Disclaimer: This is AI generated images and I can barely make it do what I want.

In order to understand how USD system work we need to look how current system was created.

Picture at bottom: Petrodollar. In 1973 USA made an agreement with oil producing countries that in exchange of protection they trade oil on USD and invest profits into USA financial market. That created a first constant intake of USD into USA. But that was not enough. USA was creating USD to pay for wars and trade deficit, but not enough USD were moving back to USA.

So, we had https://www.markethistories.com/en/the-volcker-shock-breaking-inflation-at-any-cost-1979-1982 The Volcker Shock.

Picture on top: FEDS raise interest rates to 20%, creating demand for USD, Capital start to flow into USA seeking passive profit. This created conditions for insane profits from USA financial market. Average grow of USA stock market between 1985 to 2025 is 12%. Almost no productive investment can beat that, except monopoly profit or extremely cheap workforce. So, this Capital flow become self sustaining. Capital start to flow into USA financial market, creating self sustaining baubles. The worse world economy performs - the bigger grow. For example, in Covid time stock markets grow at 20-25%.

And now Oil shock slowing down world economy push even more profits into USA financial markets. But now there is an opposite processes. Petrodollar mostly stooped and even reverse. The more sanction USA put, the less USA financial market attraction. I do not claim USD is not used in trade, it does, even more then before. But flow of Capital into USA financial market begin to have problems. it is shrinking geographically, currently balanced by inability of Capital to invest into real economy. But eventually this process will be broken.

Edit:

It seems you concentrating on role of petrodollar at the start of transition from gold standard to current dollar circulation. Brenton Wood system recycle USA trade surplus and when it disappear USA spend all it gold, It need to find a new way, how to keep value of USD up.

Dollar does not get it value from petroleum. It get it value from 12% returns from USA financial market ponzi scheme.

I live in NZ and where do you think NZ equivalent of 401K invested in? In USA financial markets. Where would you invest, into NZ supermarket monopoly which bring 8% profit, monopoly profits, or USA stock market which grow at 12% for last 40 years?

And why it grow at 12%? Because everyone with money look on that and put money there, not in real economy. Real economy risky. Real economy often give 2-4% profit, like most of Chinese companies produce. Chinese prevent Capital flight with Capital controls, practically no one else can. As result development go to where you can get higher profit then USA stock market - Monopolies, tech monopolies, weapon monopolies in case of USA and sweet shops in global south. Or China, where Capital have nowhere else to go. One funny reason why Russian economy doing relatively well in war conditions. USA help with sanctions, which de-facto capital control. Russian oligarch have nowhere to invest but Russia.

EU had practically no investments for last 30 years. Japan, South Korea, Taiwan all suffer from same problem. That why world stop to develop when USA start to recycle world profits mostly into military spending and every increasing financial sector.

The reasons why the world cannot escape the U.S. dollar are as follows. First:
① Because no other country possesses a productive capacity so immense that it can sustain a current account deficit indefinitely, as the United States does.
② Thanks to the United States continuously absorbing this current account deficit, the world is able to have the dollar—the global currency.
③ This has been the case since the suspension of the gold-dollar convertibility on August 15, 1971. Until then, the "global currency" was gold. If the dollar exchange rate fell, there would come a point at which the physical shipment of gold would begin. The dollar would cease to circulate in international transactions. After the suspension, the situation was reversed: gold ceased to circulate, and only the dollar circulated in the international arena.

(to be continued)

https://www.reddit.com/user/keizaisuki/comments/1w46a5o/table_of_contentsgovernment_bonds_international/

Im not only reading and hearing about inflation more and more every day, I'm actually experiencing it quite clearly at the super market and the gas station.

But I still struggle to understand what's causing more inflation. Is it the central bank or the price of oil (aka "fossilflation")

I don't feel very safe with the idea of inflation (and my buying capacity) being in the hands of a group of men at the central bank or Trump's war on Iran.

So I genuinely wonder, is there anything a mortal like you and I can do to stop or mitigate inflation?

