By Thornton “Tip” Parker
Nearly everyone believes that Uncle Sam is like a family that must get money before it can spend. But that is not true. A basic function of any sovereign government is to create and run the country’s money system. Unlike a family, the US government is sovereign. It creates money and can never run out. All the words about America’s financial limits mean nothing.
Years ago, our money was based on silver and gold. But that did become a limitation when economies around the world needed money to grow faster than metal was dug out of the ground. The US went off the gold standard in 1971, but we still act as if its limitations remain.
The economy is often shown as a circular flow of goods and services moving in one direction from producers to consumers, and money to pay for them flowing in the opposite direction. Like a juggling act, the flow keeps running until something interferes. Families that save interfere by removing some of the money. They also remove money when they buy more things from other countries than the US exports. The flow of goods and services slows down when money is removed unless some other party replaces it.
The sovereign federal government is the other party. It creates new dollars by spending more into the flow than it removes with taxes. The big bad deficits that haunt so many people are just new dollars that the government crates to replace dollars that savers and importers remove. Moreover, the federal debt that causes so much heartburn is just the sum of all new dollars created since the country began.
Truth in labeling would have deficits called something like “new dollars created” or “new savings” and the debt would become “total dollars created” or “total savings”. This is shown every week when savers bid to buy Treasury securities as safe places to put their dollars. The debt is not a liability that will burden future generations, it is an asset that present and future generations of savers will depend on.
The details of how the country’s money system works are complicated, but the basics are simple. Most of our money consists of bank deposits that are transferred electronically or by check. Behind most deposits are mortgages, credit card balances, and other types of loans. When things work well, banks create money as it is needed by lending to increase deposits and remove it when the loans are repaid. As the population grows, as people want to save, and as the country imports more than it exports, new money is needed to supplement the bank deposits. The government creates that new money by spending more than receives from taxes.
If you understand that paragraph, you’ve got it! You are way ahead of most Americans and nearly all our politicians.
The power of the money system is also easy to understand. Because the government creates money by spending more than it receives from taxes, it will always be able to pay its bills. Neither it nor any of its programs can ever be forced into bankruptcy. This means that there are no Social Security, Medicare, or Medicaid crises. While there is widespread unemployment, there is no financial reason not to help those in need or spend to create jobs. It is negligent to put off upgrading school buildings, roads, bridges, power grids, and water and sewer systems until they fail. It is gross mismanagement to force state and local governments to fire thousands of public service employees that could be avoided with federal revenue sharing. And it is a basic social failure to not educate our young and prepare them for life without burdening them with education debts.
There are limits: if the government creates too much new money, it can lead to inflation. But inflation is not a problem now, when millions of people are out of work or not earning adequate incomes because too little money is in circulation. If our leaders understood how the system works, they would see how easy it would be to prevent serious inflation with taxes.
None of the arguments against actions to improve the situation today are valid if they are based on the myth that because the government is like a family it can’t afford to spend beyond its income. In reality, the government is just the opposite, or a mirror image of a family.
Thornton Parker is the author of What If Boomers Can’t Retire? How to Build Real Security, Not Phantom Wealth. His email is [email protected]
–The debt is not a liability that will burden future generations, it is an asset — Thornton Parker —
If debt is not liability then how can it be an asset? Both these accounts appear on the opposite sides of the Balance Sheet. It looks that you are confusing the concept of double entry system. Debt means repayment of the original amount plus interest accrued by the borrower. Whereas asset means repayment of the original amount plus interest earned to the investor. Mr. Parker please give me some more elucidation of your accounting concept.
He’s talking about National or Public Debt, at the federal level, not your level, which is that of a businessman or householder or US State. For you and me and our state/local governments, “Debt means repayment of the original amount plus interest accrued by the borrower.”
The federal government, on the other hand, issues debt instruments: dollar bills, treasury securities, bonds, what have you. From the perspective of the federal government it is a debt. But it is not a debt that gets repayed because it is the issuer. The National Debt, that supposedly big bad number, is a record of all the money the US has created since 1792 minus the money destroyed (taxes). It’s what we own, not what we owe.
