"The federal government’s finances have nothing in common with those of a
household, however wealthy that household might be, and nothing in common with
any business, big or small, or even state and territory governments.
None of these are currency issuers. They have to generate income or borrow
before they can spend, and their borrowing puts them at risk of insolvency.
Our federal government is different, like the national governments of Japan and
the United States. It is the monopoly issuer of the
The government does not need to increase taxes in order to increase spending,
and it doesn’t even need to borrow. Its Reserve Bank issues currency for it all
of the time, every day.
Federal government spending is funded when it is authorised, usually by
Having spent its currency into existence, the government usually offers savers
the opportunity to convert that currency into treasury bonds, which usually
offer a better rate of interest than transaction accounts with a bank.
Our government chooses to sell treasury bonds - it doesn’t need to.
This means it can’t be held hostage by the bond market. It can’t be forced into
insolvency or austerity. The selling of bonds doesn’t constitute borrowing in
the normal sense of the term. It is better described as a way of winding back
the money supply.
At the end of the life of the bond (when the “loan” comes due) it can pay it
off (swapping cash for the bond). Or it can issue a replacement bond if it
doesn’t want to inject more money into the economy."
*** Xanni ***
Chief Scientist, Xanadu
Partner, Glass Wings
Manager, Serious Cybernetics