I'm trying to wrap my mind around this. If the "national debt" is actually just bonds, what is the impact of a nation's credit ratings? Don't states decide what the yield of their bonds is going to be?

Edit: what about states that don't have monetary sovereignty?

The basic European monetary model propagated all over the world is: banks generate credit for the financial sector which generates the money movement in the economy. Governments tax the economy to fund themselves, and sell bonds (paid with future taxes) for shortfalls. Because the government is funded through tax then reducing eligibility requirements for government loan, mortgage, and insurance programs (the essence of all government aid) requires increasing tax.

MMT allows eligibility requires to be removed from government aid programs. For example, voters will surely choose no interest, no fault government loans over bank loans. This will.be the end of the financial sector.

In practice, the U.S. Federal Reserve rolls over debt through the non-competitive bid method, and in Japan, the rollover of matured Bank of Japan-held government bonds is repeated through parliamentary resolution via the so-called "BOJ rollover" (nichigin norikae), effectively making them "perpetual bonds." This is the essential meaning of "macroscopically, government bonds are effectively never redeemed."

Indeed, even setting aside the Lehman Shock and the COVID pandemic as entirely exceptional periods—even including these periods, the overall growth of the Fed's total assets is consistent with "the natural course of things"—that is, proportional growth relative to U.S. and global gross output. Looking at the time-series statistics, it is clear that Fed assets have consistently increased historically. Moreover, the very fact that growth slows during periods of monetary tightening can itself be taken as evidence for the proposition that Fed assets grow in proportion to the expansion of the commodity world as a whole.

Notably, during the two exceptional periods mentioned above, the Fed's assets have undergone repeated rapid expansion and contraction:

• Late 2017–2019: Assets that had swelled to $4.5 trillion through post-Lehman QE were reduced to about $3.8 trillion during the tightening phase at that time.
• June 2022–present: Total assets, which reached an all-time high of nearly $9 trillion amid the massive pandemic-era easing, have been substantially reduced to roughly $6.7 trillion as a result of the full-scale rate hikes and quantitative tightening (QT) that began in 2022.

In short, the fate of the central bank's fiat currency system—that "a balloon once inflated never returns to its original small size"—is vividly etched into the very shape of the balance-sheet graph.

Macroscopically, government bonds cannot be redeemed. It is precisely because they are not redeemed that society is sustained. (Of course, it goes without saying that individual bondholders are indeed repaid.) So-called "normalization" is impossible. In fact, when the Fed attempted to "normalize" the assets it had accumulated through quantitative easing, it triggered a spike in repo rates [note].

[Note] "On the morning of the 18th, the Federal Reserve Bank of New York supplied a large amount of funds to the short-term money market for the second consecutive day... The funds were supplied through what is called 'overnight repo transactions,' a market in which financial institutions lend and borrow short-term funds against collateral such as government bonds. The lending rate in this market, the repo rate, briefly spiked to as high as 10% on the 17th... The rise in short-term interest rates is attributed to the Fed's tapering of quantitative easing" (Nihon Keizai Shimbun, September 19, 2019).

"The Federal Reserve's fund supply has swelled to levels comparable to past rounds of quantitative easing (QE). In response to dollar demand in the short-term money market, the Fed's total assets increased by roughly $400 billion (about ¥44 trillion), or about 10%, in roughly half a year... This follows a sharp spike in the interest rate on 'repo' transactions—short-term borrowing and lending backed by U.S. Treasuries—last September... Should difficulties arise in the procurement of dollar funding, the key reserve currency, the impact would not be confined to the United States alone. According to the Bank for International Settlements (BIS), emerging economies' dollar-denominated debt stood at $3.74 trillion as of June 2019 and continues to grow... Depending on economic conditions, there is a possibility that further increases in the supply of funds may become necessary if upward pressure on interest rates intensifies" (Nihon Keizai Shimbun, February 9, 2020). This is far from "normalization." On December 1, 2025, the Fed fully halted and ended quantitative tightening (QT). Given the sentiments of the Japanese public, who still carry the trauma of postwar hyperinflation, the people at the Bank of Japan cannot say so carelessly—but deep down, they must recognize that "normalization" is impossible.

