Where Your Dreams Become Reality
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Subject: RE: Federal loan payments - who do they go to? (please dont delete!)
The problem with your scenarios is you want to link a federal loan and national debt to the "fed" printing money. The debt and the money supply are independent things.
First, despite the official sounding name, the Federal Reserve is not really a government institution, but some kind of quasi-mix of private and public institutions which only partially answers to the government. I'm not sure the "fed" prints money either -- the "fed" decides monetary policy, but isn't money printed by the Dept. of Treasury? The "fed" is an independent entity created by an Act of Congress, while the Dept. of Treasury is an "executive" agency of the president. Maybe I've oversimplified things, but the "fed" is not the government.
Second, your federal loan, or any other national debt is just a promise to pay something back later. These promises take many different forms. There is no new money necessarily created with a promise. Any present money comes from previous tax revenues, or from the buyer of bonds, T-bills, or other obligations, or from the bank who actually finances the loan, with a promise of some kind of return. The future money to pay off this loan, debt, or obligation, will be financed by future tax revenues, a future buyer of bonds, or from a future loan. At no time during this process has the money supply necessarily increased or decreased. All that has happened is an exchange of promises, and an exchange of existing money, hopefully followed by a future exchange of future money.
Independently, the government (and/or the "fed") could decide to print new money to pay off the national debt, but such policy decisions need to be taken carefully to avoid excessive inflation and devaluation of currency. The real way out of recessions/depressions is a genuine growth in productivity, usually measured by things like GDP. Monetary policy can help stimulate or accelerate this growth in the short term, but not the long term.
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