Pete Peterson Has Won

By Stephanie Kelton

The US is broke. Government deficits are de facto evidence of a government gone wild. We’re careening toward Greece. Entitlements are the root cause of our fiscal woes, and the Chinese are coming for our grandchildren.  How many Americans believe this garbage? My guess? Most of them.

Pete Peterson has won and the American people have lost.  There is no effective counter narrative, not even from the left.  Nearly all “progressives” have accepted the fundamental premise that the federal government is like a great big household. That it faces the same kinds of constraints that you and I face.  That it should spend only what it takes in and that deficits are morally and/or fiscally irresponsible.  President Obama told the nation, “We’re out of money.”  All of this is utter nonsense, as readers of this blog know, and it leaves progressives in the weak position of pointing at the 1% and yelling, “Get ‘em!  They’ve got all the money!”  Want to care for seniors?  Tax the 1%. Want safe roads, good schools, investment in alternative energy?  Tax the 1%.  The problem, of course, is that the 1% tend to fight back …. and win!

The truth is, we’re not broke.  The US dollar comes from the US government (not from China, as we’re led to believe).  The US government is not revenue constrained.  It is the Issuer of the currency, not the User of the currency like you and I.  It plays by a completely different set of rules, yet it behaves as if it is still bound by the shackles of a gold standard.  It behaves irresponsibly  when it proposes policies to reduce the deficit when unemployment is high and inflation is low. We’re letting millions of Americans suffer because Pete Peterson and his ilk have convinced virtually everyone that we face a fiscal crisis in this country.  We live in fear of the Chinese, the Ratings Agencies, the Bond Vigilantes, Indentured Grandchildren, and so on.  And this fear is used by politicians on both sides of the political aisle to sell “sacrifice” to the rest of us.  And we keep buying.

And here’s the really sad part.  It will never be enough.

The most empowering thing we can do for ordinary Americans is to provide them with a counter narrative that undermines, fundamentally, the government-as-a-household malarky.  And we better do it quick, because America’s CEOs are already building their case against us.

 

186 Responses to Pete Peterson Has Won

  1. Ugh…I had the displeasure of watching a couple of these “CEO’s” talking about this on Bloomberg’s Betty Liu morning show yesterday. They’re dumb as paint! How on earth can executives live in a world where they are spending constrained seek to translate their experiences to the government which is NOT?! It defies reason!

  2. Progressives shoot themselves in the foot when they insist that defict spending should be used to fund their pet Green projects or other enlargement of government. But what is needed is just more government MONEY, not bigger government.

    Therefore, I suggest Progressives get behind a universal and equal bailout of the entire population, including non-debtors, similiar to Steve Keen’s “A Modern Debt Jubilee”, with new Greenbacks, only combine it with a ban on further credit creation (and other mususe of reserves) and meter the bailout to just replace existing credit as it is repaid. That way, the total money supply (reserves + credit) would remain constant. Hence there would be little price inflation risk.

    Who could complain about inflation-free restitution for the entire population? I recall that even GW Bush sent out “stimulous checks.”

    • The Dork of Cork.

      Pet green projects you say ?

      The UK goverment is planning some major road building projects that will drain the last remaining oil from their European hinterland and you say these Green projects are little pets !!
      Have you any idea what happens to cars when you issue Greenbacks ?
      MMT is not a Greenback party , its a modern Keynesian movement with a twist.
      It will destroy everything remaining just as it destroyed Flanders Fields.

      Meanwhile worthwhile anti Beeching investments will get the shaft.

      en.wikipedia.org/wiki/Fleetwood_Branch_Line

      (Fleetwood is the northern terminus for the revamped Blackpool tram line but has been without a branch line to

      en.wikipedia.org/wiki/Poulton-le-Fylde_railway_station

      since the new Keynesians came to power all those years ago.

      The line still exists but the word on the street is that more REAL external resourses will go into pointless roads.
      http://www.panoramio.com/photo/49729815

      This is what happens when Imperial sovergin currencies give the illusion of no real resourse constraints.
      What actually happens is the colonies get stripped.

      • What I’m saying is “Let’s not drag in our pet projects when all that is clearly needed is GOVERNMENT MONEY.” Simply handing out new fiat should be non-controversal and very popular. The entire population has been cheated by the counterfeiting cartel and the entire population deserves restitution.

        • The Dork of Cork.

          @F. Beard
          You are only looking at one side of the equation , the money part.

          But Bank consumer credit has changed the PHYSICAL WORLD.

          What are the 3 things you see when you walk out your door ?

          Cars and linear house developments I bet ? and the fiscal money used to service these objects which was turned into endless roads which require massive non labour input costs.

          PS Blackpool has a second station.
          en.wikipedia.org/wiki/Blackpool_South_railway_station

          A regular service has a terminus in Colne.
          en.wikipedia.org/wiki/Colne_railway_station

          Please look at the passenger data – these small stations have bigger passenger numbers then most American east coast main stations.
          But the line continued on to Skipton once.
          http://www.panoramio.com/photo/12073846

          You must try to understand the Beeching cuts of the 60s was integral with the credit hyperinflation growing at that time.
          Bank consumer credit was the mechanism used to waste oil coming up from the Suez canal and later the North Sea.
          All of the UK & France is crossed with these 19th century Nazca lines……they must be rebuilt during a money inflation or else the complex communication between towns & their hinterlands will begin to break down.

          • But Bank consumer credit has changed the PHYSICAL WORLD. The Dork of Cork.

            Yes, along with usury which requires exponential growth just to pay it. I advocate that credit creation be outlawed or at least all government priviledges for it and usury be abolished and that the use of non-credit, non-usury forms of private such as common stock be allowed.

        • The Dork of Cork.

          PS
          en.wikipedia.org/wiki/Skipton-East_Lancashire_Rail_Action_Partnership

          “The proposal to reinstate the line is considered in the Draft Lancashire and Cumbria Route Utilisation Strategy (RUS) from Network Rail. The RUS contains a number of statements recognising the potential value of services which could be run on the reinstated line and calls for the alignment to be protected.[5]
          Network Rail has, however, stated that it will not be able to fund the construction work[6] which in 2008 was stated to cost £43 million for a single-track line or £81 million for a double-track line,[7] even though it supports the plans.[6] SELRAP are hoping to raise money from other sources, including the Regional Growth Fund”

          http://www.parliament.uk/edm/2012-13/479

          Direct from ORR

          “Government subsidy towards the railway industry in 2011-12 was £3,901 million (£3.9 billion), this is £59 million lower than the previous year.

          2). Government support reached its peak in 2006-07 with £6,308 million; government support has declined every year since.”

          The lines to the south are now reaching capacity limits because of a lack of fiscal money as passenger numbers keep increasing.

          Don’t believe the spin.
          This is not the greatest investment in the rail system since the victorian era – not in real terms at least.

          Much more real British resourses go into high powered 4 wheel drives.

          To compare british private investment in rail capital during Y2011 /12 was £503 million of which £369 million was rolling stock.

          So £2.4 Billion ~ less spending then in the peak of 2007.
          Thats 55~ of the above projects.

    • The Dork of Cork.

      Heres how the modern sov UK works…..on the medium scale or micro level.

      It builds a commercial / shopping centre near the local train station (Blackpool North station)
      en.wikipedia.org/wiki/Blackpool_North_railway_station
      Which is a example of good planning and something the UK of the 1960s /70s would not do.

      However there is a constant delay in the Electrification of this now very busy line (see passenger data to the right) because of a lack of fiscal funds ?
      Meanwhile the New Tram line which was rebuilt last year is not connected to Blackpool North station for some reason , (see above , lack of fiscal funds most likely)

      This is why the old (and not the new of course) French school of thought finds the Anglos very strange , the lack of final settlement means you don’t need to bother – you can just burn baby burn.
      They would have put in the infrastructure first and not last.

      http://www.youtube.com/watch?v=EIPpWoU1dOs (go to 5.00)

      PS – the economy of Blackpool is very strange ,It is a old holiday town and thus during the strong Sterling years suffered as people could travel to Spain rather then cold wet Blackpool.
      Its continued growth depends on weak or indeed weaker Sterling.

  3. I agree with you that the path to reduce spending over the next several years is inevitable…as is the result of those cuts which can only lead (if one believes in arithmetic) to another epic fail orchestrated by our leadership and the economist morons that advise them.

    Seems to me the only thing we can do is promote our predictions on the outcome and gather our chips for the big game coming down the road. Maybe then people will be more inclined to let us in the game.

    My biggest concern is who will be blamed for the failure? Time to make farming a hobby.

  4. The Pete Petersons aren’t really going to cut government spending. Like the bourgeoisie of the French Revolution, they also are its beneficiaries. What they really want to do is scare us into reducing the spending that benefits ordinary people (social spending) while fattening the less visible checks the government cuts to them. What they call “economics” really is politics, or more specifically rentier apologetics. They use the power of the state to enrich themselves while throwing up laissez-faire smoke screens to hide what they are doing.

    The USA is the new USSR. It is trapped in a demonstrably false Cold War-era ideology, and the process of freeing itself probably will be multi-decadal. It took the Soviets 30-40 years to go from the optimism of the Khrushchev years to the collapse of 1991. We likely are in for a long slog, as well. However, what the Pete Petersons cannot do is deliver the goods to most Americans. The Reaganites of the 1980s appeared to be able to do that, so they won the public over. The Petersons can’t, so they have no alternative but to become increasingly authoritarian, and that will only make their preaching about “liberty” all the more transparently laughable.

    Meantime, you folks at UMKC are teaching us economic dissidents a lot. We need you. I noticed your sibling institution, UMSL, has just anounced an F.A. Hayek Professorship in Economic Education. Moscow University had professorships in Marxism-Leninism, too. We can expect more of such nonsense to come as the Pete Petersons (of several varieties) next turn to funding academia. That only means we need your work all the more.

  5. “But what is needed is just more government MONEY, not bigger government.”

    Isn’t that what deficit spending is…more government money?

    What we need is more progressive taxation, then no need to produce bunches of new money while the old money goes to waste.

  6. It seems so hopeless at this point. We have the useless left and a right that, while perhaps more capable of getting something passed at this point, seems intent on doing the wrong thing. You would think that since politicians are judged on the strength of the economy, a Republican administration would have to end up running large deficits anyways. At least they’ve got the revenue side of the MMT equation figured out to some degree, but not the spending side.

    What’s needed at this point is a complete paradigm shift in the public understanding of government finance, as Stephanie says. Sometimes I think real progress is being made here, and then I read the newspapers and listen to the television and you see how little has changed.

  7. In a coming national experiment most Americans won’t be able to tell the difference between non-recursive (non-refluxing) and recursive (refluxing) money. Little do they know it but this is likely to be causing most of them a whole heap of trouble in the future.

  8. Try derision.

  9. The choice hither to has been between making prophylaxis of knowledge and information available or discoverable of the economic process to counter the disinformation of these malefactors of great wealth or risk succumbing to their agenda. Time is rapidly disappearing if not already too late to construct such an edifice and the intellectual firepower to do so is lacking, the divisions of Babel hold the fields of communication, the adversary shows decades of nefarious organization, discipline and calculation to win the contest, the outcome will be a close run thing.

    The other choice is to withdraw to organize and conserve, not expending needlessly energies better used in restoring the economic disaster that the opposition’s hubristic ignorance will surely lead. Using time to advantage to construct a viable economic model, tested and trued to actuality with which to reconstruct from the ruins. Behind are 60 millennium experience of an intelligent species, an intelligence born of economics. The question will be: what did they know, how did they use that information. Today’s descendants should be able to do as well as their ancestors in understanding and conceiving their world, the key is in unlocking closed and bound minds for a search for the future. If not this, the last dark ages will be only an amusing preview of what is to come.

    • Are you Professor Irwin Corey? Seriously, what did you say?

      • Nice memory. Now you’ll have to inform the more recent vintages who and what the good Professor Irwin Cory. ‘Splain his humor to the uninitiated if you will.

        For what said, a linear loci of points beginning: Until now choices of rational nature protected (…) but no longer guarantee. Leaving choice to withdraw consent (…) until assured collapse, gain protection through information and understanding. Other options are not illuminating. Does that help?

  10. Just yesterday I saw this on the front page of a local newspaper, so much of what you talk about with the Peterson stuff, from using the total debt number instead of debt held by the public, to referring to it as “the deficit” rather than debt, to talking about “paying off” the debt, etc.
    http://www.dailyrecord.com/apps/pbcs.dll/article?AID=2012310240069

    ““It’s something the country needs to do something about before we’re all living in poverty,” said Garrett, 65.”
    ***
    “Neither President Barack Obama nor Republican nominee Mitt Romney has a budget plan that produces a surplus within their terms in office. ”
    ***
    ““I’m not sure that there will be severe ramifications in the near term, over the next couple of years, but we’ll be passing debt along to our kids, to our grandkids, and that we need to prevent,” Garrett said.”
    ***
    “Those annual deficits are added on to the national debt, which topped $16 trillion for the first time in late August. It’s equal to more than $51,000 for every person in the U.S. population.”
    ***
    ““The concern is that it will never be paid, that it’ll never come down. We kind of sat around and asked, ‘What’s going to happen? How are you going to do this?’ ” Busche said. “Maybe there’s going to be inflation. You look at it, and it is a horrendous amount of money. It’s beyond my ken.””
    ***
    [Romney]: “I will eliminate all programs by this test — if they don’t pass it: Is the program so critical it’s worth borrowing money from China to pay for it? And if not, I’ll get rid of it.””
    ***
    ““My kids’ kids’ kids, they aren’t going to pay this debt down,” Conforti said. “We’ve got to start somewhere. You have to cut. You can’t get blood where there’s no blood left. How much more are they going to make us pay in taxes before it runs out? Think how you live. Think how I live. If I don’t have the money, I can’t buy it. You can only run up the credit card so high.””

  11. I don’t think Pete’s won yet, because I don’t think the War is over. A big battle is coming up after the election — the battle for the safety net. We need to focus in on this fight and, win or lose, and use it to advance the MMT’s counter-narrative. Of course, that counter-narrative DOES exist! By now it exists in numerous places including: the series endinghere and the variety of presentations and videos it links to, here, here, here, here, here, and here. It’s just been hard to get it through the screens and filters of the DC village, the MSM, and all the academic villages of economists across the country.

