Good Luck Stopping Austerity With Incremental Platinum Coin Seigniorage!

By Joe Firestone

Some have responded to the recent boomlet for using Platinum Coin Seigniorage (PCS) as a solution to the debt ceiling problem, by reacting to the ridicule visited upon PCS advocates by know-nothings like Heidi Moore of the Guardian and Matt O’Brien of the Atlantic, by proposing “smaller ball” PCS than the clearly inadequate Trillion Dollar Coin (TDC) itself. This post will focus on J. D. Alt’s interesting post which makes five points about the TDC debate as it was addressed on a recent Chris Hayes show.

– 1. Stephanie Kelton’s reframing of a question about financial constraints to point out that the real issue is resource and productive capability constraints and not purely financial constraints, is a point that is essential to keep in the forefront our discussions and also that this is “. . . the central truth of MMT.

– 2. It’s not laws but social norms that:

. . . that form the living tissue, muscle and sinew that cling to the bones. Social norms change, but they change slowly, over time—they do NOT, by their nature, change “all at once.”

Clearly, it is a social norm that will not allow the Trillion Dollar Coin to be considered as a plausible solution to the national debt—and which necessitated so much giggling on the show. Legal or not, economy-saving or not, minting trillion dollar coins is NOT how our society pays its bills. Any shift in this social norm has to be very incremental.

– 3. Producing too much money and spending it into the economy, as Joe Wiesenthal pointed out on the show can cause inflation if the amount of spending injected exceeds the resources of the economy to absorb it. On the other hand, if it doesn’t exceed those resources then “the result will not be inflation but rather a growing of the economy and an expansion of national assets; in that case, in could be argued, to withhold the spending is indefensible.”

– 4. “Paying your debts and living within your means”:

. . . is a very powerful message to the religious psyche that permeates our cultural norms. It can only be countered by explaining WHY, in fact, the sovereign government is in debt (see item no. 5 below) and making clear, over and over, Dr. Kelton’s point that the “means” we have to live within are not FINANCIAL means but, rather, RESOURCE means.

– 5.  A point not directly addressed in Hayes’s show is that the constantly and casually reiterated idea that the Federal Government can only raise money for spending by either taxing or borrowing is false; and that it can also create money though issuing currency. He also points out that it has to be made clear to people that the reason for the existence of the debt is this false assumption. And then he ends with:

“Issuing” currency (rather than borrowing in the bond market) to pay for sovereign spending over and above what is collected in taxes might be one of those things that could be done incrementally. Instead of threatening the institutional and social norms of the bond market with total annihilation, MMT could propose that sovereign spending be “monetized” only on a limited basis, to accomplish certain specific and special goals that would strengthen and benefit the nation as a whole. Over time, as people saw the benefits of monetized sovereign spending—and became assured it did not, if properly managed, lead to inflation—the social norm would likely shift. If that happened, the next time Chris Hayes had a panel discussion about the national debt, there wouldn’t have to be so much giggling.

I agree with the first of these five points. But I have either questions or qualifications to raise about the rest.

On Social Norms, and their impact on MMT Policy Advocacy

First, I don’t flatly disagree with the notion that social norms change slowly over time, but do not change all at once. I just wonder about the application of this generalization to reality. For example, if something were called “a social norm” and that something did, apparently, break down rather quickly, to be replaced by another something we called a social norm, would we then change our mind about the first thing we called a norm, or would we conclude that it was not, after all, a “real” social norm. In other words, what evidence would J. D. Alt accept as sfficient for him to falsify the generalization that social norms change only slowly? There has to be some or we’re looking at tautology here, not empirical social science.

Second, in looking at a specific social norm that doesn’t “change all at once” how would we mark the beginning of the process of change of that social norm over time? In a recent article, Ellen Brown points out that the idea of using coin seigniorage to pay off the national debt was first suggested in the early 1980s by a chairman of the Coinage Subcommittee of the U.S. House of Representatives. Does this count as the beginning of a process to change the social norm that Federal spending must be based on either taxing or borrowing?

How about the beginning of the MMT synthesis in 1996, and the thinking associated with it that the Governments with fiat currencies can spend freely by printing money? Is that the beginning? What about the acceleration of MMT work in the late 1990s and early 2000s? Is that the beginning of the change in social norms involved here? How about the publication of Ellen Brown’s book in 2007; which mentioned the possibility of coin seigniorage being used to disintegrate “the Web of Debt”? Is that the beginning?

I could go on with this; but you see the point. Unless we can agree on the starting point of the process of change for a social norm, J. D. Alt’s generalization is pretty meaningless for any coherent application.

