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Responses to 'how are you going to pay for it?': 1. The Tsy instructs the Fed to credit the appropriate account. 2. The $ to buy bonds or pay taxes comes only from the gov and its agents, so gov spends first, and then taxes are paid or bonds paid for.
3. So gov borrowing supports rates, it doesn't fund expenditures. 4. Likewise interest is paid by instructing the Fed to credit the appropriate accounts, and likewise those $ are paid first, and then taxes are paid or bonds are paid for.
The public debt is the $ paid by gov that haven't yet been used to pay taxes and remain outstanding as cash, balances in reserve accounts at the Fed, or balances in securities accounts (tsy secs) at the Fed until used to pay taxes.
'What about inflation?' The funds to pay taxes come only from gov or its agents, so gov is necessarily 'price setter', and the price level is a function of prices paid by gov when it spends. And don't confuse a relative value story with an inflation story thanks!
Thought exercise- if all prices go up and the gov doesn't pay those higher prices, gov spending goes to 0 and the price level deflates until gov spending is sufficient for tax payments due. Not that it's 'good policy' to do that, but to reveal the source of the price level!
And it's all in my very short free online non technical book thanks!
Including the understanding that tax liabilities function to create sellers of goods and services (who then need that currency) so the gov. can then spend it's otherwise worthless currency.
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