose or poured down the gullet instead of being reinvested in creating more wealth. ALL welfare types and most bureaucrats are parasites who create nothing!

      Do Deficits Matter?

      Ironically, there are some commentators who argue that federal-budget deficits are either meaningless (because the government issues US dollars) or even beneficial, because they are the only mechanism through which private Americans can save on net. I have dealt with these specific arguments elsewhere, [ Nonsense on Deficit Question] but let me reiterate why huge and perpetually growing deficits are a problem.

      Contrary to Keynesians, the problem with government budget deficits is not merely that they (typically) lead to higher interest rates and thus reduce private-sector investment and consumption spending. Because, in this context, the Keynesians only look at economic factors insofar as they work through “aggregate demand,” they understandably think that large deficits can’t possibly hurt anything when interest rates are practically zero.

      However, Austrian economists have a much richer model of the capital structure of the economy. In this view, economic health isn’t simply a matter of propping up total spending high enough to keep everybody employed. On the contrary, resources need to be deployed in particular combinations in particular sectors of the economy, so that semifinished goods can be transformed step-by-step as they move through the hands of various workers at different businesses and finally onto retail shelves.

      When the government buys (say) $1 trillion more than it takes in as tax revenues, it diverts real resources out of the jurisdiction of private entrepreneurs and into politically directed channels. Ultimately, it is not deficits per se but total government spending that distorts the economy and starves the private sector of resources. But deficits are insidious because they give the illusion of freebies in the near term, and the reckoning comes with a vengeance down the road.

      • policycritic says:

        Solly, dolly, this is my purview. I know this shit cold. I come here because I know shit from shinola about even how to read a goddam chart properly and I am not afraid to show my ignorance and learn from people I admire like you, Steven Goddard, and Morgan Wright because I think you know your stuff. But I come bearing gifts as well to impart in return as a thank you. You do not understand macroeconomics. Sorry to be so blunt, but it’s accurate.

        Gail, that enormous amount ~18T in “National Debt” is also known as “Debt held by the Public.” (http://www.treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm) Debt held by the Public should give you a clue. The ~18T-USD is in the bank accounts of every pension fund, university trust, corporate bank account, estate bank account, foreign banks and governments, US banks, state and local governments, etc. The National Debt is a record of every dollar created by the US government since 1791 minus the dollars destroyed (taxes). To the penny.

        When the government spends (after Congress has appropriated the spending) that money goes into the bank accounts of whomever the government is buying from.

        The actual physical process is US Treasury tells the Federal Reserve to mark up its General Account at the Fed IN THE AMOUNT OF THE SPENDING, and gives the Fed the names of the recipients. The Fed marks up the checking accounts of the BANKS the vendors use, with onward forwarding instructions (FedWire) to the vendors’ account at each bank. There is no interest issued on this money.

        The Federal Reserve has two kinds of accounts: checking and savings, and four categories of customers: US government, US banks, Foreign governments, foreign banks. That’s it.

        The nation’s money supply has now been increased IN THE AMOUNT OF THE SPENDING.

        Separately, the US Treasury issues treasury securities IN THE AMOUNT OF THE SPENDING that Congress authorized, and offers them at auction. The Federal Reserve can’t buy them. They are sold to businesses, trusts, pension funds, foreign banks and governments, investors, rich people, and US banks. They are also sold to anyone who has a need to protect funds in excess of a commercial bank’s FDIC insurance limit of $250,000.

        The sale of these treasury securities, then, reduces the nation’s money supply IN THE AMOUNT OF THE SPENDING, and everything is restored to balance.

        This is how it works. Taxes have nothing to do with this. This operation helps the Federal Reserve maintain its overnight interest rate, or the Federal Funds rate that banks charge each other.

        Taxes have nothing to do with this.

        Now for the matter of interest on these treasury securities, otherwise known as “interest on the debt.”

        Once a year in late August, the Federal Reserve tells the US Treasury what the amount of upcoming interest payments will be due on the issued treasury securities outstanding.

        The US Treasury then issues new treasury securities in that amount to pay the interest owed for the next 12 months. No taxes or taxpayers–or children or grandchildren–involved.

        • Gail Combs says:

          sorry, no caps, i have a very ill/half frozen goat kid in my lap

          Definitions:

          Debt – accumulated amount owed.

          deficit – for the year – taxes received vs money owed/paid – that is the money borrowed this year.

          bonds – ious from the government.

          Bonds are where you and i part ways. the bonds are bought with real wealth by private citizens or by foreign countries

          the us tax payer is then on the hook for paying those bonds.