He wants us to think that High Value Platinum Coin Seigniorage (HVPCS) won’t happen anytime soon because it violates a social norm, and these change only very slowly; but if we don’t have the starting date of such a change, we can’t very well evaluate whether we’re looking at an overnight change about to happen; or whether a change that happens tomorrow, or next week, or next month, has actually been 42 years in the making; say since Nixon took the US entirely off the gold standard; or even since FDR took the domestic economy off the gold standard 80 years ago.

Third, I have some background in Complex Adaptive Systems Theory (See Ch. 2), plus many years of research in Conflict studies, Civil Strife, mass movements, and the social sciences more generally. I know that when complex systems are having difficulties maintaining themselves at “the edge of chaos,” they can easily fall into the death spirals of either rigid mechanical order, or seemingly chaotic dynamics, before they reorganize into a new pattern that successfully maintains their identity as a complex system. During the process of reorganization new global properties of the reorganized complex system emerge in very short time frames. These new global properties can easily involve social and cultural norms that were never dominant in the previous state of the complex system subject to system transformation.

Does that mean that the old dominant social norms changed very rapidly or only very slowly? Again, that’s going to depend on your perspective. If you look at the rapid breakdown and transformation of the system involved you’d swear that the change was very rapid.

On the other hand, if you do a historical analysis, it’s almost never hard to show that the change you’re analyzing has deep historical roots and was a long time coming. Do I really have to cite historical examples on this point? What about the norm that the major European powers wouldn’t fight major wars against one another. That one lasted for 1815 – 1914, almost 100 years; and then was gone with the wind. How about the social norm, that Russia would always be ruled by a Czar? That one lasted for hundreds of years, until 1917, even if we date it from the first Romanov? How about the gold standard? How about slavery in the US? How about no taxes on income? How about the norm of not having a Central Bank in the United States?

Fourth, it’s important to keep in mind that social and cultural norms are properties of social systems, and that there are many levels of social systems ranging from families and small friendship groupings to international social systems. J. D. Alt says that there’s a norm against using the TDC as a plausible solution to the national debt, and he flat out claims that this is not how our society pays its bills.

Well, it’s certainly true that we haven’t done it in the past; and it’s certainly true that people working for, or identifying with, the FIRE sector are opposed to using PCS as a solution to the debt problem and take refuge in ridiculing us and trying to activate a social norm and frame that they think is dominant. But these things don’t show that there really is a social norm preventing this in the United States when viewed as a large-scale political/economic system. Or that President Obama has to move incrementally to change “the social norm” because he would have a problem with implementing High Value PCS with a bold lightening strike minting a $60 T coin, since the country as a whole would rise up in opposition to such a move due to the strength of the social norm that we shouldn’t use PCS.

There’s no evidence to suggest that this would be the case, and every reason to believe that most people don’t care how the national debt is paid off; so long as it’s paid off, and is not there to burden themselves, and “their grandchildren.” After all, most people are completely unaware of how deficit spending and debt instruments work, and completely unaware that “debt is not debt” as we MMTers like to say. What they do know is that the United States has more than $16.4 T in debt instruments out there. That scares them, because they’ve been made to believe that it’s their debt, and I think they really don’t care if this “debt” is paid off by taxing more than we spend, or through using platinum coins to get the Federal Reserve to create money out of thin air for Treasury to use in a way that has no obvious short-term effects on them.

Joe Wiesenthal and Inflation

Joe Wiesenthal’s formulation on inflation during the Chris Hayes panel discussion was a good one. But in Joe’s writing he’s taken pains to point out that while the inflation issue doesn’t affect the Trillion Dollar Coin (TDC); Higher Value PCS applications are likely to create inflation and perhaps even hyperinflation. Joe Wiesenthal has no basis for saying this that is apparent in his writings. But, it is a position opposed to HVPCS, and biases him towards what I’ve called “small ball” PCS applications, rather than game-changing ones.

Paying Your Debts and Living Within Your Means

I agree that this meme is powerful and representative of our cultural norms, and also that it needs to countered with explanations of why the public debt exists, and also that the issue of “means” is not financial, but involves our resources and our productive capacity. But I don’t agree that telling or teaching people this is the “only” way to counter the norm as applied to financial means.

Telling and teaching is important for both the short and long terms; but even more important is action that will remove the public debt, while not tanking the economy or causing inflation. This is what a $60 T PCS solution will do, that small ball PCS activity will not.

