Neoliberal Mythologies

By Dan Kervick

It’s hard enough for ordinary citizens to keep up with the routine crony rackets the American plutocracy runs with their lackeys in Washington to rob us blind and lock us in the neo-feudal cages they are trying to build out of the bones of what was once the US middle class.  But the task of keeping up with the scams becomes even harder when central bankers promulgate myths and hide behind shibboleths designed to prevent the public from grasping just how much power we all still possess to seize control of our own destinies.

Tim Duy calls attention to a platform proposal by Japan’s Liberal Democratic Party to revise the law governing the Bank of Japan so as to improve cooperation between Japan’s central bank and the elected branches of Japan’s government.   Former Prime Minister Shinzo Abe, likely to be returned to power on December 16th, has called for the BOJ to buy debt directly from the government – although that call is apparently not part of the LDP’s official platform.

As Duy notes, the BOJ has dismissed these proposals in the sacred name of central bank independence.  BOJ Governor Masaaki Shirakawa rehearsed the established neoliberal pieties about central bank purity:

Central bank independence is a system created upon bitter lessons learned from the long economic and financial history in Japan and overseas countries.  Any debate on revising something like the BOJ Law, which lays the foundations of Japan’s economic and financial system, must be done carefully, spending a good amount of time.

And on the topic of direct BOJ purchases of government debt, Shirakawa sniffed:

No advanced country has adopted such a policy.

Note Shirakawa’s snooty invocation of the supposedly high-falutin’ standards of “advanced” countries.   Duy, curiously, concurs with Shirakawa’s statement:

Shirakawa is correct.  Modern central banks may have lost some control over inflation at times, but I don’t think any has engaged in outright monetization of government debt.  

I suppose that if we lean very heavily on the term “outright” Duy is correct.  But I would argue that Duy is only being fussy here, and that central banks like the BOJ and the Fed monetize a portion of their governments’ debts routinely – even if they do not purchase the debt directly.

If a government issues securities and the central bank then purchases large amounts of those securities, how is that outcome functionally different in its net effect than if the central bank had just bought the securities directly?  The only difference between the former procedure and the latter is that the former makes use of a private sector dealer as an intermediary.  The intermediary gets a payoff – a piece of the action, so to speak – for participating in a routine intragovernmental operation.   Otherwise, it is just as if the central bank had purchased the debt all by its lonesome.  And central banks buy government debt all the time, as part of both conventional open market operations and the newer unconventional quantitative easing programs.

In the United States, when the central bank holds government securities, the Treasury does redeem and make coupon payments on the securities just as it would if they were held by someone in the private sector, but with this important difference: any interest paid to the Fed by the Treasury is by law returned to the Treasury.  So when the Fed buys treasuries from private sector dealers, the public’s effective debt is reduced by the amount of the remaining interest payments.  Isn’t that just a form of central bank monetization?  The amount returned to Treasury by the Fed in 2011, by the way, was $76.9 billion.

There is no question that open market operations have utility for interest rate management.   But the common idea that modern central banks in advanced countries with supposedly independent central banks don’t already engage in debt monetization is a bit of a fig leaf that these countries hold up over their financial private parts in an effort to posture as superior to their banana republic cousins in less “advanced” barbarian countries.  In fact, we monetize some of our debt too.   It’s just that when we do it, we pay an intermediary a service fee to keep up appearances.

One might argue that when the government has to find a private sector buyer for its debt first, rather than selling the debt directly to the central bank, that imposes a certain degree of market discipline on fiscal policy.  But it’s hard to see that there is all that much of a disciplinary bonus here.  When a central bank announces that it is prepared to buy government securities, the announcement automatically guarantees an eager private sector market for the securities – if there wasn’t one already.  If dealers know that they can promptly re-sell newly purchased securities to the central bank, at some amount over the purchase price no matter how low, then they know they can make a profit from the purchase.

So long as the central bank is buying, the term and price of the security is not even that important.  If some imaginary government sells a dealer a 10-year security on Monday at some rate of interest X% and at a purchase price of $Y, and the central bank purchases that security on Tuesday for a price of $Y + $1, then the dealer has made $1.  And $Y + $1 is always better than $Y.   When the government redeems the security ten years hence, the entire X% interest payment is returned by the central bank to the treasury.  So as long as the central bank buys the security, it really doesn’t matter much whether X = 1/10 or X = 100.  And so as long as the central bank signals a willingness to buy government securities, there will always be a private sector market for the securities, regardless of the yield.  They buyer needn’t care about the official yield at maturity, only the spread between the purchase price and the price the central bank pays to buy it back.  But as a result of this reality, a government working with a sufficiently aggressive central bank can set whatever yields it wants.

This is why we have no need to worry about those dreaded bond vigilantes in a country like the US that controls its own currency and monetary operations.   To the extent that the Fed signals it is willing to buy US debt aggressively, the Treasury can set almost any price it wants for its debt.  So it’s not just that there is no insolvency threat haunting US public debt.  There is also not a bond vigilante attack threat – not unless the Fed allows that attack to occur.

And if the Fed were inclined to allow such an attack to occur Congress could quickly step in to stop it, because the Fed is actually part of the government, despite the fig leaves that are used to array it as a private corporation operating in glorious private independence.  The Fed Board of Governors is an agency of the government, created by Congressional legislation, with powers delegated to it to Congress, operating under mandates, constraints and directives established by Congress.   Its vaunted independence is simply a matter of Congressional custom, not written into the deep nature of things, and Congress can exert whatever degree of direct control over the Fed it so chooses.  If a stubborn Fed passively and perversely allows Treasury yields to rise in response to some would-be bond vigilante attack, Congress can step in, pass a law, and order the Fed to buy debt more aggressively, either directly or indirectly.  And it can do a variety of other things to permit government spending to proceed unimpeded, no matter what the Fed Chairman decides to do.

So if your own local Member of Congress tries to tell you that we have to worry about the bond vigilantes attacking, tell your Member of Congress that such an attack can only happen if Congress fails to do its job.

The underlying reality of legislative monetary sovereignty and central bank integration into government in countries like the US, a reality that obtains no matter how many fig leaves are used to disguise it to suit the fastidious fancies of global neoliberal finance, has important implications for US fiscal policy and for understanding the true nature of US government debt.   What we need to grasp and remember is that debts denominated in terms of some final means of payment are a completely different matter for the government that is itself the cost-free producer of that means of payment than are debts for households, businesses and other countries that are mere users of that means of payment.

