By J. D. Alt

It was in the year 2020 that a majority of people first began to “see” what money is. For a few months—after the “realization” started hitting the pages, airwaves, blogs, tweets and twits of mainstream media—it became a silly joke: “2020 perfect vision, at last! How could things have been so blurry for so long?” For thousands of years, in fact.

Most agree the vision-shift began with the final collapse of the Eurozone in 2019, an event which had been forecast for some time. The surprise was that the unraveling had begun with Italy, instead of Greece as everyone had expected. It turned out to be the hot Italian blood that first reached a boiling point over the crippling cruelty of the long imposed austerity: the island of Sicily threatened secession and deadly street riots broke out in Rome, Naples and Milan—and then everywhere else. The government capitulated on September 12, 2018, declaring not only that pensions would be reinstated—with payments made in “the Italian national currency”—but also would be increased by 10%. It further declared a twelve month federal tax holiday: income and value-added taxes were put on hold for what was called the “National Transition.”

The dire predictions of hyper-inflation never materialized. Instead, people went back to work picking up the garbage and debris that had piled up for months, working for Lira, rebuilding burned out buildings and repairing roads and utilities that hadn’t been maintained for over a year. What caught everyone by surprise, however, was a decision by the Italian Ministry of Finance about how to affect the transition from Euro to Lira: Why go to the expense and trouble of printing Liras again? they reasoned. Cell phones for some time had been capable of making credit and debit card transactions. Why not, the Ministry decided, dispense with cash Lira entirely, and issue to every Italian citizen a “Digital Lira Card” (DLC) which could be loaded with Lira at any ATM machine, and then debited by any vendor with a cell phone. Why not indeed?

Within hours of the government’s Declaration of Transition, workers in the “Emergency Reconstruction Brigade” (created to remove the garbage and debris left by the riots) were pulling their “paychecks” by inserting bright red Digital Lira Cards into the slots of ATM machines—the Lira “in” the ATM machines having been “placed” there by computer keystrokes at the Ministry of Finance. Soon, DLCs were buying wine and bread, pasta, olives and biscotti in the markets of Napoli and Rome. The street cafes reopened and even the Teatro dell’Opera, which had cancelled its 2017 season, was back in business, swiping DLCs as patrons entered the theater. Most of all, everyone was happy the long, bitter political argument was over. Italy really wasn’t broke after all. It had only run out of Euros—and good riddance to boot!

What really got everyone’s attention, though, were the DLCs. There was something about using digital money that began to change the way people thought about money itself. It wasn’t as though it was something new—most financial transactions, in fact, had been occurring for decades with digital keystrokes. What made the difference, it seems, was the complete absence of cash money. The new Lira only existed in digital form: numbers on a screen. You could not hold them in your hand and count them out one at a time. You could not fold them into bundles and put them in your pocket or purse, or lock them safely in a strong-box. They could not fall out of your pocket and be lost either. The idea began to lose its grip of money being a physical thing which, like other physical things, was somehow associated with a finite quantity.

Even stranger, everyone began to clearly understand where the digital Lira (dLs) were coming from—how they were created. They were created by computer keystrokes at the Ministry of Finance. It wasn’t as if they were coming out of a pot that had to somehow be replenished. In fact, the Ministry of Finance was producing Lira exactly like an electric generator pumps electrons into the electric grid where they run motors and illuminate lighting fixtures and television screens. ERB workers could “see” this happen when they slid their DLCs into an ATM and watched the numbers tally up on the little screen.

Banks continued to make loans as before, but there was a surprise here as well: The cellphone-app made available for everyone to manage their DLC accounts clearly revealed—in a visual format—that when a bank loan was made, the bank was NOT increasing the nation’s money supply (as had been previously believed for hundreds of years.) When a pasta-maker borrowed 100 dLs to purchase flour, the right hand column of his DLC-app magically increased by 100 “new” dLs; but the left had column simultaneously showed -100 dLs—the amount he had to repay the bank. His net dLs (the bottom line on his DLC-app) remained unchanged: the bank, in fact, had not “created” any money at all! This reinforced the profound perception that the only new digital Lira being created were the ones keystroked by the Ministry of Finance. There was no other way they could get created. And, as this fact became clear, another began to percolate into people’s everyday awareness: The only way the Ministry of Finance could keystroke the digital Liras into existence was by “spending” them on something.

