Can somebody please educate me on where US Debt comes from?

[Zzzz1]

The US government does not print or create money in circulation other than minting coins and printing bills only to replace old ones. Who drains money out of the system or adds money into circulation is the Federal Reserve. Always has been always will be. Else monetary policy would be completely obsolete. Governments cannot print themselves out of debt (and let's keep inflation out the door in this discussion because it is also nothing that the government directly controls, but again the Fed via monetary policy, aside other external contributing factors)

Perhaps another easy way to understand it is like this:

The US Government needs 100$
It 'Creates' (out of thin air) a Paper (in essence an IOU) for 100$ and sells it as a 'Bond'.
A buyer buys this Bond for 100$ of real money.
The US Government now has 100$ Extra *CASH* (but also a 100$ outstanding IOU).
The US Government then spends this 100$ cash to pay off its debts.

The follow up question then is where did the buyer find this 100$ cash. The buyer either directly or indirectly got it from the Government (in the form of government funded projects, social pensions, tax rebates, etc.) or from someone who got it from the government.

All cash comes from the US Government who 'creates' this US cash. In addition to converting IOU Paper into Cash for distribution, The Federal Reserve Bank *creates* cash out of thin air in the form of interest payments:

Banks deposit 100$ with The Fed (required to by law). At an interest rate of 0.02%.
The next day they get back the cash from The Fed plus the interest.
The Fed did not get this extra interest from anywhere, it simply 'created' this cash payment.

Hopefully that explains in general what is going on

Now, here's the irony:
US Gov't sells Zero Coupon 1000$ face value bond for 900$ to John, which redeems in 5 years.
John is happy, in 5 years he will get 1000$.
Government now needs to worry about paying this debt back in five years.
Government taxes John and gets 1000$ a year from him.
Government spends 800$ on projects, and 200$ is earmarked to pay down debt.
After 5 years John has payed 5000$ in taxes, including 1000$ earmarked for debt.
The Government then gives this 1000$ back to John to cover their debit obligation.

So in essence, John has paid himself the 1000$ and is happy about this

To put it into school backyard lingo:
Wimpy lends Bully 100$
Wimpy wants 100$ back.
Bully beats up Wimpy and takes 100$ from him.
Bully gives the 100$ back to wimpy as repayment for the debt.

There are a few ways to look at this:
1) John is profiting in the form of a 'tax rebate' in the sense that some of his taxes will come back to him in the form of debt repayment.
2) John should only buy bonds from countries he does not pay taxes into make sure it's not just his own money he is receiving when the bond is redeemed.
3) Since the US Government can easily pay off debt by taking the money from tax payers and giving it back to them (or others who hold the debt) it's a pretty safe investment.

The US Bond is backed by the economy of the US, and therefore its ability to repay debt is backed by its ability to tax its economy. Which is why its not generally considered a bad thing to have a large amount of debt, so long as it is well within the realm of reason that the government can pay the obligations through taxes on the economy.


Hopefully that makes everything clearish

 

[d08]

A couple items t

If the most prosperous economy in the history of the world with the corresponding longest lifespans, lowest infant mortality, highest education levels... is a scam then I want more of that "scam". What do you want, a return to feudal dark ages, cause at least everyone paid in gold which is morally right?

You might be confusing two things here, there might be no connection.
I assume you were talking about US here. Infant mortality rate is one of the highest in OECD countries, education levels are high but not the highest, US ranks 31st in life expectancy which isn't that great. Of course you can say you were comparing to Somalia and Pakistan...

 

[Martinghoul]

If you think Banks should create money out of nothing and charge us interest on it, you're either a shill or a moron.

Why shouldn't they charge us interest on it? Banking is a business. If you wanna borrow money from a bank, why should it lend this money to you for free?

Maybe if we were living under strict sharia law, with its prohibition of riba...