Government securities are best seen as just a different form of the government’s issued money – a form that has a nominal face value that “matures” over time rather than a fixed nominal value that is already “matured”.   When the government sells a security, it just issues and swaps some of this maturing money for matured money, the swap taking place with people who have an unspent surplus of the matured money.   The question should be whether these operations are the best way to inject the needed financial assets into the economy so as to produce full employment while preserving price stability.  But when the government injects any kind of money into the economy, it incurs no further obligation on itself other than the agreement to reduce people’s tax bills by equivalent amounts when the money is surrendered back to the government.  The government creates these tax bills by fiat in the same way as it issues its different forms of fiat money, so the whole process is under its control.

We have voluntarily established a system in the US – at least for now – in which Treasury spending must take place with matured money, so Treasury spending in excess of Treasury revenues triggers an issue and swap of maturing money for matured money.  That could be a price destabilization problem if the government could not control the rate in maturing money it must pay for the matured money.   But as we have already seen, it always can control that rate if it acts intelligently.  The bottom line, then, is that US Government spending creates money in the economy of dollar users, US Government taxation extinguishes money in the economy of dollar users, and the US government is not constrained in its spending by anything other than the rational requirements of its own macroeconomic policies and the goals of its pursuit of public purpose.

Treasury securities are highly liquid, and the fact that they will be swapped out for matured money is never in real doubt, so they carry no further risk beyond what is inherent in any monetary system (and beyond what the confused ratings agencies say about these securities).  So they might as well be thought of as just more money.  When the US Treasury issues a security and swaps it for some matured money, the impact really isn’t much different than if it had issued the matured money directly to enable its spending.

The monetary sovereignty of the US government has import for US fiscal policy.   Earlier this week in the New York Times, Warren Buffet argued that the US should aim at a permanent, stable deficit of 2.5%.  Now it’s definitely a good thing that Buffet is helping the public understand that we need never run a surplus; and that a permanent deficit is both possible and desirable.   But there is something problematic about the way he puts the argument.  He says:

Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.

In the last fiscal year, we were far away from this fiscal balance — bringing in 15.5 percent of G.D.P. in revenue and spending 22.4 percent. Correcting our course will require major concessions by both Republicans and Democrats.

So in the present context Buffet is effectively arguing for a government austerity plan to reduce the deficit from 6.9% of GDP to 2.5% of GDP.  He apparently thinks 2.5% is an acceptable deficit to stop at because it is sustainable in a modestly growing economy without adding to the debt.  But this is to focus far too much on the size and stability of the public debt.   Our economy is still very fragile, and is staggering along with a very high rate of unemployment.   We need to keep our deficits large until we are back to where we should be economically.  And what we need on a permanent basis are mechanisms that allow the size of the deficit to expand and contract in response to macroeconomic circumstances, so as to maintain full employment and economic vitality.  We shouldn’t be aiming at some fixed target quantity in our deficit-to-GDP ratio.

And yet, with the real economy mired in stagnation, we have two parties in Washington currently arguing over how much to shrink the government contribution to GDP.  As if Toryism in the UK and fanatical Merkelism in the Eurozone had not done enough damage to Europe’s economy and social fabric already, and blighted the hopes of a whole younger generation of Europeans, some now want to bring the European austerity disease here to the US.

Buffett has succumbed to public debt phobia.   He might be thinking like a smart businessman – but a government like the US is neither a household nor a business.    It is a monetarily sovereign nation that manages and controls its own fiat currency rather than depending on some commodity money standard or depending on some currency it does not control.

Why do the leaders of the financial sector, the major media and the central halls of power insist on promulgating the whole panoply of neoliberal monetary myths: the independent central bank, monetary dependency, the burdensomeness of public debt and the glowering menace of the bond vigilantes at the frontier?  I think part of the answer is seen in a recent post by Matt Yglesias citing data from Morgan Stanley’s Adam Parker.  As of November 23, just ten companies are responsible for 88% of the S&P 500’s year-over-year earnings growth.  We increasingly live in a highly stratified economy where a small number of powerful corporations – most prominently banking and insurance powerhouses, are reaping what few rewards are out there still to be reaped.  Throughout the neoliberal era, and at an accelerating pace lately, gains from productivity are funneled to the most affluent members of our already dementedly unequal society.   The financial sector and the wealthy are thriving because of their endless ingenuity in devising new ways to create ownership claims and collect rents on the productive output of people who actually do productive work, and to gin up new Ponzi investment schemes when real output flags in productive enterprises.

Now, in their ceaseless drive to accumulate profits and find new revenue streams in a world in which fewer and fewer bounteous streams flow, the plutocrats are after those few remaining assets that they haven’t already claimed.  Big finance has long eyed the Social Security and Medicare systems.  In these systems, organized around the anti-plutocratic principles of social solidarity and intergenerational obligation, some revenues flow directly out of worker pay checks into government accounts, and others flow out of government accounts into retirement and medical payments – all without first passing through the bloated bellies of private financial corporations, where the wealthy few who own the bulk of our country could exercise their God-given prerogatives of digesting their accustomed share of our wealth before excreting back the remainder to us.

The strategy is to chip away little by little at these remaining social programs, diminishing the benefits and number of beneficiaries, and by extension the political power of the beneficiary class.  Once they have shrunk them down to despised Poor People’s Programs, they will be able to deliver the final blow in the name of reform, just as happened in the past with welfare reform.   The plutocrats won’t rest until we have all been moved over to fully private retirement programs and health insurance programs – and sadly, both political parties appear poised to help them.

So it’s easy to see why the ownership elite does not want us to understand that we, through our government, actually control our own monetary system, and why they resort to all of the neoliberal legends, myth-making and fig leaves.  The fig leaves help to create the illusion that we are utterly dependent on forces that we do not and cannot control, forces that are poised to attack us and send us to that imaginary debtors’ prison where land irresponsible democracies that run up public debts, and that we must appease with further surrenders and sacrifices lest they devour us.

43 Responses to Neoliberal Mythologies

  1. Dan, great piece.

    As i was reading your point about interest remittances being effectively debt monetization (which others have mentioned a lot), an idea struck me – it might be an interesting messaging piece to take the number of $76.9 billion of interest income – the amount that was “directly monetized” in 2011, and frame that in terms of government spending on particular programs or departments.