And spend they did. To everyone’s astonishment, during that year of “National Transition,” September 12, 2018 to September 12, 2019, the federal government solicited proposals from private business and contractors for over sixty billion dLs in reconstruction and repair projects. The public education system was expanded, new schools and trade colleges were planned for every community, and teacher training was made a national priority. The “Emergency Reconstruction Brigade” was quickly expanded to entirely replace unemployment benefits, providing useful work for any unemployed Italian citizen over the age of sixteen who wanted to work for a paycheck. After the general clean-up was completed, the ERB undertook whatever services local mayors determined could be usefully provided without competing with local businesses. Proof-of-Concept grant programs—modeled on the Gates Foundation efforts to eradicate tropical diseases—were established to provide seed money for small-scale innovators on any topic, with the grants awarded through an internet-based peer review and voting process. Coastal cities began the long and arduous process of raising their historic, stone-laid sea-walls against the dire predictions of rising oceans. The national unemployment rate, which had been nearing 40% before the riots, dropped to less than 10% in twelve months.

With unemployment plummeting, the biggest debate within the Ministry of Finance during that year of “National Transition” was whether, or for how long, to extend the federal tax holiday, and what kind of tax structure to impose when it ended. What enlivened the debate in an unexpected way was the realization—suddenly clear as day—that the reason they would be reinstating federal taxes was NOT because they needed to collect digital Lira to pay for federal spending. It had become perfectly clear that the Ministry of Finance could spend as many dLs as needed simply by keystroking them into existence. It was not necessary first to collect them as taxes. No, the reason the Ministry would be re-imposing a federal tax would be to drain dLs out of circulation—and the reason they would do that would be to control inflation. While inflationary pressure on the dL had not yet appeared, it seemed inevitable that it would as unemployment dropped closer and closer to a theoretical full employment. This, the Ministry of Finance realized, was what the federal taxes would effectively be doing: taking back out some portion of the dLs they’d previously spent in, to keep the total number of Lira in circulation from ballooning out of control.

Once this realization became a consensus, the debate shifted to what kind of federal tax should be imposed. If it was not being collected to cover federal spending, shouldn’t it then achieve some other purpose? Why not an Income Tax for wealth redistribution? But if you had just agreed that taxes would not be used for federal spending (there being no difference between a tax-collected dL and a keystroked dL) then how would an Income Tax redistribute wealth? Taxing income, it was evident, no longer accomplished anything at all! In the same way, what was accomplished by taxing consumption with a Value Added Tax? You wanted consumers, after all, to consume, so why “penalize” them for it? What was eventually agreed upon was a Carbon Tax. This had the merit, first of all, of achieving the goal (which they all knew would soon become critical) of draining dLs out of the economy to control inflation. But second, it achieved the goal of incentivizing both businesses and consumers to burn less carbon in both manufacturing and consumption. The seawalls being raised by the Emergency Reconstruction Brigade might not have to be built so high as they otherwise would.

There was one group who was particularly unhappy about all of this: The Mafioso had begun scrambling to convert their businesses to any currency other than the Italian Lira because they discovered it was suddenly impossible to fill suitcases with laundered cash for their felonious transactions. The godfathers were steaming with fury—but, of course, it was awkward to make their objections known. In a related discovery, the federal government found that a simple computer program virtually eliminated the corruption typically endemic in government contracts. Every dL issued, it turned out, could be tracked endlessly, and accurately, through the economy. The program, known as L-Track, could do searches with variable filters which generated an instant report of where the digital Lira were at any given moment. It was impossible to hide them, and difficult to skim them without being seen.

The world was watching all this of course. With great interest. Mainstream economists were busy explaining the “Italian Spring” and scrambling to explain why it appeared that the federal “deficit” the Italian government was “tallying up” didn’t appear to be “debt” that it was ever, at any point, going to have to be “repay” to anyone at all. This final bit of confusion came to a head—and the “great realization” started to unfold, the blinders torn off, the window shades yanked up, the curtains thrown open to a new understanding of money itself—when those villainous financiers who had held the Eurozone hostage through all the years of the debt-crisis, bidding up the interest rates they demanded to buy the Greek, Italian and Spanish bonds, refusing to take even the smallest “hair-cut” when those nations struggled to make their interest payments—when those self-righteous bond-buyers came to the Italian Ministry of Finance and announced they would now like to buy Italy’s bonds again! And the Ministry of Finance replied: “Bonds? We have no bonds for sale. Why would we want to sell you bonds? We have no need to borrow your money!” And the bond-buyers responded: “But we want to buy your bonds! We need a place to park all this cash that we can’t think of anything good to do with—a place to park it that will earn us interest. We need you to issue bonds so we can buy them!” And the Ministry of Finance replied: “If you want to spend your money in Italy, come and build a factory or start a business, or invent a new way to convert sunlight to electricity using Nano-particles, or commission a new opera or some other great work of art…. But don’t come here wanting to buy our bonds. We’re no longer in the business of parking your money for you—and paying for the privilege.”