In fact, if the President used a $60 T solution to pay off large chunks of the national debt, people would quickly get the point that the debt existed only because Congress and the Executive blocked using coin seigniorage on the debt and the deficit and insisted that only taxing and borrowing could be used for spending. Using the coin would illustrate that there was never any issue of financial means. When that debt began to get paid off quickly it would be “a teachable moment;” one in which we could get the message across that the real constraints are in resources and capacity, and that we need to quit worrying about the financial end and start building a prosperous sustainable economy characterized by economic and social democracy.

Currency Issuing Incrementalism

J. D. Alt’s last point is that “issuing” currency to pay for deficit spending might be introduced incrementally, “instead of threatening the bond market with total annihilation.” He thinks that if we propose to use seigniorage to do deficit spending on specific policies that would be clearly of benefit to the nation, and these policies were legislated than as people saw the benefits, and also saw that there was no inflation accompanying the currency issuance, then the social norm against using seigniorage or just issuing currency without debt would change, and then there wouldn’t be “so much giggling” about us PCS advocates, by panelists on TV shows representing the FIRE Sector.

The first problem with this is that people like me who favor HVPCS, don’t favor “threatening the bond market . . . “, but rather, destroying its foundation, new debt issuance, nearly over night. I don’t intend this flippantly. I don’t think the President should threaten HVPCS. I think he should just do it; and let the chips fall where they may.

The second problem with this and similar proposals, is that neoliberal deficit hawks will be unalterably opposed to PCS, no matter the context in which it is used. They will work as hard as they can to prevent the PCS camel from getting its nose into the public financing tent.

They will do everything possible to repeal the PCS legislation. And they will try to impeach any President who uses PCS for any significant purpose at all, because they know very well that if either small ball or game-changing PCS works, then their austerity politics game, so important for the developing plutocracy, is up.

J. D. Alt assumes that “small-ball” or incremental PCS will be less threatening to the FIRE sector than game-changing PCS, and so, will elicit less vigorous opposition. It is the same kind of assumption that led progressives to turn away from supporting Medicare for All, and to push for the “public option” sparkle pony, prior to caving in to the ACA, because “it’s better than notihing,” and the same kind of assumption that led the Clintons to propose managed care rather than Medicare for All in the 1990s, which got them a great, big fat loss to the opposition.

These kinds of “pre-compromises” do not work, because they elicit just as vigorous opposition as a “full-monty” option, would, but don’t offer the same level of benefits to people. That is, people often don’t love the compromise legislation, so you can’t get them to support it, or to support you in the next election. That’s certainly what happened with the ACA, which was a big factor in costing the Democrats the election of 2010.

In the case of PCS, incrementalism will lead to a series of exhausting political conflicts in which progressive victories will be pyrrhic, because they will drain political capital, but won’t solve the problem that people are concerned about, and that the deficit/debt hawk/austerians use for leverage to make austerity politics seem reasonable. That problem is not getting PCS or currency issuance accepted. But acceptance WILL occur as a by-product of solving the problem that most people care about.

That problem is a national debt that seems self-evidently outrageous in size  to most people and opposed to common sense. We can’t solve that problem in a visible way that people will instantly understand with ‘small-ball“ PCS. We can only solve it with game-changing PCS, that eliminates the national debt, covers projected deficits for a long time to come, and so transforms the basis of progressive politics addressed toward the economy.


The idea that we need to move slowly with policies that will significantly change politics and economics, because social norms are arrayed against such policy changes is perhaps the central idea of Conservative Ideology (notice I’m using the capital “c” and not the small “c” here). Edmund Burke might have made the same argument against PCS as J. D. Alt put forward in his post.

It is an argument that is vague in nature, lacks criteria for application, and is opposed to the rational progressive temperament that is in the tradition of long-time MMT authors like Bill Mitchell, Randy Wray, Warren Mosler, Mat Forstater, Stephanie Kelton, Scott Fullwiler, and Pavlina Tcherneva. And it’s also opposed to the temperament of newer MMT writers like Marshall Auerback, Mike Norman, Bill Black and Michael Hudson.

The position of MMT is that the preferred situation for a nation sovereign in its own fiat currency is that its Treasury Department simply create currency in the act of deficit spending without issuing accompanying debt. Let’s be clear here.

A $60 T or $100 T platinum coin would, if minted and deposited, achieve this MMT preference for some time to come. Not forever, but it would be the proper pilot experiment for legislating that MMT preferred change, because it would give people years to assess how that kind of system would work. So why aren’t all MMT writers supporting this change? It isn’t quite pure MMT; but it’s damned close, and much closer than incremental PCS would be.

The counsel of pursuing incrementalism makes no sense here. There are some problems that incrementalism just won’t fix. Getting rid of the national debt, and the discomfort of people with it, can’t be done incrementally, because the opposition to incremental initiatives would be too fierce, and the benefits from those initiatives too little, to justify the political conflicts that would ensue. Also, there’s the question of opportunity.

