Wednesday, December 10, 2008
Treasury spends by crediting bank accounts. Says so right in the government's own manual!!
This is taken verbatim from the Fed's, Federal Reserve System Purposes and Functions manual. (Chapter 3, page 34.)
"The Treasury is not a depository institution, so a payment by the Treasury to the public (for example, a Social Security payment) raises the volume of Federal Reserve balances available to depository institutions."
That says it all. If the Treasury were like a bank, that took our money and kept it on deposit to be used at some point down the road for its spending needs, then payments by the Treasury to us would result in NO NET CHANGE IN RESERVE BALANCES IN THE SYSTEM. However, it is clearly stated that the Treasury is NOT a despository institution and that payments made to the public result in a rise in reserve balances available to depository institutions.
I don't know how much more clear that can be.
Access the full manual here.