          ……

          second problem
          hard currency vs soft currency

          you are describing a soft currency think zimbabwe

          no country can continue running the printing presses indefinitely. this is why china and other countries have been screaming bloody murder. they know that by turning on the printing presses the worth of the bonds and us dollars they hold has been halved. it is why they want to get rid of the us dollar as the world reserve currency. if that happens all the inflation the us government has been exporting will come back to bite us in the ass and the us dollar will be worth about as much as a zimbabwe dollar.

          from stuff i looked at 8 years ago.

          In 1976 A typical American CEO earned 36 times as much as the average worker. By 2008 the average CEO pay increased to 369 times that of the average worker. http://timelines.ws/subjects/Labor.HTML

          The typical American CEO is not about to take a pay cut, so he is actually paid five times MORE in “buying power” compared to 1976 while the rest of us are now paid a third of what we were paid in 1976. The price of gold indicates the steady devaluation of the US dollar as it’s purchasing power is diluted by the ever increasing supply of fiat money.

          Date…..$ /oz gold.. Money supply….minimum wage…..Pay in gold……CEO in gold
          1959 …….35.25 ………..50.1 billion………$1.00………………0.0284 oz.
          1974 ……195.20………..101 billion………..$2.00……………….0.0102 oz.
          1976 ……124.74 ……….. $113 billion…….$2.30………………0.0184 oz…………0.663.oz
          1985 …..354.20 ………..$205 billion……..$3.35………………..0.0094 oz.
          1994 …..409.80……….. $ 406 billion…….$4.25…………………0.0104.oz.
          2006 …..636.30 ………..$808 billion……..$5.15…………………0.0081 oz.
          2008 …..880.30……….. $831 billion……..$5.85………………..0.0066 oz………….2.44.oz
          2009…1,020.28………..$1663 billion……..$6.55…………………0.0064.oz.

          If you look at the price of gold, you can see how the value of the dollar has dropped and how the minimum wage no longer has the buying power it had in 1959.

          Gold price http://www.finfacts.ie/Private/curency/goldmarketprice.htm
          Money supply http://research.stlouisfed.org/fred2/data/BOGUMBNS.txt
          Min Wage http://www.dol.gov/whd/minwage/chart.htm

        • policycritic says:

          Debt – accumulated amount owed.

          Only on the non-federal government sector side. Think circle. Cut in half vertically. Left side = federal government. Right side = non-federal government.

          The left side (US federal government) does not require repayment when it spends, because it issues the currency.

          The night side (non-federal government. sector, see above) must be paid back when it lends, because it uses the currency.

          It’s a horrific misnomer but US federal government debt, the left side, is equity, money. it’s what we own as a country, not what we owe.

          deficit – for the year – taxes received vs money owed/paid – that is the money borrowed this year.

          No. Who do we borrow from if we issue our own currency? China? Name the factory in downtown China making the US dollars that we borrow. That would be counterfeiting. Borrow from US banks? Where did they get those dollars if not from the federal government that issued them. The ONLY ENTITY on planet earth that can legally issue US dollars is the US federal government. And the only legal means by which that happens is congressional appropriation.

          Yeah, sure, you create US dollars when you take out a loan at a bank, or when you use a credit card (aka credit money). But. But. But. Your asset, the new US dollars, is offset by someone else’ liability, and vice versa. it all nets to zero.

          What is called High-Powered Money (HPM)/Government Money does not come with an offsetting liability. It’s yours to keep.

          bonds – ious from the government.

          Bonds are treasury securities. They are issued AFTER, subsequent to, government spending. The inside ballpark term at the Fed is called “reserve add before reserve drain.’ Government spends first (reserve add). Then, and only then, does the US Treasury issue treasury securities—prints them up out of thin air–in the amount of the government spending to restore the money supply to balance (reserve drain). If you want an authority other than me, read Frank N Newman’s 87-page book: Freedom From National Debt. April, 2013. He was Deputy Secretary of the US Treasury.

          the bonds are bought with real wealth by private citizens or by foreign countries.

          Absafuckinglootely correct.

          the us tax payer is then on the hook for paying those bonds

          Absafuckinglootely not. 😉

          Let me give you an example.

          As I wrote the Federal Reserve has two kinds of accounts, checking and savings (the names are complicated, but this is what they are). And four categories of accounts: US Government, US banks, Foreign governments, foreign banks.

          OK. Walmart buys $20 billion worth of tires from China. China has a checking and savings account at the Federal Reserve in NYC. Walmart sends its $20 billion to China’s checking account at the Fed. That’s the way the payment system works. By law. Also, by law, no US dollars can leave the US banking system. By law. Yeah, you can take 10Gs out of the country as a tourist, but that’s about it. No US dollars leave the US banking system. Not ever.

