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14 July 2017

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Jack

MRW,

I believe you are conflating several things.

Yes, Congress is the legislative body under our Constitution and passes the laws. It created the Federal Reserve Banks and gave them the authority to do several things under current law. Of course it can change them in the future including disbanding the Fed.

What does the Fed do under current law? It manages the payment system, is a regulator of commercial banks, is a lender of last resort to commercial banks, and it manages monetary policy which includes issuing legal tender currency, setting interest rates, etc.

Under current law the Treasury can't issue currency, that role has been given to the Fed. The Fed is independent in its conduct of monetary policy. The Treasury and the President can't dictate it.

The expenditures of the federal government under current law must be financed through taxes, duties and other revenue and the remainder has to be borrowed. This shows up on the balance sheet as a debt obligation. The Fed can choose to buy federal government securities but there are no laws that force them to do so.

The value of a currency -its purchasing power is not fixed. It fluctuates and as Sam Peralta noted in the open thread that is a function of mass psychology. His point that that leads to a limit on how much the government can spend. During an existential war people are willing to expend all resources in fighting that war but in other circumstances they may not. Sovereign fiat currencies have collapsed in the past.

different clue

Babak Makkinejad,

If you are correct, that would be a very interesting correction-addition for me to install into my knowledge base. It goes against the little I have read. I may just look it up.

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