Where does money come from?

By Paul Meli

An explanation of how money is created in the U.S. in easy to understand terms.

13 Responses to Where does money come from?

  1. See the mess we created by ever allowing a National Debt? Now we have a class of rentiers who are so desperate to protect the real yields on their “corporate welfare” (Professor Bill Mitchell’s words) that the economy is threatened by their objection to deficit spending.

  2. Don’t we have to pay off the national debt?

    No. Since 1837, we have not paid off the national debt. Only rarely have we paid off small parts of it (e.g., the Clinton surplus years), but that is always followed by recession and increasing national debt. In general, the national debt grows right along with the economy, and one of the most important points of this video is that an increasing national debt is necessary for an increasing economy. That is so important, and so much the opposite of the current political rhetoric that we should say it again and again. It should be the motto of MMT:

    An increasing national debt is NECESSARY for an increasing economy.

  3. An increasing national debt is NECESSARY for an increasing economy. John O’Connell

    Baloney! Deficit spending (by the monetary sovereign) is NECESSARY for an increasing economy but a national debt ISN’T.

    Borrowing by a monetary sovereign is “corporate welfare” according to Professor Bill Mitchell. Let’s end it, eh?

  4. NO ! It is NOT necessary to increase a “national debt” to increase the economy ! Ben Franklin proved this with his colonial scrip ! That’s why we had a revolution abainst the British , as they forbade it’s use, plunging a prospering colony into debt and stifiling taxation. During the revolution, he printed the continental, which worked well enough to get us through that until the Brits figured out how to counterfeit that (he put mica in the paper).
    The “national debt” should be reserved for public benefit projects only like infrastructure and small retirement accounts, like your aunt Minnie’s savings bonds, with no large “investments” allowed. It is NOT an investment type strategy for the rentiers of the world to plunder like WS IMO and our Constitution should be amended to that effect; something along the lines of the Bank of North Dakota legally binding mission statement, that all profits must be plowed back into the state as either new valid loans or direct tax refunds to the people of the state. It is the only public bank in the country to remain more than solvent since the “fed” was founded and was a direct reaction against it. It should only serve as ‘bait’ to get them to invest in real businesses that make things and employ Americans in their manufacture.
    ALSO, US dollars (not fed funny money) should be printed by the government with NO DEBT and just enter circulation as did Franklin both times. The money goes round and round in the economy and then the gov. takes some back as taxes…No real addition to the “national debt”, which is little more than a contrivance by the super-rich to keep “we the (little) people” in debt, servitude, peonage, penury and utlimately now in serfdom as is developing with the “QE program” of the federal reserve system…about as federal as fed-ex.

  5. Quote, “ALSO, US dollars (not fed funny money) should be printed by the government with NO DEBT and just enter circulation as did Franklin both times. The money goes round and round in the economy and then the gov. takes some back as taxes”
    TAXES in their present form are UNFAIR.
    Why not this solution? US dollars must be issued by one source only,the single agency that represents that sovereignty as interest bearing loans !! All currency is “The NOTHING you get for SOMETHING in order to get ANYTHING.”(Frederick Soddy).
    The SOMETHING is the goods and services of the sovereign nation and that which is already owned by the people of that nation. This method allows for the recovery of that SOMETHING as well as for the redistribution and use by the nation; charging a fair interest, an equality of payment instead of what is presently “taxes” .
    We must take back from the for-profit banks that right which was legislated for them to
    “exploit” the wealth of our nation- Allowing the stupid practice of not only “printing” our currency but also allowing them to charge us interest on that money.
    This is the greatest threat to our freedom.

  6. Why not this solution? US dollars must be issued by one source only,the single agency that represents that sovereignty as interest bearing loans ! justaluckyfool

    And who gets the loans? The so-called “credit-worthy?” And why would the monetary sovereign want to charge interest? To disguise that it is handing out favors?