From the Treasury Dept’s FAQ:
“Why does the debt sometimes decrease?
The Public Debt Outstanding decreases when there are more redemptions of Treasury securities than there are issues.”
For you, me, and our state governments, our debt decreases when the original issue of debt is paid off with any interest accrued. It’s exactly the opposite.
Watch this:
http://moslereconomics.com/2012/10/17/video-of-columbia-seminar-is-live/
Javed Mir
The sentence does not say that the debt is not a liability. It says that it is not a liability that will burden future generations. This is one of MMT’s most important arguments.
Tip Parker
Nice post but:
The debt is not a liability that will burden future generations, it is an asset that present and future generations of savers will depend on. Thornton “Tip” Parker
Professor Bill Mitchell calls borrowing by the monetary sovereign “corporate welfare” and even pensioners are not entitled to a risk-free return at the expense of others. Yes, taxes are not needed to pay the interest on the National Debt but every new dollar wasted by the monetary sovereign on needless interest is a dollar of wasted purchasing power. Instead, if the retired need income because their private investments have not been sucessful enough then the monetary sovereign should simply give it to them as honest welfare. As for the rich, let them take real risks if they wish a return instead of lending to the monetary sovereign what it has no need to borrow.
Mr. Thornton, every word of this article is right. I am a continual watcher and reader of this site and those who are its most significant contributors. However, sadly, once one goes beyond this site (which, by the way, I recommend to all whom I know and meet), there is little of this wisdom regularly available. Please start submitting your articles to other major sites, like Huffington, OPED News, and others. It is so important for this message to get “penetration” into the public arena, so that more discussion and debate occur around the core messages, and so that people can understand. It is so simple and so beautiful. I would call it Neokeynsianism, because is enhances and extends Keynes ideas as they need to be modified for our particular economy. Please work to give this message broader exposure.
Are the editors of this site going a little blind? “Because the government creates money by spending more than it receives from taxes, it will always be able to pay its bills. ”
No, the government does not depend on tax collection so as to be able “to pay its bills.” And it doesn’t “create them by spending more than it receives from taxes,” it “creates” them by crediting bank accounts.
C’mon editors, that’s MMT 101. Is this site going to turn into “amateur hour?”
John,
MMT will not become a moving force until it’s basic points are explained adequately in short pieces that are written at about the twelfth grade level.
This piece was written to comply with the 750 word limit of a local paper in the 6th Congressional District of Virginia. The incumbent representative consistently sponsors a balanced budget amendment. The piece was submitted to this blog for fact checking, which it seems to have received.
I encourage you to write a better piece for the Daily News-Record in Harrisonburg, VA. It allows viewpoint pieces of up to 580 words. It is a strongly conservative paper, but it prints other views.
Tip Parker
Tip, I thought you were clear about this point and that John misread it.
Tip,
BTW, twelfth grade level is not the right level for general comprehension. It’s fourth grade.
Twelfth grade level is considered obfuscating: full of passive voice choices, conditional clauses, and run-on sentences.
The military specifies a fourth grade level as optimum for all its documentation, something few can do.
Microsoft Word has the ability, buried in the bowels of its menus, to assess comprehension levels of a document. There are two assessment standards.
It is extraordinarily difficult for an adult to write at the fourth grade level. You have to know how to write. Really write. You have to have an ear for what you’re trying to say. You need to be clear thinking.
I think your pieces that I’ve read here are written at the fourth grade level. That’s a compliment.
If our leaders understood how the system works, they would see how easy it would be to prevent serious inflation with taxes. Thornton “Tip” Parker
Raising taxes is unpopular. Instead, why not limit the ability of banks to create new credit? And not by raising interest rates since that does not necessarily reduce credit creation but by raising reserve requirements.
Maybe collect the taxes and issue sizable rebates if unemployment is above X% and inflation runs less than y%. Make it systematic.
Clear, concise and understandable by laypersons. Good job, Tip.
I agree.
A basic function of any sovereign government is to create and run the country’s money system.
Sez who?
that did become a limitation when economies around the world needed money to grow faster than metal was dug out of the ground.
