An Inverse Business Cycle

Consider this: If the U.S. treasury can issue securities purchasable by private brokers and individuals, and if the Fed can and emphatically does purchase these same securities through open market purchases as a way to maintain interest rates and the integrity of the financial market, and if any profits that the Fed makes above its 'operating costs' goes back to the treasury, then:

1) Isn't Uncle Sam essentially getting loans at a big discount? Here's how I see it: tax revenues pay back the bonds issued by the treasury that are in hands of the Fed. The Fed pays itself and returns what's left over to treasury. Depending on how much is left over determines the discount on the loan. Now, I haven't stated anything new here, for this is what this guy is saying. In fact, Machaj calls it the modern "print on demand" scheme, and he's right. But he's missing something, and that's my number 2 point.

2) As this is totally unscripted and I have no facts to back this up, but instead a strong intuitive argument, the Fed turns up the heat in times of economic crises with its massive open market purchases and low fed funds target rates. I'd be willing to bet that more treasuries, and I mean significantly more, treasuries are purchased in times of economic downturns (In fact, the current recession is proof of this). But if this is true, then referring to 1), a significant amount of that money goes straight back to the treasury. And if this is true, then one could argue that the government has a business cycle that is the opposite of the one characterizing the private sector. That's right: Uncle Sam benefits off of our misfortune.

Add my second point onto the fact that in times of crises, popular liberal tax-whatever-moves and Keynesian spend-whatever-isn't-nailed-to-the-floor policies run rampant, and we have a knarly witch's brew of government mayhem. This theory explains more comprehensively why the current administration does nothing to make more attractive investment prospects at home; this explains why trillion-dollar deficits, over-reaching climate bills, and a total takeover of the U.S. health industry are all on the table and being played. This is precisely why the congress and president scoff at anything related to making and maintaining jobs in the private sector. This crisis is exactly what they want to happen; they couldn't do this stuff without it.

Economic recovery = Bad news for the nanny state. End of story.