    They’re all steeped in neoliberalism and MMT’s paradigm is in a language foreign to them. But eventually we will win and Peterson will lose. Hopefully, that will be before too much additional damage is most of the people in the United States, because, as we know, neoliberalism, including its Petersonian variant, kills. But even if a terrible economic reality has to teach people that austerity doesn’t work first, eventually that lesson will be learned and people will recognize that There Is An Alternative (TIAA) and that it is Economics for the Public Purpose, REAL fiscal responsibility, the MMT counter-narrative!

    • I think we need to expand the battle beyond the safety net, Joe. Talking about Social Security and Medicare all the time is a good strategy for appealing to the middle aged and oldsters, but it does little to appeal to the rising young generation. They want to know where good jobs and rising standards of living are going to come from, how we are going to save our dying planet, how we are going reform political and economic systems here and across the globe that are massive incompetent and dysfunctional. The anxious and defensive boomer political rhetoric of merely hanging on to gains of the past is a tired and essentially conservative strategy that doesn’t inspire anyone under 50.

  12. “Republican administration would have to end up running large deficits anyways”

    Large deficits created by cutting taxes on the rich…BFD…that money just bypasses the 280 million or so of us not in that loop.

    Trickle-down is a mathematical impossibility unless companies lose money in the aggregate. We can always wish…

  13. Charles Fasola

    Paul,
    If ya’ don’t believe what’s written on a daily basis here then why do you waste your time and energy making the dumb-assed comments you do about tax policy being the primary means by which our economis woes can be rectified? What’s it going to take for you to understand the fact that taxes are not necessary in order for the Federal Government to spend. Taxes may serve other purposes but funding Federal spending is not one of those. What is it that makes your skull so hard?

  14. Dr. Kelton;

    Among the prominent voices of the MMT movement, yours has always stood out for me, for two reasons. First, I think you have an extraordinary hold on the importance of narrative itself – you’re just a better writer than some of the original pioneers. And that is saying a lot, because I can’t think of one poor writer in the whole tribe. But your pieces sparkle with more than just clarity, brevity and wit. They also channel something that feels like a simple and spontaneous love for humanity. It comes through. You don’t just want to help us understand these things, important as that is. You also want us to be able to use this knowledge – to help heal the sad, confused and wounded world we are living in. That’s a tough lift in an American election year, and some of those all-American blues seem to be on display today.

    Or maybe it’s just jet-lag.

    Because you and Warren KILLED IT at Columbia last week. I hope you know it and remember it, because it was truly memorable. And I hope you noticed the varied accents and origins of the audience, and the quality of the questions they were asking. It’s happening, Professor. If you listen hard enough, you can hear the distant creak and groan of old, ossified ideas beginning to give way. You can feel the tremor – still tiny and far away – but real. The earth is shifting. The intellectual earthquake we long for is coming. We are a movement, thanks to you and others like you, and the MMT movement is not the only force for change that is at work in these times.

    So, buckle up and get back to work, O.K.? Pete Peterson and his ilk may rule the world for now, but history will not be written by the likes of him. In the end, all truly bad and destructive ideas are self-destructive. His are no different. I propose a contest: let’s each submit a draft of the footnote he will deserve.

  15. “The most empowering thing we can do for ordinary Americans is to provide them with a counter narrative that undermines, fundamentally, the government-as-a-household malarky. And we better do it quick, because America’s CEOs are already building their case against us.”
    =========================
    Stephanie, why don’t you and R. Wray, Mosler, Auerback, and others write and sign a clear, understandable, rebuttal consisting of an attempt at shifting their paradigm and send it to the same CEO’s? Blogging articles here is preaching to the choir–a rather small choir. It is necessary but not enough. You need to reach the power centers, which are the corporations and the key people in government. You need to predict the outcomes of their policies as well. There has to be a laser-like focus, a concentration of time and energies, and not endless commenting on every single issue and initiative. The fundamental assumptions and perspective have to be changed. You are confronting a media which relentlessly drives home one single point: debt, deficit, again and again. You must do the same: a single, concentrated focus on the essential and fundamental. It’s like massing your troops at the enemy’s weak point–the only way to break through. The weak point of this enemy simply where they are essentially and fundamentally wrong. You have identified it. Attack it.

    • I certainly second this suggestion.

    • You’re laboring under the assumption that “the CEOs” don’t already know they’re full of crap. They, or at least those in financial sector amongst their number, invented the monetary system that people here call “MMT.”

      What is it that YOU’RE telling them again?

      • Ah, yet another voice that prefers the slavery of austerity to the freedom of Monetary Sovereignty. Do try to keep smiling as the 1% takes away your Social Security and Medicare, and “broaden the tax base” (i.e. tax more poor people.) And keep fighting against the only people who can save you.

  16. If Romney wins, and the latest polls are depressing, then time will have run out. Romney will propose the Ryan budget . It will likely pass via reconciliation since the republicans will control the house and with a few blue dogs will get the votes in the senate. We will them be fighting a rear guard action trying to “save” what we can and not educating anyone. It will not be successful. The best we can hope for is Romney holding back on some spending cuts since he may be more moderate than he lets on. This whole thing is a mystery to me. Why do so many believe the story of households? The MMT story has been out,there for years. The left has still not absorbed it. Progressives are stuck in the weeds on issues that simply do not rise to this level. Some already think we need to wait for 2016. What in heavens name will happen then?

  17. “What’s it going to take for you to understand the fact that taxes are not necessary in order for the Federal Government to spend.” – Charles Fasola

    Charles, I think you have completely misunderstood my comments. I’m fully aware that taxes don’t “fund” spending, so it won’t take any effort whatsoever. I’ve never actually advocated for tax policy to solve our woes either, because it’s not going to happen anytime soon. That’s not the point. The system depends on flow, and progressive taxation is the most efficient way to create it in my judgement. Flow that goes through the pockets of wage-earners, retirees and the unemployed. Deficit spending is a critical component in the overall flow picture because it is the only possible way to provide for growth and offset leakages. We must have it.

    The argument isn’t as simple as “cut taxes and run bigger deficits”. It matters where the money is targeted. In fact, that’s the only thing that matters. It also matters to me that the 0.1% has accumulated so much wealth the rest of us have become powerless in the face of our own bought-and-paid-for government. That’s why our shouting falls on deaf ears. That’s why nobody hears us or listens to us. We don’t matter to them and no strategy is going to get any traction in the short run. We don’t have a functioning democracy. Or Republic. Not even close.

    Giving tax breaks to rich people is a waste of money, and increasing the deficit that way will not help 99.9% of the population. That spending never passes through our hands. I don’t want to be accused of being one of the progressives that thinks taxing the rich is the solution…it isn’t, but only because it isn’t politically feasible. But then neither is higher spending.

    The fact is the Federal Budget is currently about $5.5 Trillion dollars, of which a little over $1 Trillion is deficit spending. That means the annual net flow induced by the government is $5.5 Trillion, and the majority of it comes from progressive taxation. Cutting taxes on the rich will reduce the flow, because that money has no way to reach the pockets of the 99.9%, but still increases the deficit. If the flow doesn’t go through “our” hands it doesn’t exist in any meaningful way. Talk about standing on the street corner shouting. Waste of effort.

    My main concern is maintaining net flow above and beyond losses to the trade deficit, accomodating savings desires and monetizing profits and interest accruing on household debt, the usual suspects, otherwise the system will decay instead of grow. Giving more money to the top 0.1% will not help any of that, they already have their profits, and we pay all of the interest on all of the private debt, either directly or indirectly.

    I will leave it to you and others to figure out the best way to do it, just please don’t give it to the sharks.

    • Hi Paul,

      I understand and agree with your concerns.

      My favorite policy to emerge from the MMT camp is the job-guarantee or buffer stock employment, firstly because it targets the unemployed, secondly because the work done by this group is oriented towards improving public goods (something which benefits everyone, but particularly the poor), and thirdly because it reduces discrimination in hiring practices.

  18. critical tinkerer

    @paul
    But many companies do loose money in agregate, they replace it with debt, that is the reason that economy can go up only with raising debt. What, 75% of new businesses do not go past 2 year mark. For two years you can go on on debt only. The debt is the only reason kapitalism works, ever growing debt.
    Counting only money, how many companies have more cash reserves than debt? i would say close to 0%, not 0 but closer to 0 then to 1%. The reason is that it went to someones pockets, owners or employees pockets.
    But it still doesn’t make trickle down real.
    Why do you think the companies always had to come up with new ideas to get more debt troughout history? Kredit, bonds, stocks. These all are forms of debt, some with preset time terms, some without time term

  19. I explained to a lunch crowd (well they were all Scientists) why we are not borrowing money from the Chinese in five minutes … and they got it.

    Actually China may provide a useful example. They actually seem determined (from fear?) to prevent any large increase in unemployment in their country, and they’re not afraid to use the monetary system to do it. If they continue to grow and progress year after year, people may start to wonder why.

    I know some predict a ‘hard landing’ for China, but unless they start to buy into the neo-liberal horseshit, it may not happen.

  20. By now most are aware that the super-rich have been able to garner authority by capturing the majority of academic economists, by awarding prizes to their favorite promoters from the academic community, by relentless lobbying/ capturing of the Legislative, Executive, and Judicial branches of government, by capturing the political party system and the MSM, by effectively censoring any individuals/ideas with whom/which the disagree. It has been interesting to watch the efforts of the advocates of MMT attempt to enlighten the public; however, those who are in power (and their supporters) could care less about such efforts as they understand that any attempt to legitimize the system would only present new challenges to their lawyers to find a way around.

    The MMT advocates have put up a good fight, but that (very small) portion of the general public who are aware of/care about these matters do not have the motivation and/or financial clout to fight back. Examination of this election season’s minority political candidates, only Jill Stein and Rocky Anderson seem to have reasonably good grasps of what the presidency requires, but they are likely to garner no electoral votes and less than 2% of the popular vote and even if one were to approach the popularity of Ross Perot, he/she would fail for other reasons.

    Bernard A Lietaer, who attended MIT at the same time as Paul Krugman, delivered a talk at the EJC meeting several years ago which was supposed to describe alternative currencies (he also relates that the Central Bank is perfectly comfortable with the status quo and funds the Nobel Prize to provide credibility to the main-stream dogma). Lietaer mentions his awareness of MMT and describes how its advocates are ignored by the establishment in a lecture he presented in 2009; it is presented in multiple parts on YouTube:

    Bernard A. Lietaer on Monetary blind spots and structural solutions 3v5
    http://www.youtube.com/watch?v=Q7uJIjSO-a4&feature=bf_prev&list=PLFSycckECdut_VTaKSSy_ACJFd1lrKyOj

    The small group of super-rich who dabble in politics would likely never consider MMT because it might be argued to be ideologically un-American or not favorable to crony capitalism; they do not seem to understand what governments could do in the context of democracy because they know that crony capitalism can only flourish when the government mechanisms/expediters are captured. I have read arguments which suggest that MMT could be used for any type of national sovereign fiscal policy, however, that really does not appear to represent a real-world possibility. Even though MMT or its variants may be relatively rational, none is likely to receive serious consideration by the academic or political communities. I am a bit unsure Lietear’s ideas concerning alternative currencies would fly were the political systems in which alternative currencies are allowed to exist were not tolerant; in this respect, it will be interesting to learn whether Uruguay’s experiment will succeed. I am aware of the jeffes project in Argentina and some experiments in Brazil were mentioned by Lietear, but have not heard/read about Uruguay recently.

    • “It has been interesting to watch the efforts of the advocates of MMT attempt to enlighten the public”

      Enlightening the public shows some promise, but such enlightenment is ultimately unnecessary. The public universally loses its passion for cuts the second its particular oxen is laid out to be gored.

      Of course, with the ideological position of all too much of the public suggesting that rewards should be directly tied to individual effort, even limitless public monies would dictate an austerian position– for other people.

      So, there a lot of little puritan nasties out there hoping it’s going to be someone else, while the angel of death they deliberately call up passes over their house.

      We’ll see.

    • Examination of this election season’s minority political candidates, only Jill Stein and Rocky Anderson seem to have reasonably good grasps of what the presidency requires, but they are likely to garner no electoral votes and less than 2% of the popular vote and even if one were to approach the popularity of Ross Perot, he/she would fail for other reasons.

      Neither seems to have a grasp of MMT!

      • Joe, with each passing day, I become more convinced that at least some — perhaps many — federal politicians understand Monetary Sovereignty quite well. But they don’t admit it, for two reasons:

        1. They are bought and paid for by the 1%, who use the “debt” and “deficit” myths to subjugate the ignorant populace
        and
        2. The voters have been so brainwashed, that even an honest politician (oxymoron?), would be reluctant to reveal the facts.

        The concept of Monetary Sovereignty is so simple, obvious and factually substantiated, it simply could not be known only by the couple dozen people on earth who are talking about it. So that leaves a conspiracy by the rich and powerful as the only answer to the overwhelming misinformation being spread every day.

  21. The deficit is a running total of government investment in the nation. The more developed, the greater amount of assets needing tending since they all decay. When the economy is impaired, the government must invest otherwise it all falls apart. When a company sells stock for investment no one blinks an eye nor is anything paid back. The government just has more monetary tools with which to invest. Unfortunately, since 1900, the system has been rigged to have money trickle up as “in combination, there is wealth”. The more government invests, the greater inequality between the few and the many because money is the one asset that doesn’t decay, it accumulates.

    Peterson is a neoliberal, an elite totalitarian anarchocapitalist, a subversive from the Rothbard school of propaganda and dis-information.

    • Peterson is a neoliberal, an elite totalitarian anarchocapitalist, a subversive from the Rothbard school of propaganda and dis-information. Peterson was Nixon’s Secretary of Commerce and one of a handful of advisers that Nixon took to Camp David & who advised him to make the dollar pure fiat money.

      He must know everything he says & pays for his academic mouthpieces to say is a pack of lies, insulting to a child’s intelligence. All with the sole aim of making non-elite non-rentiers suffer, even at a cost to elite wealth. He’s just evil.

  22. @critical tinkerer,

    I don’t want to trash up this thread with a bunch of off-topic comments. Here’s a brief response:

    “What, 75% of new businesses do not go past 2 year mark.”
    Something like 90% of business in aggregate makes a profit – think weighted average, size matters.

    “For two years you can go on on debt only. The debt is the only reason kapitalism works, ever growing debt.”
    Mathematically, because it is a closed system, the economy can’t function long on private debt alone, it’s impossible.
    There is no way for either one of us to prove it empirically…while the economy has seen huge increases in private debt since 1980 it has also seen $15 Trillion in deficit spending. Which one are you going to bet on as the reason it has worked? Deficit spending is what makes capitalism work, and deficit spending provides for the interest that accrues from private debt. Loans create the principal only, not the interest.
    Watch the Bernard Leitaer video series linked to above.