Right now, the President has the opportunity to make High Value $60 T PCS a fait accompli, and to eliminate fiscal austerity politics forever. How long that opportunity will exist I don’t know. But it is much more risky to give the opposition a chance to mobilize against PCS, than it is to just mint that $60 T coin, get the electronic credits into the public purse (the TGA), and the begin to pay off huge chunks of the national debt quickly.

That is what will get “issuing currency” accepted. But incremental “small ball” PCS that will be fought with propaganda, money, law suits, mass media opposition, and constant ridicule, before it has had a chance to be effective, won’t work, and we shouldn’t advocate it.

The right  kind of answer to Heidi Moore, Matt O’Brien, and others who ridicule HVPCS, isn’t PCS incrementalism. It’s an answer like the ones here and here. It is, more directly, #mintthe60Tcoin

144 Responses to Good Luck Stopping Austerity With Incremental Platinum Coin Seigniorage!

  1. Heliocentrism was not adopted by a gradual process of “OK, let’s not use that particular epicycle anymore, now shift your gaze halfway between Earth and Sun.” MMT doesn’t require overturning religiously-held social norms of paying one’s debts and living within one’s means. It does require accepting that these notions have no meaning as they are commonly applied to the federal government. “Paying one’s debts” is nothing more than managing savings accounts at the Federal Reserve Bank – that “borrowed money” doesn’t pay for anything; it just sits there until returned to the saver; it is a service of the federal government to provide a safe depository for savings. “Living within one’s means” has meaning only in terms of the productive capacity of dollar users; we can’t spend beyond the availability of idle labor and unused capacity; what the non-government sector doesn’t make a claim on, the federal government can clear the market of.

    • All true; but it will take years to move people to or paradigm through education. In the meantime; we can ease the way by using seigniorage to pay off the debt. In itself that will demonstrate to people that the national debt was never meaningful for government; but a condition that could be wiped out at any time by the whim of the government. And also, it demonstrates at the same time that fiat currency is just money created by the will of the government. That is a lesson people need to learn; because the Fed has treated that lesson as if it is a secret of the temple.

  2. What I have learned from my studies as a sociologist is that the whole concept of a norm is over-played by positivist aka conservative political economics and conventional sociology. If the focus is upon outcomes rather than norms as produced by conformity, social change and the change of economic “norms” can be reduced to their familiarity, not to their supposed functionality.

    The Highlander Folk School was in large park the epicenter of the US Civil Rights movement. The way they taught community advocacy and organizing was not in a didactic fashion, but by practicing the principles that they were advocating. Socializing social movement, as distinguished from something like the Tea Party mutual admiration culture, practice and demonstrate the practices that they want to be reproduced. By Ellen Brown’s expressed admiration for MMT and by the increasing pain level people are open to alternative capacities. Typically when allowed people will innovate to improve their communities. This is a mater of offering an opportunity for a test drive for those who are not invested or interested in the more intellectual side of the discourse.

    Josiah Warren is usually dismissed as an individualist anarchist, which become problematic when his intentions are considered. His naming of what he was advocating was “Equitable Economics.” His “Equity Stores” priced goods on the basis of the labor an equity embodied in each good or service. Mutualist Economics historically became subsumed into Institutional economics. The point here is that what would a micro system based upon MMT/FF look like. The Twin Oaks Intentional community has had a labor credit system which largely congruent with MMT/FF since about 1970. They established their labor credit system based upon what functionally produced the outcomes and effects that they needed. What they have not done is follow the development of functional and institutionalist economics at the academic level. Their experience becomes a somewhat naive example and relative success that can be used to validate these alternative norms.

    Turns out that there are both historical and present examples of what are micro currency systems that are in the majority consistent with MMT/FF. We are still a good distance from having a large enough constituency to force the captured political institutions to reform by a ballot box plebiscite. The tactical point breaks down to how do we move the MMT/FF model from the discourse of the innovators being reproduced by the early adopters, and then by the early majority adopters.

    When Argentina de-pegged their Peso from the dollar they had a period of rapid deflation of the Peso’s value. In that period, there was was great turmoil relative to what was possible and what were the passed norms. A small group started a community currency process that grew into a multi-nodal trading system which included it use by some 1.5 million Argentineans. It was poorly conceived in several ways, including being based upon paper coupons which has kindred to the Ithaca Hours model which is/was essentially a substitution system. Its currency was greatly abused in multiple ways including by counterfeiters. The trading markets were often poorly managed, which was to be expected by its quick growth. The original intention was that the member participants would be both producers and consumers. However, perhaps a majority used this market network to sell of surplus goods to him them bridge through that crisis. Producers of different types would trade for the currency units.

