SB: Well there's a school of thought called Modern Monetary Theory.
Rob: Put it in plain English.
SB: Okay. There's a school of thought called Modern Monetary Theory. And they say that the debt is not a problem because in their view we already have sovereign money because the FED, according to them, is part of the government. I think a lot of people would dispute that, including me. And that as you know, the central bank, even though it was a creation of congress, basically acts independently and certainly the regional banks below them and then the banks below them are not answerable to Congress at all. So even though the FED board of governors has seven nominees that come out of the president's office who are nominated for 12-year terms, that's about, that's a little more than half of the board, but it's coming from the banking industry, and the banking industry has a lot of influence on Congress anyway because they are basically the largest campaign contributors at this point. Or one of the largest anyway. I think pharmaceutical might still be larger. But you can't say that the central bank is a creature of Congress and subject to its will when the banks themselves have so much influence over Congress. So to say that we're sovereign now is not stating the reality of the situation. But in any case what they say is that it doesn't matter if we have debt because basically we can issue our money as much as we need to and we can pay off the debt as much as we need to and it's all an accounting issue. But there's a problem with that because only 18% of the treasuries are all owned by the central bank itself, the rest go to other entities including overseas entities like China. And then what happens is that China is able to basically devalue their own currency.
Rob: You just lost me, I'm sorry, you just lost me. You said only 18% of the treasuries are owned by, by who?
SB: By the central bank, our central bank. So in other words our central bank will buy treasuries in order to issue currency in exchange. So that's how the currency goes into production. So...
Rob: And what, I still don't get it. I'm sorry.
SB: Our treasury department can't issue currency on its own currently because we have this setup with the central bank, so what they need to do in order to get more money into the system is they have to sell treasuries. So they sell the treasuries to a central bank or...
Rob: You're talking about treasury bonds.
SB: Treasury bonds, yeah. So then that way they get more money back into circulation and they can fund the various expenditures that congress has authorized. So this is kind of a kludge-y mechanism instead directly funding from treasury itself by issuing money itself which is what the United States notes were. You can kind of see this if you actually look at a physical bill, like a five dollar bill, an old United States note you'll see that it doesn't have a bank of issuance on it, unlike a federal reserve note, so a United States note is different, it physically looks different on the bill itself and that's an indication of where it's origin is, it comes from the treasury department instead of from a regional bank, unlike a federal reserve note. So this is money that's issued by treasury and it's debt free and it doesn't require interest to be paid on a treasury bond in order to obtain it. So, anyway, getting back to what I was trying to say about the treasury bond issuance. If it's China that's buying our treasury bonds then they're basically able to devalue their currency because they're paying, they're basically paying their own currency in order to buy our currency which strengthens our currency which makes our exports less competitive because they're priced in dollars and the dollars are worth more than the Yuan. And so the the devalued Yuan in China means they are able to sell their exports more, China is able to sell its exports more cheaply to America because it's priced in the less valuable currency. And so this kind of currency manipulation is something that goes on all the time. And it's one of the reasons for the trade imbalance that we have with China right now. So a lot of people are trying to get China to stop doing this...to stop basically inflating their own currency while strengthening ours. But the real way to do that is to stop selling the treasuries. If we stop that then they can't manipulate the currency and one of the ways to do that at least would be to issue our own currency under some tight controls yet to be devised. But so that we wouldn't have to basically buy our own currency by issuing treasury bonds and having other parties buy them.
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