Re: Balanced Budget and Depression

[mosler@xxxxxxxx]

On Thu, 01 Feb 96, "Alan G. Isaac" <AISAAC@xxxxxxxxxxxx> wrote:
>If I have understood this claim, it too is incorrect.
>Tax payments are not made to the Federal Reserve, they
>are made to the Treasury.

Yes, to the Treasury's account at the Fed.  Any increase
in Treasury balances at the Fed is a reserve drain.  Any
decrease is a reserve add.   The commercial banking
system's balance must be maintained or the interbank rate
will go immediately to 0 bid if an excess persists or
skyrocket to whatever banks will pay for overnight money,
rather than fail.  I believe this is standard pk monetary
analysis.


 It is true that the Treasury
>can affect reserves by shifting its deposits between
>the Fed and commercial banks, but it generally acts to
>avoid these impacts.

Generally the Fed acts to offset the effect of
shifts in Treasury balances.

 In any case, that's a separate issue,
>and my comment stands.
>
>--Alan G. Isaac
>
>On Thu, 1 Feb 1996 10:52:44 -0500 <mosler@xxxxxxxx> said:
>>Tax payments sent from the
>>commercial banking system to the Federal
>>Reserve are a net outflow (reserve drain).
>>This must be offset by a "reserve add" from the
>>Fed, from either its own account or from the Treasury's account.
>>
>>
>>On Thu, 01 Feb 96, "Alan G. Isaac" <AISAAC@xxxxxxxxxxxx> wrote:
>>>The money supply is a stock. Tax payments are a flow.
>>>The stock of money need not increase to maintain a flow
>>>of tax payments.
>>>--Alan G. Isaac
>>>
>>>On Thu, 1 Feb 1996 08:18:37 -0500 <mosler@xxxxxxxx> said:
>>>>I have contended that it is even simpler.  The fact is, with a fiat
>>>>currency like the dollar, the driving force is that we all need the
>>>>government's money to be able to pay Federal taxes.  The only source of
>>>>dollars to pay taxes is the government.  So a balanced budget is
actually
>>>>the theoretical minimum the government can spend.
>
>
>
Warren B. Mosler
Director of Economic Analysis
III Finance

See "Soft Currency Economics:"

http://inca.gate.net/~mosler/softecon.html