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D-day bonds

From Jan Kregel: how the war was won – financially.

In 1943, Congress faced unpredictably large war expenditures exceeding the prevailing debt limit. Congressional debates from that time contain an insightful discussion of how the increased expenditures could be financed, dealing with practical and theoretical issues that seem to be missing from current debates. In the ’43 debate, Representative Wright Patman proposed that the Treasury should create a nonnegotiable zero interest bond that would be placed directly with the Federal Reserve Banks. As the deadline for raising the US federal government debt limit approaches … Jan Kregel examines the implications of Patman’s proposal. Among the lessons: that the debt can be financed at any rate the government desires without losing control over interest rates as a tool of monetary policy. The problem of financing the debt is not the issue. The question is whether the size of the deficit to be financed is compatible with the stable expansion of the economy.

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The lessons of this discussion are: first, that the problem of financing the debt is not the issue—the Federal Reserve can finance any level of the debt the government desires—and second, that the debt can be financed at any rate the government desires without losing control over interest rates as a tool of monetary policy. The question is whether the size of the deficit to be financed is compatible with the stable expansion of the economy. That is, will the deficit contribute to inflationary speculation or to increased output and employment?

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Categories: Uncategorized
  1. June 7, 2014 at 8:47 pm

    The citizenry have limited knowledge, and limited wisdom. So, there is plenty of room for improvement. But winning elections is the priority … “Vote for me and you are as smart as you need to be.”. This is leadershiT.

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