    • First, thank you for the courtesy of a challenge, as this is a way for improvement.
      Justaluckyfool asks,” Why not this solution? US dollars must be issued by one source only,the single agency that represents that sovereignty as interest bearing loans !”
      F. Beard asks,”And who gets the loans? The so-called “credit-worthy?” And why would the monetary sovereign want to charge interest? To disguise that it is handing out favors?”
      Who ever needs currency. Currency that is now known as “credit expansion”.
      Since the only source of issuance would be the nations own central bank, all private for profit banks and financial institutions would have to be on 100% reserve-100% liquid.
      In order to start this process the Fed must make available to the banks and financial institutions a pool of maybe $200 trillion. Since this pool would become an asset in the form of a loan it would not be “deficit spending”.
      This process is merely one of taking away the unintented consequences and moral hazard that was legislated for the banks. That is ,the banks have the right to “print” our currency and then allowed to
      charge interest on that issuance for their own private gain.
      Now let’s say that $200 trillion is at 2% for 36 years, it would answer why charge interest ?
      That would allow for control of the quality and quantity of currency in circulation. It would allow for a redistribution of over $11 trillion a year as revenue (income) to help ” form a more perfect union…
      for the general welfare…etc.
      Perhaps the answer to ,”as stated on ” 60 minutes” (12/11/11)”
      President Obama said,”You can’t raise revenues by lowering taxes unless you get the money from somewhere else.” ?
      Why not pay interest on borrowed money instead of income?
      Read more: Google- “justaluckyfool The Wealth of a Nation is Redistribution”
      Another question. What if ???
      Since the US Treasury must by law be given any proceeds (revenue)
      from these asset purchases-($200 trillion at 2% for 36 years)- which would be $11 trillion per year, would that not satisfy funding for jobs, SS, Medicare, and at the same time reduce federal income taxes to zero?” …..
      As for the housing crisis, What if all real estate mortgages were to be purchased (instead of the stupid practice of being guarantor) say for $40 trillion and then modified the loans at 2% for 36 years thereby leaving 85% of troubled homeowners in their property as “good faith creditors”, would that stabilize the housing market, recreate 3 to 4 million jobs in that sector, and produce an income (revenue) to the US Treasury of an additional $2.2 trillion a year? (justaluckyfool)

      ***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC),
      Please challenge, improve, so as to make it your guide.

  7. Welcoming this clip back to the net. I have an audio recording of it before it was removed from its original hosting place but that is all.

  8. This 6 minute video explains the need for a National Debt. It fails to explain the cost of this debt to the tax payer and the resulting instability of the use of money. It also fails to explain how the banking system first used gold-backed currency and what this part of the money still being circulated has to do in relation with that being supplied by the FED.

  9. Nice summary. A useful addendum is the chartalist insight that the government’s currency is widely acceptable as a medium of exchange because everyone needs some of it to pay their taxes.

    A sovereign government that declined to levy any taxes (as has been advocated by some) might eventually find that its subjects did not want to exchange real goods and services for its scrip. So we need taxes not only to restrain demand and limit inflation when the economy is near full capacity, but also to incentivize a widely accepted medium of exchange and realize the large efficiencies that such a medium provides.

    This connection between tax authority and acceptance of government scrip as a medium of exchange leads me to wonder whether smaller government authorities, at State or local level, could use their tax authority to stimulate economic activity within their respective jurisdictions by paying for part of their purchased goods and services with their own tax credits. It seems to me that this ought to work, though there might need to be a secondary market for the tax credits to make them more attractive and liquid.

  10. “It fails to explain the cost of this debt to the tax payer and the resulting instability of the use of money.”

    The cost to the taxpayer is less than zero. Not a net penny of interest has ever been paid from taxes, ever. What instability are you talking about? Over history, taxes have been less than spending, so no net money has been removed from the non-government (economy). Quite the opposite.

    In fact, interest is paid to the taxpayer (to bondholders)…into the economy rather than removed as taxes. A net add.

    If interest were paid from taxes how has the amount of net dollars in the non-government increased steadily over history? From $1 Trillion in 1980 to $16 Trillion now. Question: how did we borrow $15 Trillion from an economy that only held $1 Trillion to begin with? Looks like magic to me. I believe in arithmetic.

    QE2 removed some $90 Billion dollars in interest payments TO the non-government through the lowering of the overall government bonds portfolio rate.

  11. What is money?,Why is all money “fiat”, yes even gold ?
    For some really great answers check “The Role of Money” by Frederick Soddy.
    Written in 1926,1933, the answer still hold true.
    http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt
    “Money is the NOTHING you give up SOMETHING for in order to get ANYTHING.”
    All physical money is only as good as the faith and credit of the redeemer to give you ANYTHING.
    Even the tax collector has no use for it if it can not be redeemed for ANYTHING.
    More, what is money?, national debt? , read; Warren Mosler,”The Seven Deadly Innocent Frauds”
    [PDF]
    Seven Deadly Innocent Frauds of Economic Policy – The Center of …moslereconomics.com/wp-content/powerpoints/7DIF.pdfYou +1′d this publicly. Undo
    File Format: PDF/Adobe Acrobat