This is a great read, with what seem to be some glaring holes. The first one deals with the concept of “destroying money” when the Fed takes it back in the form of taxes. This money is no longer a liability, the way it once was when it was backed by specie (gold). Gold backed dollars were liabilities, if presented at the treasury the bearer could theoretically demand a quantity of gold, the gold would be disbursed extinguishing the liability, and the bill could, would need to be destroyed, just as the mortgage can be burned once the debt it embodied was discharged. Federal reserve notes are NOT liabilities, they can NOT be exchanged at the treasury for anything, other than for other dollars.
The mortgage was held, along with the title to the property, by the bank. When the final payment is made the bank coughs up the title, it is transferred to the now owner of the property, like the gold note after being exchanged for gold, the mortgage is destroyed. The mortgagee has the sole right to retire the mortgage, either in monthly payments or in a lump sum, the bank has possession of the title, which conveys ultimate ownership of the property to its possessor. The Fed/Treasury, on the other hand, holds nothing to exchange for the federal reserve note, the holder of the note is entitled to nothing from the Fed/Treasury should she return her note to them. The cases of the mortgage and the reserve note are simply not analogous.
The other glaring hole is that the author’s explanation for the reserve effect seems to directly contradict the claim that taxes and bond sales don’t fund government spending. The whole point of managing government receipts and payments so as not to cause disruption to the funds rate is the contemporaneous mismatch between receipts and payments. Theoretically the government could just ignore this mismatch, not collect funds through taxes and bond sales, and issue new currency to fund new government spending. As the author points out though, doing so would immediately throw monetary policy out of whack, increasing the banking system’s reserves at an ever accelerating rate as the new HPM was deposited through government spending and no HPM was extracted through taxes and bond sales. Her argument seems to be a semantic one, not a mathmatic one.
