Direct central bank purchases of government debt

There was a recently published Federal Reserve Bank of New York Staff Report – Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks – by Kenneth D. Garbade, which recounts the way the central bank in the US could purchase unlimited amounts of treasury debt by creating funds out of thin air and how that capacity was eventually constrained. The Report is an understated account of the way in which the conservative ideological forces eventually prohibited this capacity and forced the US government to only issue debt to the private sector. He shows that between 1917 and 1935, this capacity was used often “without incident” but as the conservative antagonism grew it was limited (in 1935) and then abandoned altogether in the early 1980s. The Report demonstrates there were no intrinsic financial reasons for abandoning this capacity.

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British economic growth shows that on-going deficits work

In Australia, the Federal Treasurer announced today that they would be making further spending cuts to the fiscal position of the government in the mid-year statement to pay for “an increase in funding for security agencies” and its onslaught against ISIL. So education, health spending, income support etc will get the chop so we can make the world an even more dangerous place than it is currently at a time when unemployment is rising and economic growth falling. Another case of austerity madness combined with the mindless approach to dealing with the external threats from extremist groups. He should take a note from the British Chancellor’s book who is overseeing an expanding fiscal deficit and public debt ratio, despite the rhetoric to the contrary, and that on-going deficit is supporting growth, helping private households increase their saving ratio and is generally a good thing to behold. Austerity in the UK?- not if you consider the current data!

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