    @ W Wilson, I agree Bernard Leitaer is a genius and people should listen to what he says.

  23. He hasn’t won. And you know what, I don’t think we will if we have that attitude.

    One of the reasons I say this is that it’s not just an American belief. For example, just this week the Australian Treasurer released a revised budget cutting spending because the revenue he thought he would raise through the mining tax was less than expected.

    We just have to fight harder. And I’m willing to help. It’s great that you’re going around to the Ivy League schools. As I said, I’d also love to see you on MSNBC or a talk show like the Daily Show.

    • Stephanie Kelton

      “We just have to fight harder. And I’m willing to help.”
      Excellent. Maybe there is a method to my madness….

    • I like the Daily Show idea. Jon might even listen to a short tutorial on the subject. There are plenty of MMT spokespersons that could pull this off I think. Hmm think I will send a note to the show and suggest them. Prolly won’t listen, but it couldn’t hurt.

  24. Pete Peterson is aiming for a monetary system worse than the gold standard.

    The deficit doves types want to balance the budget over the long run. The deficit hawks want surpluses all the time.

    At least with the gold standard we could depend on gold miners to keep on mining gold, constantly expanding the gold supply. Under the influence of deficit hawks , the government production of treasury securities would be put ‘permanently’ into reverse. Under the influence of deficit doves, we’d just shut down any long-term treasury production so net products would be zero. Our current fiat system is to be made worse than the gold standard.

    • Under the influence of deficit doves, we’d just shut down any long-term treasury production so net products would be zero. Winslow R.

      Borrowing by a monetary sovereign such as the US is “corporate welfare” according to Professor Bill Mitchell and should be abolished. All US “deficits” should be funded with pure money creation WITHOUT borrowing.

      • the only gold i’m interested in is a gold with a high social value… so what gold is that?

      • Yes, no treasuries would clearly be more like a gold standard where the government would purchase, not borrow and pay interest on gold.

        MMT pushes for an fiat monetary system based on an employment standard. Most reasonable people are at least willing to push for an inflation standard but have no clue how to generate inflation.

        My original point is we have VSP’s pushing for a fiat monetary system much worse than a gold standard.

        • Yes, no treasuries would clearly be more like a gold standard where the government would purchase, not borrow and pay interest on gold. Winslow R.

          Deficts should be the norm for a monetary sovereign and those deficts should be funded with pure money creation, not borrowing. And government money should be inexpensive fiat, not gold or any other expensive material.

          Most reasonable people are at least willing to push for an inflation standard but have no clue how to generate inflation. Winslow R.

          Since bank credit is over 90% of the money supply (“loans create deposits”) then it makes sense that banks create over 90% of the inflation. However, since “bank loan repayment destroys deposits” then the banks are capable of causing massive deflation too if the repayment of existing loans outpaces new loan creation. But continual new loan creation is unsustainable since the ability to service that debt typically compounds slower than the required interest does.

          However, if we had 100% reserve lending then the monetary sovereign would have the sole ability to create and destroy its money so deflation need never occur. Instead, the supply of government money would steadily increase with perhaps occasional pauses to allow real economic growth to catch up.

  25. Why do I get the impression that MMT acolytes deny the concept of scarcity? How does the enpixelation of more dollars produce more disposable diapers or more Shania Twain CDs or more bottles of Rolling Rock? If beer thirsty college sophomores want more Rolling Rock than the brewery can supply, the price of the unique libation will go up, at both the retail and wholesale levels. Profits from its sale and production could mean an expansion of capital and employment, financed by either cash flow or debt, until the supply reaches equilibrium with the demand and the quantity of beer brewed matches the quantity of beer guzzled. Slipping an envelope full of twenties under the dorm room doors of these undergrad economics majors might cause a run on the green bottles down at the liquor store but what will be the lasting effect when the charity has been consumed? Will these fiat dollars injected into the hops-flavored loop result in the construction of new aging tanks and bottling lines that will no longer be needed when the money’s been spent and everyone is sitting around with a hangover? Will that artificially induced spending create an overcapacity that must then be remedied by enpixelating even more money to create the demand to make use of the overcapacity? When does the fiat treadmill come to a stop?

    • How does the enpixelation of more dollars produce more disposable diapers or more Shania Twain CDs or more bottles of Rolling Rock? chuck martel

      With our elastic money supply, money is lent into existence (“bank loans create deposits”) and ceases to exist when it is repaid while the interest is typically transferred from the non-rich to the rich. Thus accelerating private debt is necessary to keep aggregate demand from collapsing. But private debt is not accelerating or at least not at a sufficent rate. Therefore, the monetary sovereign has to provide new money so debtors can pay their debts. Otherwise they are caught in an impossible situation.

    • Charlemagne did avoid treadmills by relying on a gold standard. Which toppled. Repeatedly.

      • Realistically, the US hasn’t been on a gold standard for almost 80 years so a metallic commodity money can’t be at the root of the current economic doldrums. Many non-economists would say that the high level of personal debt, home mortgages, automobile payments, credit card balances, student loan debt, etc., have limited economic growth. MMT aficionados would recommend paying off these balances with cheap money as the easiest path to more growth. This was exactly the argument used by William Jennings Bryan and the 19th century progressive agriculturalists for silver coinage, inflate away farm indebtedness with ever cheaper money, paying off the unbacked loans of banks and bailing out debtors while simultaneously destroying the savings of the prudent. It takes a warped mentality to consider such a course of action as “right”.

        • People who don’t understand economics continually conflate money creation with inflation, because they say increased supply reduces value. They forget that value is a function of supply AND demand. The value of money is controlled by increasing the demand for money.

          That is why there has been zero relationship between deficits and inflation. See: http://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation/

          • In 1933 a dozen eggs went for .15, ham cost .15/lb., beef steak was .25/lb., coffee, .30/lb., a movie ticket was a dime, gasoline .15/gal., and first class postage .03. It would appear that the value of money has decreased pretty dramatically since then.

            • The Fed intentionally sets inflation at 2% – 3% every year, feeling this is stimulative. They do this with interest rate control.

              If you have, for instance, a 3% inflation every year for 80 years, you’ll have a cumulative inflation of close to 1000%.

              Meanwhile, year-by-year, there has been no relationship between the size of the deficit and the amount of inflation.

            • “In 1933 a dozen eggs went for .15, ham cost .15/lb., beef steak was .25/lb., coffee, .30/lb., a movie ticket was a dime, gasoline .15/gal., and first class postage .03. It would appear that the value of money has decreased pretty dramatically since then.”

              Yeah, so what?! “Appearances” can be misleading.

              But let me accept your definition of “money value deteriorating” for the sake of argument. Are you then trying to convince me that there is some sort of direct relationship between our moneys value AND our overall prosperity? You would have a difficult if not impossible task of convincing anyone that we are not ALL better off today than in 1933. SO, if there is no direct relationship between our moneys value (as you want to measure it) and our prosperity why the hell should I care?

              Let me ask you, would you rather live in 1933 or today (you cant take todays salary and go back to 1933 that would be cheating)? Yet even with todays money back then how many dollars would it cost you back then to treat prostate cancer effectively? …….. ohhhhhh thats right back then you COULDNT treat prostate cancer effectively!! How much would a car with power brakes and air bags cost back then? Ohhhhhh yeah…….. You see where Im going with this. Its not just about the amount of money you have it also about whats available in the market for your money to buy. And also about how hard one has to work to get the money to buy the thing you want. If it takes me a month of effort to get a loaf of bread….. thats bad. If I can earn a loaf of bread in 20 minutes of work….. thats better.

              So Ill just say, what you are seeing, and wish to label as inflation (and something we should be fighting against) I’ll just call …………………………the real cost of having a civilization that is getting better and better things. Certainly you cant argue that their should be real costs for all of us to have better and better things…….. can you/

              • Last sentence should read “…… should NOT be real costs for all of us to have better and better things……can you?”

              • Gee, that thought never crossed my mind. I never realized that it was inflation that brought about new developments in medicine and technology, that the decreasing value of money was giving birth to jumbo jets, computers and digital sphygmomanometers. Has it worked the same way in Zimbabwe and Argentina?

              • “Gee, that thought never crossed my mind. I never realized that it was inflation that brought about new developments in medicine and technology, that the decreasing value of money was giving birth to jumbo jets, computers and digital sphygmomanometers. Has it worked the same way in Zimbabwe and Argentina?”

                How about dealing with the actual point of my response Chuck? You want to claim that inflation (as you have chosen to measure it) is some evil to be avoided. You cite 1933 prices vs today as evidence that we are worse off (not your exact words but your sentiment Im sure). I ask you to show how we are “Really” worse off………………… and you cant. We are immensely better off. Its not even close. Every human today is enormously better off than they were in 1933. They have access to more and better things and have to work less to achieve them. So…………..why should I care about your meaninglesss metric regarding the price of pork or beef?

              • You want to claim that inflation (as you have chosen to measure it) is some evil to be avoided. You cite 1933 prices vs today as evidence that we are worse off.

                What do you mean “we”, white man? And I didn’t say we were “worse off”. I said that our money has been degraded. People that have received payment in US currency for goods and property and, for heaven’s sake, labor, have watched the purchasing power of that currency plummet over a rather short period of time. There’s no causal relationship between that disaster and the forward march (maybe forward) of technological progress. Many people have been left behind in this movement so to say that “we” are all better off is a mischaracterization that ignores the reality of the individual for the abstraction of the collective . For instance, there’s frequent moaning about the plight of the “homeless” and indeed there actually are a number of people living from hand to mouth on the streets and alleys. This is a product of the nation/state. In tribal and even feudal times no person was homeless unless by their own choice. A baron in the middle ages didn’t have the wherewithal to evict the son or daughter of a peasant/serf from the manor. So for individuals that don’t fit into the nation/state paradigm there hasn’t been a big improvement. Nor has there been for people that wished to save up for a “rainy day” without exposing their wealth to the vagaries of the financial complex, a group that was once the majority but are now insignificant. Of course, when complaints are made about government using monetary and fiscal policy for its own ends, the answers are that we need more government to straighten the mess out. It’s never worked that way.

              • “What do you mean “we”, white man? And I didn’t say we were “worse off”. I said that our money has been degraded. People that have received payment in US currency for goods and property and, for heaven’s sake, labor, have watched the purchasing power of that currency plummet over a rather short period of time”

                But again, that purchasing power(as you are choosing to look at it) has little to do with anything which might be considered a facet of living standards. Its still much easier today (takes less work) to get more calories, get more done in one day, keep yourself healthier and experience much more of our world than was even imaginable in 1933. I agree that there is much to improve on but I think most talk along the lines of what a dollar bought in the 30′s vs today is irrelevant to our plight. Its not a money issue its a politics and empathy issue.

                You make some very good points about the nation state and homelessness. Its also true about joblessness, which is why MMT advocates for a JG since no govt ever runs a high enough deficit to keep unemployment at its lowest possible level for very long.

                I must ask you though, what would be the purchasing power of one 1933 dollar put in govt bonds over the last 80 yeras? Assuming about 3% avg return on Treasuries (its probably been higher) that means a doubling every 24 years so that would be 3+ doublings, meaning that the dollar would be worth over 10$ today. You are comparing the purchasing power of a dollar left under a mattress.

              • Chuck Martel,

                Personally I think high inflation is a problem but low inflation is not. I don’t shed crocodile tears over it or ridiculously refer to it as a ‘disaster’ – no reasonable person would.

              • “Has it worked the same way in Zimbabwe and Argentina?”

                Another clueless austrian, incapable of differentiating between things. The US is not Zimbabwe.

          • Even money is a commodity and as such is subject to the rule of marginal utility. The more money there is in the system, the less value each unit of that money has. That’s just the way it is.

            • Value = Demand/Supply. Always.

              Increase the Supply and the Value goes down — unless Demand also increases at the same or greater rate. Marginal Utility merely means Supply goes up faster than demand. For some unknown reason, debt worries always seem to focus on supply and forget about demand.

              The Fed increases the Demand for dollars by raising interest rates. Increased population also increases Demand.

              All the hand-wringing philosophy cannot change one simple fact: Since the U.S. became Monetarily Sovereign, there has been no relationship between increases in debt and inflation. See: http://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation/

              • The Fed increases the Demand for dollars by raising interest rates.

                OK, if the Fed has an interest rate on the money that it’s loaning to banks of say, 5% and there’s a demand of 50, then if they raise the interest rate to 10% there will be a demand of 100 or twice as much as before? That high interest rates increase the amount of borrowing? Or do you mean that higher interest rates make people wish that they had more money, like when I’m dough-heavy I eat Haagen-Daz ice cream but when I’m broke I just wish that I could?

                • Raising interest rates increases the demand for such securities as T-bills, T-bonds, T-notes, CDs, etc. Because dollars are required to obtain those securities, the demand for dollars increases. Increasing the demand for dollars makes dollars more valuable, which is anti-inflationary.

                  That is how the Fed successfully has controlled inflation very close to its 2%-3% goal.

              • Raising interest rates. The Fed. Doesn’t the Fed actually PAY interest on bank deposits held there as reserves? Isn’t that purely a transaction between the member banks and the federal reserve, having, if anything, a negative effect on an expanding economy? And then, doesn’t the fed purchase treasuries, not at auction, but from secondary sources, once again the banks? Who then deposit the proceeds of those sales with the fed, collecting essentially risk-free interest? What’s any of that got to do with the price of eggs?

              • In order for the government to pay interest on treasury securities, they have to have the money that was used to purchase those securities, after all that’s why they were sold. The government is borrowing money, taking that money out of circulation, competing with the private sector for available funds but unlike taxes, they’re not destroying the money, they’re returning it, plus interest, to banks, including the fed, at zero risk. What’s stimulative about that?

                • Chuck, you said: “In order for the government to pay interest on treasury securities, they have to have the money that was used to purchase those securities, after all that’s why they were sold. “

                  That was true when the federal government was monetarily non-sovereign, and still is true for states, counties, cities and the euro nations, all of which are monetarily non-sovereign. It is not true for our Monetarily Sovereign (since 1971) federal government.

                  A Monetarily Sovereign government is different from a monetarily non-sovereign government. A MS government neither needs nor uses income to pay its bills. Our federal government creates dollars ad hoc, from thin air, merely by instructing banks to mark up checking accounts.