Mediums of exchange are generally divisible or they aren’t mediums of exchange. A dollar is made up of pennies, dimes and quarters. The present quantity of gold (or platinum or rhodium or silver) on earth would be perfectly adequate to conduct all of the planet’s commerce by dividing it. You can probably envision somebody like “Goldfinger” somehow capturing all the world’s gold. Something else would be used instead. You can’t stop people from making deals and they don’t need a government authorized fiat currency to make them.
Because the government creates money by spending more than it receives from taxes, it will always be able to pay its bills.
The primary reason that Nixon closed the gold window was that world gold prices had risen above the official US rate of exchange. If gold is so meaningless in the monetary scheme of things, why did he and his advisers care? Why not let other countries redeem their US obligations in gold? Then the US wouldn’t need to man a big vault at Fort Knox. But that wasn’t the crux of the issue, which was the need to print pallets of currency to pay for a foreign war and a “Great Society” simultaneously and in a hurry.
You can’t stop people from making deals and they don’t need a government authorized fiat currency to make them. chuck martel
Agreed but so long as we have government then inexpensive fiat is the only ethical money form for government debts. And if government did not waste the purchasing power of its fiat by, for example, allowing a central bank to create it for the benefit of what should be purely private banks then it is likely that most people would choose to use fiat for private debts too.
But yes, private currencies for private debts only should be allowed.
The present quantity of gold (or platinum or rhodium or silver) on earth would be perfectly adequate to conduct all of the planet’s commerce by dividing it.
Absurd.
Robert Latham Owens Former Chairman, Committee on Banking and Currency, United States Senate, reported in the 1939 document National Economy and the Banking System of the United States — An Exposition of the Principles of Modern Monetary Science in Their Relation to the National Economy and the Banking System of the United States, (76th Congress, 1st Session, Senate Document 23):
In 1929, the volume of this check money rose to $1,230,000,000 000- which at that time was 100 times the total monetary gold supply of the entire world and about 300 times the entire monetary gold supply in the United States.
Chuck Martel: A basic function of any sovereign government is to create and run the country’s money system.
Sez who?
Sez everyone, says logic & history. Money is a creature of the state. First came states, then state money, then markets, then precious metal coinage.
Yes, there are complexities & nuances, but that is the basic picture, the reverse of the textbook picture, the Austrian picture & even that of their old enemies, the German Historical School, out of which Knapp’s Chartalism came. Before states came the concept of credit/debt & negotiable credits, which may be traceable as many as 40 millennia back. But that only works if there is a larger society, a state loosely speaking to enforce debt relations.
“Medium of exchange” is just the wrong thing to focus on. There really isn’t & never was such a thing. Gold isn’t money, can’t be money, never was money. It’s a category mistake to think it can be. Gold is a thing. Money is debt is a relationship. The basic problem you have is that what you think of as money has never existed, but thinking that it can exist keeps you from seeing what money really is, what we always have used as money.
You can’t stop people from making deals and they don’t need a government authorized fiat currency to make them. Of course you can’t. That is what private debt is. But because of the size of modern government & their taxing powers – conditions satisfied by the US Federal Government since its inception, private debts are nearly invariably denominated in US dollars. If you think that is going to change, I have a bridge & some desert beachfront property to sell you.
The primary reason that Nixon closed the gold window was that world gold prices had risen above the official US rate of exchange. Not really the basic cause, the reason was that the USA did not have an infinite amount of gold. From about the late 1930s-1960, for all practical purposes, and for obvious reasons, it did. Then unfortunately, because he did not understand economics say the way FDR did (or the way Churchill eventually did, the hard way) De Gaulle listened too much to the anti-Keynesian goldbug Jacques Rueff and started going to the US gold window. So the US had to stop issuing the weird $35 bills called “an ounce of gold”. Not much more meaningful than stopping making pennies out of copper when it becomes too scarce, but the additional shininess of gold is like an EMP to the human brain. Note that MMT is genuine “hard money” – the hardest & truest money there can be. It says “stop coining money” too – when the JG pool shrinks to zero, when the government runs out of something with true value, unlike gold – the labor of its citizens.
First came states, then state money, then markets, then precious metal coinage.