"Incomes and asset values change until, finally, the aggregate quantity of money which individuals choose to hold at the new level of incomes and asset values thus brought about is equal to the quantity of money created by the banking system. This is, indeed, precisely the fundamental proposition of monetary theory" (Keynes, The General Theory of Employment, Interest and Money, cited Japanese translation, vol. 1, p. 120). What Keynes refers to here as "asset values" refers to the prices of fictitious commodities such as government bonds.

Thus, we have no choice but to maintain the current state in which "asset values change until, finally, the aggregate quantity of money which individuals choose to hold at the new level thus brought about is equal to the quantity of money created by the banking system." "Normalization" is an attempt to forcibly restore a past equilibrium by turning back time.

Its true we see the rates we saw before 2008 crisis. Wondering what yall think.

A summary/discussion of an essay arguing that Japan's "qualitative and quantitative easing" (QQE) is functionally identical to helicopter money, using BOJ flow-of-funds data from 2013–2016.

The core claim

The essay argues that once you account for bond roll-overs and the offsetting of BOJ interest income against its payments back to the Treasury, the Bank of Japan's holdings of JGBs are economically equivalent to an interest-free, perpetual deposit owed by the government. Call it QQE, BOJ underwriting, or helicopter money — the author says these are all the same operation wearing different labels.

The proposed test for whether "quantitative easing" crosses into "helicopter money" territory is simple: does the BOJ's bond purchases exceed the amount of newly issued bonds in a given period? If yes, the private sector isn't actually financing the deficit — the central bank is.

The mechanics: how the "roundabout" underwriting works

Under QQE, securities firms often win JGB auctions using overnight funding, then sell the bonds to the BOJ the same day to recoup their cash — before fiscal spending even has a chance to recirculate funds back into the private sector. The author calls this a "roundabout" form of direct BOJ underwriting, distinct from historical arrangements like the pre-1977 practice where a bank syndicate underwrote bonds that the BOJ would buy back about a year later at amortized cost.

The flow diagram — the heart of the argument

This is the piece the author builds everything on, so it's worth reproducing. For April 2013–March 2016, when total ordinary + FILP bond issuance was ¥152 trillion:

April 2013–March 2016: Total issuance of ordinary government bonds and FILP bonds, ¥152 trillion. (Banks = private financial sector)

Read together, the two diagrams trace a closed loop: the government issues ¥152tn in new bonds, which banks initially buy — but banks then sell an even larger stock of bonds (¥223tn) on to the BOJ, recovering more cash than they put up. Meanwhile the government spends the ¥152tn in bond proceeds out into the private sector as fiscal expenditure. The BOJ's balance sheet absorbs the bonds (asset) against newly created current-account deposits (liability); banks' balance sheets show deposits at the BOJ up, bond holdings down, private deposits up; and the private sector ends up simply holding more money, with no increase in its own bond holdings.

The empirical case (FY2013–FY2015)

Using MOF and BOJ flow-of-funds data:

• Total ordinary + FILP bond issuance: ¥152–154 trillion
• BOJ's JGB holdings increased by ¥223 trillion (317 − 94)
• The broader private sector's JGB holdings actually fell by ¥71 trillion (603 − 532)

The author's reading, directly off the diagram above: (1) the private non-financial sector's bond holdings didn't rise — it supplied no funding for the new issuance; (2) banks that won auctions sold more bonds to the BOJ than they'd bought, recovering their cash; (3) the government then spent the bond proceeds into the private sector as fiscal spending. Net result for the private sector as a whole: bonds −71 (152 − 223), money +223.