                  You and I are monetarily non-sovereign. We need a source of income in order to pay our bills. The federal government pays its bills this way: The U.S. Treasury sends instructions (not dollars), to creditors’ banks, instructing those banks to increase the numbers in creditors’ accounts by the amount of the payment. These instructions either are in the form of checks from federal agencies or wire transfers.

                  I receive my Social Security payment when the Treasury wires my bank, and says, “Increase the number in Rodger Mitchell’s checking account by $X.” The bank obeys, then forwards the instructions to the Federal Reserve Bank for clearing.

                  For federal checks, this clearing is an automatic operation that always succeeds. That is why no federal check ever bounces. At no time, does the Treasury need to “have money in its checking account.” That is what makes it sovereign.

                  The federal issuance of T-securities is a relic from the time when the government was monetarily non-sovereign. It no longer is necessary. If the total of T-security accounts was $0 or $900 trillion, neither event would affect by even one cent, the federal government’s ability to pay its bills.

                  You are correct that issuing T-securities is not stimulative. Never said it was. But paying interest on T-securities is stimulative, because federal interest payments add dollars to the economy.

                  If, unlike the majority of the people commenting on this blog, you truly wish to understand what is happening, you first must understand the differences between Monetary Sovereignty and monetary non-sovereignty. My blog discusses this in detail, and if you’re interested, you might begin at the post titled, “Monetary Sovereignty: The key to understanding economics.”

                  Enjoy.

                  Rodger Malcolm Mitchell

            • “Even money is a commodity and as such is subject to the rule of marginal utility. The more money there is in the system, the less value each unit of that money has. That’s just the way it is.”

              If the output of goods and services increases, and the desire to save increases, yet the quantity of money in the economy remains the same, then the value of money will increase. If the quantity of money increases in line with the increase in output and desire to save, then the value of money will remain the same. So you are clearly wrong.

              You want a permanent state of deflation, which makes no sense whatsoever. Only ‘austrians’ believe that this is desirable – no one else in the world shares your bizarre belief.

            • Even money is a commodity and as such is subject to the rule of marginal utility. The more money there is in the system, the less value each unit of that money has. That’s just the way it is.

              Absolutely wrong. Money. is. not. a. commodity. It is nothing like a commodity. Money is debt, is brownie points, is promises. Which are not a commodity. “The more money the less value each unit” is utterly wrong empirically & theoretically.

              Saying we (the gov) should economize on money when there is massive unemployment caused by the great demand for this money is like saying we only have a finite number of decisions, of ‘dividings of labor’ , of (easily, fully redeemable) promises that we can make and we should economize on them. It’s saying that when you make more promises, but carry them out fully, you are less trustworthy because you are hitting the promise-limit. Cuckoo for cocoa puffs!

              But it is always good to see what truth there is even in the wrongest statements. The only way “the more money, the less value each unit” has any validity is if you think of the value of your money not as what you can buy with it – but the fraction of all the things for sale that you can buy with it. That’s like thinking that if somebody & his friends builds a house with his own hands a thousand miles away, you are now poorer, because you own a lesser fraction of all human wealth. Frankly that is a crazy idea, that only the craziest tyrant could have.

              But the commodity theory of money leads to this, leads to the crazy idea that the more money, the less value, always. Which leads to whole economies & societies acting in this demented war of all against all way.

              In the house a thousand miles away example, there was “more money” – more promises, more debts, created because the guy built it with his friends; they divided their labor. Then they’ll build another house & the excess promises of the first house-owner will be redeemed. (Say it’s just two families for simplicity.)

              The MORE promises made (money created) & truly redeemed (carried out, taxed) – the MORE valuable promises/money is in any normal sense of price for goods, of value, rather than the crazy Wall-Street-psycho fraction-of-all-the-toys sense.

              MMT (advanced social technology) + the rest of our still advancing technology = hardest, least inflationary money the world has ever seen. I mean even with degenerating social technology and massive fraud and wasteful resource consumption, the gov & Wall Street haven’t been able to create much inflation.

              • Come on, you guys used to consider money a token. Instead of a picture of Grant on the $50 bill an engraving of a tank of gas or a pair of classy jeans might be more appropriate, even though pictures of those items would have been on a tenner not long ago.

                Ultimately, however, the MMT theories run up against a couple of contrary ideas. First of all, fiat money, and its implementation, require a powerful state apparatus, something that many people abhor. Individuals, members of small, manageable societies, have fought for centuries, and not often successfully, for the freedom to make their own life choices. No individual despot or tyrant has ever had the power to circumscribe this freedom like the nation/state. And, as Montesquieu said, “Since despotism inflicts the most dreadful evils upon human nature, anything that limits despotism is good.” The medium of exchange is too important to be left in the hands of government.

                Second, there is an obsession, not only in the ranks of MMT but also throughout society, with unemployment. In the many centuries of human existence employment as we know it now is a remarkably recent phenomenon. A job, compensation for regular labor, was virtually unknown before the industrial revolution, which is not to say that people did not work or receive benefits from doing so. Nonetheless, we might view employment as perhaps a stage in human relationships, maybe even a kind of experiment, whose result has yet to be determined. As societal change has accelerated there’s no reason to believe that the employer/employee paradigm will endure in its present form for centuries to come. Even non-thinkers wonder what the plebs will do when machines have taken over all but decision-making. We are denigrating human adaptability if we accept that giant, all-encompassing states are needed to maintain an impossible status quo. Humans will come to terms with the future as they always have but will it be as free men or automatons?

              • “First of all, fiat money, and its implementation, require a powerful state apparatus, something that many people abhor.”

                Fiat money is a legal construction, as such it requires an entity to establish and enforce the law, which we call a state or government. Privately-issued money or credit is no different in that it is also requires the establishment of law and its enforcement.

                “Individuals, members of small, manageable societies, have fought for centuries, and not often successfully, for the freedom to make their own life choices.”

                Yes and the US is an example of a country founded on the principle of individual liberty. The US constitution still gives the goverment the right to create and enforce laws, to levy taxes and to create money, as these are fundamental government functions which should be exercised for the benefit of the population.

                “No individual despot or tyrant has ever had the power to circumscribe this freedom like the nation/state.”

                Actually in most modern nation-states citizen’s rights and liberties are enshrined in law and protected, whereas a despot or tyrant offers no such rights or protections to his subjects. You are wrong, yet again.

                “As Montesquieu said, “Since despotism inflicts the most dreadful evils upon human nature, anything that limits despotism is good.”

                No MMTer would disagree with that. However a fiat money system operated by a government which represents and serves its population has nothing to do with despotism whats0ever, so your comment is largely irrelevant.

                “The medium of exchange is too important to be left in the hands of government.”

                You austrians talk about freedom but what you really want is to remove the power to create and regulate money from the elected government and hand it instead to an unelected plutocracy. In fact rule by a plutocracy is precisely what austrians mean when they deceptively refer to “freedom”.

                Your entire project is to attempt to discredit government, so that its place can be taken by an unelected plutocracy and the population can be stripped of their democratic and constitutional rights.

              • “We are denigrating human adaptability if we accept that giant, all-encompassing states are needed to maintain an impossible status quo.

                Warren Mosler is in favour of a smaller government which “sends out bigger checks”. MMT is not about giant all-encompassing states that maintain the status quo, it is about what money is, how it functions, and how it can be used to attain a society’s aims, such as high standards of living.

                “Humans will come to terms with the future as they always have but will it be as free men or automatons?”

                MMT says go for the free men option. Austians say go for the plutocratic slaves option.

              • the US is an example of a country founded on the principle of individual liberty. The US constitution still gives the goverment the right to create and enforce laws, to levy taxes and to create money, as these are fundamental government functions which should be exercised for the benefit of the population.

                Three hundred and twenty million souls are represented by 527 elected officials on a national level, no plutocracy there. No hereditary monarchs either, those Kennedys staggering from one Georgetown soiree to another aren’t really that closely related. Constitution? I don’t remember signing any sort of constitution. I got to sign my name to cash a check or get the senior discount at Goodwill but no signature necessary to be bound by the . . . Constitution? Yeah, it’s a good deal, the elected government, unless you’re a follower of David Koresh or your name’s Elian Gonzalez. And the rule of law in the USof A is generally thought to involve conviction by a jury of your peers before punishment is administered, unless you’re a US citizen that’s run afoul of Uncle Sam in Yemen, then they can send a drone after you.

              • Another demonstration of the rule of law, and there’s lots more.

                http://www.ij.org/massachusetts-civil-forfeiture

              • The political system was pretty crappy back in Weimar Germany too. That’s when people like you started saying that democracy was a sham and what we really needed was a Strong Leader to solve all our problems.

                You’re no different – you just want to sell us out to the highest bidder, strip people of their rights and subject them to the tyrannical rule of your perverse economic philosophy.

              • “The Institute for Justice, a national public interest law firm that fights civil forfeiture abuse nationwide, is now representing the Caswells in defense of their property and their constitutional rights”

                http://www.ij.org/massachusetts-civil-forfeiture

        • It takes a warped mentality to consider such a course of action as “right”. chuck martel

          Steve Keen’s universal bailout (he calls it “A Modern Debt Jubilee”) would give equal amounts to non-debtors too and if the bailout were combined with a ban on further credit creation and metered appropriately, it could be done with little price inflation risk too.

        • Why do I get the impression that MMT acolytes deny the concept of scarcity?
          Because you don’t understand the theory & cling to the falsehood that gold or any other thing could ever have been used as money, could BE money. The idea is as deranged as, is very close to, thinking that a gold wedding ring could BE a marriage. As Geoffrey Ingham says, it is a category mistake. Gold was never, could never have been used as money. It would be a very good idea to learn the history of money – I would be happy to continue at our old thread, after you reply to my last there.

          How does the enpixelation of more dollars produce more disposable diapers or more Shania Twain CDs or more bottles of Rolling Rock?

          Because in our economy, enpixelated dollars, money, or always – some form of credit is logically necessary for any but the simplest production, any production involving the division of labor. Right now, the whole world is in a quasi-depression where dollars, money is scarce & people are being forced not to work, being disemployed because the only ultimate creator of these dollars or zlotys or whatever – governments – are insane.

          If beer thirsty college sophomores want more Rolling Rock than the brewery can supply, the price of the unique libation will go up, at both the retail and wholesale levels. Profits from its sale and production could mean an expansion of capital and employment, financed by either cash flow or debt, until the supply reaches equilibrium with the demand and the quantity of beer brewed matches the quantity of beer guzzled. Slipping an envelope full of twenties under the dorm room doors of these undergrad economics majors might cause a run on the green bottles down at the liquor store but what will be the lasting effect when the charity has been consumed? Will these fiat dollars injected into the hops-flavored loop result in the construction of new aging tanks and bottling lines that will no longer be needed when the money’s been spent and everyone is sitting around with a hangover? Will that artificially induced spending create an overcapacity that must then be remedied by enpixelating even more money to create the demand to make use of the overcapacity? When does the fiat treadmill come to a stop?

          The fiat treadmill never comes to a stop as long as the society & state endures and doesn’t collapse into anarchy. There is nothing but this “artificially induced spending” & there never was anything else. In your example – you have the initial spending “cash flow” & debt, which you seem to think is Austrianly-Good. But where does this cash flow come from? What is “cash”? Cash comes from the government – it is government fiat money – government debt -and private debt ultimately depends on access to this government cash, these enpixellated dollars slipped under the door. You’re making a false distinction, based perhaps on the “Immaculate Conception of Money” theory that all the Real Money was created by God long ago. No, all money comes from someone printing it – fundamentally government printing.

          MMT aficionados would recommend paying off these balances with cheap money as the easiest path to more growth.

          No, MMT afficionados recommend paying off these balances with EXPENSIVE money, intentionally SCARCE money. Money backed by the only real source of value, the only thing that has EVER backed any money – human labor. Money that is gotten from the Job Guarantee above all.

          bailing out debtors while simultaneously destroying the savings of the prudent. It takes a warped mentality to consider such a course of action as “right”. The error is in your idea that governments creating money to pay for REAL THINGS, for REAL WORK is “destroying the savings of the prudent”. It is not. Savers are NOT punished by governments creating more money out of nowhere to strengthen the economy in times of high unemployment. Their money will NOT become less valuable, will NOT have its value “diluted”. The idea is absurd. If governments didn’t do this, the savers would have no savings to save! A debtor on a JG would be working off his debt.

          The warping is all due to the category mistake in the completely false theory of money you are familiar with. Money is not a thing, but a relationship. Money is more like an order in an army; a decision of a person. Should a general stop issuing orders because one division carried out his orders quicker than he thought? Should he make the second division starve because they didn’t do the work he thought it would have to do, but the first division managed to do alone? That’s what happens when there is saving, technological improvement, etc. Like it or not, money has always been like that.

          • Money backed by the only real source of value, the only thing that has EVER backed any money – human labor.

            Human labor has no relationship with value or money. The labor theory of value is one of the most obvious of fallacies, as Walter Huston prattles in this classic clip: http://www.youtube.com/watch?v=EQyqvFVe4Y4

            I can take old Paul Samuelson economics texts and spend maybe an hour and a half each making them into book safes, cutting out the worthless pages of dis-information and leaving a more valuable void where coins, jewelry or even fiat money can be hidden. But if nobody wants to buy them they have no value, regardless of much labor is involved in their production.

            • But if nobody wants to buy them they have no value, regardless of much labor is involved in their production. Chuck Martel

              I agree. Fiat is backed by force, pure and simple – it is the only means to extinguish the tax liabilities of the population.

              • “I agree. Fiat is backed by force, pure and simple – it is the only means to extinguish the tax liabilities of the population.”

                Wrong. People want to accumulate and save money beyond that needed to pay tax. Therefore fiat is as much backed by people’s desire to accumulate it as it is by their need to pay tax.

                Taxation is not ‘force’. It is law. Laws sometimes need to be enforced. But it is a category error to conflate law with force.

            • Chuck, all I was saying, perhaps too boldly and loosely, was that almost everything anyone values, everything you buy is produced by human labor. Of course one can labor without purpose or even destructively. You can also burn diamonds in a fireplace. That doesn’t mean they are worthless. I was not trying to disagree with the tax backing of modern money. Just to say that the state’s money won’t have much use if there is nothing anyone can do to get it. If the state demands unicorn horns as taxes, it won’t get any, not because people won’t work at looking for them, but because there aren’t any. Any real world monetary system is going to have, has always had, people working to get money at one end, and being taxed, redeeming the money-liabilities-of-the monetary authority for something, on the other. The higher the technological level, though, the less it is going to be able to run itself without some Keynesian monetary analysis & practice. (As always, I speak grosso modo.) See MMP Blog 50: MMT Without the JG? Conclusion for the points I was trying to convey – e.g. “In the MMT view, taxes create a demand for the currency, but currency’s value is determined by what you’ve got to do to get it.”