That was in the year 2020, and the world sat up and took notice.



40 responses to “2020

  1. Good stuff, JD. Your scenario sounds a little Utopian, but I think it does get your message across effectively. I also liked the fact that you picked Italy over Greece. They certainly do seem to have a particular affinity for MMT ideas in that country. However, I do question your point about banks not increasing the nation’s money supply. Banks create loans, and loans create deposits. Aren’t deposits a certain kind of money? If you had said that bank loans don’t increase a nation’s net worth, it would have made more sense to me. Are you saying that “net worth” equals “money”?

    • Mark Robertson

      I concur with Geoff. Bank loans do increase the money supply.

      In a monetarily sovereign nation with a fiat money system, there are two primary ways that money enters the economy. One is by bank lending, which carries an interest charge. The other is by central government spending. The latter would be totally debt-free if the government did not sell bonds (which it does not need to anyway).

      Money created by government spending is destroyed via taxation.

      Money created by bank lending is destroyed via amortization (i.e. paying off the loan).

      The problem, as I see it, is that too much of the money supply comes from bank lending, and not enough comes from government spending. As a result, we live with crushing debt, plus an ever-widening gap between rich and poor (or between the public and bankers / Wall Street).

      • Mark,
        I see how taxation destroys money. However, why is it that only money spent by the government is destroyed in that process. I don’t think taxation discriminates between money created as government spending and money created as bank loans.

        Also, I see how bank lending creates money, but I fail to see how loan repayment destroys that money. It satisfies the debt to the bank, but I don’t see how any money actually leaves the system as a result. In the case of a mortgage, the principal is paid to the seller of the home, who spends it into the economy. The interest becomes bank income, being spent into the economy. Where exactly would it get destroyed?

        I’ve been studying MMT for about a month now and still eager to learn more. I think I’ve just about got it, but have to chime in on issues like these.

        • Remember that money that is sitting in a bank account isn’t money in the economic sense, it must be circulating in the economy to have an economic impact. To get into circulation it must be loaned out or borrowed against. Also remember that bankers loan out all of the money that they can, even if they don’t have enough deposits, reserves, to cover the loans.

          There is no relationship between the loan being repaid and the amount of bank money being produced. The money.used to repay the loan that was circulating in the economy no longer is. It has disappeared from the economy.

          From an accounting basis, the loan obligation is ’negative’ money. Paying the loan back takes the account to zero, not to the amount of the loan. If the original loan was with money from deposits the deposits still exist, but, and here is the magic, they existed during the term of the loan too. If the bank borrowed the money for the original loan then then the bank has to pay off the money that they borrowed to make the original loan. Eventually the loan trail traces back to deposits or to base money created by the Fed. If it was from base money then the loan repayment gets to the Fed and they functionally destroy it.

        • Glenn Bru: However, why is it that only money spent by the government is destroyed in that process. I don’t think taxation discriminates between money created as government spending and money created as bank loans. Very, very good question. Gets to the “reserve accounting at the heart of MMT”. Yes, only “money spent by the government” = reserves = currency is destroyed in taxation. And bank money and only bank money is destroyed in loan repayment.

          taxation discriminates between money created as government spending and money created as bank loans. Trickier, crucial. The answer is taxation both does & does not discriminate between state money & bank money!

          From the viewpoint of the state, the government – it does discriminate – the only thing Uncle Sam takes for tax payments is its own money, currency, dollar bills – bank reserves are by far the biggest component.

          From the viewpoint of Joe Taxpayer, Uncle Sam takes his check drawn on First National TBTF Bankster Bank. And then he just forgets about it. So it looks to him like Uncle Sam doesn’t care, doesn’t discriminate.

          But what happens is that once Joe Taxpayer writes a check, draws down his bank account, lessens the bank’s liability to him, the bank must provide reserves, government created money, government liabilities TO the bank, back to Uncle Sam. So tax payments remove reserves from the bank’s account at the Fed.

