Well, that was going to be my next question.
If you can push the button to buy the car outright from the start, then why go through the whole process of IOUing the dealer and pushing the button later on to repay the IOU plus interest?
you wouldn't of course go through that nonsense if you had the button. You'd just push the button and buy the car. So this example of the guy who foolishly attempts to "borrow" his own money when there is no reason to is a bit nuts; yet there is a parallel to this crazy example and what the government does. There is no true borrowing going on in the example, and there is also no true borrowing going on when the government first prints and then appears to borrow. The government, however, has very important reasons for auctioning Treasuries, and thus appearing to borrow when it isn't, whereas the guy with the button has no good reason not to just print the money and buy the car. Regardless, neither the government nor the guy who buys a car can borrow their own money. That's always impossible, because it can not satisfy a fundamental requirement to qualify as borrowing.
Recall that day to day government/private sector bank transactions clear through the banks' reserve accounts. In days gone by, deficit spending would have resulted typically in hundreds of billions in excess reserves had the excess not been drained via the Treasuries auction of Securities. Today that could be trillions of dollars. Under the former fixed reserve requirement, large deficit spending could have caused the fed funds rate to plummet toward zero, if the excess reserves that resulted from the governments deficit spending were not drained from banks' reserve accounts.. This happened during the financial crisis when the government wrote checks for trillions to the private sector and Treasury bond sales could not drain reserve accounts fast enough to prevent the Funds rate from going to virtually zero. Bernanke stepped in and started paying interest on excess reserves. This put a floor under the funds rate.The Powell Fed has removed the reserve requirement and is controlling the funds rate by paying interest on reserves. No bank will loan below that rate.
So this is one of the uses of Treasury securities, viz., to drain excess reserves caused by deficit spending, but beyond that Treasuries are an important tool of the Fed, in general, and especially for managing bank reserves. In addition they are hugely important as a risk free, highly liquid, interest paying store of money. Since the dollar is the reserve currency, Central Banks must maintain stores of dollars in their foreign exchange reserve accounts at the Fed. This creates a huge demand for Treasuries as no bank wants their store of dollars sitting idly by not earning interest. A Country that pegs its currency to the dollar must maintain an especially large store of dollar denominated assets. And then there are the pension funds with billions in assets that need part of these assets to be kept in a highly liquid, interest paying form.
So, even though we have no need for Treasuries as a means of raising money to spend, we, and the rest of the world too, do very much need them. The Treasury routinely auctions Treasury Securities in the Amount of the deficit. This indeed makes the operation look like borrowing. However, rather than thinking of Treasury Securities as representing money loaned to the United States, which they are not!, we should think of Treasuries as just an interest paying form that dollars can take.