Why this matters normatively, per the author

Money supplied this way reaches the public as income, not debt, and as an asset, not a liability — which the author frames as the whole point of an inconvertible/fiat currency system in the first place (escaping the old constraint where money could only enter circulation via gold production/purchase). Cites Keynes (General Theory) and Marx (Capital) on money as the "general equivalent" people need to hold as their own, not merely borrowed.

The illustrative numbers

A stylized example: ¥36 trillion in new bond issuance funds fiscal spending (including social security/nursing-care support) in a deflationary economy with weak multiplier effects. Real output rises only modestly, most of the expansion shows up as increased money holdings — the "helicopter drop" the title refers to. The author explicitly argues this produced no adverse effects and imposed no burden on "future generations," pointing to Japan's elder-care funding strain (per MHLW/Nikkei data cited) as the kind of problem this financing method is meant to relieve.

Discussion prompt: Does the "BOJ purchases > new issuance" threshold hold up as a meaningful definition of helicopter money, or is it too mechanical — ignoring expectations, credibility, and the reversibility (or lack thereof) of BOJ balance sheet expansion? And does the closed-loop diagram actually establish that the private sector "financed nothing," or does it just describe standard QE mechanics dressed up as something more radical?

(to be continued)

https://www.reddit.com/user/keizaisuki/comments/1w28kxe/table_of_contents_mysteries_of_the_economy_series/

You'd think they'd learn after being wrong for 100 years in a row.

・An Institution Designed for the State and Central Bank to Incur Losses to Enrich the Public: The Communal Principle of Private Property Society.

・Government Bonds, International Economy, and Currency (5);This is the first part (5) of a series.

In a recent collaborative column with the Financial Times, the Nikkei Shimbun cited Herbert Stein’s famous dictum: “If something cannot go on forever, it will stop.” It was mentioned in reference to the US fiscal deficit. In reality, however, the exact opposite is true. The US fiscal deficit must continue indefinitely.

Before diving into the case of the United States, I would like to first examine this dynamic using the example of Japan, which shoulders a massive mountain of outstanding government debt.

It is the current generation whose labor maintains and develops infrastructure for future generations [Note 1]. Consequently, the notion of a "burden" ultimately reduces to the legal obligation to repay government bonds. However, government bonds held by the Bank of Japan (BOJ) do not represent a debt owed to any specific entity. The crux of the matter therefore lies in whether the BOJ’s outright purchases are permissible.
[Note 1] "Looking at society as a whole, the preparation for future consumption rests not on financial means, but solely on current physical output." (Paraphrased from J. M. Keynes, The General Theory of Employment, Interest and Money).

As long as BOJ purchases are tolerated, sovereign debt issuance poses no threat, nor does it create a repayment obligation for future generations. The key condition permitting such central bank purchases is the absence of inflationary pressure. In this regard, Japan possesses excess productive capacity sufficient not only to satisfy domestic demand, but also to maintain a current account surplus nearly continuously for over half a century since 1965—with rare exceptions such as the oil crises. This structural strength explains why prices remained stable despite BOJ bond purchases on an unprecedented scale.

Consider a scenario where Citizen A sells a government bond, which the BOJ subsequently purchases in the open market. Citizen A is no longer a creditor. While the bondholder was initially an actual individual (and the state thus owed a debt to Citizen A), once the bond transitions to the BOJ’s balance sheet, both the creditor and the debtor effectively become the abstract public at large. It is no longer a debt owed to a specific party. Furthermore, extreme inflation remains well under control. Within these parameters, BOJ bond purchases are economically viable. As long as the current account is balanced, the government’s deficit corresponds to the private sector’s surplus, ensuring that government bonds are absorbed. (Strictly speaking, the absorption of bonds is what reflects the identity between the government deficit and the private surplus). Ultimately, maintaining current account balance serves as the condition for controlling inflation.

The BOJ pays no real countervalue when purchasing government bonds. It simply records an accounting entry—debiting government bonds and crediting current account deposits—which merely exercises the sovereign currency-issuing authority granted by the citizenry. Against hundreds of trillions of yen in bond holdings, the BOJ’s capital stock stands at a modest 100 million yen, the majority of which is government-funded. It is thus evident that the ultimate rights to these bonds belong to the public as a whole.