              That “Human labor has no relationship with value or money” is absurd. Jobs are people exchanging labor for money in return for producing value. Labor doesn’t grow on trees. Jobs don’t grow on trees. The state cannot buy an infinite amount of it. It is scarce. MMT does not say to create an infinite amount of money, to make it non-scarce, but just enough to employ everybody who wants to be employed, as a minimal condition.There is not the slightest reason to believe that any monetary system, confronted with the real world, will NOT cause involuntary mass unemployment, until and unless the government, the monetary authority decides to eradicate unemployment. When states have made even half-hearted efforts to eradicate the unemployment they themselves create, one gets an economic golden age, like the postwar era.

              But the main point is that money is and always was “enpixelated”. It never was a scarce and valued good arising from market exchange. Again the sequence was the state, then money, them markets. Old Kingdom Egypt was a case where there was a state & its money – but no markets. See UMKC Prof John Henry’s contribution in the Mitchell-Innes volume.

              Finally, picking 1933 is interesting. That was after a period of very serious deflation – but which had also been accompanied by Hoover’s deficits, which however were neither big or good enough. So not only is it a bit unfair, exaggerating the subsequent inflation, but the immediately preceding period shows that money creation through deficits can be consistent with not only stable prices, but falling ones. The idea that creating money, like any bank does, like governments do, like “free exchange of commodities in the market” has NEVER done, robs savers of their saving is just plain wrong. What matters is how the newly created money is spent, what it is used for, “what you’ve got to do to get it”.

              MMT & Keynes say create money – up to the point of “destroying the savings of the prudent” and no more. Keynes never abandoned his opposition to debauching currencies. People often forget that the Great Depression was followed by the War, which presented the exact opposite problems, how to control inflation, how to ensure that the massive profits didn’t land in the pockets of war profiteers. Institutional and Keynesian economics, the MMT of that day, passed this test with flying colors too. Was just looking at the account of this in Dudley Dillard’s great old book. And Wray’s last MMP blog is a must-read.

              • While labor is a component of the production of many goods, it doesn’t determine the value, in any way, of those goods. The value of a good is determined solely by what some party is willing to exchange for it. In fact, until an exchange has been made it’s impossible to assign a value to a good. Nobody knows what something is worth until someone offers a medium of exchange for it.

                The labor necessary for the production of a good has value only as it’s reflected in the price of the good. An example of ignoring this phenomenon is the wages of public employees. Since the state is a monopoly, there is no private alternative to the “services” it provides. It’s the only vendor of driver licenses and automobile plates, for instance. Politicians and union leaders agree to wages and benefits for public employees that are unrelated to a market. The lady that takes your money and hands you the plates for your new Subaru doesn’t have to bid for her job, her compensation isn’t determined by value provided but by the influence her union has on the political structure.

              • Let’s say my Picnic Table Company makes a picnic table that takes two hours for one of my guys to hammer together and he gets paid $10/hr. to build the table. I sell it at a profit but maybe the customer that bought it wants to move to Beckley, WV and hasn’t got room for it on his U-Haul. He sells the thing for $15? How is this possible? Doesn’t the table have an intrinsic value of at leasts $20 for the labor involved in its construction? Of course not. It’s worth what someone wants to pay for it. The labor required, and its cost, aren’t part of the equation.

              • Chuck:While labor is a component of the production of many goods, it doesn’t determine the value, in any way, of those goods. The value of a good is determined solely by what some party is willing to exchange for it. In fact, until an exchange has been made it’s impossible to assign a value to a good.

                Which is actually, sort of what I was saying, replacing “value” with price. But who is this “some party”? The real “some party” is the government, which gives its money in return for labor of government employees or whatever anybody who gets money from the government has to do to get the government’s scarce debt, its money. The labor of gold mine-owners & their employees used to be, still is ridiculously rewarded by governments that exchanged their intrinsically valuable “fiat” money for a comparatively worthless commodity, gold, and thereby drove its price & desirability up astronomically. Gold is & always was a currency-backed commodity, not the reverse. The value of the government’s money, which it later demands in taxes or fees or prices is determined by how hard you have to work to get the money from the government, which is the ultimate source of all money / (base) money. Perhaps because of the way I phrased things, you think I am saying something I am not, think I’m trying to talk about the intrinsic value of goods, maybe the labor theory of value. Like Wray in the MMP blog #50, that is not what I am getting into. I’m saying something much simpler – the government pays people with dollars for stuff. That’s the only real, fundamental way to get dollars. Uncle Sam is THE Source. And he usually doesn’t hand dollars out for nothing.

                The labor necessary for the production of a good has value only as it’s reflected in the price of the good. An example of ignoring this phenomenon is the wages of public employees….Politicians and union leaders agree to wages and benefits for public employees that are unrelated to a market. No, the prices the government pays, the labor, very generally speaking, required to get the money that only the government can create, is what CREATES the market. This laborious acquisition of the government’s scarce money is the real taxation. “The Market” IS a government intervention. Wages of public employees aren’t ignoring this phenomenon, they’re (a major part of) CREATING the phenomenon. They are one side of the mechanism that creates the whole structure of prices, the market: What you gotta do (which you might not like) to get money. The other side is taxation- what you gotta pay for the government to let you do something (which you do like). (Like not live in a jail, like have title to property which is enforceable by the government.)

                Nobody knows what something is worth until someone offers a medium of exchange for it. See the above – the basic “someone” is and always was Uncle Sam. There is no such thing as “medium of exchange” and never was. Prices are in terms of money, which is a relationship, not a commodity, not a thing, an object, which is a “medium of exchange”. That’s the core, the whole point. (Yeah, sure, money can be considered a “medium of exchange”, but starting thinking in those terms gets everything wrong – see Mitchell Innes.)

              • Why don’t you just haul down that ensign with the dollar sign on it from the mast of your ship and replace it with the hammer and sickle? All this talk about the state being the well-spring of money, the mother of the medium of exchange, the father of fiduciary abundance is simply a smoke-screen obscuring the real goal, central planning and a command economy. If the government can mandate the cost of labor and resources and manipulate the economy for whatever end it has in mind, the citizens are little more than termites or ants. It’s fascism in high heels and fishnet stockings. Not everyone is happy with such a state of affairs. Why should they have to conform to it?

              • obscuring the real goal, central planning and a command economy. If money exists, somebody has to create it. That somebody therefore is the central planner, the command economy dictator. The government, perhaps in all but name. It’s not the goal, but a description of reality for the last few millennia. Chuck, then what you are complaining about is a monetary economy. You don’t think money should exist. All money at all times has been “fiat” money. There has never been any other kind of money.

                Nobody here worships the state. But making up fairy tales about where money comes from and what it is – is not anti-statism. Whether knowingly or not, it is serving corrupt and tyrannical states – to deny that they have powers that they actually do have and have always exercised. If everyone believes commodity-money “medium of exchange” fables, then ones who know they are nonsense will be able to corrupt the money-creator, the state into serving them, and that is our world now.

                • Calgacus
                  Good luck with your defense against ‘commodity’ money ideas, being empirically arguable.
                  However, your conflation of ‘media-of-exchange’ money with commodity money is off the mark if the objective is a well-informed readership.
                  Please be aware of the three schools of thought being engaged in today’s discussion of the modern monetary economy.
                  One of those is the essentially conservative and libertarian view of money as a commodity that should be un-regulated and un-controlled, functioning in free-markets.
                  The other two, of Soddy and of MMT, are both fiat-based money systems.
                  The MMT fiat money system is primarily a unit-of-account money system, debt-based and, at its core, private in its operations, with some governmental throughput using vertical, non-money ‘reserves’.
                  The Soddy-based modern monetary system is also fiat in nature, it is a medium-of-exchange based system, with all money created and issued debt-free, governmental in its operation with zero private involvement
                  Private sector activities are in banking, finance and commerce, where they belong.
                  Anyone who is interested in this discussion, but who is not aware of the type of money system advocated by Soddy, should have a quick read of the Nobelist’s(Chemistry) explanation of his means-of-exchange monetarism in “The Role of Money”, available here.
                  http://ia700306.us.archive.org/15/items/roleofmoney032861mbp/roleofmoney032861mbp.pdf

                  This is not Friedman’s interest-rate-monetarism.
                  It is governmental-control of the legal money powers available to the modern monetary sovereign, those of creation, issuance and regulation.
                  Thanks.

              • “Why don’t you just haul down that ensign with the dollar sign on it from the mast of your ship and replace it with the hammer and sickle?”

                You are apparently incapable of differentiating between things. It is a form of cognitive deficiency which I have often noticed among amateur austrian school types.

                “All this talk about the state being the well-spring of money, the mother of the medium of exchange, the father of fiduciary abundance is simply a smoke-screen obscuring the real goal, central planning and a command economy.”

                If you bothered to read any MMT texts instead of just comment threads you’d realise that your assertions have no foundation. The US constitution gives the government the power to make and enforce laws, to levy taxes and create money. Does this mean the constitution is a central-planning command economy manifesto? No. You have to stop resorting to such ridiculous caricatures and start sticking to the facts.

                “If the government can mandate the cost of labor and resources and manipulate the economy for whatever end it has in mind, the citizens are little more than termites or ants.”

                Nonsense.

                “It’s fascism in high heels and fishnet stockings.”

                Of course it isn’t. Stop writing nonsense and start presenting arguments based on facts rather than your strange and erroneous obsessions.

                “Not everyone is happy with such a state of affairs. Why should they have to conform to it?”

                I have no desire to live in the nightmare austrian world of rule by plutocracy. Until you can convince enough people to join your quest to destroy people’s democratic and constitutional rights you will have to abide by the law as it stands.

            • People want to accumulate and save money beyond that needed to pay tax. Therefore fiat is as much backed by people’s desire to accumulate it as it is by their need to pay tax. y

              Well, the government effectivily favors fiat for the payment of private debts too by, for instance, the capital gains tax on potential private money alternatives but none on fiat. Indeed, the capital gains is measured in fiat.

              • Taxation is law, as I said. That doesn’t change the fact that people want to accumulate fiat money, and this desire gives it value beyond that which it has simply as a result of being used to pay taxes.

        • “inflate away farm indebtedness with ever cheaper money, paying off the unbacked loans of banks and bailing out debtors while simultaneously destroying the savings of the prudent”

          Chuck Martel, you have to stop asserting things which are patently false and without foundation. The policy ideas put forward by MMTers are not about destroying people’s savings or ‘inflating away’ all debts.

          Please stop mindlessly regurgitating fallacious austrian nonsense.

    • “Why do I get the impression that MMT acolytes deny the concept of scarcity?”

      Because you don’t understand any of it. You can run out of real stuff, you can’t run out of numbers.

      “Will that artificially induced spending create an overcapacity that must then be remedied by enpixelating even more money to create the demand to make use of the overcapacity?”

      It’s not about artificially stimulating spending, it’s about providing an adequate supply of money so the economy can achieve full employment, without unsustainable levels of private debt. People can decide what to do with their own money. As an economy grows it needs more money. Your ideal of permanent deflation is nonsense.

  26. I have to agree with Charles Fasola. Paul, do you really think you understand what’s going on here? Because your comments tell me that you do not understand it at all.

  27. Stephanie,

    You can see from the comments to your post, that the ignorant still are in charge. They still fight against the notion that federal spending is necessary to grow the economy. Is it any wonder that the 1% sneers at the incurable ignorance of the 99%?

    GDP = Federal Spending + Non-federal Spending – Net Imports. That is how GDP is computed. So, not only does Federal Spending increase GDP, but tax reductions increase Non-federal spending. So deficit spending absolutely, positively is necessary for GDP growth (unless Net Exports is positive). Simple algebra.

    Is that so hard? Apparently it is for the great, unwashed majority. If Romney is elected, these poor dopes will get exactly what they deserve, though between you and me, Obama is only slightly better.

    Rodger Malcolm Mitchell

    • Yes, you are right. But I find it hard to believe the right wing, money men and bankers, do not understand the equation and how money works. But they are quite happy to let the rest of us scurry about cutting spending so they can keep more in taxes and/or privatize more property. Why should they care if we have SS or medicare or any health care? Leaves more for them. I do think Obama is lost in the weeds on this with little hope of recovering unless someone goes to the WH and explains it to him. And the public, yes they are ignorant.

  28. “I have to agree with Charles Fasola. Paul, do you really think you understand what’s going on here? Because your comments tell me that you do not understand it at all.”– Harold

    I have no problem with honest criticism, but at least take the effort to make a point. Be specific about what you think I don’t understand.

  29. F. Beard wrote:
    The monetary sovereign has to provide new money so debtors can pay their debts. Otherwise, they are caught in an impossible situation.

    This sounds very childish to me. It makes the debt-ridden adults look like little foolish kids, who can be bailed out only by the federal government father-figure. Otherwise, we are helpless, doomed pawns in a system which is skewed only for the elites.
    And, why not utilize the federal government’s sovereignty to bail out the hapless, helpless debtors?
    This sovereignty makes their financial power unlimited.
    How frustrating it is to know that dollars will bail us out, they are available in infinite amounts, yet we refuse to tap this generous source?
    Why limit the benefits of this power only for the one percent?
    Don Levit

    • This sounds very childish to me. Don Levit

      It’s actually very sinister. The system requires accelerating debt otherwise at least some defaults are gauranteed UNLESS the monetary sovereign runs a sufficent deficit to provide the needed money.

      Personal responsibility has nothing to do with it; it is a rigged game. Those who don’t borrow are priced out of the market by those who do borrow and those who do borrow run the risk of being caught when the boom ends.

  30. The counter-narrative exists. The problem is one of publication. One can’t light a fire when all the O2 has been sucked out of the system by the corporatist propaganda machine.

    The success of Austerianism and the very likely repeal, in material part, of America’s social welfare programs, will be a low point in our history, already replete with low points. We will have regressed to our mean: a very small sector of uber-rich, a few of their well-off enablers, abettors and flunkies, and the rest of us –the vast majority of Americans, struggling at subsistence levels. Reagan’s Shining City on the Hill will have been realized. You and I are not invited.

  31. Chuck Martel wrote: “Why do I get the impression that MMT acolytes deny the concept of scarcity?”

    I’m gonna guess it’s because you have very limited reading comprehension skills.

    Next question.

