The Fed and Banks are irrelevant and the 5 trillion dollar wheel spin

Deficit spending is money supply and plays an active role in the functioning of the economy, not the actions of the Fed. The Fed's involvement is entirely circular. It is a Government body and its intervention is merely the exchange of cash dollar bills in the form of a Treasury bonds with a yield and duration for another set of dollar bills with a Fed Rate interest rate and duration. The Fed’s action serves no economic purpose.

No-one has been able to provide an answer to the question of what would happen if the Fed’s $1.6 trillion of Government debt holdings on its SOMA account (with a further £1 trillion in mortgage debt) were simply cancelled. It is obvious this is an accounting entry with no purpose. The Treasury and the Fed could cancel this debt or run it for a century and it would make no difference to anyone. The point is that the dollar bills behind this debt have already been spent in the economy and we need to know the effect this has had. If the spending has resulted in a preservation of value in that the economy was “bailed out” of very high unemployment and fall in profitable business activity or whether the spending of 25% of GDP over the last three years has served to preserve jobs that will always and business activity that will always need “bailing out”.

Restricting the discussion to GDP terms, spending 30% of GDP (5 trillion) over four years from the onset of the banking crisis (not economic crisis, banking crisis) in January 2008 to December 2011 in the Government’s attempt to  control and direct spending to preserve a banking system that has failed to perform its proper economic function of removing friction between areas that need and those that have capital, is an abysmal failure. It could have been seen to be a failure at the outset of the Government action because it was crafted by a Fed and a banking system that caused the banking crisis in the first place. People and companies in the wider, non-corrupt and sensible economy could have put this 5 trillion to much better use. Banks and the Fed perform no useful economic and social function if they do no support the removal of friction in transaction flows between sectors of the economy that generate value in the form of “good” money supply of dollar bills in the form of profits from activity that is valued.

Here are some charts and table that show how $5trillion in the creation of dollar bills issued as debt that has to be paid back rather as opposed to not creating the debt

Amount spend in dollar bills = $5tn, Real GDP change since December 2007 = zero,

See here for BEA numbers on fiscal deficits and click on historical date in the bottom right of the front screen http://www.cbo.gov/budget/budget.cfm

and

See here for BEA QoQ numbers behind the nominal GDP of no change (add the QoQ for the last quarter of each year) http://www.bea.gov/newsreleases/national/gdp/gdp_glance.htm

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