Government can never run out of dollars?

True or False?

Just like a household, government has to finance it's spending out of it's income or through borrowing?

The role of taxes is to provide finance for government spending?

The National Government borrows money from the private sector to finance the budget deficit?

By running budget surpluses the government takes pressures off interest rates because more funds are then available for private sector investment projects?

Persistent budget deficits will burden future generations with inflation and higher taxes?

Running budget surpluses now will help build up the funds necessary to cope with the aging population in the future?

All the above are false.

St. Louis Fed:
“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets..."

Government can never run out of dollars. It can never be forced to default. It can never be forced to miss a payment. It is never subject to the whims of "bond vigilantes".

Fascinating interview with Randall Wray and Michael Hudson.

http://michael-hudson.com/2012/09/modern-money-and-public-purpose/

http://www.youtube.com/watch?feature=player_embedded&v=0zEbo8PIPSc#!

Kublai Khan & Paper Money

The most famous Chinese issuer of paper money was Kublai Khan, the Mongol who ruled the Chinese empire in the 13th century. Kublai Khan established currency credibility by decreeing that his paper money must be accepted by traders on pain of death. As further enforcment of his mandate, he confiscated all gold and silver, even if it was brought in by foreign traders. Marco Polo was impressed by the efficiency of the Chinese system, as he chronicles in his The Travels of Marco Polo (Il Milione).

"All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver; and on every piece a variety of officials, whose duty it is, have to write their names, and to put their seals. And when all is prepared duly, the chief officer deputed by the Khan smears the seal entrusted to him with vermilion, and impresses it on the paper, so that the form of the seal remains imprinted upon it in red; the money is then authentic. Anyone forging it would be punished with death. And the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world."

As is to be expected, paper money did not succeed everywhere. In Persia, its forcible introduction in 1294 led to a total collapse of trade. By the 15th century even China had more or less given up paper money. Over this period, paper notes were issued irresponsibly, to the point that their value rapidly depreciated and inflation soared. Then beginning in 1455, the use of paper money in China disappeared for several hundred years. This was still many years before paper currency would reappear in Europe, and three centuries before it was considered common.

Western civilization had minted precious metal objects and coins for trade since about 500 BC. Devaluation and inflation often destroyed a monetary system. Banking systems were cyclic with nations and rulers, and the need to transfer large sums of money to finance the Crusades provided a stimulus to the re-emergence of banking in western Europe. In Europe, the first issuer of paper money was Sweden, where in 1661 Johan Palmstruch's Stockholm Banco introduced the first banknotes. Unfortunately, the bank subsequently overextended itself and had to call in government aid. Despite this example, other European countries soon followed the Swedish lead. In 1694 the Bank of England was established and was soon printing "running cash notes".

http://www.computersmiths.com/chineseinvention/papermoney.htm

Break Out!

The Fat Lady has Sung QE3 and Beyond

(US) Fed's Bernanke: Employment situation remains a grave concern, 8.1% unemployment remains elevated and little changed since the beginning of 2012 - FOMC press conf
- Monetary policy cannot cure all economic problems.
- Modest pace of economic growth is inadequate.
- Fed is looking to support gains in housing and other sectors.
- Buying MBS should help reduce long term rates and support the housing recovery.
- Looking for broad based growth and sustained improvement in labor markets
- Will take inflation into account when making asset purchases.
- Accomodation will remain even as the economy improves.
- See an uncertain economic outlook, economy still faces headwinds.
- Headwinds include crisis in Europe and tight credit.

 3 misconceptions:

- 1: Idea of Fed's "printing money" policy is akin to Govt spending - Easing and bond buying is not like government spending and ultimately Fed's policies may bring down deficit and debt

- 2: Low rates hurt savers - Low interest rates impose some costs on savers, but also supports value of other assets. Low interest rate environment ultimately supports a stronger economic condition which ultimately allows stronger wages and employment for the economy

- 3: Fed's Policies will raise inflation risk down the road - Fed has the tools it needs to deal with inflation, which has been at or near 2% goal for years. Policies do not seek to raise inflation. If inflation goes above inflation targets Fed will take a balanced approach to bring it down

Gold Miner Bullish Percent

Gold Mining Crash