The Federal Government Borrows Its Own Money and Pays Interest

I asked Claude AI recently that exact question. Why would the federal government borrow its own money and pay interest? The federal government borrows money by issuing Treasury securities, even though it has the power to create money. The Federal Reserve, the central bank of the United States, is responsible for managing the money supply and interest rates to promote economic stability. If the government were to finance its deficits by directly creating money, it could lead to hyperinflation and economic instability. Isn’t that what we are seeing today Claude AI?

Claude AI continues By issuing Treasury securities, the government demonstrates its commitment to repaying its debts, which helps maintain trust in the US dollar as a stable currency. Treasury securities are considered one of the safest investments because they are backed by the full faith and credit of the US Government. They are used by individuals, companies, and foreign governments as a reliable store of value. By selling Treasury securities, the government can remove money from circulation, which helps control inflation. Conversely, when the government redeems these securities, it injects money back into the economy.

Borrowing allows the government to spread the cost of investments and projects over time, ensuring that future generations who benefit from these investments also share in the cost. Paying interest on these borrowed funds is necessary to compensate lenders for the use of their money and the risk, however small, that the government may not repay the debt. The interest payments also help maintain the government’s creditworthiness and its ability to continue borrowing at favorable rates. Well, that certainly clears things up for me. Sigh.

The Chief Economist of the US must surely know the answer to this question

Jared Bernstein is the Chief Economist and Economic Policy advisor to Joe Biden. Recently he has been featured in a clip in which he struggles to explain how money works. His explanation is going to be featured in an upcoming documentary called Finding The Money. Bernstein says, The US Government can’t go bankrupt because we can print our own money. The government definitely prints its own money. The government definitely prints money and lends that money. The government definitely prints money. It then lends that money by selling bonds. Is that what they do? They sell bonds and then people buy the bonds and lend the money. Yeah.

Bernstein continued to confuse everyone, including himself. Language and concepts can be unnecessarily confusing. I don’t get it. I don’t know what they’re talking about. We don’t know what you are talking about Mr. Bernstein. And judging by your answers, you don’t understand it either. Does anyone know why the federal government borrows its own money and pays interest?

Congress allows the Federal Reserve Bank to create money

The US Constitution grants Congress the power to coin money and regulate its value, as stated in Article 1, Section 8, Clause 5: The Congress shall have Power … To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures. However, with the creation of the Federal Reserve System in 1913 through the Federal Reserve Act, Congress delegated some of its monetary powers to the Federal Reserve. While the Fed has been delegated significant powers, the ultimate authority over the US monetary system still rests with Congress, as per the Constitution. If Congress believed the Fed was not acting in the best interests of the country, it could amend the Federal Reserve Act or pass other legislation to change the Fed’s structure or powers.

When the federal government borrows, it inevitably creates inflation

Bill Bonner is an American author, economist, and founder of Agora, Inc., a Baltimore-based publishing company that provides economic and financial advice through various newsletters and publications. He is well-known for his unconventional and contrarian views on economics, politics, and investing. Recently he wrote an article on why the federal government prints money and who benefits and encourages inflation. Mr. Bonner concludes that big government, big money, big business, and big media all want inflation. I am glad someone knows the real facts.

Inflation can reduce the real value of existing government debt. This is because inflation erodes the purchasing power of money over time, meaning that the fixed payments made on government bonds will be worth less in real terms when inflation is high. So big government encourages the printing of money and inflation and will continue to do this and steal the buying power from future generations. Inflation is also a way to fund wars.

Ultra-low interest rates and deficits cause inflation. This condition has been known to create asset bubbles. Big money and the elite own most of the real estate and stocks. When these asset prices increase because of inflation, the big money benefits the most. The top percenters love the central banking system.

“Inflation concentrates the wealth and power of the entrenched elites.”

Large companies with strong market positions may be able to raise prices in line with or above inflation, maintaining or increasing their profit margins. If big businesses have significant fixed-rate debt, inflation can reduce the real value of their debt over time, making it easier to pay off. Inflation can lead to higher nominal prices for real assets such as property, equipment, and inventory, potentially increasing the book value of a company’s assets. Small and new businesses in an inflationary environment find it difficult to survive.

Another way to approach our topic today is does the federal government need to continue to borrow its own money and pay interest on it? Unfortunately yes, they do. The big powerful elite would never allow drastic cutbacks to reduce US debt. The debt-ridden system is addicted to debt and only more debt and more spending are being discussed as the option going forward. 20% interest rates are not going to be feasible. The only option is more inflation. This is very bad news for the buying power of our currency, the Federal Reserve Note.

, , , , , ,
Side Panel Text Widget

Aliquam erat volutpat. Class aptent taciti sociosqu ad litora torquent per conubia nostra, per inceptos himenaeos. Integer sit amet lacinia turpis. Nunc euismod lacus sit amet purus euismod placerat? Integer gravida imperdiet tincidunt. Vivamus convallis dolor ultricies tellus consequat, in tempor tortor facilisis! Etiam et enim magna.

Midas Gold Group