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Bonds always finance government spending, which is beyond what the balance is in the "Treasury Account" at the Central Bank. Governments DO NOT create reserves, and Governments DO NOT create deposits. #Page1 #MMT
Let’s start with the assumption that the Gov wants to spend $60 billion, but the treasury account only has a $50 billion balance in it. I will also assume by law the treasury account cannot go negative to adhere to some self-imposed law. #Page2
To address this issue the Treasury will “create bonds” to cover the shortfall in the treasury account. Gov only creates IOUs. The first issue is there is not enough reserves in the banking sector to buy the bonds. #Page3
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