          But this is the heart of the power that the government gives to the banks – that it accepts the bank’s liabilities, bank checks, bank notes, bank money at par as good for tax payments, and then just settles up later with the bank. This is what makes bank money, bank deposits, trade at par with government money. It is also equivalent to the fact that the central bank MUST lend reserves on demand to a bank. Because the whole banking system could be short reserves if a big enough tax payment came in. It isn’t discretionary on the part of the central bank, or the payments system will collapse.

      • “The problem, as I see it, is that too much of the money supply comes from bank lending, and not enough comes from government spending. As a result, we live with crushing debt, plus an ever-widening gap between rich and poor (or between the public and bankers / Wall Street).”
        “In a monetarily sovereign nation with a fiat money system, there are two primary ways that money enters the economy. One is by bank lending, which carries an interest charge. The other is by central government spending. The latter would be totally debt-free if the government did not sell bonds (which it does not need to anyway).”
        Would this work for you? A Monetary Sovereignty must have one and only one means of issuance of its currency. All the currency issued represents the goods and services (wealth) of its community and it is owned by the community. All currency is redeemable upon demand, therefore the Monetary Sovereignty must control the quality and quantity of the currency. It must have an attachment to its issuance that would enable it to recover all the currency issued since it really belongs to the community. It is only a symbol, a record, a receipt that can be exchanged for goods and services . Soddy, “Money is the NOTHING you get for SOMETHING before you can get ANYTHING”
        Currency that has an attachment that allows for its return would be a “loan”.The attachment would be the terms and conditions on the loan. Currency is merely the distribution of the goods and services of the community. Lending that currency say for 36 years at 2% creates a Redistribution of the Wealth of that Nation so that prosperity could be achieved for all.
        The Monetary Sovereignty, The United States of America, takes inventory and estimates that todays “goods and services” can be valued at $500 trillion (since goods and services vary in value
        inventory levels should recorded every 5 years).
        Since there is about $100 trillion in circulation and another $100 trillion set “for future circulation” (currency issued with only 10% margin and “credit expansion” with little or no margin”.
        We must address this issue first. The Sovereign Nation mandates 100% margin must be maintained by all and therefore will make available $200 trillion to banks and financial institutions so they will be solvent, at 100% margin. The Sovereignty also believes that “the people have to right to own property” and the ways and means to this ownership should be accessible to them. Based upon the wealth of $500 trillion, this sovereignty shall make available Residential and Commercial Real Estate loans with an assumable mortgage with a rate of 2% for 36 years. Banks may sell all Residential RE and Commercial RE loans to the MS , which the MS shall modify.
        So what have we done ? What change would be so dramatic that we would no longer have federal income taxes and have a balance of equality ?
        We take away the power of the 1% to issue our own currency and we take away the power to charge interest on that money. Now the Monetary Sovereignty would have the power to redistribute (spend) $22 trillion per year for the next 36 years if only $400 trillion is needed. ($11 trillion, if $200 trillion).
        How would that work for trying “to form a more perfect government…promote the general welfare, …and equality” Prosperity or what we have now-servitude? Which would you prefer for yourselves and your children ?
        Please, prove or disprove.

        Excerpts from : “The Role Of Money” by Frederick Soddy, Google : “Justaluckyfool”

    • Geoff, I am not an expert in these matters, but my understanding is that the “money multiplier” theory of fractional reserve banking is something that is misunderstood. I once spent an entire morning in a coffee shop arguing with someone about it, and came out more confused than when I went it. The DLC phone-app portrayed in the essay clarifies this by making it “visible” that a bank loan is merely leveraging currency and not “creating” currency. When the loan is repaid, there is no net increase in the amount of money in the system.

      • Thanks for the reply, JD. It is my understanding that banks don’t lend reserves. Therefore, the “money multiplier” does not apply under a modern monetary fiat system. There is no “leveraging” of existing currency. Banks can basically create money out of thin air. But agreed that when the loan is repaid, that money is destroyed.

      • When the loan is repaid, there is no net increase in the amount of money in the system.
        J.D. ALT

        How “temporary” is a 30 year loan? And arguably the deflation caused by the loan repayment is worse than the inflation when it was made. And the usury required transfers money to those with a lower propensity to spend it.