    The US is not Argentina, one detail is that the population had a common experience of handling and using currencies from different sovereign systems. Argentina also has had an active history of communitarian and socialist cultures. This has been in part demonstrated by the recuperated businesses that had been abandoned for various reasons. Relative to finding communities which might be friendly to learning more about what the norms would be within an MMT/FF currency systems, it is possible to use a principle of relative sovereignty for the sake of the educational value and to building a broader constituency. This part is about the adoption of alternative technologies and noms.

    Attempting to argue economics is a simple rational fashion ends up very likely to be a waste of time. The primary reason is that the resistance is not about logic or science, but it is about an entrenched ideology and the preservation of rent to the plutocrats. As it has been said the most productive investment for a corporation has been a contribution to a well placed politician. At this level it will sustain itself until the whole premise of an economy runs aground, unless a broader and more vocal consensus can functionally oppose the muddled system we now have which is a bastard Keynesian model for the economic royalty, and a debt based set of norms for the 99.9%

    There is a great deal more to this sort of culture shifting by intention as related what seems in the majority a technology adoption process. The PCS and HVPC context is a valuable educational tool, and it has a limited potential until a broader constituency can be established, imo.

    • I really appreciate this comment, and agree with nearly everything in it including the limited potential of PCS. Also, I’m familiar with the Highlander Folk School and how it worked. I visited there in the Summer of 1960, when, with some friends we drove to Los Angeles from Ithaca New York to demonstrate for Civil Rights at the Democratic Convention. On the way back we took the Southern route across the country and stopped at the Highlander Fold School to see what was going on. That was a short, but wonderful experience to observe what they were doing for a couple of days. That trip was the first time I heard people sing We Shall Overcome, and seeing the activism, spirit, and moral courage of those kids, even younger that I was in those days persuaded me that they would be successful in changing the world we lived in. And they did!

      • To put it another way, because the Buckaroos and the Denison Volunteer Dollars have been demonstrated to be valuable in an academic context the principle is a likely candidate to take the mode and means into the more local community context. Beneath these two example is a principle of relative sovereignty.

        We have been working toward establishing an interpretation these more limited systems for local communities. The Community Reserve Exchange is not a panacea but a way of doing public education to boost economic literacy. It is being programmed in Drupal, as a permutation of the LETS model. The Bristol Pound version of the LETS model has the recognition by the Bristol city government that it will accept the Bristol Pound in payment of its local taxes. That innovation has come out of the Transitional Town Network in England. The TT network is effectively open to the MMT/FF paradigm, and thereby broader adoption via the technology adoption process/culture shifting, which can be a step, not the whole distance toward reform at a broader level.

        Anywhere there is a consumer cooperative in the US there is a potential for the adoption of MMT/FF by this means and because these voluntary associations already have a history of implementing and relying upon labor credit systems.

        It has seemed a bit dull to only focus upon a national reform agenda and as a direct confrontation of the nascent plutocracy. Abbie Hoffman had a certain practicality in suggesting that “you can’t contain a three dimensional reality in a two dimensional concept. This brings to mind as well the notion of regarding the domains of the social sciences as essentially beach front property, rather than distinct and disembodied domains. The collaboration of Adolph Lowe and Alfred Schutz deserves some recognition here as well. There is a certain ego-centrism in the assumption that monetary and fiscal reform has to be proposed and supposed ONLY through the positivist assumptions of economic and political un-science. This inconvenience is why in part the old school version of political economy was banished from academia. The other reason is that it favored an equitable framing.

        • Not sure what you meant by this:

          “The other reason is that it favored an equitable framing.”

          But I like the thinking you outlined in this reply.

          • Ok, this is also relative to Joe six-pack and the soccer moms, they are typically not interested in the details of economic theory or modeling, but they are very interested it such ideas as “Jobs Guarantee Programs,” particularly in these time. The cultural values of small “d” democracy are embedded in MMT/Ff, as well as in the spectrum of what presents itself as “socialism,” except for perhaps the “social order and societal stability” version of the neo-liberal….