So you’re saying that the state predates markets? That’s not only ridiculous but impossible. The state itself can’t exist without markets. And markets don’t require a state, or state money. Markets existed without a state or state money for millennia.
Money is debt is a relationship.
When Tonto hands me a pumpkin and I hand him some turquoise beads or even a worn Mexican peso from a previous century, our transaction is complete, there is no debt relationship. He can never return and say, “Here’s those beads you gave me. You owe me a pumpkin.” You couldn’t be more wrong.
because of the size of modern government & their taxing powers – conditions satisfied by the US Federal Government since its inception
There’s no requirement that mankind continue to live under any particular government, including that of the US. That entity, and its powers to tax and COIN money, didn’t exist until the latter years of the 18th century, exists in a very different form now and is unlikely to survive to eternity.
the reason was that the USA did not have an infinite amount of gold.
The US didn’t need an infinite amount of gold. It only needed as much as it had printed notes redeemable for gold. In effect, the US defaulted on its debts.
So you’re saying that the state predates markets? That’s not only ridiculous but impossible. The state itself can’t exist without markets. And markets don’t require a state, or state money. Markets existed without a state or state money for millennia.
I made the appropriate qualificiations above. But what you are calling “not only ridiculous but impossible” is the clear voice of the historical record. Markets with money prices are a late innovation. Markets came after the state & its money.
The upshot is that (a) Economists make up fairy tales out of whole cloth, which bamboozle the public. (b) Anthropologists, Archaeologists, Historians, Numismatists and Sociologists etc study the real world and the historical and physical record and unanimously paint the opposite picture.
“The Market” IS a government intervention, so trying to keep the state from “intervening in the market” is like passing laws against scratching you own ass. States very easily can exist without markets. E.g., an evil totalitarian command economy.
When Tonto hands me a pumpkin and I hand him some turquoise beads or even a worn Mexican peso from a previous century, our transaction is complete, there is no debt relationship.
Pumpkins for turquoise beads is a one time, barter, non-monetary spot transaction. These are not & never were of much economic importance anywhere. And in pre-monetary economies, one does not see the concept of quantity A of good X “being worth” quantity B of good Y. The only time one sees something approaching a barter economy is after the collapse of a monetary economy. The Austrian (Menger) /Economics Textbook / German Historical School sequence is the reverse of what happened.
Mitchell-Innes’s papers & the volume on them are a great way to get started on this. UMKC MMTers Michael Hudson & John Henry are experts on ancient economies & have papers there.
“The Market” IS a government intervention, so trying to keep the state from “intervening in the market” is like passing laws against scratching you own ass. States very easily can exist without markets. E.g., an evil totalitarian command economy.
Market: ” the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is a transaction. Market participants consist of all the buyers and sellers of a good who influence its price. This influence is a major study of economics and has given rise to several theories and models concerning the basic market forces of supply and demand. There are two roles in markets, buyers and sellers. The market facilitates trade and enables the distribution and allocation of resources in a society. Markets allow any tradable item to be evaluated and priced. A market emerges more or less spontaneously or is constructed deliberately by human interaction in order to enable the exchange of rights (cf. ownership) of services and goods.” No mention of the state, a state, government or any such thing.
Pumpkins for turquoise beads is a one time, barter, non-monetary spot transaction. These are not & never were of much economic importance anywhere.
Tonto can take those turquoise beads, or the antique money, and exchange them for peyote or arrowheads or moccasins. The supplier of the peyote, etc. can then take those beads and trade them for fish hooks. The process isn’t barter any longer.
Chuck – you don’t say where that definition is from. Looks like Wikipedia, which has the words ” In mainstream economics ” first. Well then, yes, but the whole point is that (neoclassical or modern post-70s) “Mainstream Economics ” is sh*t. It’s a bunch of inconsistent fairy tales that have nothing to do with the real world.
There are no examples of markets before money, and no examples of money before states. People have looked. They haven’t found.
A market emerges more or less spontaneously or is constructed deliberately by human interaction in order to enable the exchange of rights (cf. ownership) of services and goods. The first never happened anywhere. Always constructed deliberately by human interaction = a state, a society, a government. “Markets allow any tradable item to be evaluated and priced.” Nothing can be priced until there is something to price it in terms of – money, which is a creature of the state.