        • F. Beard, “How “temporary” is a 30 year loan? And arguably the deflation caused by the loan repayment is worse than the inflation when it was made. And the usury required transfers money to those with a lower propensity to spend it.”
          Well said. Perhaps a great reason for a monetary Sovereignty to issue its currency via “loans”.
          It transfers the money that it does not own back to its owners while at the same time by usury transfer money to be used for the common bettering of its people.
          Thank you. “Justaluckyfool”

      • JD,

        I think the confusion is coming from your choice of terms. While bank lending creates no net new money things, it does increase the money supply available for tansacting in the economy. Loans create doposits NOW which are offset by repayments LATER. This directly increases demand NOW. This is easy to illustrate: If you get a car loan to buy a car now, the car dealer sells one more car than they would have if you would not have got the loan. The problem with this method of growth however, is that it pulls demand from the future and can potentially create bubbles. As Steve Keen has observed, private debt has been the main driving force behind the economy for the last several decades. Private debt to GDP has grown almost exponentially. While public (govt) debt can grow exponentially forever, private debt cannot and thus we find ourselves in the current Balance Sheet Recession.

  2. Brilliant! JD, your mind works in marvelously different ways.

  3. Entertaining. But

    ‘Why not an Income Tax for wealth redistribution? But if you had just agreed that taxes would not be used for federal spending (there being no difference between a tax-collected dL and a keystroked dL) then how would an Income Tax redistribute wealth?’

    Taxing high incomes more than low would ‘redistribute’ wealth.

    • Steve, I would call that “differential income penalization”. The “wealth” of the high-taxed income isn’t passed on in any way to the low incomes, so you couldn’t say it is being “redistributed”.

      • I’m not sure I follow that. I think you can use income taxes to take away some income from the plutocrats. That has the effect of leveling incomes. As for wealth, we should have a meaningful estate tax to prevent inheritance from building a society of nobles and serfs.

      • I disagree with JD on this point. The removal of money from the wealthy does allow the government to increase the proportion of money going to the poor not least because it removes some of the inflationary pressure that not removing that money would cause. The tax obtained is destroyed, in effect, but that destruction allows more and better directed key stroke new issues.
        Much of that inflationary pressure would be asset value inflation. The surplus income of the rich, in competing for houses as investments, substantially increased the price of housing and led to the housing bubble.
        Money going to the poor is more likely to be spent and will therefore tend to increase demand and employment.
        I am sure it is now well established that countries with more egalitarian income distributions are more readily able to maintain demand and weather slumps.

      • Once upon a time, when there were nearly 30 levels, finely graduated with time and much experience, of income tax rates, adjusted to the diminishing utility of the dollar at some income level. This system was eminently fair in it allowed the earner to deduct many approved categories of spending commensurate with the income level and thus avoid being taxed upon that spent income. That spent income fed demand and kept the economy working.

        Along came this political fellah, brilliant speaker but as bright a spark as one gets striking two bananas together, and decides his people are going to simplify taxes so he and those like him can understand. Short story is they binned the old tax system built with care and substituted their scheme. And that is what you have today, except some of this political fellah’s bedfellahs came along after another political fellah, not a bedfellah produced the surplus the others were forever on about as their dream goal. To undo this turn of events, the bedfellahs cut the taxes of those getting the richest cream on the farm and made the grandest debt to use up entirely and more that surplus and put on the credit card two wars as well. With this, these bedfellahs went home and told the children there wasn’t enough money to have their supper, they would have to go to bed hungry and cold and sleep in the toolshed without their beds. And so it was …

      • Well, perhaps precisely not ‘redistribute’, but the effect is identical. I think of it like this. Taxes are necessary, not to raise money, but to drain demand and make room for government purchases of products and services (W. Mosler). So, if you are going to have taxes one way to achieve more equality is to tax high incomes more. There is a very good TED talk (don’t have the reference handy) on the negative effects of income inequality on developed nations. During that talk it was pointed out that relatively low levels of inequality can be achieved in two ways, either incomes are not widely disparate (Japan) or incomes cover a wide range, but progressive taxes level the results to some extent (Norway). Either way, the benefits to the society seemed to be about the same.

        • YES, yes, ” Taxes are necessary, not to raise money, but to drain demand and make room for government purchases of products and services (W. Mosler). ”
          Exactly , but why can people not understand that using INCOME is not only unfair but also inadequate
          to control inflation.
          There could be a better method. As per “justaluckyfool”-GOOGLE: “Zero federal income taxes, Justaluckyfool”
          Read how taxation can be fair, equitable, and mantain a control over the quality and quantity of the currency. Tax the issuance of money, simply by charging INTEREST.
          Read more; “Justaluckyfool”

  4. You’ve got to keep good ole paper cash or people (including me) will worry about “666”.

  5. JD – this should be written as a full length feature film. stephen soderbergh director javier bardem (yes he is spanish, but could be a convincing italian I’m sure) lead as the director of the ERB and maybe we can rescue deniro’s collapsing career as the finance minister saying “bonds?” we don’t need to borrow your money! your oscar awaits! have your people call my people.

