As an accountant I did the T-accounts on this. When the fed buys the bonds it creates new money, which becomes a liability, but there is no identifiable asset in that T-account. Maybe we could offset that with hubris? The Treasury has bonds as a liability and receives the new money as an asset. In turn the Congress converts the new money into “walking around money” to fund projects to keep this ruling elite in power. (I think I am sounding a bit cynical.) If we eliminate bonds as an asset on the Fed books and bonds as a liability on the Treasury books, then the new money created is purely inflationary for all time.
On the other side of Fed Open Market transactions, it sells bonds and receives back money which contracts the money supply. Since the Fed has no bonds after the bill passes that option disappears.
The statement that this is debt we just owe to ourselves does have a problem. If we have to keep passing the bonds, and the new ones issued as the old ones mature to others of us, then subsequent generations of ”we” have to be willing to buy into the scheme and in ever greater amounts. If “we” ever decide to hold gold or land, or decide we have to buy consumables instead, then inflation goes through the roof because there are no bond buyers. Prices for all goods and services skyrocket as bond yields increase exponentially.
The most likely motivator for making decisions not to hold bonds comes from those foreign countries that currently hold $100 billions of our bonds. Prices are made at the margin by those 5% or so who actively trade the bonds. If that minority decides they just don’t want to hold U.S. Treasury bonds at any price (interest yield), then that raises the anxiety of the other 95%, including “we”, who were willing to hold the bonds.
Can you explain that to me like I’m an 8 year old?
The statement that this is debt we just owe to ourselves does have a problem. If we have to keep passing the bonds, and the new ones issued as the old ones mature to others of us, then subsequent generations of ”we” have to be willing to buy into the scheme and in ever greater amounts. If “we” ever decide to hold gold or land, or decide we have to buy consumables instead, then inflation goes through the roof because there are no bond buyers. Prices for all goods and services skyrocket as bond yields increase exponentially.
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It’s a ponzi scheme!
I hope my kids fully realize just how badly their elders screwed them one day. I have lost hope for my generation.