On your last example – There are no significant historical examples of “mediums of exchange” , “commodity money” like turquoise beads anywhere. What you describe is pretty much barter, or perhaps non-market reciprocal gift exchange.
But in turquoise bead level civilizations, there was no concept of trading quantities of one good for another at a fixed price, a fixed proportion. The basic idea was that giving good A was a Nice Thing, a creation of a credit/debt relationship, a favor, an “I owe ya one”. The response, the later reciprocation was a gift, a favor the other way. This was antecedent to the development of credit/state money and fits perfectly into that story, of exchanging commodities for credit, for “fiat” money. NOT the neoclassical/mainstream/Austrian commodity money, turquoise beads, barter of commodity for commodity fable.
The present quantity of gold (or platinum or rhodium or silver) on earth would be perfectly adequate to conduct all of the planet’s commerce by dividing it. chuck martel
A fixed or slowly growing money supply (relative to real economic growth) rewards risk-free hoarding of that money. But economic growth requires risk taking so a fixed or slowly growing money supply is a receipe for economic stagnation (if fixed) or at least sub-optimal growth (if slowly growing).
Of course, as you say, people should be free to choose other money supplies to bypass hoarders
“Sez who?”
The govt has the power to issue money (borrow, same thing), levy taxes, pass and impose laws, etc, etc. And it does so for some reason.
“The present quantity of gold (or platinum or rhodium or silver) on earth would be perfectly adequate to conduct all of the planet’s commerce by dividing it.”
No point. Put it to better use.
“You can’t stop people from making deals.”
No, but you can’t break the law either. You can do whatever is legal.
“If gold is so meaningless in the monetary scheme of things”
Historically it was important. Now not so much really.
“Why not let other countries redeem their US obligations in gold?”
They probably thought it wasn’t in the US’s best interests.
“the need to print pallets of currency to pay for a foreign war and a “Great Society” simultaneously”
Wars are pretty stupid and they cost a lot. Would have been better just focusing on that great society thingy.
“you’re saying that the state predates markets? That’s not only ridiculous but impossible.”
Are we speaking 4,000 or 9,000 years ago here?
“The state itself can’t exist without markets. And markets don’t require a state, or state money. Markets existed without a state or state money for millennia.”
Possibly, possibly. Anyway – how are we going to improve the economy and get everyone back to work?
“When Tonto hands me a pumpkin and I hand him some turquoise beads”
Do you work in a hippy market or something?
“There’s no requirement that mankind continue to live under any particular government”
That is true. Though there are some legal requirements in most areas.
“is unlikely to survive to eternity”
Unlike…. nothing.
“The US didn’t need an infinite amount of gold. It only needed as much as it had printed notes redeemable for gold”
You do know you can buy gold with your dollars, don’t you? You are aware of that, right?
“the US defaulted on its debts”
Several times in fact. First time was after the war of independence, I believe.
“Because the government creates money by spending more than it receives from taxes, it will always be able to pay its bills. Neither it nor any of its programs can ever be forced into bankruptcy. This means that there are no Social Security, Medicare, or Medicaid crises. ”
Forget the economic analysis of the un-sustainability of Social Security and Medicare from those programs’ administrators. First, we need to get this important information into the hands of the citizens of Germany, Greece and Spain who are unnecessarily laboring under the impression that “spending more than it receives from taxes” will create a problem for their country, such as impossibly high interest rates for their sovereign borrowing. They and their lenders just need to be reminded that “Neither it nor any of its programs can ever be forced into bankruptcy.” Oh, and don’t forget to cc the memo to Bond Vigilantes.
Eurozone problem solved!
The EU members are not monetarily sovereign. The Eurozone has a central bank of unelected officials but no government (like the USA) to set fiscal policy.
Germany, Greece and Spain gave up their sovereign currencies for a foreign currency called the euro.
Germany, Greece and Spain are like the US states Georgia, South Dakota, and Idaho. They can’t create their own currencies. The bond vigilantes already know this. That’s why they go in for the kill.