  32. Benedict@Large

    In case anyone is interested, here’s the list of groups that take Peterson money. There are some surprizes.
    http://pgpf.org/PGPF/Home/Issues/Grants/2010/12/16/Peter-G-Peterson-Foundation-Grants.aspx

  33. Pingback: Pete Peterson Has Won « Bill Totten's Weblog

  34. On the one hand we have the MMTers correctly pointing to the potential of a modern monetary economy based on the sovereignty that the former Colonists fought to achieve – that of freedom to control and issue our fiat currency.
    On the other hand, we have the MMTers all lining up against the most revolutionary piece of legislation to come down the pike since that time – Congressman Dennis Kucinich’s HR 2990, which actually SOLVES for all the fiscal fear mongering of the Peterson, etc. crowd.
    http://kucinich.house.gov/uploadedfiles/need_act_final_112th.pdf
    And yet we wonder, aloud, why is it that progressives don’t get the “money” thing?
    It’s more than ironic.

  35. I don’t get it. Every year my 1040 instructions shows part of my tax goes towards the debt interest. Isn’t that a “cost”?

    • There are two ways dollars are created and two ways dollars are destroyed.

      Banks create dollars when they lend.
      Dollars are destroyed when the loans are paid off.

      The U.S. government creates dollars when it spends.
      The dollars are destroyed when it collects taxes.

      Federal tax dollars do not pay for anything. They are destroyed upon receipt. That is one of the two ways dollars are destroyed.

      • RMM
        “”Federal tax dollars do not pay for anything. They are destroyed upon receipt.””

        OK. Once more.
        Anybody ever seen this happen?
        Anybody know anybody who has sen this happen?
        Anybody actually know that it happens, from experience?
        Or is this stylized government-finance that attempts to prove the fiat nature of money?
        My IRS person denies it is true.
        But maybe he doesn’t know.
        Who says it is true?
        Anything from the Commissioner on this – or some IRS-lifer?

        Do ANY of the MMT readers/proponents pay their taxes with cash and watch the shredders run?
        Is there ANY proof ANYWHERE that this is what happens – and that everyone is either ignorant or lying about the need for funding from somewhere to pay the government’s Bills?
        Lacking evidence, the claim does not pass the straight-face test, no matter how many times Warren says it.
        Please.

        For the Money System Common

        • “”Federal tax dollars do not pay for anything. They are destroyed upon receipt.””
          OK. Once more.
          Anybody ever seen this happen?

          Yes, I have, as I think I may have earlier replied. In a funny picture I’ve seen here or at some other MMT blog & I think at wikipedia too. Must be from 1920 at the latest, showing men & women in very long dresses working at some government bureau putting notes into an even older looking small stove.

          Sorry for not replying to you earlier there, I’ll reply at my very desultory blog eventually.

          • Calgacus
            Thanks.
            I’ve seen several cartoons of people throwing money into a stoves or fireplaces (or even a grill) in order to stay warm, or to make a statement about the value of money.
            I’ve seen a photo of Weimar money being burned.
            I’ve never seen a photograph that states that US currency (not Confederate) is being burned in a stove.
            I take your comment to say that either you have paid your taxes with cash-currency at your local tax office and watched them shred the money, or have seen someone else do the same acts. Is that correct?
            Which is it?
            In either case, can you tell me which local IRS office received and shredded the cash money, and for what year that happened?

            While RMM’s statement did not mention this action – it all stems from Warren’s extrapolation of the ‘fact’ that if you pay taxes with cash at the local office (it cannot be mailed) this actually happens.
            “and SO, government does not use tax money to pay expenses.”
            These statements are stylized truths.

            By the way, it does not confirm anything about what actually happens with tax money.
            Both Warren and Randy have confirmed that the government MUST have tax or debt-proceed balances in its TGA account in order to pay its Bills.
            Today.
            Right now.
            You can call Treasury right now and ask them – if the lines are working.
            Treasury MUST have a credit balance that it debits to make a payment.
            Thanks.

        • Simple arithmetic, Joe.

          In the past 12 months, the federal government has spent about $3.7 trillion (http://www.gpo.gov/fdsys/search/pagedetails.action?granuleId=&packageId=BUDGET-2011-TAB&fromBrowse=true)

          But the federal debt rose only $1.2 trillion (http://research.stlouisfed.org/fredgraph.png?g=cfK)

          What happened to the other $2.5 trillion? Answer: Destroyed as taxes.

          Rodger Malcolm Mitchell

          • Rodger, thanks.
            I want to do the math on this but I don’t understand the question.
            Are all the figures here?
            IF the Treasury spent $3.7 Trillion and issued $1.2 Trillion in new debt, then it seems like the balance of $2.5 Trillion was collected from taxpayers – in order to make the balance of the payments.

            Is this a trick question?
            “What happened to the other $2.5 trillion?”
            Like I said, it was used to pay government Bills.

            Is this a trick answer?
            “destroyed as taxes.”
            Using tax monies to pay bills destroys nothing.

            By my simple logic – the Treasury collected from existing account balances the $2.5 Trillion and paid its expenses of the same amount back into the economy.
            Thus, for clarification, the government is NOT the monopoly ISSUER of the national currency. Private banks are the monopoly issuers of the currency.
            The government is – like you and I – a USER of the currency,
            That should be obvious from these simple observations.

            And, finally, to be clear, the government SHOULD BE the monopoly creator, issuer and regulator of the national currency – because THAT is what national monetary sovereignty is ALL about – but NOTHING in MMT proposes a change to that solution.
            Thanks.

            • Sorry Joe,

              Your beliefs about how money is created and destroyed not only are cemented in your brain, but are so totally askew, I couldn’t possibly present facts you would accept. The notion that the federal government doesn’t create dollars is beyond the pale.

              • Rodger,
                The government – Bureau of Engraving and Printing(BEP) – “creates” both coins and currency.
                The BEP “issues” the coins into circulation with full benefits to the public.
                Hooray for the good guys.
                The people get the spare change.
                The BEP sells the currency to the Regional Federal Reserve banks(private) at the cost of printing.
                Boo for the bad guys.
                That’s the whole ‘currency’ transaction between government and the private bankers.
                We get our printing costs back.

                The Federal Reserve banks (private) provide the currency to their Member banks as needed by and at the request of the Member banks, and the private FRB “collateralize” the transaction.
                It is THUS that currency becomes both debt-based and a part of the money supply(currency in circulation).
                It is thus that currency is “issued”.
                Any problems thus far, Rodger?
                Beyond that, when talking ‘money’ and the ‘money-supply’ that is used in all commerce to exchanges goods and services in the national economy – the GOVERNMENT DOES NOT CREATE ANY MONEY.
                An open invitation exists here to prove me wrong.
                Thanks.

            • I think I agree with the MMT position that government spending and taxation are not directly linked and its better to think of it as creation and destruction of money. I also think that the FED subsidy acts like a sunk cost rather than as a proportional expense. The reason I want to end the Fed has to do with the fact that people cannot understand it. That makes it more likely to be used against the public interest. Though you have more of a point with respect to the operation of the banks. They do create money and “reserves” hardly matter at all. They create as much as they please without any feedback to market conditions represented in “reserves”.

              • James,

                “I think I agree with the MMT position that government spending and taxation are not directly linked and its better to think of it as creation and destruction of money.”
                That’s totally fine.
                We can all think of things as we like.
                Perhaps you can explain it to me.
                And to the government.
                And to the taxpayers.
                Because the taxpayers are told they pay taxes to fund spending by the government.(NOW).
                And the government tells us that it needs tax monies in order to spend(NOW).
                Both the government and the taxpayers can cite the laws under which they act.

                And, please always understand… I do not oppose the government creating money when it spends. THAT is what I want. But right NOW we can’t do it.

                The MMT parable only works for me with the prologue – “If things were not the way they ARE now…”
                Rather MMT claim that the existence of fiat money makes real all of the potential of fiat monies.
                It does not.
                We NEED laws to make the potential of our fiat money into our reality.
                Thanks.

      • Just a thought, since debit, debt/ credit, asset are so easily conflated and confused, might there be another approach taken that avoids confusing the perpetually ignorant? Mightn’t “banks create credit dollars on the strength of enforceable contract” avoid much conflation of terms? That a contract also covers the income derived from servicing (interest income and risk) the loan of the stated value over a stated period, thereby avoiding the assumed robbery aspects attributed to banks, would it not? And once the contract is completed, it ceases to exist, leaving a growth residue of interest income on one side and some fulfilled economic need, want or desire on the other.

        • T-Bear,
          I don’t know what will work. For 15 years, I’ve tried to explain that federal “debt” is nothing more than the total dollars deposited in T-security accounts at the Federal Reserve Bank, and is not owed by citizens of the U.S. I’ve tried to explain that U.S. citizens do not “owe” those bank deposits, which is why so-called “debt-clocks” are phony scare tactics of the 1%..

          I’ve tried to explain that “paying off” this debt merely involves a debit to those accounts and a credit to checking accounts — requiring no additional dollars — and is not a burden on the federal government. I’ve tried to explain why a Monetarily Sovereign government has the unlimited ability to credit bank accounts (that’s what “Sovereign” means), so never can run short of dollars — and for that reason has no reason to ask anyone to give it or lend it dollars (no need for taxes or so-called “borrowing.”)

          I’ve provided data showing, that despite scare statements that federal money creation will cause hyperinflation, in fact, since we became Monetarily Sovereign in 1971, there has been zero relationship between federal deficit spending (which is the way the government creates dollars) and inflation.

          You might think people would be delighted to learn the facts that the U.S. government cannot be “broke” as John Boehmer famously lied, and that our children and grandchildren do not owe the “debt,” and that taxes could be reduced, and the government could provide free Medicare for everyone, and Social Security benefits could be more generous.

          Instead, people would rather believe the lies of the 1%, as as their evidence they provide such “scientific” claims as, “There’s no such thing as a free lunch” and “If it sounds too good to be true, it probably is.”

          I’ll admit to growing weary of explaining how federal “debt,” which is nothing like personal debt, and in fact could (and should) be eliminated tomorrow.

          But I grow most weary of the continual abuse from those who don’t understand economics, but still are absolutely positive their intuition is better than facts.

          Perhaps you can do better. I hope so.

          • Assuming that what you’re saying is true, why would the “1%” wish to perpetuate this misconception? Is it to their advantage financially that people do not understand the reality of fiat money? If the approach that you recommend were implemented wouldn’t it be to everyone’s advantage, even the “1%”? Or do they simply wish for everyone but themselves to be miserable? Or do they, too, misunderstand how fiat currency works?

            Did the geniuses that designed this system have MMT in mind from the beginning but also have the intention of keeping its details secret from the hoi polloi or is MMT a natural outgrowth of fiat money that has yet to be recognized as such by all but the blessed?

            • Chuck, good question, which I discuss in greater length on my blog.

              People are not concerned with absolute dollars, but rather with relative dollars. If you had a million dollars would you feel rich? Answer: Yes, if everyone else had a thousand dollars. No, if everyone else had two million dollars.

              The 1% is concerned about the income gap. The vast majority of deficit spending benefits the 99%, so cuts in deficit spending increase the gap. FICA increases the gap, because it is a bigger part of the 99%’s income. Interestingly, though the right wing has vowed not to increase taxes, it does wish to increase FICA to previous levels. Visualize why.

              Cuts in Social Security and Medicare, which the right wing favors, widen the gap.

              Sport fans see disgusting examples of “gap-concern” when an illiterate athlete, who otherwise would be sweeping streets, but instead makes $2 million per year, is angry because some other illiterate athlete makes $10 million per year. The $2 million is more than he ever dreamed he’d (or deserves to) make, but he is angry about the gap.

              The next time the right wing (to a lesser extent, the left wing) makes a financial demand, ask yourself: “Will this increase the income gap?” You will see a pattern emerge.

              The phony ideas that federal spending and federal deficits must be reduced, and Social Security and Medicare must be “fixed,” all are attempts to increase the gap.

              Now you understand why the 1% continues to brainwash the 99% about federal budgets, and sadly, the 99% go along with the myths.

              • I haven’t had a television for 30 years so maybe I’m missing out on some information but as it stands now, I wouldn’t even know if there was such a thing as a millionaire. I don’t have any kind of first-hand knowledge of the wealth of anybody, except a few people that live in my neighborhood and that would only be impressions based on appearances. I’m not privy to their bank accounts or tax returns or credit ratings. So, as far as I’m concerned, all this talk of the 1% is the stuff of legend, like the sasquash or aliens from outer space. There are some things that I see with my own eyes, like cops tooling around in new cars with license plate recorder cameras on them, traffic jams on the freeway, big airplanes taking off and landing, and so on. But I really couldn’t prove to you or anyone else that billionaires actually exist.

                • Chuck, so you read no newspapers nor magazines, don’t listen to news on the radio, never discuss the world with your friends, and know nothing of the 1%, the 99% or any other %?

                  But knowing so little of the world, you submit comments to this economics blog?

                  Welcome to the majority.

              • Know-nothing. The typical austrian cop out.

              • Is there some kind of a relationship between the print and electronic media and reality? If someone reads, for instance, both The New Yorker and The Weekly Standard, which one’s he gonna believe? As the sadly departed Michael Crichton explains:

                Briefly stated, the Gell-Mann Amnesia effect works as follows. You open the newspaper to an article on some subject you know well. In Murray’s case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward-reversing cause and effect. I call these the “wet streets cause rain” stories. Paper’s full of them.

                In any case, you read with exasperation or amusement the multiple errors in a story-and then turn the page to national or international affairs, and read with renewed interest as if the rest of the newspaper was somehow more accurate about far-off Palestine than it was about the story you just read. You turn the page, and forget what you know.

                That is the Gell-Mann Amnesia effect. I’d point out it does not operate in other arenas of life. In ordinary life, if somebody consistently exaggerates or lies to you, you soon discount everything they say. In court, there is the legal doctrine of falsus in uno, falsus in omnibus, which means untruthful in one part, untruthful in all.

                But when it comes to the media, we believe against evidence that it is probably worth our time to read other parts of the paper. When, in fact, it almost certainly isn’t. The only possible explanation for our behavior is amnesia.

                Television and radio are even worse.

                • Chuck, that is an interesting concept — knowing certain parts of the newspaper are total BS, but the believing other parts of the newspaper. That’s why the ignorance is so easy to spread. But it begs the question about why the ignorance is being spread.

                  I’ll quote from my own blog:

                  There always is a motivation for the widespread promulgation of ignorance. The priests feared that understanding the truth about the movements of the sun and planets, would undermine their power over the people. The doctors attacked Semmelweis, because they feared the people would see how fatally inept they had been.