  6. Very good. I would add Government Clearing Houses to convert dLira into other currencies for legal transactions across borders, since the digital Lira should never leave the country. Unearned wealth accumulation would become more difficult because the Lira must be earned, not swindled from people.

    A double entry balance sheet would finally allow people to manage their money properly, something to be taught in schools.

    With respect to bank loans, they do not increase the money supply permanently, they increase the money supply temporarily and contract the money supply over time as the borrower pays back interest and principal.

  7. @Glenn Bru

    Mr. Alt’s piece (very entertaining by the way) makes the MMT distinction between horizontal money and vertical money. Bank lending creates horizontal money and does, indeed increase the “money-supply”. The deposit created for the borrower by the bank represents purchasing power that did not exist prior to the loan being made. But the loan on the asset side of the bank’s balance sheet represents an equal and opposite claim on purchasing power. The MMT insight here is that all such transactions net to zero. New net financial assets can’t come from such transactions considered as a whole, from start to finish.

    Picture a pay-day loan for simplicity’s sake. I show my most recent paycheck stub to the clerk at my local loan-shark shop and borrow $200 for one week. I spend the money into the economy, get paid a week later, and repay the loan plus $10 interest. Where did the ten dollars come from? Did I “make” them? Not really, even though we use that short-hand. I sold my labor-power to a company that believed, rightly or wrongly, that it could profit from employing me. If they were correct that week, I produced at least a little more than $10 worth of real goods and/or services, which the company sold into the real economy, using $10 of the proceeds to pay me. Where did the customer get the $10? Did *he* make them? No. The government originally made all of the dollars by spending them. This is what MMT calls a “vertical transaction”, and this is how all net new fiat dollars come into existence.

    Mortgages are more complicated, but I would offer this: the principal you see being paid to the seller does not enter in. This part of the transaction represents the seller’s paid-in equity plus any capital gain from the previous mortgage, if there was one. For simplicity’s sake, assume the house was inherited or otherwise owned free and clear. The buyer borrows money from the bank to buy the house. The bank issues the loan and pays the seller by crediting his bank account. Did the bank create those dollars? No. They represent the real value of the home, which was built on real land using real labor and materials. I guess that’s why we call it “real estate”. The bank acts, in this part of the transaction, like any other user of the currency. It has to have an account – store of dollars of its own – from which to pay out sums like this

    Meanwhile, back at the sleaze-bag usury arcade, I make up my mind not to be exploited like that again. I take the balance of my pay check and open a savings account. The money I sequester there – money that was originally created by the government – is now unavailable to the economy at large. It has “leaked” out of the circulation process of sales and income. If enough people like me do the responsible thing and save for the future, sales decline, employment and output decline, employment declines, optimism declines, and even more people cut back on spending to save for what looks like an increasingly likely rainy day of their own. We are in a recession, brought about, paradoxically, by thrift.

    What to do? The people, and even most companies, are solvent – indeed, we are collectively holding on to more net financial assets than they ever have. But we are on a consumption strike. We won’t spend our rainy-day money until the sun comes out, but the only thing that can make the sun come out is rising sale. Keynes diagnosed this “liquidity preference” paradox back in the 30’s. The solution is government spending to restore the pace of sales, cheer up the entrepreneurs, get people back to work and lift the gloom-and-doom atmosphere. So now, everyone’s working and spending again, so few people either need to or are inclined to tap their savings. As time and business cycles pass, and the economy grows, net financial assets also grow.

    That’s what the big scary clock in New York City actually measures. It should be called The Worldwide Dollar-Denominated Financial Assets Clock.


  8. What a crazy distopian future you imagine! As if the NSA doesn’t have enough ways to watch us already. How easy would it be to quash Occupy 2021 when a simple order from on high could turn off every participants money card, rendering all dissenters instantly destitute? Hopefully, we don’t need to electonicize currency (shudder) to figure out how money works.

    And for the record, it appears to me, from Fed data on loan to deposit ratios at major banks, that only the largest banks are engaged in endogenous money creation, while the vast majority of the smaller banks are actually operating on a loanable funds model. I may be misinterpreting the data, but that’s what I made of seeing most banks holding loans for 70-90% of deposits, while JPM, Wells, etc. reported 1,500%+(!).

