What is wrong with government borrowing?

[gosub]

And how many billions, or is it trillions, of US treasuries does the Federal Reserve hold?

Assets: Total Assets: Total Assets (Less Eliminations from Consolidation): Wednesday Level

View the total value of the assets of all Federal Reserve Banks as reported in the weekly balance sheet.

fred.stlouisfed.org

 

[LakieLady]

That said if they didn't have to pay for child and adult social care from the counties budget it would be fairer. People come retire to a place and suddenly somewhere they never paid for services before is on the hook for it. I've been involved in these contracts. One individual had such complex needs it took nearly £1m to meet the statutory requirements, for a year, yes they absolutely should have got everything. However underfunding councils then lumping them with huge expenses is just stupid. The fuck up of austerity when it made no sense and people voting with apparently no thought whatsoever.

Inadequate adult social care funding has adverse impacts for the NHS, too. Delays in getting assessments done and care packages in place are a massive cause of bedblocking where I live. In one case that I know of, it took 16 weeks. There are wards full of people who could go home if only they had the care packages they need.

 

[Brownlow]

Yes and no. Fractional reserve lending has a money multiplier effect, which really does create money. The bank cannot cover all of its liabilities and is relying on its depositors not asking for their money back all at the same time as they don't have it. The bank does spend money it doesn't have in a sense as it lends out the deposits. That is 'spending' effectively.

Not to disagree with the broad point that banks create money, but they don't do so by lending out customer deposits, or fractions thereof :

Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.
(...)
One common misconception is that banks act as intermediaries, lending out the deposits that savers place with them. (...) Another common misconception is that the central bank determines the quantity of loans and deposits in the economy by controlling the quantity of central bank money — the so-called ‘money multiplier’ approach.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

So, while banks create money, they don't create any net private sector financial assets. For each £ created by bank lending, the non-bank private sector (households and firms) owes a £ plus interest to the banks. Only net govt spending, i.e. "deficit" spending, creates net private sector financial assets.

As JK Galbraith put it,

“To put things crudely, there are two ways to get the increase in total spending that we call “economic growth.” One way is for government to spend. The other is for banks to lend. Leaving aside short-term adjustments like increased net exports or financial innovation, that’s basically all there is. Governments and banks are the two entities with the power to create something from nothing. If total spending power is to grow, one or the other of these two great financial motors –public deficits or private loans– has to be in action.

For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like. If they wish, they can also convert it into interest-earning government bonds or they can repay their debts. This is called an increase in “net financial wealth.” Ordinary people benefit, but there is nothing in it for banks.

And this, in the simplest terms, explains the deficit phobia of Wall Street, the corporate media and the right-wing economists. Bankers don’t like budget deficits because they compete with bank loans as a source of growth. When a bank makes a loan, cash balances in private hands also go up. But now the cash is not owned free and clear. There is a contractual obligation to pay interest and to repay principal. If the enterprise defaults, there may be an asset left over –a house or factory or company– that will then become the property of the bank. It’s easy to see why bankers love private credit but hate public deficits.”