WASHINGTON, DC – JUNE 3: The U.S. Capitol Building is seen on June 3, 2026 in Washington, DC. (Photo by Kevin Carter/Getty Images)
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Governments don’t spend money. Yes, you read that right. To suggest governments spend is to presume that they have achieved consumptive power sans production.
More realistically, and very simplistically, governments attain 100% of their spending power from private production. In other words, their taxing power alongside their ability to borrow against the future production of those taxed, is the source of all their consumption.
Which is why “government spending” should be more informatively described as “reduced private consumption” or “reduced private investment.” In properly describing what’s true, the electorate will then see how much consumptive activity is warped by governments since no one spends the money of others the way they do their own. Every bit as crucially, they’ll see that government consumption comes at the expense of savings and investment without which there are fewer startups, companies and pay increases for those who work in the private sector.
What’s hopefully useful about what’s been read is that what’s true about it also true about so-called “money printing.” Conservatives, libertarians, Austrian School types, and other members of the right who should know better, and who would nod along to a truth that resource-bereft governments attain their spending power from the private sector, claim that central banks are others. Supposedly their “printing” of exchange media enables government spending, borrowing, and both.
Consider always certain Wall Street Journal columnist Joseph Sternberg, and his recent commentary that rising Treasury yields (they returned to levels of 2007 when the national debt was $7 trillion) are a sign of investor recognition that the Kevin Warsh Fed will no longer be a size buyer of Treasuries. No, that’s silly.
Since the federal government has no spending power other than what it extracts from the private sector, can Sternberg seriously believe that a creation of the federal government has consumptive abilities that its creator lacks?
Back to reality, the Fed’s ability to pay banks for their reserves is an effect of the federal government’s taxing power, at which point an entity of the federal government with taxing power pays for the fruits of production in dollars borrowed from banks. Having borrowed dollars at a price, the Fed buys Treasuries to achieve a return on monies borrowed.
As for its historical purchases of Treasuries, Sternberg naturally believes the buying has kept Treasury yields down. He reverses causation. Longstanding global demand for the most trusted income streams in the world has made it possible for the Fed to park bank assets in Treasuries. And no, this is not a defense of the Fed.
At the same time, it’s a corrective of the popular and nonsensical view that the Fed is “printing money” to pay for Treasuries. It’s not.
If it were “printing” to help out Treasury with its borrowing, then there would be very little federal government debt. And for obvious reasons: no one would buy income streams that pay out dollars that aren’t circulating, and that aren’t circulating simply because no one buys anything with money per se, rather production buys production. It’s worth adding that not only would there be very little debt if the Fed were “printing” to pay for it, yields on the debt would be incalculably higher to reflect the declining worth of the dollars paid out.
Implied in “money printing” is that governments can attain resources from a printing press if they lack access to production. Keynesian nonsense doesn’t gain nobility when spouted by the right.
For the same reason governments don’t spend, they also don’t “print” their consumption. Consumption is always, always, always preceded by production.
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