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 do not spend money. This statement might seem counterintuitive, but to claim that governments spend is to assume they possess consumptive power independent of production.
More accurately, governments derive all of their spending power from private production. In essence, their authority to tax and their capacity to borrow against the future production of citizens constitute the sole source of their consumption.
Consequently, “government spending” is more accurately described as “reduced private consumption” or “reduced private investment.” Properly framing this reality allows the electorate to recognize how government activity distorts consumption, as no one spends another’s money with the same care as their own. Equally important, they will see that government consumption comes at the expense of savings and investment, leading to fewer startups, companies, and wage increases in the private sector.
What proves useful about the aforementioned logic is its application to the concept of so-called “money printing.” Conservatives, libertarians, and Austrian School advocates—who should certainly understand that governments lacking resources derive their spending power from the private sector—nonetheless argue that central banks operate as distinct entities. They presume that the central bank’s “printing” of exchange media facilitates government spending and borrowing.
Consider recent commentary by Wall Street Journal columnist Joseph Sternberg, who suggested that rising Treasury yields—which returned to 2007 levels when the national debt stood at $7 trillion—indicate that investors recognize the Kevin Warsh Federal Reserve will no longer be a major buyer of Treasuries. This is a flawed assertion.
Since the federal government possesses no spending power beyond what it extracts from the private sector, can Sternberg genuinely believe that a creation of the government could possess consumptive abilities its creator lacks?
In reality, the Federal Reserve’s ability to compensate banks for their reserves is a direct effect of the federal government’s taxing power. An entity backed by the government’s taxing power pays for the fruits of production using dollars borrowed from banks. After borrowing these dollars at a specific cost, the Fed purchases Treasuries to generate a return on the borrowed funds.
Regarding the Fed’s historical purchases of Treasuries, Sternberg naturally assumes this buying has kept yields down. He reverses the causation. It is the longstanding global demand for the world’s most trusted income streams that has allowed the Fed to park bank assets in Treasuries. This observation, however, is not a defense of the Federal Reserve.
At the same time, it corrects the popular and nonsensical notion that the Fed is “printing money” to pay for Treasuries. It is not.
Had the Fed been “printing” money to assist the Treasury with its borrowing, the federal government would carry very little debt. The reason is obvious: no one would purchase income streams that distribute dollars not in circulation, as they are not circulating simply because no one buys anything with “money” itself—rather, production buys production. It is also worth noting that if the Fed were truly “printing” to pay for debt, yields would be incalculably higher to reflect the declining value of the disbursed dollars.
The implication of “money printing” is that governments can acquire resources from a printing press if they lack access to production. This Keynesian fallacy does not become respectable simply when uttered by the political right.
For the same reason governments do not spend, they also do not “print” their consumption. Consumption is invariably preceded by production.