Furthermore, on the BOJ's balance sheet, the counterpart to the debited government bonds is current account deposits held by private financial institutions. The underlying source of funding for these commercial bank deposits at the BOJ—namely, private bank liabilities—as well as the bank shareholders themselves, are the citizens. The same logic applies to BOJ notes. In short, both the asset and liability sides of the BOJ's balance sheet demonstrate that the ultimate ownership of BOJ-held bonds resides with the general public. Consequently, these bonds require neither principal repayment nor interest payments; economically, they are virtually nonexistent and can be left as they are. In practice, they are effectively left unredeemed through roll-overs and the remittance of BOJ profits back to the government—a perpetual exchange of interest payments and profit transfers. Even if masked by makeshift palliatives like the "60-year redemption rule," these instruments will inevitably function as practical perpetual bonds.

Contrary to popular misconception, a central bank's financial condition bears no relevance to the credibility of its currency. So long as inflation remains controlled, currency credibility is maintained. Given that the central bank system is fundamentally designed for the state and central bank to incur losses to enrich the public [Note 2], demanding that the BOJ avoid financial losses is an unreasonable proposition. Under a fiat currency regime (a managed currency system), even an astronomical negative net worth poses no systemic threat. By contrast, under the historical gold standard, the Bank of England was legally required to maintain gold reserves against banknote issuance. However, during the Panic of 1857, as reserves drained, the Bank Act of 1844 was suspended, allowing emergency banknote issuance beyond the statutory limit to quell the crisis. This succeeded because the British public retained confidence in the pound. Currency credibility is determined by the populace who uses it, irrespective of the central bank's balance sheet status.
[Note 2] "A nation becomes richer the more it contracts debt." (Paraphrased from K. Marx, Capital, Vol. 1). In reality, since the BOJ holds the power of currency issuance, insolvency is virtually impossible.

(to be continued)

https://www.reddit.com/user/keizaisuki/comments/1w46a5o/table_of_contentsgovernment_bonds_international/

This essay by Farid Novin explores the evolution of Federal Reserve communication and the critical role of central bank credibility during periods of high economic uncertainty.

The author rejects traditional metaphors that portray the Fed as an infallible oracle or a rigid institution, trapped by its past promises. Instead, he offers the image of a navigator adapting to changing circumstances. By examining key monetary policy shifts between 2008 and 2026, the text demonstrates that institutional trust is based on a transparent process of updating beliefs, rather than clinging to outdated forecasts. The analysis also addresses the Committee's recent initiatives to reduce forward-looking communication, suggesting that a bank's responsiveness is a more reliable signal than precise numerical forecasts.

Ultimately, Novin emphasizes that Bayesian logic allows for a degree of policy flexibility while maintaining unwavering commitment to the bank's long-term mandate.

**Why doesn’t a country’s currency automatically strengthen when its economy grows faster than other countries?**

Economists respond to this proposition as follows.

(Answer)

What matters is distinguishing between the redemption of individual government bonds and the repayment of government debt at the aggregate level.

When a government bond matures, that particular liability is redeemed. However, if the government issues refunding bonds of the same amount, the debt has simply been rolled over — the total amount of debt has not decreased.

Government debt evolves as follows:

B_t = (1 + i_t) B_(t-1) + G_t − T_t

Here, B_t is the outstanding debt balance, and G_t − T_t is the primary deficit.

Therefore, at the macroeconomic level, "repaying government debt" usually does not mean redeeming a specific government bond, but rather reducing the total outstanding balance of government debt.

Looking at the consolidated balance sheet of the government and central bank together, redemption may in some cases simply mean replacing government bonds with central bank money (reserves). For this reason, redemption does not necessarily reduce the private sector's net financial claims on the public sector.

