Thursday, August 22, 2013


Auburn, you write:

"Well, if over a 30 year period, the Govt issued no new bonds due to being in a sustained $1p.a. surplus, almost every bond would have matured in that 30 years. Every bond holder would have gotten their original deposit back (plus interest) and Congress would have never had to tax $16 T in surplus in order to get the bank money with which to redistribute around back to the bond holders.
This is a serious flaw in your rationale. If $16 trillion in bonds can be redeemed with only $30 in surplus funds over a 30 year period. Then deficit spending is adding new money to the system. Thanks for the back and forth Tom, I enjoyed it."

Earlier you wrote:

"There is no such thing as Congress appropriating funds from the TGA to pay back maturing T-bonds."

Are you saying that Tsy can legally issue no new bonds because it's experiencing a $1 p.a. surplus? Are you saying that this is what the law dictates? You're saying this because to issue even one new bond puts them over the debt limit (even though another bond is just about to mature... thus putting them right back below the debt limit again)?

But this can easily be solved by raising the debt limit just enough above the current debt to allow a small number of bonds to be sold (just enough to cover a new set of maturing bonds) so that the principal can be paid, thus exchanging the old bond as a liability on Tsy's balance sheet with a new bond liability.

Or are you saying that legally NO new bonds can legally be issued in any circumstances when there's even a $1 p.a. surplus? Even if there's a small buffer between the current debt limit and the current debt?


From the bottom of this post:

Public (more simplified)
Assets Liabilities
$(L+B+F) deposits $L borrowing from banks
$(T-B-F) t-debt -------------------------------
Total Assets Total Liabilities
$(T+L) $L
Negative Equity Equity
----------------------- $T

Update #2: (O/T):

Below is a PREVIEW of a coming post (perhaps just this one redone). In it I'm proposing to wrap both intra-governmental and foreign up in one big new entity called "X-org" (I'm putting it here in case somebody has some feedback for me about my plans!):

So what I'm proposing to do here is to create a new "X-org" balance sheet representing the aggregated effects of both the non-Tsy intra-governmental and the foreign sectors. This new balance sheet will thus incorporate Federal worker retirement funds, Social Security (SS), GSEs (Fannie, Freddie, and Fannie Mae), and all other such government agencies AS WELL AS all foreign governments, central banks, international organizations (both legal and criminal: e.g. the IMF and Mexican drug cartels), etc. The reason for this is:
  1. To try to keep the number of balance sheets and variables from getting out of control
  2. Aggregated together all such organizations have one super-set of common traits
Looking at point 2 above in more detail, such an aggregate organization will be able to:
  1. Hold US Tsy debt
  2. Hold Fed deposits
  3. Hold MBS
  4. Hold cash (still assuming only reserve notes here: not coins or US notes)
  5. Sell its own obligations: debt, currency, central-bank liabilities, bonds, whatever.
Perhaps this is a bad idea. I guess I'll just jump right in and find out! The new variables required will be Tx = X-org held Tsy debt, Ux = unspent X-org held Fed deposits, Mx = X-org held MBS, Cx = X-org held cash, X = X-org generated obligations (central bank liabilities, bonds, notes etc). Now since X is meant to describe the total amount of this obligation/debt/note issued by X-org, now I'll unfortunately need more "X" variables to describe the amount of X held by each of the other players. I'll assume Tsy can't hold any, but the rest can. Thus Xf = central bank held X notes and Xb = bank held X notes. Thus X-Xf-Xb represents the public held X notes. Here's how the balance sheet would look for entity X-org:

Assets Liabilities
$Ux CB deposit $X debt
$Tx T-debt -----------------------
$Mx MBS -----------------------
$Cx cash -----------------------
Total Assets Total Liabilities
$(Ux+Tx+Mx+Cx) $X
Negative Equity Equity
--------------------- $(Ux+Tx+Mx+Cx-X)