            Warren placed the value of equitable economics center to his advocacy. The neo-liberal institutionalist take on economics posits a span of truisms, and there is actually a disjunction between premises and the actual practices and outcomes. What I tend to describe as the inequality socialist presentation often ends up have a level of dishonesty in that it performs a ritual hand wringing about inequality, and then offers up a repackaged form of the neo-classical. Lowe’s notion of “functionality” was explicitly about having the outcomes being produced by the theoretical and associated practices. You can’t actually expect to produce democratic results from a neo-liberal model that is based upon “benign” plutocracy or attempting to persuade the plutocrats. Gresham’s dynamic is entirely predictable in its fundamentally anti-social values. Old school political economics called to question the presumptive nature of “trickle down” and benign plutocracy, because at least there was an sense of integrity between professed objectives and the actual outcomes. Lowe’s instrumentality assumes an onus in favor of democracy.

            Coming back to Warren, beside being an avid advocate of equitable economics, a piece that does not come through in his writings, is that he was also very practical, not utopian in the usual sense. He was a professional level musician, musical instructor, an inventor, and industrialist. He made his fortune through his industrial pursuits, and then spent his time traveling and giving lectures from Long Island to Cincinnati, and supporting a list of intentional communities. He was also part of a western/Atlantic discourse relative to the mutualist economics which came out of the commoning tradition even prior to the English Reformation, and which produced a variety of mutualist movements including cooperatives and trade unions. He was most active between about 1820 or so up to about 1850. It is not a coincidence that his Cincinnati Equity Store operated from 1827 to 1830 or that the Rochdale Pioneers Mutual Aid Society was hallmarked as a success in 1837/40. The framing of mutualism was reflected in the outcomes.

            MMT/FF has a strong influence of the progressives that were part of the movement for accountability to democratic values of the 20th century “Great” Depression. To a strong extent MMT/FF has revived that sort of political economy. I don’t know that it will make a difference to people less interested in the promises, than the outcomes, and at least there is a long term consistency of both the framing and outcomes. One of the threads of the fiscal shake down has been to co-opt that legacy by implanting corrupted interpretations of history and democratic values. Part of this is the drone of framing that presupposes that social movements and democratic instrumentality are only possible through the demi-divine intervention of political white knights. MLK jr is a counter example who was an orator speaking for a social movement, whose legacy has been considerably trimmed to fit the white knight intervention ideology.

            Keeping the Gresham’s dynamic at bay requires countering the imputed world view of so called “positive” science and history with Lowe’s sense of framing and instrumentality. Please, excuse my circuambulation.

  3. Enjoyed this post, Joe, and your full throated support for the PCS. There have, indeed, been too many giggles around a serious subject. Indeed VSP have ridiculed it as ” quackery”. I am not a believer in incremental changes since that just allow the reactionaries time to adjust. But I do think the introduction cannot be a ” surprise” either. If we had gotten through to someone in the

  4. Sorry, hit submit too soon.
    Just to add the idea has to get to someone who can make a difference. That has not happened. Heavens know who or how or when it happens.

    • I don’t know who can make a difference, but I am persuaded that the best way to handle this is to make it a surprise. That’s what FDR would have done, and that’s what the great Presidents do, they just use the authority they have from Congress and act; and then after it’s a fact on the ground, they sell it!

      • Not at all sure FDR would do that. In any case, it is a risky move. Congress would not be behind him, even all the democrats. There is a good chance someone would try to impeach. So I would prefer some small selling period to avoid the shock.

        • The Democrats would never vote against him on this, especially when he explained that only debt would be repaid and other deficit spending appropriated by the Congress, and all the rest of the money would just remain there awaiting those appropriations. Of course, the Republican House would impeach him, but everyone would see that as a blatantly political move and would result in them losing the House in 2014. I’m absolutely serious about this. Given the law, minting a big coin is legally justifiable, not so everyone will agree on legality, but justifiable enough that the public will look at this in political terms and with the debt getting paid down what would be the beef? That the prerogatives of the Fed are somehow impacted. How many church members does the Fed have? The 1%? If the President did something that totally neutered the Fed, who among “ordinary” working or middle class people would care? Does the President lose in a popularity contest with the Fed and Ben Bernanke? Please, that will never happen!

          • I agree with Joe on this. It’s not even clear that the Republicans could get a majority to agree to impeach. There would have to be hearings and given the history of US debt payment, the 14th Amendment and the original Constitutional recognition of the legitimacy of the debt acquired under the Articles of Confederation, I think a very strong argument could be made that the President not only can, but is required to, pay the debts accrued by Congressional authorization. Some could even argue that failure to pay the debts duly incurred might be grounds for impeachment. This would also be a great opportunity to educate the public about monetary sovereignty, at least that part of the public that isn’t solely interested in stains on dresses. Let’s bring it on and get things settled.

