Monday, November 23, 2009
Wave of Debt Payments Facing U.S. Government
Another incredibly misinformed article, this time from the New York Times. The author displays a complete lack of knowledge of the current monetary system and gets some "help" from the likes of Bill Gross.
WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
But that happy situation, aided by ultralow interest rates, may not last much longer.
The Government spends by crediting bank accounts. There is no constraint to its ability to do so. Interest payments are made the same way that any spending is made--by crediting bank accounts. Moreover, ultralow interest rates were a matter of Fed policy. The Fed brought interest rates down by raising the level of bank reserves in the system, from $8 billion in 2007 to over $1.1 trillion, currently. Those reserves are the funds used to buy Treasuries. There is no financing, per se.
“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”
I don't know about the squirrel analogy, but I do know that Bill Gross is a nut! Does a bowling alley have to "stash away points" so that it doesn't run out if too many bowlers score too high? The whole notion is ridiculous and is a "gross" display of Bill Gross's lack of understanding on this issue.
Read the entire, misinformed article here.