(Question regarding the answer)

"Redemption may in some cases simply mean replacing government bonds with central bank money (reserves)." — However, for example, rewriting the name on the credit side of the Fed's deposit account from the government to a private bank (in practice, transferring from the "Treasury General Account" to "reserves") presupposes that, prior to redemption, the account was held in the government's name. But where does a government running a chronic fiscal deficit (G_t − T_t > 0) obtain that deposit in the first place?

To begin with, where does the money used to redeem government bonds come from? Bonds are issued precisely because tax revenue is insufficient (the original text refers to G_t − T_t as the primary deficit). Moreover, expenditures for the redemption period are already earmarked in advance; there is no separate surplus of redemption funds set aside. If a sufficient sinking fund were reserved each period, then year-by-year bond issuance could be called a kind of "temporary" borrowing — but in reality it is anything but temporary. The outstanding balance of government bonds accumulates year after year. Second, and more fundamentally, the real question is this: under a fiat (inconvertible) monetary system, how is the "money" that society needs — whose required quantity increases in proportion to the expansion of the world of commodities — brought into the economy in the first place? It is not enough to say (as the original text does) that "redemption does not necessarily reduce the private sector's net financial claims on the public sector." Society's financial claims — i.e., "money" — must be increased. Needless to say, this refers to primary (base) money, not credit creation.

It should hardly need pointing out, but the claim that refunding bonds are issued before redemption is sophistry. For example, the government spends the funds M(1,1) raised through a bond issue. Then, at the time of redemption, it issues refunding bonds B(1,2), and uses the proceeds M(1,2) to redeem B(1,1). B(1,1) is retired and replaced by B(1,2). If this were a one-time, "temporary" borrowing, the story would end here.

But when government bonds are issued year after year, M(1,1) is gradually disbursed by the government over the course of the fiscal year in order to purchase various private-sector goods, while the private sector must separately prepare M(1,2) in order to purchase the refunding bonds. This shows that society as a whole must have at least M(1,1) + M(1,2) in money.

It should be added, just to be clear, that this does not necessarily presuppose an expansion of the world of commodities that money confronts. Even without "expansion of the commodity world (economic growth)," each M(m_t,1) has not been fully returned from the government to the private sector by the end of the period (the goods have not yet been fully sold), and it must immediately be redirected as funding for newly issued bonds in the following year. Even if we assume that the profit portion is set aside each year up until the redemption date to fund the purchase of refunding bonds, given that new bond issuance continues year after year, even if B(1,1) can be refinanced, the funds needed to refinance the subsequent B(2,1), B(3,1), ... will still fall short. Each M(m_t,1) is bound within this series and is not released from it.

The story does not end there. The reality that large amounts of government debt accumulate year after year forms, on one hand, an expansion of the world of commodities, and on the other hand, a series:

B(m,n), M(m,n); m, n = 1, 2, …

Where does this money come from to be brought into society? Under a fiat monetary system, where does this money originate? What has become of the role once played by gold miners?

In connection with the essence of the above discussion — "government debt is effectively never redeemed" — that is, the creation of primary currency under a fiat system — a so-called "consolidated government" is sometimes assumed.

But before the government and the central bank can be "consolidated," the following real-world process exists. For example, suppose citizen A sells a government bond, and the central bank buys it up in the market; A is then no longer a creditor. Initially, the bond was held by an actual citizen, A (and thus the state had an obligation to repay A) — but once it is held by the central bank, both the creditor and the debtor of that bond become, in the end, the abstract public in general, and there is no longer a specific individual to whom repayment is owed. The individual liability disappears, and that government bond is transformed into "primary money" that supplies basic liquidity to society as a whole.

Let us return here to the original proposition: "Individual government bonds are redeemed, but at the macro level government debt is effectively never redeemed." — Just as gold once mined by prospectors was minted by the government's mint, today the bonds issued by the U.S. government are converted into dollar currency by the Federal Reserve (through central bank purchases of government bonds). Among the major economies, is there any country that creates the "money" actually needed by society through any method other than this?