  5. I’m a member of Ellen Brown’s Public Banking Institute (the NY Coordinator), and I can tell you she is skeptical of direct issuance of money by treasury, following the spending request of Congress, not because it can’t work. It clearly can and she’s said that several times, but she feels Congress is hopelessly politically deadlocked, and will never accept the idea that they could, as Lincoln did “coin Money (Art. 1, Sec. 8 of the constitution).
    Personally, I think the debt ceiling is an excellent opportunity to let the president use his executive powers to tell Treasury to pay the bills Congress has already authorized with either the TDC, or U.S. Greenbacks (better because there is no silly limit, and because it’s already been done – 1862-1996, begun by Lincoln). The president is REQUIRED, not just authorized to spend what Congress tells him to spend. And he can’t let the Treasury Secretary allocate amounts according to his whim either. That would be completely unconstitutional. If the congress will not authorize an increase in the debt limit, the president must direct Treasury to issue debt-free money, U.S. Notes.

    • That seems like an imminently sensible, logical and legal argument Scott, and it would certainly solve much of the current dilemma. Unfortunately, this would go against every belief and principle of the President’s financial masters – the issuing of debt free money is something they simply will not tolerate. That’s also why the logic, and even the legality of HVPCS, has very little chance of ever seeing the light of day.
      Whether we like it or not, MMT is actually talking about ‘revolution’. Reforms are not the answer to tyranny, and tyranny cannot be cured with words, and ‘tyranny’ is the most apt description of the current US political climate.
      The conscientiousness of the people has to change, and MMT has to become a mental structure, capable of specific demands, a concrete, practical issue, demanding a positive and inescapable answer.
      It is this crystallisation, this solidification into concepts easily handled by everyone, ordinary citizens as well as official, which must ignite the revolution against the current financial ‘norms’ .
      Revolution will sweep the house clean and start again. But revolution will only succeed when the concepts can be easily understood by everyone, and that pre-revolutionary mental state becomes a reality.
      But this psychological pre-revolutionary mental state is a phenomenon least understood of all.

    • Clonal Antibody

      Scott, you said

      U.S. Greenbacks (better because there is no silly limit, and because it’s already been done – 1862-1996, begun by Lincoln).

      But there is a silly limit on US Notes.The US treasury is forbidden by an act of Congress from issuing more than $350 million in US Notes. The original limit was placed by Congress on Lincoln in 1864. It has been changed a few times (last in the 1930′s) but has remained in the same ballpark (250m-450m)

      The platinum coin is the only currently lawful means of circumventing the debt ceiling and the limit on the issuance of US Notes.

      • That includes the computer kind of money as well.

        • See my other answer on this question, but in summary:
          Congress can authorize any amount it wants to. Then Congressman Ray LaHood tried to get $350 billion – 100X the old amount – issued to pay for transportation infrastructure, under HR1452 (1999 & again in 2003-04), and Dennis Kucinich’s bill (HR2990) would simply replace ALL federal reserve money with United States Notes.
          The constitution allows for Congress to “coin Money” of any kind, including paper money. In a series of Legal Tender Cases, SCOTUS upheld this right, culminating in the 1884 decision: Julliard v. Greenman, an 8-1(!) decision. Robert Nattelson talks at length about this in

          • Scott, I agree with the thrust of your reply and am generally in favor of getting the private sector out of banking. Like Warren Mosler, I think the FIRE is far more trouble than it’s worth to the US. However, I’m not focused right now on pushing for Kucinich’s, or any other legislation, because it’s too easy to block any legislation that would involve REAL change in how we do things in the financial sector. Also, if we could pass legislation in that area the first thing I’d like to do is to end the Fed as an independent agency and place it within Treasury, thus giving Treasury the power to deficit spend by itself creating money as it spends.

            If we look at the three measures we’re discussing:

            1. The Kucinich Bill

            2. Folding the Fed into the Treasury; and

            3. Minting a $60 T or $100 T coin,

            My preference or is 1, 2, and then 3. But given that ordering, it’s also true that 3, requires no legislation, and so is the easiest option to get done right now. That’s why I write so much about that option and so little about the others.

            • See my other comments and see if you don’t agree that re-using an established form of money – U.S. Notes, actually our longest lasting form of currency – isn’t easier to do than the newfangled, guffaw-inducing, yet legal, TDC (or even more gasp-inducing 60T coin).

              • No, I don’t think it’s easier because I think there’s still a legal limit on the amount of currency that can be issued in the form of US notes. If you could show me that this is not the case, then I’d be out there promoting US Notes full bore. Of course, I’d prefer a Trillion Dollar US Note to a TDC. Or a $60 T US Note to a $60 T coin.