          So China now has $20 billion in its checking account at the NYC Fed. It has four choices:

          (1) leave it in checking and earn 0.25% (offered since October 2008)
          (2) buy something American: planes, engines, real estate, whatever.
          (3) do what you or I can do: exchange it for Yuan on the open market and wire it home.
          (4) earn interest.

          China chooses door #4. It buys treasury securities on the open market at the monthly auction. For safety. China authorizes the Fed to move the $20 billion (that Walmart paid it) from its checking account to its savings account to purchase the treasury securities (bonds, notes, or bills). All treasury securities are held in savings accounts at the Fed. All of them. By law. If you bought a $1000 treasury security bond, it would be physically held in your bank’s saving account at the Fed, just like a CD. You would control the coupons. (BTW, treasury securities are 100% tradable, like cash; the market for treasury securities is over $500 billion daily. Savings Bonds are not.)

          When China wants to cash its treasury securities in on the open market, it sells them though one of the 50 ‘primary dealers’, then it authorizes the Fed to move the principal and interest from its savings account at the Fed to its checking account at the Fed.

          The act of China moving its money from its savings account at the Fed to its checking account at the Fed is called “Paying off the National Debt”. Nothing more complicated than that. It’s China’s money, and taxpayers have nothing to do with it.

          ———————————————

          So you have to ask yourself, “Why is the US federal government “printing up”—it’s been electronic since 2013–treasury securities and offering rich people and businesses a financial safety net with interest, fergodsake?” It goes back to the gold standard days and WWI when The US had to pay its international debts in gold. But all the dollar bills then since 1900 indicated on the back that you could walk into any bank or the US Treasury and exchange $20 in bills into an ounce of gold.

          During WWI they had Liberty Bonds to protect people from doing that, using patriotism and “paying for the war” (BS) as the ploy to protect the gold supply. After the war, they used treasury securities, because people weren’t allow to exchange them for gold until the treasury securities came due, which allowed the government to manage the gold supply over time. The US federal government paid interest as a come-hither, or enticer.

          After the Republic Mormon banker, Mariner Eccles, convinced the Senate in 1932 to go off the gold standard (one of the convincers, he became the first Chairman of the Fed in 1935), the treasury securities remained as a way to control the overnight interest rate, the Fed Funds Rate that banks charged each other, and manage monetary policy. Congress still had, and has, responsibility for fiscal policy, which Congress hasn’t done for the last 30 years leading to the 1%-99% disaster, or current financial capitalism, not industrial capital. All favoring banks.

          In a cold economy like now, it is Congress’ job to cut taxes and increase spending to get people back to work. Because it is the only entity that can create jobs. No serious and sensible businessman is going to hire people when there is no demand (sales); business is sitting on $2T in capital waiting for the customers to come back. Only the US federal government can act counter-cyclically and spend interest-free dollars into the economy fixing the infrastructure, building an advanced broadband backbone, helping the states with education and healthcare, spending on research, etcetera. With no debt to taxpayers. But we have a prez who doesn’t understand this, a treasury sec who is clueless and actually helped cause the Financial Crisis of 2008 when he worked for Clinton. Clinton is the cause of the Financial Crisis, delayed by the dotcom and housing bubbles, btw.

          Hope your goat’s okay. My aunt used to have a bunch of goats. Sweetest animals.

  12. Gail Combs says:

    try the chart again:
    Date..$ /oz gold.. Money supply….min wage…..Pay in gold.
    1959 …35.25 …….50.1 billion……$1.00…………0.0284 oz.
    1974 …195.20…….101 billion……$2.00………….0.0102 oz.
    1976 …124.74 ….. 113 billion…….$2.30………….0.0184 oz..
    1985 ..354.20 …..205 billion……..$3.35…………0.0094 oz.
    1994 …409.80…. 406 billion…….$4.25………….0.0104.oz.
    2006 …636.30 ….808 billion……..$5.15………….0.0081 oz.
    2008 …880.30…..831 billion……..$5.85…………..0.0066 oz
    2009..1,020.28…1663 billion……..$6.55…………..0.0064.oz.

    And yes I know that gold is not a perfect base comparison but it is what the USA would have had if the Federal Reserve Act had not created a central bank to rob us of our wealth.

    • policycritic says:

      Gail, 1663 billion is three days of treasury securities trades. It’s nothing. It’s chickenfeed. We wouldn’t have the living standard we have today if we were still on the gold standard. Anyone who bought gold in 2011 at its high of $1900/oz has lost 1/3 of his wealth. When a country pegs its currency to a metal or another currency, it has no sovereignty. It cannot pay its debts in its own currency. Look at Greece and Spain, Italy, Iceland, Ireland. They gave up their currencies for a foreign currency, the Euro. Besides, everytime a new gold mine is discovered, the value of your currency goes down.