                  The myths about federal “debt” are promulgated by the 1%, because austerity (the “cure” for federal debt), widens the gap between the rich and the rest.

                  This is not ignorance on the part of our leaders. It is logically unimaginable that the President of the United States, his advisors, the entire Congress of the United States and the thousands of people working in media all are ignorant of the difference between Monetary Sovereignty and monetary non-sovereignty, and the fact that the U.S. became Monetarily Sovereign on August 15, 1971.

                  The only conclusion making any sense at all, is that these people are lying because they are motivated to lie. They believe it is to their benefit to keep the “peasants” in ignorance.

                  And since it is the 1% who benefit most from the Big Lie, and who seem to be the ones pushing it hardest, they must be the ones intentionally responsible. No other conclusion is possible.

                  Rodger Malcolm Mitchell

              • So the basis of all this “income gap” stuff is supposed knowledge, albeit not very detailed, that some folks, somewhere have a lot more money than some others? Wouldn’t that be a case of collective envy, just as pernicious, and in fact, sinful, as the “greed” that’s being lamented and condemned so vigorously nowadays? Let’s not even get into lust and wrath. But why not mention sloth, maybe an excess of sloth is making that income gap even more significant than it might be? Sloth might even pair up with envy on a late night over a few beers. Yes, there are seven deadly sins, not just one.

                Anyway, I really don’t understand how somebody being rich, somebody that I don’t even really know exists, makes me poor. Especially when I seldom miss a meal, have clothes to wear, and enjoy internet access, all of which were produced by somebody that made money doing it. Good for them.

                • @ChuckMartel,
                  “” Anyway, I really don’t understand how somebody being rich, somebody that I don’t even really know exists, makes me poor.””
                  Actually, Chuck, it’s not about ‘somebody’ and it’s not about you, and Rodger really doesn’t have a clue.
                  Wealth transfers are all about the debt-based system of money.
                  Anytime there is an issuance of debt, there is another transfer of wealth from the payer to the issuer.
                  That’s how debt works.
                  All of our money is issued as a debt by the private wealth-siphoning aristocrats.
                  But MMT has no problem with issuing more debt, especially the government.
                  They have a funny way of translating these massive upward-wealth-transfers into a kind of family-oriented game of monopoly.
                  “We owe it to ourselves! Let’s play some more”.
                  You gotta love it.
                  If you’re really interested in the fact that it works as a wealth transfer and how it works, then please have a listen to Prof. Bernd Senf, Pr. Emer. at the Berlin School of Economics on The Deeper Roots of the World Financial Crisis – here.
                  http://blip.tv/file/4111596

                  For the Money System Common
                  It’s not about central planning of the economy.
                  It’s about central planning of the money system.
                  Because it belongs to the people.

                • Chuck, perhaps money doesn’t motivate you, so you don’t feel “poor” when standing next to someone who is rich. Understood.

                  But the 1% do not feel that way. Money motivates them, which is how they obtained and keep it. For them, the greatest motivation is the gap between them and you.

              • “So the basis of all this “income gap” stuff is supposed knowledge, albeit not very detailed, that some folks, somewhere have a lot more money than some others? Wouldn’t that be a case of collective envy”

                No. Wrong again.

                “why not mention sloth, maybe an excess of sloth is making that income gap even more significant than it might be? Sloth might even pair up with envy on a late night over a few beers.”

                You’re like a cardboard cut out figure. Quite funny really.

            • “Assuming that what you’re saying is true, why would the “1%” wish to perpetuate this misconception?”

              The 64,000$ question as far as I’m concerned. I attribute it to this.

              Most of the 1% wish to be in control. They think they own the world (and they do by our current rules of the game) and the idea that people would understand that we dont need THEIR money, THEIR ideas, THEIR control is rather frightening to them I think. People who understand that we cant run out of money, that a populace working together can accomplish about anything, threaten the feifdoms of the 1%.

              They dont want the debt paid down, they want to create a crisis where interest on govt debt goes up! They want a greater risk free return on their bonds and only by causing havoc and muddying the waters can they begin to try and persuade the govt to raise rates. The raising of rates would validate all the scare tactics they’ve been using. If we reach a stagflation scenario like the 70s, a new Volcker moment will be the cry from the CNBCs and Bloombergs. Raising the interest on Treasuries gives these guys free income and make borrowing for the rest of us very expensive. Banks will own bonds too so they wont make as much on loans but their bonds will pay double digits.
              They arent stupid, just incredibly short sighted and greedy.

          • For “Federal ‘debt’” substitute the words “Federal money supply” which is what happens when the Treasury places a bond in the Federal Reserve which releases a like supply of money into the economy (or other directed end, e.g. TARP, etc.). It may be that avoiding using the mechanics of process (debit), one can break the association with extraneous concepts (debt) mythologically held. The language of economics needs to be reclaimed from the economic flatlanders, reconstituted so that words have a direct meaning, and rebuild the study of economics from the ground up, starting econ 101, this time avoiding all Laughter (sic) curves.
            I can appreciate your weariness with the dim witted and the intentionally ignorant, doG must have loved their kind, she made so many of them. Reading is a genetically recent skill, comprehending even more recent, would offer FBeard as example, but that is shooting fish in a barrel.

  36. Michael Kumhof and Jaromir Benes, in ‘The Chicago Plan Revisited’, argue that adopting the ‘Chicago Plan’ would eliminate government (net) debt, as well as greatly reducing private sector debt.

    So maybe MMT should get behind some form of this plan?

    Because what will always hurt MMT is that big, expanding government debt figure. No matter what you tell people, or how good your argument is, the majority will probably still look at that debt clock in fear and think that MMT must be mistaken. Because ‘debt’ is scary to most people. The fear is deeply imbedded in their bones. And you can’t just say that it isn’t really ‘debt’, because it is ‘debt’.

    Making the sovereign look like the country’s largest debtor was probably the greatest trick ever pulled by the private money cartel. It is the supreme example of language manipulation to benefit a small wealthy elite.

    And it’s not just linguistics either. Whilst the bankers paint the sovereign as an irresponsible and untrustworthy spendthrift, they are busy printing up the nation’s money supply, for profit, and consolidating their position behind the throne.

    Soon they’ll literally be sitting on the throne if something isn’t done to expose their scam.

    Rebalancing the debt scales by making the financiers pay for the money they currently create would probably be the best way of turning the tide against their otherwise endless march on power.

    If not, MMT will probably always lose the language game.

    • Or, we could use the platinum coin solution. By law, the Treasury is allowed to create a platinum coin (for some reason it must be platinum) in any denomination, and deposit it in the Federal Reserve Bank. So, if the Treasury created a $20 trillion coin, and deposited it, not only would the phony debt disappear, but we would have a nice, big equally phony surplus.

      The debt-hawks (especially the 1%) would scream that’s “cheating,” but cheating on what? Phony debt figures?

      Rodger Malcolm Mitchell

    • I agree that the “debt free” money option probably need be taken. The current system is too counter intuitive. The principle of a poorly educated populace is now effected on the other side of this equation which is to make the money system too complex to understand. 90% of MMT arguments die when people cannot understand that the debt is the money supply.

  37. Pingback: Economist's View: Fed Watch: On Coordinated Monetary and Fiscal Policy

  38. Rodger:
    The debt and the surplus are not phony – they are real.
    People who look at money in a flippant fashion would see it as phony.
    As far as the debt is concerned, the asset part is real, for it has been used to pay for current expenses.
    What is phony is the liability part, for not one dollar of liability has been paid back, except for the 3 surplus years in the Clinton Administration.
    Makes my grandfather’s wise statement seem out of place today:
    “What you owe, you owe. What you own, you may not own.”
    Don Levit

    • Don, federal debt is nothing at all like personal debt. It’s the same word used for two, completely different concepts. It actually come closer to resembling your savings account at your local bank.

      Until you understand the difference between Monetary Sovereignty and monetary non-sovereignty, it’s really impossible for you to understand economics. Monetary Sovereignty is to economics as arithmetic is to mathematics.

      By the way, the federal government could eliminate the entire federal “debt” tomorrow, simply by minting a $12 trillion platinum coin and depositing it in the Federal Reserve Bank. (By law, it has to be platinum.) Then what would debt-hawks have left to complain about?

  39. It might resemble a savings account, but, then again, I would see that as an asset to me and a liability to the bank.
    Do you agree that all kinds of debt have an asset with a corresponding liability?
    If so, when does the liability part get paid and when does the asset part get spent?
    Don Levit

    • A bank deposit is on both sides of the balance sheet, an asset (the bank has the dollars) and a liability (the bank owes the dollars). When you want the bank to give you back the dollars you have on deposit in your savings account, the bank uses its asset to satisfy its liability. In short, the bank debits your savings account and credits your checking account (or any other account you name).

      This is part of the massive misunderstanding about federal “debt,” i.e outstanding T-securities. Monetarily Sovereign nations are sovereign because they have the unlimited power to credit accounts. T-securities are no burden on the federal government, are not “owed by our children” and never will be “paid by our grandchildren.” All those debt clocks you see, are bogus in their implication that federal “debt” is looming, like some storm cloud, over our economy. The process simply does not work that way.

      It does work that way for the states, counties, cities and the euro nations, all of which are monetarily non-sovereign, so do not have the unlimited ability to credit accounts.

      The public is being hoodwinked by the 1%’s use of the word “debt” to describe something unlike personal debt. Sadly, when I try to show people that these manufactured threats are bogus, they get angry and sarcastic — as though they are saying, “We want to believe we owe millions and our children owe billions. Please don’t take away our mythical debt. We trust the 1%.”

    • Don, I have to disagree with, clarify some others here – and I contend I am expressing the academic MMT line.
      Federal Debt is EXACTLY like personal debt. They are the same thing. Debt. With one difference. You are you. Your debt is just that. Your debt.
      Federal debt is Uncle Sam’s debt, and he is infinitely more powerful than you are. For one thing, he owns the USA, from sea to shining sea.

      Uncle Sam is so powerful that we use his debts to measure (almost) all other debts, once he has quantified them into “dollars”, each of which can redeem one “dollar” ‘s liability due him. He allows many of his debts, most of his financial debts – dollars and T-bonds to be transferrable from one person to another. That’s what we call “money” NFA. This transferrability makes units of his debts useable as measuring sticks of all other debts, useable to cancel other private debts.

      Yes, government debt is special. But NOT because government money/debt/ liabilities have some mystic, metaphysical difference from anybody else’s, but because the government is special in reality. It is not a structural, abstract difference, but an empirical, behavioral, real-world difference. It is not strangely using one word for two different things, but correctly using one word for the same “thing” of two vastly different entities, which are used in different, often opposite ways.

      If a word should be eliminated as misleading, it is not “debt”, which always makes you think rightly, naturally, but “money”. People then start thinking of money as not the same as the credit/debt relationship which it is, money as a thing, a medium of exchange, a commodity. You get neoclassical “economics” and then since you and societies run your and everyone’s life by something far crazier than astrology, everything goes to hell. The best way to realize that what MMT economists are saying is OBVIOUSLY correct is to get the basics utterly clear in your mind first.

      Started writing more about some other things you are worried about above, but will stop here for now.

      • “Federal debt” is nothing more than the total of deposits in T-security accounts at the Federal Reserve Bank. Since T-security accounts essentially are bank savings accounts, so-called federal debt is just the total of bank (FRB) savings accounts.

        For some reason, I never hear concerns about the amount of deposits in private bank savings accounts — and nobody calls them “debt” — but by misnaming FRB savings accounts, the debt-nuts frighten the populace. This is all the more mysterious, when you consider that private bank savings accounts are somewhat riskier than Federal Reserve Bank T-security accounts.

        Of course, it’s not mysterious at all; it’s exactly what the 1% wants the 99% to believe. Keep ‘em ignorant and they’ll do as they’re told.

        Federal “debt” is nothing at all like personal debt.

      • “Federal debt is Uncle Sam’s debt, and he is infinitely more powerful than you are. For one thing, he owns the USA, from sea to shining sea.”

        Wrong. He doesn’t own the USA, he makes the law within the USA. Different things.

        • This is interesting. You are looking at ownership from a “legal” point of view, and not a “praxeological” (logic of action) point of view.

          Private ownership in the United States, or in all sovereign states for that matter, is at best tentative. Eminent domain allows the government to take your property even if you choose not to sell it. If you choose not to pay your taxes, t he government will decide to confiscate your property and/or send you to prison. The government owns everything, even you.

      • “People then start thinking of money as not the same as the credit/debt relationship which it is”

        Not necessarily.

        “it is critical to realize that the stock of reserves, or money, newly issued by the government is not a debt of the government. The reason is that fiat money is not redeemable, in that holders of money cannot claim repayment in something other than money. Money is therefore properly treated as government equity rather than government debt, which is exactly how treasury coin is currently treated under U.S. accounting conventions (Federal Accounting Standards Advisory Board (2012)).”

        “irredeemable government-issued money represents equity in the commonwealth rather than debt.”

        http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

        • Furthermore:

          “money and debt are two different things, that’s why we have different words for them. We pay our debts with money.”

          “Money’s essence (apart from whatever is used to signify it) is an abstract social power, embodied in law, as an unconditional means of payment.”

          http://www.monetary.org/ami-evaluation-of-mmt

        • Y,

          “irredeemable government-issued money represents equity in the commonwealth rather than debt.”

          Actually, that was a recommendation and is not in the code. However, it comes much closer to the truth than does the notion that federal debt is a “burden,” or must be paid off by our children and grandchildren” or any of the other nonsensical lies of the debt hawks.

          That thing we call “federal debt” is nothing more than the total dollars deposited in T-security accounts at the Federal Reserve Bank. All bank deposits are liabilities of a bank, and the money deposited is counted as an asset. So T-securities are both assets and liabilities of the FRB.

          T-security accounts are very much like bank savings accounts. While a bank owes its depositors the money deposited (which is why deposits are “liabilities) seldom do we hear concerns about a bank having too many depositors, or fear about whether the bank owner’s children will have to pay off this debt. Ironic, since the Federal Reserve Bank not only is far more secure than any private bank, but the federal government guarantees the deposits of public banks.

          The hand wringing about the federal “debt” is based on a massive misunderstanding of what this “debt” really is: Deposits in T-security accounts at the FRB. To “pay off” the owner of a T-security, the FRB does exactly what any bank would do, when a depositor wants his money: The FRB debits the T-security account of the depositor and credits his checking account.