    I don’t think it’s a matter of one way or the other: loanable funds or MMT. The data seem to point to a little (or a lot) of each going on.

  9. JD – wonderful essay! Utopian? Perhaps, but I do not think that’s a weakness. Sometimes it is necessary to reach out beyond what we perceive to be immediately practicable and tell a story that has a much different conclusion than what we expect to find a year or two down the road, if only to jar ourselves loose from a burdensome paradigm. Virtually all of our discourse is conducted within the parameters set by the “sound finance” folks and their framing. Despite our vision for change based upon functional finance, we often get lost in the details of what is technically possible, debating over minutiae concerning the payments system or whatever. It is refreshing to catch a glimpse of what might be possible provided these insights were realized, and we managed to drive our collective will towards this end. Bravo.

    One parting suggestion: what about a novel that extends this theme? I think the post-apocalyptic theme works well in setting up a context to introduce a paradigm shattering idea. More importantly, the people we need to reach the most in order to bring about the conditions for real change will not be convinced by academic debates. That way relies upon the mercy of other practitioners within the academy, whom I fear will cling to their fairy tales till the bitter end. Rather, regular people will be convinced by a story. Maybe a graphic novel?

    • Thanks Mitch. I wish I could draw well enough to do a graphic novel! All the points you make are the important ones for me: continuously looking for new ways to frame MMT that makes it accessible and “visible” to people who otherwise aren’t even interested in the topic–though it affects their lives dramatically! No doubt I’ll keep trying.

  10. I Love it! Can’t wait for the movie! What do we think it will take to overcome centuries of of feudal capitalism?
    The whole world believes we’re out of money. How do we light the path out of the black-hole?

  11. The more conservative among us respond very negatively to any suggestion that anyone is receiving something for doing nothing. To try to gain support from conservatives I would empathize that the job bank means that most welfare is stopped as well as long term unemployment payments. That it is based on the idea that people should work for their money, that those who aren’t willing to work will no longer receive money from the government. Only if they are too old or unable to work because of a disability will they receive money without working. That the job banks would be capable of training and acclimatizing people for work in the private sector, and in turn provide a ready pool of workers ready to move into jobs in the private sector. That the job bank would create minimum terms of employment, a minimum wage, health insurance and child care without imposing them through regulation but rather through competition.

  12. Great narrative! A good story always explains. The carbon tax is a good way to drain some of the money that needs to be removed from the system and discourage behavior, in this case the use of carbon. I don’t think a carbon tax alone would reduce the tendency of the lucky/greedy ones to accumulate vast fortunes. These fortunes do not seem to be inflationary in the conventional sense because they are not spent on consumables that the rest of us buy. But these fortunes do seem to cause bubble inflations (the derivatives market) and worse, they unbalance the political system through the power to dominate political discourse with the fixations of the super rich. Thus the need for a super wealth or income tax.

  13. Excellent, JD. I especially like the part about the bonds at the end.

  14. Really imaginative essay which has developed the concept of digital money to simplify understanding its accounting.

    I’m not sure about the carbon tax approach but in his book “The Darwin Economy” Robert Frank touches on the idea over lowering carbon footprints through his Progressive Consumption Tax concept. Whilst nature is constantly seeking to balance competition and cooperation Frank makes the important observation that “positional goods and services” make it difficult for the human species to achieve this.

    For example, cooperatively for the sake of our own off-spring’s education we’ll paradoxically compete with others to get a house in a good school district and in the process bid up the prices of those houses which tends to mean ever larger homes, greater energy consumption and bigger mortgage debt to support thereby diverting money from real economy investment, etc.

    Indeed it is clear in retrospect the financial sector tried to parasitically take advantage of this family “positional” maneuvering together with other “positional” motives and artificially blew a house price bubble. This was was always doomed to burst with most wage earners being in an unsatisfactory position to leverage compensating wage increases for ever-increasing mortgage debt burdens.

    Frank’s solution is to help deter this “positional” competition by the imposition of a progressive consumption tax on individuals expenditure. This works by subtracting an allowance and savings from income and then making the expenditure that’s left subject to a graduated consumption tax.

    Under such a tax it now starts to get prohibitively expensive to get a high-priced house in a good school district and puts pressure on parents to take more of an interest in the democratic process that will ensure adequate central and local state funding for schools in less expensive house price areas.