      I used to believe G. Edward Griffin, whom I know you still do. But he’s wrong. He’s wrong about the what started the Federal Reserve: I have the documents to prove he’s wrong, documents that Google did not scan until October 2008 and April 2011, contemporaneous mid-19-teen documents. Griffin’s big mistake was believing Nobel Prize winner Paul Samuelson’s 1947 statement that the Panic of 1907 created, or initiated, the Federal Reserve Act, and that the bankers were in control. Wrong. Someone tricked the NY bankers in the seven weeks from November 1, 1913 and Dec 22, 1913 and took the power away from them, and gave it to the government.

      We have a long tradition of paper money in this country. Benjamin Franklin was 23 in 1727 when he wrote a paper about how the natural form of money was paper currency. The rich hated it because they controlled the gold, but they didn’t have a writer who could argue as well as Franklin could so that had to go along with the five-year paper experiment that lasted until 1732. That experiment proved its worth and paper currency flourished in the three colonies–although different for each. Pennsylvania, Franklin’s area, based his paper currency on land holdings. (Massachusetts faltered because of the counterfeiting.) The US now bases its fiat currency on the full faith and credit of the USA.

  13. Rich says:

    Sorry but I REALLY have to disagree with you ‘Policy”. What you’re expressing here is exactly why we’re having large issues economically now and scared to death of the monetary disasters that are coming our way.
    What you are ignoring is the basic idea of money.
    Money is a medium of exchange.What is being exchanged is labor and/or a resource from one entity to another. A dollar bill is nothing more than a labor coupon. I get from my employer a specified number of “labor coupons” for performing a specific level of labor. I exchange these “coupons” to other people for their resources (food,water,ect.).

    policycritic…”Yeah, sure, you create US dollars when you take out a loan at a bank”.
    Nope! What you have done is you have contracted to perform larger amount of labor over time than have you received.

    policycritic….”The US now bases its fiat currency on the full faith and credit of the USA.”
    Wrong! The base of the currency is the value of the resources (natural such as oil,timber,mineral ore,ect.) and the labor (intellectual as well as physical).

    policycritic….”We have a long tradition of paper money in this country.”
    The reason for this is that we didn’t start out with enough hard currency (actual gold or silver coins) to carry on any business transactions.There weren’t large supplies of ore to be mined and minted into currency and England restricted what currency that was coming into the colonies (this forced us to mainly to do business through only them; one of the many reasons for the revolution). We had to have something to use for money.
    policritic….”Pennsylvania, Franklin’s area, based his paper currency on land holdings. (Massachusetts faltered because of the counterfeiting.)
    Yes because there was NO way you were going to trade a piece of paper of some vague idea of value for the crop an 18th century farmer who had busted his butt in hard labor to plow,plant,and harvest.

    policycritic….”The US now bases its fiat currency on the full faith and credit of the USA.”
    Wrong! The base of the currency today is the value of the resources (natural such as oil,timber,mineral ore,ect.) and the labor (intellectual as well as physical).

    policycritic…”The nation’s money supply has now been increased IN THE AMOUNT OF THE SPENDING.”
    This is so wrong I can’t even tell were to start.
    Making money out of nothing CANNOT happen.All you have done is devalued the worth of the existing “coupons”.

  14. sarastro92 says:

    Bankers an their toady politician fronts (like Hilary Clinton) love to ell us that that TARP and other Federal reserve loan programs to mega-banks were “paid back” resulting in an actual profit on loans. And it didn’t cost the taxpayers a cent. “The US Treasury and the Fed “made money” Right?

    Wrong.

    How were such fast repayment made to TARP, for example? Simple. The US government ran up gigantic deficits from 2008-20012… often the deficit was around $1.5 trillion. The aggregate deficits in those years amounts to $5 trillion. So what happened is that government loans and Fed bailouts were made at 0% interest rates. The banks took this ocean of cash and the lent it for a big return at 3-4%. The biggest borrower was… the US government. And who pays the principal and interest on loans (bond purchases) to the US government?

    We do. The taxpayers.

    The the Fed lent free money to mega-banks, and then the banks lent that free cash at high interest rates to the government to cover the deficits caused by the economic Depression the banks caused in the first place.

    The route is indirect and deceptive but it’s also clear: US taxpayers were hosed by the mega-banks to the tune of $7.7 Trillion (Bloomberg Analysis) to $29 trillion (the Levy Institute).

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