Re: Money, Taxes, and Government Debt

[wfhummel@xxxxxxxxxxxx (William F. Hummel)]

Bill Ryan wrote:

>William Hummel wrote May 31:
>
>>The $10,000 check the taxman walks away with results in a debit of
>>$10,000 in state money against the borrower's bank when the check is
>>cleared at the Federal Reserve bank.  The bank's reserves at the Fed
>>are reduced by that amount, as is the total of state money outstanding.
>
>The amount of "state money" remains the same.  The $10,000 is
>transferred from your checking account at the local bank into the
>Federal Governments checking account held by the Fed.  The total
>amount of "reserves" held by the banking system, which includes
>not only local banks but also the Fed, remains the same.

Ryan digs his hole deeper and deeper.  State money is monetary
base money which comprises currency, coin, and deposits at the
Fed that are owned by the public.  The Treasury's account at the
Fed is not a part of the reserves of the banking system.  The
Treasury keeps its Fed account as close to a constant balance as
possible in order to minimize disturbance to the banking system
reserves.  It does this by transferring funds from commercial
banks to its Fed account as needed to cover payments out of its
Fed account.  Its commercial bank accounts are a part of the
banking system reserves, i.e state money.
>
>Mr. Hummel has already informed us that the government's receipts and
>disbursements are "essentially balanced."  If that is the case, how
>can it be that reserves are being depleted from the system as taxes
>are paid?  Would not such depletions be simultaneously counter-
>balanced by disbursements?

Precisely by the mechanism I described above.  It really
shouldn't be that difficult to grasp.

William F Hummel