Where do dollars come from? Is there any limit to how much money the government can create?
Comment on Where does the revenue gathered from taxes go and what is national debt?
FuglyDuck@lemmy.world 1 day ago
In the US, at least, the government has 2 ways it can fund itself.
Taxes, which are collected through a variety of means- income tax, for example, or import taxes, etc. these funds go into the treasury, which then get doled out to pay for things.
If taxes are insufficient, or there’s some type of emergency that requires an excess of funds more quickly than they can levy with taxes… the government takes on debt. Specifically, they use a number of different instruments including bonds.
The “national debt” is the the sum of all those bonds, loans and whosiwhats its that are taken out to pay for things.
AfterNova@lemmy.world [bot] 1 day ago
FuglyDuck@lemmy.world 23 hours ago
cash is largely minted by the government, and they usually aim to maintain “enough” (currently 2.3k billion dollars currently?)
Most of the money supply is not in physical cash, though- they call that the m1 supply which is found in things like savings and checking accounts, other kinds of deposit accounts, etc.
Currency is added to the economy by buying back government securities (think bonds). Specifically this is the Federal Reserve. we also pay interest on money held at by the Fed. (Banks invest the money.)
BlameThePeacock@lemmy.ca 22 hours ago
You’re mostly correct, but I would like to add a piece that not everyone understands.
The government issuing debt can be good for the government because of inflation and economic stimulus.
When the government sells debt, it sells $ in the future for a different (usually lower) price today. It doesn’t actually pay interest, the effective interest is determined by how much the market is willing to pay for it.
Lets say the government sells a billion dollars worth of bonds, which will pay out in 20 years, they sell it today for three quarters of a billion dollars. Sounds like a bad deal, right? The government is clearly losing a quarter of a billion dollars.
Except, the government doesn’t have to pay it back with money from today, it pays it back with taxes it will earn 20 years from now. If in those 20 years, inflation is say… 3% on average. Lets just ignore compounding to make it simpler, and say the costs of everything goes up by 60% over those 20 years. Assuming the tax rate stays the same (and ignoring compounding effects) they’d be collecting 60% more actual dollars than they would today. Paying back a billion dollars from taxes at that point is now easier than it would have been to try to raise 750 million from taxes today.
The government just “made” money by borrowing money. Really, it comes from inflation eating away at wealth, which is why the government printing debt like this usually causes inflation. All things inflating equally is a wealth tax.
Side note: The current inflation issues we’re seeing are not happening equally; wages are not going up as fast as inflation on common necessities like housing and groceries. That’s a different problem, not caused by government debt printing.
Then there’s the economic effects of spending the money now. More economic activity today usually means more taxes collected overall throughout the years that whatever they spent the money on benefits people. A new bridge or road, better air traffic systems to allow more flights, safer oceans to protect shipping, etc.
FuglyDuck@lemmy.world 18 hours ago
Not sure who downvoted you, lol. You’re quite correct (I just didn’t want to get into the weeds, heh.)
and yes. it’s good to remember that not all debt is “bad” debt. Especially on a national level. I still think it’d be nice if they passed a balanced budget, though. (and one that covered everything that was important. like healthcare and housing and infrastructure and climate resiliency and stuff, and not bombs for genocidal maniacs)
BlameThePeacock@lemmy.ca 11 hours ago
Agreed, mostly.
I don’t really care about a balanced budget. I’m fine with running deficits forever, as long as they keep the debt to gdp ratio at a reasonable value.
As you mentioned though, I care a LOT about what they spend it on. If they’re dumping it into systems that don’t provide stimulus to the economy that is sustainable long term, that’s bad.
Even bombs can be important by stimulating local wages, resource production, manufacturing, etc. however I’d like to see more investment in productivity improvements in my country (Canada) because we’re falling behind. I’d like to see more government investment in education, transportation, renewables, and supporting tech. Less investment in oil and gas.