    If the average person could be told that “no matter what you think of MMT’s ideas concerning money=debt, functional finance, consolidation of govt sector, or the alleged importance of CB independence, the fact is that last year $80 billion of “printed money” paid for the equivalent of the *entire US Department of education’s budget* (or more than 10x the EPA, or 300x the National Endowment for the Arts) with no corresponding inflation whatsoever, i wonder what they would say/think in response?

    • Thanks Ro. Maybe the better way to put it is that by buying debt, the Fed effectively “forgives” the interest portion of the debt. But whether you think of it as printing $80 billion to pay the debt, or reducing the current debt by $80 billion, it seems to me the functional effect is the same – to add $80 billion of available spending power to the Treasury.

      • Yeah, either framing works. I was thinking more in terms of the specific refutation of “a dollar printed is a dollar devalued” mentality. the visualization of “printing” the US Dept. Ed 2011 budget, or 300x the NEA, is pretty powerful i think.

  2. Brilliant post. I agree with every word! But how can the public be educated about these issues? It is hard enough with 3rd year Economics students!

    • Martin, I think the idea that Treasury securities are just a form of money – what I called “maturing money” – may be helpful. When the government pays its debts, it just swaps matured money for maturing money – which it can always do since it is the manufacturer of both kinds of money. So if people say “the debt is too big”, then what they are really saying is that there is too much money in circulation. To the best of my understanding, here is the current domestic picture:

      1. M2 is a bit over 10 trillion dollars.

      2. The public debt is a bit over 16 trillion.

      3. The debt held by foreign and international investors is a bit over 5 trillion.

      4. So very roughly, the US public holds (16 + 10 -5) = 21 trillion dollars in maturing money and matured money combined.

      5. The US nominal GDP is around 15.5 trillion.

      Now is there some economic law prescribing the ratio of the money in circulation to the level of nominal GDP? And if there is too much money in the economy, why is inflation so low and stable?

      My numbers are rough, because some of the M2 number probably consists in dollar balances held by foreigners who aren’t participating in the domestic private sector economy but are part of the non-government sector spending dollars abroad – and that spending isn’t part of the NGDP number.

      • Dan,

        While the conclusion of the quantity theory of money doesn’t make any sense, the equation is still useful.

        M V = P Q where M is the money supply, V is the velocity of money, P is the price level, and Q is quantity of goods.

        The problem with the quantity theory is that it assumes V and Q are always (or reletively) constant, where as MMT recognized that hey wait, V and Q can change as well. M*V and P*Q. A decline in spending without a change in M represents a declining V. That is: money is changing hands less often than it used to. A way to offset this is by increasing M – the money supply. This change affects P*Q, however when operating under production capacity, it is possible to raise Q instead of P.

        Hopefully the above makes sense.

      • Dan, that is maybe an odd thing to do, because it mixes government liabilities of indefinite maturity and bank liabilities of more restricted maturity. Guess the idea is that any government liability is more liquid and safe, so it is OK to mix things that way. I’m OK with that.

        But calling the bank liability component “matured money” and just saying it can be swapped for “maturing money” (Treasury Bonds) is definitely wrong without more qualification. Only US government Money, reserves, a particular type of “matured money” – the type manufactured by the US government and only the US government – (MB or M0 in some countries, just a part of M2)- can be used to ultimately settle payment for a US Treasury Bond.

        • Calcagus, I don’t think I said that all matured money could always be swapped for Treasury debt. That depends on how much debt Treasury is offering for sale, and under what terms and market condition. But what I tried to say is that when the Treasury redeems its debt, it is just swapping one kind of matured money – in this case HPM or base money – for another kind of money, since the bonds themselves can be viewed as a kind of money.

          I think I can see what you are saying about bank money. Since bank liabilities to deposits are sometimes interest-bearing, and are ultimately redeemed when they are either withdrawn as cash or used to make a payment to an account at another bank, they are not quite the same kind of money as the the government’s direct liabilities.

          The basic theme I’m trying to get across is that when a household or business has issued an IOU, it has an obligation to surrender, at some point in the future, some object of value that that household or business does not itself issue and does not control – and which it must therefore obtain through exchange. But the government’s IOUs and the object the IOUs obligate the government to surrender are all the same kind of thing: they are all just IOUs of different face values and different maturities, and the government is the unencumbered issuer of them all.

    • @ Martin: Very good question. I think teaching and convincing others is the hardest part of this whole exercise. I love reading posts on this board. But I also read and post on more “public” boards such as yahoo. The comments there are far more ignorant and emotional than intellectual, which for the most part describes the electorate.

      I wondered when candidate Romney told the moderator in the first debate that his standard for spending would be whether the project was “important enough to borrow money from China.” In my head, I am thinking, “Does he really believe that?”, or does he know that the public believes that, and the better political answer is to acknowledge China as our banker, despite it being an incorrect economic answer.

  3. Outright monetization of government debt will of course ease spending accompanied with less unemployment but also unavoidable inflation and maybe currency devaluation. To cover these pitfalls austerity plus permanent deficit percentage (recommended 2.5%) should be a long term strategy in order to take the American society out of this debt of US$ 16.00 trillion. Tough political decisions will be needed to curb the affluent members making them realise that now is their turn to make some sacrifices.

    • That might be true if we monetized all the debt Mir, and suddenly swapped in 16 billion of matured money for all 16 billion of maturing money. But the economy can obviously handle – and needs – substantially more spending right now, given how far we are below full employment.

      Even if you think the public debt is a big deal, country can’t contract its way out of debt. Austerity will, despite the intentions of its engineers, simply shrink tax revenues even further and expand spending into the automatic stabilizer programs. There is no penny-pinching path to national prosperity. We need to spend to thrive.

      • “and suddenly swapped in 16 billion of matured money for all 16 billion of maturing money”
        That is so wrong to expect such thing will create official inflation. Operating word here is official. That matured money is already being used into economy and already caused inflation. By swaping the Treasuries with money (maturing with matured) would not sudenly make those savings being used/spent into economy. If the owners of the debt asset wanted to use such money they would’ve sell the debt (Tsy) and spend it, instead they will just buy stocks or gold and i do not think that inflation of such assets is counted in official measures of inflation. Or keep cash in bank reserves instead of Tsy. Money for Tsy’s comes from bank reserves or from surplus that is probably never going to be used to buy products and services, they are dedicated for investments into some kind of paper assets. Only difference of that swap will be in accounting of US debt and jump from one paper asset to other. Same reason why QE3 is not inflationary officially since inflates only paper assets.
        I also read from MMTers a lot of confusion with bank creation of deposits as not inflationary. Paying off of bank loans is deflationary, hence debt levels have to grow in order not to cause deflation /fall in GDP, just looking nominaly. Steve Keen shows causation of debt groth with rise/fall of GDP.
        Whatever asset is against the loan, that asset is inflated. Mortgage loans cause housing inflation. Rise in total mortgage loans coresponds with rise in house prices. Fall in total mortgage loans cause fall in house prices.

