US Treasury is spending big

Published: Sat 20 March 2021
Updated: Tue 22 November 2022
By steve

In Markets.

Governments spend and receive money. This generally involves the banking system. Governments can have bank accounts at any bank they choose to. Very often they choose to use one, which may be privately owned, or nationalized. Surprisingly often, they are not publically owned. It was not until the late 1940s that the Bank of England was nationalized, and even today one can buy shares in the central banks of Switzerland and Japan. The most important central bank of all, the one that issues the world’s reserve currency, is the Federal Reserve. This is privately owned, but by a consortium of commercial banks. It is notionally independent, but has various mandates, such as preserving the value of the currency and maximizing unemployment. The balance that the government maintains at the central bank is of interest to those who work at the bank. I’ve learned a lot about central banks by listening to David Beckworth’s Macro Musings podcast, which devotes a large proportion of its episodes to monetary policy and the operational side of central banks plumbing. His latest episode, with Chris Russo, focussed on the Treasury General Account, usually abbreviated to the TGA. Chris was, at least in part, responsible for predicting the size of the balance on this account. It used to be modest, but now it’s really, really big, like several trillions big, and when it shrinks, as a result of the Treasury actually paying for stuff (like Social Security), money ends up in the bank accounts of the private sector, or what we normally think of as actual people. Who spend money on stuff. Stuff that is in finite supply. Just thinking aloud …

Bitcoin

I listened to this podcast. It would probably be better if I had listened to the Macro Voices podcast to which it is a response. I am sceptical of bitcoin. Chris Dark argues that this is because I’m a boomer, and I don’t “get it,” that I can’t understand how a purely digital object can have value and that I can’t be a “digital native.” And that I’m comfortably off. And that I’m resentful because I missed out on bitcoins massive bull run. Well, not me, but the old guys in the MV podcast.

Dark points out that Bitcoin has some great value if you live in a country where the government is destroying the currency. He dismisses the use case helping finance terrorism. I agree with a lot of what he says, and I agree that the blockchain is an amazing invention, and that some incremental development of the technology can solve some important problems, and this will create value, which just might accrue to people who purchased the asset early on (as Dark did).

For what it’s worth, my concern about bitcoin is that there are so many cryptocurrencies around, many with properties that BTC lacks, that it’s virtually impossible to pick the winner from a field of maybe tens of thousands. I know that many young people want to get on the crypto bandwagon, and many instinctively want BTC, original and possibly the best (although hash cash was a precursor). I also know that fiat currencies are being created at a totally unprecedented rate.

I just think that even with ‘modern’ crypto, like ETH, transaction charges remain un-affordably high for the purchase of ordinary items. I also know that most investors will leave their currency with the exchange where they purchased it, and almost none will run a full node wallet. I also know that a lot of people will lose a lot of money, betting on the wrong exchange or the wrong currency.

Am I wrong about this, and should I buy some BTC? Quite possibly. A lot of European political leaders are now millenials, and they may decide to allow citizens to pay their taxes in BTC. Dark makes a lot of good arguments. Time will tell, but I cannot make a conviction trade either way, and so I’ll stay out of the trade. But, as in all types of investment, I will keep an open mind and try to read and listen to commentators who are on both sides of the argument.

Twitter treats

I admit it. I deeply dislike Larry Summers for no defensible reason.

Aidan Garrib

The Market Huddle had a good segment where Aiden Garrib of Pavilion Global Markets went through the following slide deck. https://t.co/dlhySr5VE0

You’ll have to listen to the show to get the full benefit, but my takeaway was that there will be modest rotation out of value stocks, we will see inflation, China will have a big influence on EM markets.

I didn’t take a great deal away from this tbh.

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