          No new dollars are created, so there is no inflation implication. In fact, the federal government could pay off the entire “debt” tomorrow, simply by debiting all the T-security accounts and crediting all the checking accounts. This would be no burden on the government and would not involve our children and grandchildren.

          Rodger Malcolm Mitchell

          • “T-security accounts are very much like bank savings accounts. While a bank owes its depositors the money deposited (which is why deposits are “liabilities) seldom do we hear concerns about a bank having too many depositors, or fear about whether the bank owner’s children will have to pay off this debt. Ironic, since the Federal Reserve Bank not only is far more secure than any private bank, but the federal government guarantees the deposits of public banks.”

            Except private bank savings accounts by private citizens are obtained by producing goods or services for others; the Federal Reserve “earns” money by a keystroke that wasn’t obtained by providing any individual with something they wanted, other then providing the banksters with easy money.

      • Calgacus:
        “” People then start thinking of money as not the same as the credit/debt relationship which it is,…””

        Please -
        If money IS a credit/debt relationship in its essence – then please explain Greenbacks.
        Thanks.

  40. Rodger:
    If the bank owns the asset and the liability part, then, that throws up a red flag.
    It reminds me of the Social Security trust fund, in which the federal government is on both sides of the ledger – it owes itself, i.e., the Treasury owes the trust fund.
    When the left pocket owes the right pocket, I think someone’s pocket has been picked.
    Don Levit

    • No red flags, Don, just accounting.

      In accounting, for every asset there must be a liability on the same balance sheet. That’s why its called a balance sheet.

    • Don

      If you really think that the federal debt is just like a private debt, follow this thought experiment with me.

      If they were the same thing then if you were in possession of both you would have two things of equal value. Being of equal value means if you were to make an accounting record of them they would have the same sign (+ or – ) and they would have the same number.

      So lets take a mortgage out for Don Levit of 100,000$ at 3%(private bank debt )and lets put a Treasury (govt debt) for 100,000$ at 3% as well in Dons IRA.
      Looking at the mortgage of 100,000 at 3%. Don will have to take money form his checking account every month to pay down the mortgage til it gets to zero and will pay back MORE THAN 100,000$, over time more than 100,000$ will be removed from your income stream. With the Treasury Don will receive 3000$/yr in income (250$/month) for whatever the duration of the bond is (5,10,20 or 30 years).

      Hopefully its obvious to you that one of these things costs you money and the other pays you money, so not only are they not the same they are complete opposites. They dont just differ a little, they are nothing alike.

  41. Barbara Astone

    MMT has really opened my eyes. Yet even at my level of understanding, which is superficial, it seems clear that the Pete Petersons of the world will never willingly acknowledge what MMT exposes. Banks create credit (money) at will, and the government backs up whatever they create by default. That’s a privately-controlled system, the fundamental tenet of capitalism. The private finance industry controls the flow of money, so of course the government can’t be permitted to spend without budgetary limits, regardless of whether or not it can run out of money. That would take the economy out of private hands. Isn’t that why the voluntary, legal constraints on the federal budget exist in the first place? To keep the economy in private hands? If the government were permitted to deficit spend according to its own lights, then we’d have the government managing the economy in fundamental ways. Personally, I think that’s how it should be. But you’ll never get capitalists to acknowledge that. It would take the power out of their (private) hands.

    MMT needs to be taught in schools, so people will grow up knowing what the possibilities are. Then they can choose the kind of economic system they believe best for society. As long a people believe intuitively that the federal budget works like every other budget does, they won’t know there’s a choice.

    • Do you really think the banking industry is privately controlled? The US government backs up the cartelization of the banking industry, just so they can expand credit. In a free-market of banking, banks would be limited by their expansion of credit, in fear that a competing bank would call on them for their debts. But this isn’t the case with the federal reserve. The federal reserve allows all banks to expand together.

  42. Hello Stephanie, for the first time I sat watched you on C-span2 and you spoke of the “Fiscal cliff & the Economy. I must say first of all, you have an awesome presentation there and you are a really smart woman, good job. 2nd, what I didn’t understand from watching you and the panel was who were you guys presenting this to and why. I also questioned why the President doesn’t pick up some coffee and donuts with his team and join you guys in the audience to listen what you guys have to say. You and your panel were totally more civilized in carrying on this such debatable issue as a conversation than a tug a war. Anyway, I read where VP requested you run for president? That’s got to feel good. I wish you and your team can somehow get both sides of the White House to hear you out.

    • I feel certain that the President, with all his smart advisers, understands full well what Stephanie is saying. However, like most politicians, he has been bought and paid for by the wealthiest Americans, who understand the cutting the deficit will increase the gap between the rich and the rest.

      For many years, MMT and Monetary Sovereignty have been working under the delusion that the President “doesn’t get it,” and if only we could explain it better and more simply, he would see the error of his ways. It was a fools mission. The President gets it. But he does the bidding of the 1%.

      The demand that taxes be raised on the 1% is a magicians misdirection, forcing you to believe he is for the “little guy.” The rich don’t give a fig about that income tax increase. They never will pay it. Note that the President wants to cut spending even more, and that is what will increase the gap.

      The whole “grand bargain” is a charade to fool the voters. It really is a discussion about the best way to increase the gap without being too obvious. As you will see, when this all is resolve, the middle and lower classes will take a big hit, and the 1% will not even be scratched.

      Until Stepanie and the rest of the UMKC emphasize that point (rather than trying to educate a bank robber that stealing is immoral) nothing good will happen.

      Rodger Malcolm Mitchell

  43. How does government not spend money? What is the point of then taking taxes if they are not spending money? And I thought the statement that a circle can be square was insane.

    How is the government not revenue constrained? Again, where does the revenue come from? It has to come from production. Sure, legally it is not revenue constrained since it has monopolized the currency and banking industries, but it is constrained in that it can’t create wealth out of thin air. Wealth can only be created by restricting consumption in the present and investing in labor and land in order to produce capital that can be used to increase ones future goods per unit of time.

    These bloggers seem to think that the government is some deity that doesn’t have to follow economic laws.

    Check out mises.org if you really care about sound economic theory and truth.

    • The federal government creates and spends dollars by sending instructions (not dollars) to creditors’ banks to increase the numbers in creditor’s checking accounts. These instructions consist of checks or wires. When the banks follow the instructions and raise the numbers in checking accounts, dollars are created “out of thin air.”

      The government can send these instructions endlessly. A Monetarily Sovereign government is not constrained by taxes collected (the government originally created those tax dollars “out of thin air”) nor by borrowing (the government created those “borrowed” dollars, also “out of thin air), nor is the government constrained by production (in 2008, as a stimulus, the government sent every taxpayer $200 – $500 “out of thin air. No production involved.)

      Rodger Malcolm Mitchell

  44. Yes, no production involved. I understand the process of central banking. so whoever receives the money first is benefiting at the expense of the late receivers of the money or the non-receivers. In a free society, there are only two ways of receiving money, through production or through gifts. In the society we live in now the government creates money without production; this is exactly the point I am making. Technical problems aside with this regarding the boom-bust cycle; this is a huge ethical problem.

    Sure, the government doesn’t have to worry about deficits, but the people do. There is no ethical justification for the government to use violence and coercion to monopolize the banking industry as well as the minting industry. If the government wants to spend all it wants, fine, but allow competing currencies, but of course, the government would never allow this, because the People, following the DEMOCRATIC principle will elect on the market to use the most stable currency. And, historically, governments love to destroy currencies through hyperinflation.

    • Technical problems aside with this regarding the boom-bust cycle; this is a huge ethical problem. Ben

      No it’s not. So long as we have government then inexpensive fiat is the ONLY ethical money form for the payment of government debts. And it’s the lending of money into existence for usury that is the cause of the boom-bust cycle, not the spending of money into existence.

      • That’s missing the point. So long as we have serial killers, the ONLY ethical form of murdering someone is by limiting their suffering.

        “And it’s the lending of money into existence for usury that is the cause of the boom-bust cycle, not the spending of money into existence.”

        This is the same thing. Where do you think the government gets the money? From the federal reserve…by pumping more credit into the economy, the federal reserve is lowering the interest rates. And the government is one of its borrowers.

        • Pure anarchy is unstable and will soon result in some form of government. So government is a given.

          As for the boom-bust cycle, it is the necessary repayment of money lent into existence that causes the bust whereas a monetary sovereign need not (and should not) tax as much as it spends. Incidentally, US Government borrowing from the Fed is meaningless since the Fed refunds the interest and the Fed must always lend to the US Government as required.

          • Governments are unstable, so does that mean that anarchy is a given? I don’t follow the logic. I hardly see how you are in a position to say what will lead to what….as far as I was aware the future is uncertain. There is no way to say that anarchy will necessarily lead to government, unless this can be shown from a theoretical position, but especially not from a “destiny” or “historical inevitability” position.

            Saying that “pure anarchy” would necessarily lead to a government has to assume that a state of “pure anarchy” would already exist. How would we have even gotten there?

    • If the government wants to spend all it wants, fine, but allow competing currencies, … Ben

      I agree but private currencies should NEVER be allowed for the payment of government debts. Also, all private currencies and all potential private currencies must be allowed to compete on a level playing field wrt government. This means we should not attempt to define what private money is (as Ron Paul does) but instead to carefully define what government money is and that definition must include that government money be inexpensive fiat for ethical reasons.

      • Ron Paul doesn’t try to define private money. Ron Paul advocates gold because historically it has been chosen as a private money….in other words, the market has chosen gold, not the government.

        “Also, all private currencies and all potential private currencies must be allowed to compete on a level playing field with government”

        Level playing field? Does this mean no companies are subsidized? I don’t understand. Or does this mean that if the government decides to inflate its currency, then all other private companies must inflate theirs as well? Hardly would that be a free market level playing field, but rather an ad hoc free market in currency.

        • A level playing field, for example, does NOT mean removing taxes from gold (which requires usury to generate a return or worse, hoarding) and leaving them on other potential private money forms such as common stock which does not require usury and which does not reward hoarding but rather investment via “sharing.”

        • ….in other words, the market has chosen gold, not the government. Ben

          The market has chosen various things for the payment of private debts in the past but as for government debts, inexpensive fiat is the ONLY ethical money form.

  45. It’s not about just cutting spending. It’s about cutting everything. It’s about removing all restrictions and regulations to a free economy. If you really want to lessen the gap between the rich, why not allow a free market, (which we do not have now: patents, high taxes, liscensing, law suits). The problem with the rich now is that they “lobby” for government intervention to protect their interests. Without the “lobbying”, they would have no choice but to “solely aim at serving the demands of the consumer”; a DEMOCRATIC principle.

    Has anyone here read Rothbard?

    • I’ve read Rothbard but sadly he conflates liberty with a government enforced gold standard. That’s not liberty, that’s special privledge for gold owners, gold miners and the already rich since a slow growing money supply relative to real growth rewards risk-free money hoarding.

      • Special privledge for gold owners? The only reason gold would be valuable is because other people agree that it is. So in order for him to have originally gotten that gold, he would have had to either received it as a gift, or produced something of value that someone else was willing to give him gold for.

        Risk-free money hoarding? This assumes the subjective valuations of everyone with gold is to hoard it. How do you come to this conclusion? And even so, who are you to declare what someone’s time preferences should be? Why would I hoard gold if I wasn’t going to use it to buy anything? Eventually, I will need to spend the gold. Besides, let’s say that “the gold monopoly” did hoard all the gold, eventually, the market would define a new money. And the competition of this new money would drive the value of gold down. At this point, why would I want to hoard all the gold?

        Rothbard doesn’t advocate a gold standard because he believes that is the function of government. Rothbard is only aware that the market has overwhelmingly chosen gold as a currency throughout history. His advocating for a %100 percent gold standard is to eliminate the legalized fraud of a fractional-reserve banking system. So government in this case would be acting not as an invasive institution, but as a defense service against fraud.

        “In sum, I am advocating that the law be changed to treat bank notes and deposits as what they are in economic and social fact: claims, warehouse receipts to standard money-in short, that the note and the deposit
        holders be recognized as owners-in-law of the gold (or, under a fiat standard, of the paper) in the bank’s vaults. Now treated in law as a debt, a deposit or note should be considered as evidence of a bailment. In relation to general legal principles this would not be a radical change, since warehouse receipts are treated as bailments now. Banks would simply be treated as money warehouses in relation to their notes and deposits.” Rothbard – The case for a %100 gold dollar standard

        • I left the following out from the first paragraph.

          He could also receive gold from mining it as you said, but there are still costs that go into mining as well.

          • 1) So long as we have government, true liberty in private money creation requires that government money be inexpensive fiat. Why? Because any private money or private money form (e.g. commodity money) accepted by government will have a huge advantage over monies or money forms not chosen. So government must either accept all private monies and money forms equally, which is impossible, or accept none of them at all, recognizing only its own fiat instead.

            2) As for private money, it is impossible to predict what the free market might choose if freely allowed so, for example, removing taxes on gold, one potential private money form, while leaving them on common stock, another potential private money form, is to priviledge one money form over another. That’s not a true free market in private money creation.

  46. Stealing by the “1 percent” came about precisely because of its allegiance to government. But government is theft, the nature of government is coercion and theft. It can not exist without the prior production of its citizens. It is a parasite.

  47. 1). I see what you are saying. But again, historically the market has chosen gold, so if the government selected gold as payment for its debt, it would not be giving gold an unfair advantage as a money commodity. Since gold has always been the most highly demanded commodity money.

    2) government shouldn’t be taxing any commodities, services, or goods. Taxation is a violation of one’s natural rights.

    If government wants to be a monopolist on defense services, court services, transportation services, money services, education services, etc, it needs to do so in a competitive way. In other words, it needs to become a private company that offers these services for a voluntary exchange of money.

    I find it amusing that government would suggest that since it exists unethically, then it must use the most ethical form of money. If government wants to spend money, it should have to obtain it just like everyone else on the market: in productive activity.

    It isn’t that government wants to be fair about commodity prices; individuals who take control of the state apparatus, want to use its power to spend it on whatever they want. Without a monopoly on the banking industry, or the currency industry, the government would not be able to spend beyond what it produces (though it doesn’t really produce, it consumes taxes and then calls it revenues).

  48. If government wants to be a monopolist on defense services, court services, transportation services, money services, education services, etc, it needs to do so in a competitive way. In other words, it needs to become a private company that offers these services for a voluntary exchange of money. -Ben

    The government does this precisely by marking up accounts denominated in the currency it creates at zero cost.