Is a US Treasury Bond Really Just a Savings Account With the Fed?
Executive Summary
- US Treasuries are often described as something special.
- This quote from Warren Mosler demystifies US Treasuries.
Introduction
This quotation explains how US Treasuries work.
“Next, you need to know what a U.S. Treasury security actually is. A U.S. Treasury security is nothing more than a savings account at the Fed. When you buy a Treasury security, you send your dollars to the Fed and then some time in the future, they send the dollars back plus interest. The same holds true for any savings account at any bank. You send the bank dollars and you get them back plus interest. Let’s say that your bank decides to buy $2,000 worth of Treasury securities. To pay for those Treasury securities, the Fed reduces the number of dollars that your bank has in its checking account at the Fed by $2,000 and adds $2,000 to your bank’s savings account at the Fed. (I’m calling the Treasury securities “savings accounts,” which is all they are.) In other words, when the U.S. government does what’s called “borrowing money,” all it does is move funds from checking accounts at the Fed to savings accounts (Treasury securities) at the Fed. In fact, the entire $13 trillion national debt is nothing more than the economy’s total holdings of savings accounts at the Fed.”
Source: Mosler Economics
Contemplating the Ridiculousness of The Existence of US Treasury Bonds
It is odd that they are not simplified into just being a bank account with the Fed. In a bit of convoluted idiocy that could only be created by private bankers. One might say, why isn’t the bank account with the US Treasury instead of with the Fed. And the reason is that the Fed issued money to buy the US Treasury, which the Fed then sold to the owners of the Treasury bond. The entire situation is ridiculous as the US government does not need to borrow money from either its own citizens or from investors from overseas. The logical solution is to terminate the existence of the Fed and have the US government loan money, not have the government “borrow” money.