  4. I tried throughout to hold to the myths being discussed.
    In the beginning – on the potential for the BOJ to directly purchase government debt that is specifically issued for much needed infrastructure repair in that country:
    When one considers the essence of the transaction, where the BOJ has authority(from the government) to create the money that it would use to purchase the government security to meet a glaring public service need, it must surely bring to mind the obvious – why bother?

    As Henry Ford and Thomas Edison correctly pointed out to our government, when considering issuing bonds for the Muscle Shoals project in Alabama:
    “But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good also”.
    The same question should obviously emerge under the BOJ proposal, and begin the process to put an end to unnecessary debt-issuance by sovereign governments everywhere. Why bother?

    Shirakawa relies on the theoretical piety of central bank independence, which is nothing more or less than the curtain behind which operates all national money systems. In truth, CB independence is code for secrecy. Publicize money; end the charade of independence, and end the unnecessary issuance of government debt.

    Sorry, I have to disagree with this:
    “There is no question that open market operations have utility for interest rate management.”
    Unless there is a heavy reliance on ‘utility’.
    Close the window. Temporarily manage interest on reserves. Create adequate public money without debt. Interest rates will flow to their natural (non-scarcity) level of zero.
    There is this wild notion afoot where the sovereign money-issuing government of we the people of the United States is some $16.3 Trillion in debt so that we can manage interest rates.
    While it is argued that the government can simply print the money to pay off these debts – and it could – the question remains: why bother to issue public debt in the first place?
    We the people own the money system. That’s what sovereignty is all about.
    If you really want to stand in the clear of the bond-vigilante argument, just don’t go there.
    Thanks.

    • Mark Robertson

      One area where my understanding is weakest concerns the Open Market. I often wonder why the Treasury can’t stop issuing bonds, and start writing checks directly. Then the public could get past this silly “federal debt crisis” nonsense.

      Some people feel that the Open Market process (i.e. selling and auctioning T-securities) is simply a relic of the gold standard days.

      Reader joebhed writes, “As Henry Ford and Thomas Edison correctly pointed out to our government when it was considering issuing bonds for the Muscle Shoals project in Alabama: ‘If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good also.’ The same question should obviously emerge under the BOJ proposal, and begin the process to put an end to unnecessary debt-issuance by sovereign governments everywhere. Why bother?”

      Indeed. Why bother? That is my question too.

      Dan Kervick writes, “Open market operations have utility for interest rate management.”
      Randy Wray says the Open Market process is a way for the Fed to hit its chosen target for the overnight (i.e. Fed funds) interest rate.

      Reader joebhed acknowledges this, but still thinks the sale of bonds is unnecessary. I am inclined to agree, although my understanding of this topic is admittedly foggy.

      Reader joebhed further writes, “While the government can simply print the money to pay off these debts, the question remains: why bother to issue public debt in the first place?”

      Yes, this question vexes me the most. If we ask, “Why does the Open Market sell T-securities?” the answer we get from the Internet is, “In order to fund the U.S. government.” This is nonsense, of course. It is like claiming that the U.S. government needs tax revenue, which it obviously does not.

      FLAT OUT QUESTION: Does the U.S. government need to sell T-securities? If so, why? Can’t we do away with this process, and at long last kill the “federal debt crisis” lie?

      • As Dan points out, debt issue is an interest rate management device to ensure the interbank rate falls into line with the official (Fed funds) rate. However if the rate paid on bank reserves by the Fed coincides with the Fed funds rate (as it does), then debt issue is unnecessary because there is no downward pressure on the interbank rate, when the Treasury runs a deficit. The rate paid by the Fed is the floor for the interbank rate. In Australia, the so-called support rate is 25bp below the Cash (official) rate, so bond issue is necessary in the presence of excess bank reserves to prevent the interbank rate drifting down towards the support rate, thereby compromising monetary policy.

      • @Mark R.
        Thanks for asking.
        I think the nature of the apparent wrinkle here can be summed up within the MMT tenet that TODAY, under a fiat money system, the government, as the “monopoly” issuer of the currency, creates money when it spends.
        IF the government did create money when it spends, then it could do what Ford and Edison advocated, create the dollar and not the bond. (Also called for by Lerner)
        A read of Dr. Wray’s new book would walk us through the “operational” effects of debt-issuance as a downright public benevolence, if not duty, to the private sector. It is how We The People fund the Net Financial Asset holdings of the asset-holding class. That is kind of where I get off.
        It’s not the private sector I worry about.
        It’s the governments that are closing parks, laying off teachers and firemen and fighting over whether it is more fair to cut back on Medicare OR Social Security, or both.
        And, while I agree the federal debt “lie” exists, I am not convinced that the MMT construct lays out the whole truth about it either.
        Here’s the rub.
        Ostensibly, today’s federal debt-issuance is primarily an interest-rate management technique.
        To what end?
        In theory, it is to manage the demand for money so that the supply of money is maintained as to avoid inflation (also deflation), while achieving full employment.
        This is the “pushing-on-the-interest-rate-string” method for managing monetary policy.
        But, if we accept the machinations of MMT, we are going to HAVE the correct supply of money to achieve full-employment and manage inflation, “through Fiscal policy”.
        That’s where the taxation fiscal policy “throttle-brake” comes into play.
        At that point, you ask yourself – well, if we are managing our economy by fiscal operations – and maintaining the right amount of money to achieve our national economic objectives, then why do we need to issue debt “hit the overnight interest policy rate”?
        (Again, we do it NOW by providing interest on reserves”)
        Not wanting to burst anybody’s bubble here, but the only answer I come up with is pretty glaring. And, problematic.
        While under a sovereign, fiat money system the government CAN BE the monopoly issuer of the currency, in fact, with the endogenous money system still in place, the government is not the monopoly issuer – thus requiring management of private money issuance so as not to cause inflation or deflation.
        It seems obvious that the way to avoid the need for debt-issuance is to actually HAVE the government become the monopoly issuer of the currency. In fact, not in theory.
        That’s my answer to your very good question.
        Thanks.