“The flow of goods and services slows down when money is removed unless some other party replaces it.
The sovereign federal government is the other party.”
What about private sector borrowers? One person saves, another borrows (not necessarily the government).
The “Inflation Bogey” has been used for decades to thwart the possibility of prosperity that our fiat currency could produce if everyone understood it.
Read Robert Latham Owen on Page 65 (Chapter XVI) of his submission to Congress in January 1939. Owen was the former Chairman, Committee on Banking and Currency, United States Senate. The document he wrote was to explain why the best thing that ever happened to the US was going off the gold standard, and to tell Congress that it wasn’t doing its job by failing to enact fiscal policy in light of the new “modern monetary science.”
Here’s the link: http://archive.org/details/NationalEconomyAndTheBankingSystemOfTheUnitedStates
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Tip, it’s too difficult for them. The federal government is Monetarily Sovereign, meaning it’s sovereign over its currency. It can create as much of its sovereign currency as it wishes. Period.
Unfortunately, the drooling populace is brainwashed by the myth that the government can run out of dollars, so it needs to get dollars from other people. It truly is pitiful. The taxpayers desperately need to find a reason why they’ve been suckered into paying taxes all these years. They don’t want to feel like fools, so they deny the obvious.
People. Wake up. The federal government creates dollars. It doesn’t need your dollars. It doesn’t need China’s dollars. It doesn’t need anyone’s dollars. It CREATES dollars. That’s what Monetary Sovereignty means.
So-called “deficits” (aka “net money creation”) are a good thing, despite what the politicians tell you, and so called “surpluses” (aka “money destruction”) are bad.
Every time someone argues with me, I feel like saying, “O.K., you’re right. Go take money out of your bank account and send it to the federal government, and accept cuts to your Social Security and your Medicare, and fight with anyone who tells you this all is unnecessary. I’ve only been fighting this battle for 15 years, but I’ve begun to feel it really is hopeless.
P.T. Barnum said, “Nobody ever lost a dollar by underestimating the taste of the American public.” He should have said, “Nobody ever lost a dollar by underestimating the intelligence of the American public.”
Rodger Malcolm Mitchell
Yeah but your economic philosophy is incoherent, as it relies upon ever-rising interest rates – as if money was just something to be thrown in the trashcan at an ever-accelerating speed. You need to do some proper research.
The U.S. has been Monetarily Sovereign since August 15, 1971. Interest rates are at an all-time low.
So much for your hypothesis.
Rodger Malcolm Mitchell
What a bunch of bolgna. This is a really straightforward issue. High government debt leads to low economic growth (extensive study by professors Reinhardt and Rogoff) Low economic growth leads to fewer jobs. So if you want jobs, you should Not favor high government debt. There are many many other disadvantages of high government debt but that should suffice.
High debt is caused by low taxes and/or high federal spending. Please explain how low taxes and/or high federal spending causes low economic growth.
Rodger Malcolm Mitchell
JWE, no not bologna. Reinhart & Rogoff’s work is uhh, not very good. If economics had intellectual standards approaching that of astrology, basket-weaving or homeopathy, it could not have been published. Does Excessive Sovereign Debt Really Hurt Growth? A Critique of This Time Is Different, by Reinhart and Rogoff by Nersisyan & Wray is an MMT critique. Sovereign debt has historically not hurt growth, and has frequently helped it. The causation is usually the other way around. Low growth, frequently caused by heeding R&R-type superstitions, causes increasing government debt by the operation of automatic stabilizers. And part of the reason for eventual recovery is this very increase in sovereign debt!
R & R’s work is nearly useless because it indiscriminately lumps together too many different monetary sytems, and they very clearly do not understand the monetary system of the country they live in. Rogoff should have stuck to chess, for his ignorance of postwar economic history as displayed in the NYT magazine recently is awesome. (Bobby was better at both chess & economics, too!)
Im confused…
What is it that we are trying to fix?
I reas over prof mitchell’s blog, he think’s the root cause is a bad economy… a bad economy is the root cause?
