There is a prevalent belief among some individuals that governments establish central banks to buy their debt, often associated with conspiracy theories and a fixation on central banks. However, this notion is fundamentally flawed. Central banks do not own or print money to purchase government debt.
An example cited to debunk this theory is the case of the Soviet Union. If central banks could simply buy up debt to sustain a nation, why didn't the Soviet central bank intervene to rescue the collapsing Soviet economy? Similarly, in modern times, why wouldn't the Central Bank of the Russian Federation finance a more robust military effort if it had the power to print money?
The reality is that money is not used directly in transactions. All monetary exchanges involve goods, services, or labor. Therefore, central banks, as entities created by governments, lack the resources to finance the governments that established them.
Some argue that central banks can 'print money' to purchase government debt. However, even if this were true, governments could print money independently without the need for central banks. Moreover, flooding the economy with printed money would not lead to financial prosperity, as money must represent real economic value.
In the United States, there are claims that the Federal Reserve has facilitated the exponential growth of federal debt, which currently stands at around $33 trillion. Critics point to the relatively low yields on U.S. Treasuries as evidence of excessive money printing. However, the market dynamics suggest otherwise.
The low yields on U.S. Treasuries are primarily a result of the government's ability to tax its citizens, who are among the most productive individuals globally. This taxable access to resources allows the Treasury to borrow at low costs. Central banks, including the Federal Reserve, holding significant amounts of Treasury debt, do not dictate low yields; rather, low yields enable central banks to purchase more debt.
In conclusion, the idea that central banks control government debt yields or finance government spending through money printing is a misconception. The true owners of government debt are the citizens, and the stability of U.S. Treasuries is underpinned by the productive capacity of the American population and the government's ability to tax.