        • Mark Robertson

          Joebhed, thank you very much for your response. It helped a lot.

          QUESTION: Does the U.S. government need to sell T-securities? If so, why? Can’t we do away with this process, and at long last kill the “federal debt crisis” lie?

          ANSWER: Yes, the Treasury could stop selling securities if all the money supply came from government spending. But it does not. There are two main ways that money gets into the U.S. economy. One is by government spending. The other is by bank lending. (The sale of exports to foreigners is not really a source of money, since the USA has a net trade deficit of about $45 billion per month. That is a drain on money, not a source of money.)

          About 24% of the U.S. GDP consists of government spending. The other 76% consists of all forms of business and consumer spending, plus bank lending.

          Bank lending is a giant part of the U.S. economy and the U.S. money supply (e.g. over $1 trillion in student loan debt). Open Market operations (selling and auctioning T-securities) help stabilize the bank game, thereby controlling inflation.

          If we wanted to do away with the selling of T-securities, then we would have to do away with bank lending as a source of money. In that case, the federal government would indeed be the monopoly issuer of the currency. At present, the U.S. government is NOT the monopoly issuer, since a large part of the money supply comes from private bank lending.

          Joebhed, this is how I interpret your response. Am I correct?

          • Mark, I would say your interpretation of Joebhed is correct. But Joe does not understand MMT and money and does not do the accounting correctly. He doesn’t like the banks – who does? – but he imagines they have far more power than they already do. The Treasury (or Fed) could stop selling securities right now. The securities called “bonds”. It couldn’t stop selling the securities called “dollars” or “reserves” because then we would have no more government spending. That’s what spending is – trading these “dollar” or “reserve” securities for real goods and services, or to extinguish a federal liability like Social Security checks. The government stopping selling bonds is about as hard for it as changing whose face is on which bill, and often not much more meaningful. It has nothing formally, intrinsically to do with bank lending, except historically, how modern banking arose. Government bonds are a novelty. Governments that issued liabilities in the form of tally sticks or coins, along with some kind of bank lending is far older.

            In particular, Joe doesn’t understand that there are different kinds of money. The only kind that the Government accepts for purchases of its own Treasury bond securities is its own state money = reserves = currency = dollar bills = coins = high-powered money = federal reserve notes = treasury notes (nowadays a numismatic rarity). Bank lending does NOT create this state money. Only the State creates its own money. The State is a monopoly issuer of its own money. The State is in charge, not the Banks. Ford & Edison may have “called for” ZIRP and imagined it made a gigantic structural difference. Lerner called for ZIRP too, “printing money” – but he understood economics far better, and understood that issuing bonds is not substantially, ultimately different. Lerner & MMT don’t “call for” Joe’s Money System Common – they realize we already have it!
            We could easily have a ZIRP / Money printing / pure Money System Common etc and have plenty of bank lending, with banks being modern banks that can create “endogenous” state-backed bank money, and this could even be most of the money, as it is nowadays, although that makes the system less stable. And there would be little problem as long as they are well regulated. In fact, that is roughly what Japan has now very low ZIRPy rates, and what the USA had before destructive “innovations” starting in the 60s (or even earlier, with the Treasury-Fed Accord) – low interest rates, well-regulated, tame, boring banks. And while Joe incorrectly conflates bank money & state money, he incorrectly doesn’t conflate government bonds and government money – as MMT & FDR understood very well, and as Dan’s article above explains, government credit & government currency are really one & the same thing.

            Joe:why do we need to issue debt “hit the overnight interest policy rate”? We don’t need to “hit the overnight interest policy rate”. It is a government / Fed decision. The MMT ZIRP Joe’s Money System Common recommendation is to have it at zero, so no other debt/securities than reserves needs to be issued. But once it has been made, we need to do the things – issue debt – that this decision logically entails. Or we can just have reserves pay interest, which is logically the same thing- issuing overnight debt is exactly the same thing as presenting reserve-holders with a choice between “reserves that pay interest” and “reserves that don’t pay interest”. They’ll go for the first, every time. Having a rate target = issuing debt which is not dollar bills, which has not matured already.

          • @mark R
            Thanks a lot.
            Yes, you are correct that the need to issue debt would be negated if the government created the money supply. Under the present Government Budget Constraint(GBC), the Treasury must balance its expenses with either taxation or debt (or money printing).
            Were the government to create and issue the money supply – again a form of what Abba Lerner called “money-printing”, then that money-printing could substitute for the debt being issued.
            That was the point of the Ford-Edison proposal.

            Many MMT advocates support Platinum-Coin issuance as a source of government revenue. If that option is feasible, then it allows the “seigniorage” – a fanciful name for the difference between the face value of the coin and the cost of issuance – to revert to the Treasury, from which it could be spent.
            So, a $1Trillion Platinum Coin would be equivalent to issuing $1$Trillion in new money, without issuing any debt.

            Having said that, the amount of “new money” required in any year is whatever is needed to achieve GDP-potential without inflation. Other things being equal, that amount is likely around 3 percent of GDP, or $450 Billion annually.

            Unfortunately, other things are not equal. The financial crisis has left the so-called ‘deficit’, the difference between taxation revenues and the annual budget, at over a $Trillion, and that is the amount of new money needed NOW to support the economy.
            So a $Trillion Platinum coin would be nice, or some other measure authorizing the government to create that money without debt, while rescinding the GBC.

            That is what the Kucinich proposal does.
            http://kucinich.house.gov/uploadedfiles/need_act_final_112th.pdf

            Finally, when looking for the source of the money supply in existence, it would take an act of faith for me to believe that the same government that MUST tax or borrow its balances, as ours does now, creates any money.

            Rather, the government is not a partial-issuer of the currency. That privilege of creation and issuance has been granted over to the private bankers. As long as they have it, the government will be issuing debt, and borrowing the same money it has the right to create itself.
            Thanks.
            e

    • The same question should obviously emerge under the BOJ proposal, and begin the process to put an end to unnecessary debt-issuance by sovereign governments everywhere. Why bother?

