GOLD 0.51% $1,391.7 gold futures

You've got the following two steps right. The US Treasury issues...

  1. 1,591 Posts.
    lightbulb Created with Sketch. 42

    You've got the following two steps right.

    The US Treasury issues bonds, takes money from commercial banking system.
    The Federal Reserve, buys bonds, putting money from commercial banking system.

    At this point, there is a zero net flow of cash, but then:

    The US Treasury passes the proceeds to the US Government, who spends the money on Transfer Payments to US citizens by depositing in their bank accounts, putting money back into the commercial banking system.

    US citizens spend their cash on Walmart goods, and the money goes into Walmart and its suppliers, who proceed to deposit their money in the bank, as well as paying a small proportion back to the government in the form of taxes.

    Bank deposits rises due to the money deposited by Walmart & suppliers, reducing their loan-to-deposit ratio, allowing the bank to issue more loans to corporations.

    Corporations borrow money from the bank, and spend it on share buybacks and dividends.

    Investors sell their shares / receive their dividends, and deposit their money in the bank, paying a small proportion back to the government in the form of taxes.

    The government is running on deficit, which means all tax revenue is being spent again, back to contractors to build bridges and transfer payments to the unemployed, single mothers and the elderly.

    I don't see how the money gets absorbed back into the Fed eventually, unless it raises interest rates, which are currently near zero.
 
watchlist Created with Sketch. Add GOLD (COMEX) to my watchlist
 
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.