    His principal argument, however, is that through carefully crafted taxation policy we can encourage lower consumption of resources and reduce the carbon footprint.


    • They can tax liquor and cigarettes, as well as carbon and other sins, like medical devices. Marijuana, too, eventually. If it moves, tax it. If it doesn’t move, tax it — it’s real estate.

  15. Carefully crafted taxation can lower consumption…..penalizing the lower income percentiles more than others.
    Carefully crafted taxation can reduce the carbon footprint and be fair, and equal IF it is not the income or consumption that is taxed.
    How’s this for a carefully crafted taxation ?
    Ben has proven that the Feds can purchase all the assets it wishes to purchase without increasing deficit spending. Why not lend any producer that needs a commercial loan, the money they need to update their production equiptment to make it reduce carbon footprint at a rate of 1% for 36 years.
    If $10 trillion is requested, that means taxation is reduced to only $5 trillion for the 36 years.
    A savings of $5 trillion for the producer for “doing the right thing” while at the same time increasing jobs and prosperity. “Justaluckyfool”

  16. What about Venezuela case? I heard that Venezuela has been printing a lot of money to finance government spending and this caused and is creating massive inflation…. (and some people say this is the reason why government should not print money just to finance government spending…)

  17. Excellent article Mr Alt. I’m sharing on facebook with all my friends and neighbors. Not knowing very much about economics, you have presented a scenario that certainly causes one to pause and rethink what money is all about and how it effects our economy and our society. Thanks very much

  18. Great Post, JD! A graphic novel based on it would be a great way to spread MMT!

  19. Pingback: Italia, Anno 2016: ecco la lira digitale | Delusi dal bamboo,

  20. “Digital Lira Card” Why bother, if by 2020 Bitcoin using cellphones will be ubiquitous? You’re right that by 2020 people will have seen money for what it is and have abandoned fiat currency — but it will be in flavour of global, free currencies, and local currencies that are based / backed by them.

  21. First off, this is NOT MMT as currently described. It is closer to Greenbacking – the direct issuance of money by government, debt-free, and not by private banks or a private Central Bank. For the difference, plus my own little “future story” see here: http://www.huffingtonpost.com/scott-baker/euro-economy_b_2149462.html, for a European proposal I wrote in November: The Cure for Europe: A Public Option for Money and a Public Bank (we don’t have until 2020 to wait, unfortunately; Europe and possibly the world, will implode before that under the current debt-money system).
    MMT proponents insist the Federal Reserve is part of Government; it isn’t, and their money is only available at interest when the Treasury (which IS a part of government) issues Treasuries to pay for it, PLUS INTEREST. Warren Mosler – who is acknowledged as one of the founders of MMT, but who is NOT listed in your About page, and whom I quote in my piece from a dialog we had over email – says the cure for the Federal Reserve’s “otherness” is simply to keep interest rates at zero. That may be, but historically, or even currently, that is not what the Fed has done, and there is no reason to expect they will do so in the future. Indeed, they may feel constrained to keep rates near zero for a while, because the deficit explosion that would occur if they raised rates would consume so much of the budget (repayments are about 20% of every tax dollar now), that we would go into a depression, or taxes would be raised to avoid default, which would drain the economy of money and cause the same thing.
    Yes, of course money is not something we can run out of. And yes, government can, does (with coins, and U.S. Notes), and ought, to “coin Money” as Article 1, section 8 says. I am a Greenbacker. But, it does not, at least not in significant amounts. That is mostly left to private banks when they make loans, and failing that (as now), to a private central bank, who only public control is through appointment of its board, and the setting of laws (which haven’t changed towards public control since giving most of that away in the original Federal Reserve Act of 1913).
    The scenario in the story is not like anything MMT has ever put forward and it is disingenuous to imply that it is. It is not even exactly Greenbacking, because it is all electronic (if you lose your cellphone or the batteries die, does that mean you are broke? What about hackers, already a big problem? If there is a blackout, is everyone unable to buy food, pay for gas, etc?). But it is closer to that than to MMT. The government, in this case, is willing to cover the cost of manufacturing money, much less in an all-electronic version, but not quite zero; there is labor in keeping track of accounts, after all. Traditionally, seigniorage means the face value of money minus the cost of production. The body creating the money therefore, gets the seigniorage savings, in Greenbacking, that is the Government, in the current system we have, it means a central bank.
    Well, in any event, it’s a nice parable, about Greenbacking