      Well, the reason we have quasi-independent central banks, in principle, is so that supervision of monetary policy and price stability are removed a bit from the day-to-day spending decisions of legislatures. The fear is that if the legislature permitted itself simply to issue the dollars it wanted to spend, then ultimately in response to domestic political pressures it would spend wildly and reduce tax rates to 0%, ultimately creating hyperinflation and destroying the value of all monetary savings. To prevent themselves from succumbing to this political temptation, governments have created central banks to which are then delegated most of the power of monetary issue. The central bank is supposed to act as the monetary parent that forces the political branches of the government to operate within budget strictures, roughly matching tax revenues to spending, and exceeding those limits only by issuing debts, that are themselves claims against the assets of the Treasury. So, like Odysseus tying himself to the mast, the legislature pretends it is not in charge, and assigns responsibility for piloting the monetary ship to some supposedly sober banker-type, who doesn’t answer directly to voter-constituents, and will manage the government’s money-creation processes solely with an eye to the stability of the currency and the financial system, without prejudice toward one set of political values or another.

      Of course, there isn’t much restraint so long as the government can issue debt. So our government has gone a step further and passed a law that prohibits itself from exceeding a certain level of debt. The government can always change that law, and routinely does. But the law creates the opportunity for fiscal hard-heads to exploit public confusion to deploy an additional veto point against their more freely spending colleagues. The public needs to understand these realities so that they have a clearer view about what their options are.

      The Fed can fully control the rate of interest on Treasury debt, so when people talk about the threat of bond vigilantes, they can only be talking about a move engineered by the Fed to attack and reduce government spending.

      Joe, you say you disagree with this statement:

      “There is no question that open market operations have utility for interest rate management.”

      Why? The primary point of open market operations is to set the Fed Funds rate. Changes in that rate can influence the price of reserves and therefore the ease of borrowing, which seems to me a useful and important governmental role in regulating the pace of economic activity and preventing destabilizing swings in the economy.

  5. You’ve touched on a question that I have been looking for answers to for a bit. Given that according to Randall Wray and his band of graduate students researching the actual amount of the debt incurred by the Fed. being in the vicinity of 29 trillion. In attempting to right their capsizing neo-liberal fiscal assumption of the neutrality of the central banking system this is the pachyderm in the living room. If for instance the Treasury Dept would reclaim a more direct position relative to fiscal priorities, who gets stuck with the tab. If they, as a faux privately held trade association, care to persist on that course, letting them also assume responsibility for debt incurred while under that assumption, the $29 trillion then becomes their direct debt as a privately held corporation. It seems that as per usual they are playing the situation both ways. This also goes to the actual independence or integration under the neo-liberal.management of the central banking privatization. It also goes to the dismal failure of their assumption that 29 trillion and counting debt should have restored the process to general functionality, beyond only kicking the can down the Gresham road.

    • It doesn’t matter. The Fed and the Treasury are just two different branches of the government. All of the liabilities they issue are liabilities of the US government.

      That $29 billion figure is a little bit misleading. My understanding is that it represents total purchases, and so “double-counts” so to speak when a given asset is purchased, sold back, repurchased etc. In other words, it is gross purchases, not net purchases.

  6. The problem here is a political problem not an economic problem as the banksters and corporate media have rigged the political system by quite effectively constraining the discourse through amplified echo chambers left and right.

    Absent an economy paralyzing mobilization by tens of millions in the coastal blue cities where the bulk of economic product is produced, a few orders of magnitude more effective than OWS, the kind of actions that significantly crimp profit taking, there is no way to play the current hand to win.

  7. “just ten companies are responsible for 88% of the S&P 500’s year-over-year earnings growth. We increasingly live in a highly stratified economy where a small number of powerful corporations – most prominently banking and insurance powerhouses, are reaping what few rewards are out there still to be reaped”

    This poses another problem: inflation becomes more difficult to control as these companies increasigly have monopoly price-setting power. So increases in govt spending could increasingly just result in inflation, as the market competition needed to keep prices down in the face of increased demand just isn’t there (with price-setting companies just blithely putting up prices whenever the govt announces an increase spending).

  8. Mark Robertson

    Dan Kervick writes, “The plutocrats won’t rest until we have all been moved over to fully private retirement programs and health insurance programs – and sadly, both political parties appear poised to help them.”

    Not only both political parties, but independents like Bernie Sanders too. All of them say they want to raise the FICA tax, even though the tax is unnecessary in the first place, since it does not pay for Social Security. It is the most regressive tax of all.

    Bernie Sanders insists that the FICA tax must be increased in order to maintain Social Security: “The middle class deserves tax relief, but not at the expense of Social Security. The president and members of his administration have been very clear that the (FICA) payroll tax reduction was temporary and would not be extended. I expect them to keep that commitment.”

    Sanders is a liar or a fool.

    Source of his comment:
    http://www.huffingtonpost.com/2012/11/26/payroll-tax-cut-obama-administration_n_2194356.html?utm_hp_ref=mostpopular

    • @ Mark R.

      It’s not fair to include Bernie Sanders in the group that Dan Kevick describes – the privateers of public benefit programs. I worked hard for Bernie in my 25 years in Vermont and I can tell you based on personal experience that he doesn’t lie, nor is he a fool.
      He is however, somewhat misinformed on money.
      Having said that, he has specifically heard from MMT on money matters.
      Yet, somehow they have not convinced him of your way of thinking.

      The problem that you, and MMT in general, have is that Bernie, like ALL others in Congress, is captured, TODAY and every day, by the reality of the government budget constraint.(GBC)
      MMT likes to pretend that it does not exist in a fiat money system – but it does exist.
      As such, nobody in Congress today can ever ignore the implications of the budget outcome. There MUST be revenue to match expenses.
      There MUST be. By law.

      The question I have for you is, if you were trying to inform Bernie Sanders of the option for defunding the FICA – Social Security connect, what would you say, and what would you offer in the way of proof?
      Thanks.

      • Mark Robertson

        Joehbed, thank you for your comment. Unfortunately I disagree with it. I continue to maintain that Bernie Sanders is a liar or a fool. Perhaps both. Further, Sanders is the enemy of seniors, despite being chairman of the Subcommittee on Primary Health and Aging. He is an enemy because he lies about Social Security.

        The FICA tax does not pay for Social Security, and yet Mr. Sanders wants to increase the FICA tax anyway, ostensibly to “save Social Security.” Therefore Sanders is either a liar or a moron. Either way, I condemn him. I reject any claim that Mr. Sanders is simply “misinformed.” Sanders is on the Senate Budget Committee, which controls the Congressional Budget Office. He is also on the Senate Committee on Health, Education, Labor, and Pensions.