Is that not like saying someone is not moving because he is dead… perhaps we are need to stop and think a bit about this…
My thought is that the issue is not lack of jobs, nor a ‘bad economy’, these are symptoms of the real cause. Beard has been postings tons of opinion on this and although we disagree on most, i tend to agree that the issue is the monetary system itself that’s causing joblessness, and the ‘bad ecobomy’.Who doesnt want to believe that the government can create money?
But the devil is in the details. Mr. Mitchell disagrees, but fails to address the question. If you believe in supply and demand, than why dont you believe that money creation is ALREADY inflation?The same proponents of mmt admit anything can cause a rise in price…
We cannot have the cake and eat it too.Here lies the issue of our troubles…
The fed issues all new money, the thing you call scoreboard, is holding one side of the agreement. The other is held by debtors..is there anytging to argue about this when most now days ‘powe their homes, cars,clothing and even food? Is this creation of debt up to our eyeballs and depleting incomes suppose to save us?
Fractional reserve, lending the same money multiple times, is fraud. Issuing new currency is fraud.
The more we try to paper over reality with ‘programs’ to ‘help’ people, the more your economy will be destroyed. No new defition is needed for the value of a buck, did we forget about supply and demand?
What do you think adding supply will do when it’s not matched by equal demand?
The root cause is the fed, fractional reserve lending and government spending. Fix those and you restore the most important thing holding the system together… confidence…
Ok, let’s see if this makes more sense. If you go into debt, it is because you have borrowed money to do something, and you now owe money. To pay it back you must cut your expenses and use what you’ve saved from doing that to start paying the debt; or you can somehow earn more money and use that surplus to pay off the debt. To do all this you need to be receiving dollars from an income stream, or from pulling money out of a savings account. Let’s look at the accounting: your debt is a debit on your spreadsheet, and it is balanced by someone’s credit on their balance sheet. Notice that no new money is created here; it just changes hands.
Let’s look at your state or local government: if they need money, they either tax their people or they issue a bond and people buy them. The government will eventually pay it off with interest. How will it get the money to pay it off? By taxing or issuing newer bonds. No new money is created in all this. It just changes hands.
Let’s say my business is doing great. I make a profit. Where did the money come from? Typically, from sales. From my customers’ accounts into my accounts. No new money is created in all this. It just changes hands.
So where does all the money–every single dollar–circulating in the private economy, including the local and state governments, come from? It necessarily comes from the Federal government, when it “spends” dollars into the private economy. The government has all kinds of projects and needs. To supply these, it turns to the private sector and buys goods and services. Where does it get the dollars to buy all that? It creates them as computer-created credits in the private suppliers’ bank accounts, typically via the private banking system. So true is this, that if you examine the accounting, you will see that the total Federal deficit necessarily equals the total quantity of assets in the private economy–including international accounts. The spending of one dollar by the Federal government is a tally in the debit column, and it is necessarily balanced by an equal amount in some private account.
Can the government spend without limit? Yes it can, in the sense that it cannot “run out” of money. No, it can’t in the sense that if it did so, the private sector would soon show signs of an inflationary situation. This is the function of taxes. Taxes are there to remove money. The government does not “need” the dollars it taxes and which it created in the first place. It removes them so as to reduce excess spending power. The entire system is therefore a tax-driven accounting system. Money is not “thing.” In reality it is essentially a unit of account that enables us to conduct complex transactions.
Can this system–like any other human contrivance–be abused? Of course it can. Our is being abused. Our tax structure makes no sense; much government spending benefits interests that go against the public weal, and so on. Economics is also a field where fools and ignoramuses flourish and vent heated opinions and also seek votes; where ignorant and mentally lazy people make stupid and inept comments regarding matters they do not understand because they haven’t taken the trouble to study them. C’est la vie. It takes all kinds– “the dogs bark, but the caravan passes.”
There is much more: so please go read Mosler’s 7 Deadly Innocent Frauds. It’s a free download at his site. Go and read Stephanie Kelton, Randall Wray, and the others. Read the serious material. There is a ton of serious material available. Please don’t clutter up these blogs with inept remarks. Read and study and assimilate the material first, then contribute to the discussions, if you can; otherwise, there is no harm in being a learner.