 

[maler]

It has been my experience that even highly educated people express disbelief
when confronted with the fact that virtually all money in existence is created
by a handful of people out of thin air as debts enforced by legalized violence.
For example, Sig is creating straw men arguments, like the only alternative to
the current money creation system is a return to the feudal dark ages
(by the way, it is true that during the feudal dark ages fractional reserve banking
was considered high treason and the guilty were to be hanged, drawned and quartered).
Since access to life on this planet is granted in terms of money, the power to
create money is the power of life and death and we should welcome transparency
and equitableness associated with that power.
In the words of Josiah Stamp who was a director of the Bank of England:
"Banking was conceived in iniquity and was born in sin.
The bankers own the earth. Take it away from them,
but leave them the power to create money, and with the flick of the pen
they will create enough deposits to buy it back again.
However, take away from them the power to create money
and all the great fortunes like mine will disappear and they ought to disappear,
for this would be a happier and better world to live in.
But, if you wish to remain the slaves of bankers and pay the cost of your own slavery,
let them continue to create money."

 

[Martinghoul]

It has been my experience that even highly educated people express disbelief
when confronted with the fact that virtually all money in existence is created
by a handful of people out of thin air as debts enforced by legalized violence.
For example, Sig is creating straw men arguments, like the only alternative to
the current money creation system is a return to the feudal dark ages
(by the way, it is true that during the feudal dark ages fractional reserve banking
was considered high treason and the guilty were to be hanged, drawned and quartered).
Since access to life on this planet is granted in terms of money, the power to
create money is the power of life and death and we should welcome transparency
and equitableness associated with that power.
In the words of Josiah Stamp who was a director of the Bank of England:
"Banking was conceived in iniquity and was born in sin.
The bankers own the earth. Take it away from them,
but leave them the power to create money, and with the flick of the pen
they will create enough deposits to buy it back again.
However, take away from them the power to create money
and all the great fortunes like mine will disappear and they ought to disappear,
for this would be a happier and better world to live in.
But, if you wish to remain the slaves of bankers and pay the cost of your own slavery,
let them continue to create money."

Firstly, the description of fractional reserve banking as high treason is rather misleading and wrong. Secondly, there is no record of Josiah Stamp ever saying anything like what's quoted above.

 

[WeToddDid2]

The US government does not print or create money in circulation other than minting coins and printing bills only to replace old ones. Who drains money out of the system or adds money into circulation is the Federal Reserve. Always has been always will be. Else monetary policy would be completely obsolete. Governments cannot print themselves out of debt (and let's keep inflation out the door in this discussion because it is also nothing that the government directly controls, but again the Fed via monetary policy, aside other external contributing factors)

Please explain how the money supply increases. Where does it come from? Where did the Fed get the money to purchase Ts during QE?

How does the M2 increase?

Where did all of this money come from? How is it larger than the M2 money stock?

 

[maler]

Firstly, the description of fractional reserve banking as high treason is rather misleading and wrong. Secondly, there is no record of Josiah Stamp ever saying anything like what's quoted above.

In the age of full reserve banking, fractional reserve banking was called counterfeiting.
In regards to Josiah Stamp it is true that the above quote was allegedly attributed to him.

 

[Zzzz1]

very simple, the Fed credits the banking accounts of the institutions that sold securities to it. The Fed basically adds to the reserve accounts, banks hold with the Fed.

But what has your post to do with my criticism of the claim that the US government controls the money supply?

Where did the Fed get the money to purchase Ts during QE?

How does the M2 increase?

Where did all of this money come from? How is it larger than the M2 money stock?

 

[Martinghoul]

In the age of full reserve banking, fractional reserve banking was called counterfeiting.
In regards to Josiah Stamp it is true that the above quote was allegedly attributed to him.

That's not correct... In general, kings routinely enjoyed the benefits offered by fractional reserve banking and only had issues with it when the bankers refused to cooperate (e.g. Edward I of England and the Ricciardi of Lucca in the 13th century). The point is that, if you're the king, fractional reserve banking is fine. If you're a commoner, it could be treason.

Finally, yes, the quote is allegedly attributed to Josiah Stamp. However, there is no record of him ever saying anything of the sort.

 

[piezoe]

I am assuming the question is referring to public rather than private debt. Its core source is rooted mainly in a combination of three things 1. defense industry lobbying and propaganda; 2. The U.S. Medical Cartel; 3. Irrational fear.