        His fellow Senator from Vermont, Patrick Leahy, is on the Senate Appropriations Committee, which oversees all spending other than so-called “entitlements” like Social Security. The Appropriations Committee spends via “earmarks.” Can anyone honestly say that Leahy “just doesn’t understand”?

        The other parts of your response make no sense to me. Contrary to your claim, the U.S. government has no budget constraint, other than the bickering among Congressmen and the President. If the U.S. government wanted to start another World War, then it would go on a massive spending spree like it did before. And it would be even easier bow, since the USA is not on a gold standard.

        Joehbed writes, “MMT likes to pretend that it does not exist in a fiat money system – but it does exist.”

        Huh???? Fiat money mechanics is a central part of MMT.

        Joehbed writes, “As such, nobody in Congress today can ever ignore the implications of the budget outcome. There MUST be revenue to match expenses. There MUST be. By law.”

        Huh??? Then why does the U.S. government have a budget deficit? Do you maintain that the U.S. government needs tax revenue? Do you contend that the FICA tax actually funds Social Security? If so, then you and I live in different universes. And please show me this law that says federal spending cannot exceed federal tax revenue.

        Joehbed writes, “If you were trying to inform Bernie Sanders of the option for defunding the FICA – Social Security connect, what would you say, and what would you offer in the way of proof?”

        I would ask him to stop LYING that the FICA tax pays for Social Security. He knows that it doesn’t. And if he doesn’t know, then he is not fit to work at Wal Mart, let alone be a U.S. Senator. I would ask him to regard the 2% reduction in the FICA tax as a stimulus that America badly needs. How big a stimulus? According to Michael Feroli, a JP Morgan economist, the payroll tax cut from 6.8 percent of wages down to 4.8 percent increased the aggregate income for American families by $125 billion this year. However, beginning on 1 Jan 2013, and proceeding over the next 12 months, that $125 billion will be stolen from Americans, thereby reducing consumer spending, thereby worsening the depression. Bernie Sanders is in favor of this.

        Beginning on 1 Jan 2013, everyone who receives a salary of less than $113,700 a year will get a smaller paycheck. (Unless they work for the state government in ten U.S. states. They are exempt from paying the Social Security portion of FICA taxes.)

        Bernie Sanders is in favor of this. My opinion of him is negative.
        Thank you again for your comment.

        • Mark
          Apologies – I missed this reply comment somehow.
          I hope you take this in the spirit it is offered. I doubt that it does MMT any benefit to have commentary about any specific Member of Congress, let alone one who has the presence of Bernie Sanders among his supporters, who are mostly independent and progressive voters, and also among most of those who disagree with him as well.

          Since none of the other 535 Assembled, or the many thousands of their staff people, know anything else except that the FICA tax does fund our Social Security ‘benefit’ program, perhaps you could, right here, steer any of them to the mistake they have made with regard to the situation. They have to get up every day and try to defend the program from voluminous enemies of every political profile. I know you are not one of them.

          It is not simply the one question of whether FICA funds Social Security. It is whether taxes fund the government. Please explain to the Senator why its perfectly OK to give up our funding source for social security. It seems you might want to have an equivalent benefit program just as solidly guaranteed.
          And all you need to do is to convince Senator Sanders and the thousands of staff people out there that taxes do not fund the government.
          Rather, the government creates money whenever it spends. And taxes are levied to balance too much growth from all that money creation.

          Finally, I didn’t say that Bernie Sanders was misinformed about FICA and its workings. I said he was not well informed about money.

          He’s one of the smartest and probably the most honest of the lot on the Hill who would need to make any of the adjustments needed to make progress, however you define it. I wouldn’t add any unneeded barriers to prevent Bernie Sanders from being an ally.

          I’m glad that you took the time to say why you disagree with my comment. There’s a lot there to discuss.
          Thanks.

        • @ Mark R.
          Above I answered your ill-advised charges against Senator Sanders.

          FYI, so-called “off-balance sheet wars” MUST come back onto the government’s balance sheet eventually – and in the meantime, the government issues debt to pay for every humvee out there. Sorry to say, that’s just another misinterpretation of government finance.

          “”Joehbed writes, “MMT likes to pretend that it does not exist in a fiat money system – but it does exist.”
          Huh???? Fiat money mechanics is a central part of MMT.””

          First, the “it” that doesn’t exist under MMT is the very real government budget constraint. MMT generally includes this need for taxation to fund government expenses as a group of ‘self-imposed’ constraints, yet adherents, like you do here, deny that it exists. Please explain fiat money mechanics. Never heard tell of the construct. Is it like the Fed’s Modern Money Mechanics?

          “”Joehbed writes, “As such, nobody in Congress today can ever ignore the implications of the budget outcome. There MUST be revenue to match expenses. There MUST be. By law.”
          Huh??? Then why does the U.S. government have a budget deficit?””
          A budget deficit merely identifies a balance that is not funded by taxation – THAT is the deficit amount. The government MUST come up with that balance amount either by issuing new debt or printing new cash, or the budget can not legally be adopted.

          “Do you maintain that the U.S. government needs tax revenue?” Yes.
          “Do you contend that the FICA tax actually funds Social Security? If so, then you and I live in different universes.”
          FICA pays for both Social Security and Medicare. Every agency of government follows the laws established since 1935 in collecting and disbursing these benefits to the American people. Do you know otherwise? Please explain the source for my Social Security check. Thanks.

          “”And please show me this law that says federal spending cannot exceed federal tax revenue.””
          I would NEVER say that.
          Federal spending cannot exceed total federal revenue. The sources of the revenue are several that include taxes, proceeds from debt-issuance and inter-governmental transfers. The first five minutes of this video explain the plain vanilla government budget constraint(GBC).
          http://youtu.be/en5Biad0VZo

          “”Joehbed writes, “If you were trying to inform Bernie Sanders of the option for defunding the FICA – Social Security connect, what would you say, and what would you offer in the way of proof?”
          I would ask him to stop LYING that the FICA tax pays for Social Security…. Etc,””

          You wrote about the FICA holiday that did everything you said. But it was not a free lunch from the government. Rather it was a inter-governmental fiscal action designed to increase aggregate demand. Every penny that did not go into the SS and Medicare funds from FICA in those years was made up from general revenues, therefore, again either from next year’s taxes or by driving up the deficit and requiring more debt issuance.

          I asked for an honest explanation to offer the Senator and all I get is comments detrimental to WalMart workers. Just so you know, me, Bernie and the rest of the world are awaiting your explanation. And, at this point, it must be more than the cadre at MMT say so. What I asked for was “proof”. I want to know why MMTers believe that taxes do not pay for government services, and that government spending creates new money. Is there any real proof?
          Thanks.

    • I’m a 100% convinced that Sanders means well. He perhaps doesn’t understand the system completely and so has been hornswoggled by the debt-worriers.

      However, it is also possible that as a good egalitarian socialist, Sanders puts more value on building a more equal society and cutting the plutocracy down to size via the tax system, then on expanding the economy in the near term. He might see the “debt crisis” as a good political opportunity to make an enduring long-term assault on the gross inequality of American society, and on the imbalance of political power that creates.

      • Mark Robertson

        Dan Kervick writes, “I’m a 100% convinced that Sanders means well. He perhaps doesn’t understand the system completely and so has been hornswoggled by the debt-worriers.”

        Strange. Why do so many MMT people keep making excuses for politicians? Excuses that consist of hopes and guesses. “He means well, but maybe he doesn’t understand.”

        I do not have to guess. Sanders wants to raise the FICA tax. Ergo, he is a fool or a liar.

        Unless, of course, you believe that the FICA tax actually pays for Social Security.

  9. “This is why we have no need to worry about those dreaded bond vigilantes in a country like the US that controls its own currency and monetary operations. To the extent that the Fed signals it is willing to buy US debt aggressively, the Treasury can set almost any price it wants for its debt. So it’s not just that there is no insolvency threat haunting US public debt. There is also not a bond vigilante attack threat – not unless the Fed allows that attack to occur.”

    The limit of the Fed’s ability to monetize sovereign debt is the value of the dollar. I would not worry so much about the ‘bond vigilantes’ as I would the ‘dollar vigilantes.’ The Fed may be hard pressed to buy dollars with — dollars.

    They could set up a reciprocity with another central bank or two, say, the BofE and BofJ, and perhaps even the ECB, and I think this has been done even if informally in the past. But the limitations are still there, even if hidden in a fog of financial engineering.

    I call this the “pernicious myth of modern monetary theory.”

  10. The limit of the Fed’s ability to monetize sovereign debt is the value of the dollar. Yes, but the whole point of Dan’s article, a major point of MMT and Functional Finance – something that everyone knew vaguely in the halcyon full employment postwar Keynesian era -when the man in the street was a post-Keynesian economist unknown to himself – is that for practically all intents and purposes, sovereign debt is monetized ALREADY, the minute it is issued. The bullshit about “central bank independence” that Shirakawa spouts is a very recent cult belief. The bitter lesson of history is “if we don’t spout this BS, people might understand what is going on, and the lesser people might not act like our slaves”. Governments a few decades ago routinely or occasionally even the USA IIRC, even directly, “monetized their debt” and nobody gave a damn – because it is and was nothing to give a damn about.

    The whole purpose of the stupid game with bonds nowadays is not really to do anything – but to distract people. To make them think that the Fed is doing something: Evil (according to Joebhed – empowering the banks, letting them rule our money) or Good ( according to your above comment – maintaining the value of the dollar).

    In reality, the Fed is just the Wizard of Oz. It doesn’t do much at all. Its main power is lowering rates to undo the damage it did earlier by raising them, and thus creating financial instability by moving rates up and down. And often enough, since it is controlled by people using the idiotic theories of the past few decades, its actions have the reverse effect of what they intend. Lowering rates right now, QE is probably deflationary not inflationary. Withdrawing income, not stimulating the economy. And in the crises, it was the Fed propping up other central banks, not the other way around. People rightly trust the dollar as the only reserve currency, because it will be for some time yet.

    Monetary operations just screw around with uh money; something purely immaterial. What makes this immaterial and valuable “thing” valuable to humans, who live in bondage to their material conditions, is how the money issuers, above all the government interact FISCALLY with the material world. Buying & selling, for a mercantile/financial enterprise, a merchant prince or robber baron of old. Taxing and spending for a government. It’s how the Gov operates through the Treasury that counts, that gives ultimate value to the dollar.

    The only other power of the Fed, that does give value to money, is how it regulates the banking system – and recently, it doesn’t. It just doesn’t control how the banks under its thumb interact with the real world themselves, and so they screw up our money system, by inflationary asset bubbles and by debt-deflation when the gamblers go broke. Doesn’t control, other than by saving the con men when they go broke, so that they can fleece the marks another day.

    • And now that it is at the zero bound, it doesn’t even have the power to move rates up and down. It can only go up, and so is stuck.

    • Mark Robertson

      Calgacus, you’ve confused me again. You write, “The whole purpose of the stupid game with bonds nowadays is not really to do anything but to distract people.”

      This was my view from the start. Then Joehbed said no, the Open Market sells T-bills because so much of our money supply comes from bank lending. I thought this sounded reasonable. But now you appear to say, “No Mark, you were right the first time.”

      Some people say that the selling of T-securities is a mere relic of the gold standard days, when the Treasury was required to sell bonds whose aggregate value equaled the federal budget deficit. But if that is true, then why does the government cling to the relic?

      I must do more reading on this. My understand is weak. Nothing I have read on the Internet so far is satisfactory, but today I received Randy Wray’s book “Modern Money Theory.” Maybe he discusses it. Randy seems to think the Open Market process does serve a purpose. Others say no, we can do away with it.

      As for my own opinion, I do not have one yet, since I do not have enough knowledge.

  11. Pingback: EQUAL JUSTICE FOR ALL « The Burning Platform

  12. Very good post, Dan, and great discussion after it!

    “So if your own local Member of Congress tries to tell you that we have to worry about the bond vigilantes attacking, tell your Member of Congress that such an attack can only happen if Congress fails to do its job.”

    I’d say “. . . such an attack can only happen if you and your fellow Congress people don’t do your jobs!”

    Mark, Randy thinks that issuing bonds is one way draining reserves. But he’s never said it’s the only way. Like other MMTers he favors a zero interest rate policy by the Fed as normal operating procedure, and if the rate does need to go above that, I believe he favors paying interest on reserves, not issuing bonds. In fact, if he could get what he wants it would be what most of us MMTers want — reorganization of the Fed under the Treasury Department!