                • From page 9 of the Congressional Research Service Report for Congress:
                  The Debt Limit:
                  History and Recent Increases
                  Updated April 29, 2008
                  D. Andrew Austin
                  Analyst in Government Finance
                  Government and Finance Division

                  “The Treasury reduced federal debt held by these government accounts by replacing it with non-interest-bearing, non-debt instruments, which enabled it to issue new debt to meet the government’s obligations.”

                  So, the Treasury has already issued non-debt instruments (it doesn’t say what kind) previously, when the debt ceiling was reached, as this report describes in more detail here. ( documents/ organization/”‹ 105193.pdf – remove spaces when using URL).
                  If it did it in 2008, Treasury can do so again. Since USNs are, by their own definition, non-debt instruments, why can’t they be used to meet the “government’s obligations”?

      • Was the 1864 limit embedded in the National Banking Act of 1864? Or another piece?

        • See:
          “…the Third Legal Tender Act,[13] enacted March 3, 1863, had expanded the limit to $450,000,000,”
          “In the early 1870s, Treasury Secretaries George S. Boutwell and William Adams Richardson maintained that, though Congress had mandated $356,000,000 as the minimum Greenback circulation, the old Civil War statutes still authorized a maximum of $400,000,000[20] – and thus they had at their discretion a “reserve” of $44,000,000. While the Senate Finance Committee under John Sherman disagreed, being of the opinion that the $356,000,000 was a maximum as well as a minimum, no legislation was passed to assert the Committee’s opinion. Starting in 1872, Boutwell and Richardson used the “reserve” to counteract seasonal demands for currency, and eventually expanded the circulation of the Greenbacks to $382,000,000 in response to the Panic of 1873.[21]
          In June 1874, Congress officially capped the Greenback circulation at $382,000,000,…”
          “The United States Note was a national currency whereas Federal Reserve Notes are issued by the quasi-federal Federal Reserve System.[26] Both have been legal tender since the gold recall of 1933. Both have been used in circulation as money in the same way. However, the issuing authority for them came from different statutes.[24] United States Notes were created as fiat currency, in that the government has never categorically guaranteed to redeem them for precious metal – even though at times, such as after the specie resumption of 1879, federal officials were authorized to do so if requested. The difference between a United States Note and a Federal Reserve Note is that a United States Note represented a “bill of credit” and was inserted by the Treasury directly into circulation free of interest. Federal Reserve Notes are backed by debt purchased by the Federal Reserve, and thus generate seigniorage, or interest, for the Federal Reserve System, which serves as a lending parent to the Treasury and the public.”

          • “Federal Reserve Notes are backed by debt purchased by the Federal Reserve, and thus generate seigniorage, or interest, for the Federal Reserve System, which serves as a lending parent to the Treasury and the public.”

            Scott, can you please clarify the banking mechanics behind this statement, especially the “backed by debt purchased by the Federal Reserve,” and the “thus generate seigniorage or interest for the Federal Reserve System? Step-by-step, please.

            • Well, first, this was a quote from the entry on U.S. Notes on Wikipedia. Here is the quote from which you extracted the phrases in question:
              “The difference between a United States Note and a Federal Reserve Note is that a United States Note represented a “bill of credit” and was inserted by the Treasury directly into circulation free of interest. Federal Reserve Notes are backed by debt purchased by the Federal Reserve, and thus generate seigniorage, or interest, for the Federal Reserve System, which serves as a lending parent to the Treasury and the public.”
              This is a bit confusing so yes, let’s break it down a bit.
              1. Seigniorage, as you know, but maybe others here don’t, is the difference between the cost of producing money and its face value. This is a bit antiquated in the computer age, where “money” can be created at the touch of a keystroke, so let’s stipulate we are talking about PHYSICAL money in that case.
              2. The quote is actually an UNDER representation of reality, because a United States Note can circulate free of BOTH interest and principal. There is no requirement to repay either to a truly sovereign government that can generate money at will (Since you already spelled out the reasons why inflation can be controlled, even with a 60T coin, I won’t answer the inflation argument here too). The point is, to call a U.S. Note a “bill of credit” may be technically correct, but as Michael Hudson points out here: and others are increasingly pointing out, it is POLICY which dictates what can be pre-funded, not economics. Further, if there is no real need to tax back the money that is created, than in what sense is that money a form of debt? (There IS a need, as Hudson and Henry George point out (and me), to tax in order to prevent resource monopoly of land/location, but that is different form needing to tax for revenues).
              3. FRNs, by contrast, are basically payments for purchases of debt, as the quote says, for Treasuries. That is, Treasury issues Treasuries, that are paid for in FRNs, which are than credited to the Gov’t account to be used for whatever Congress has authorized. In practice, Congress authorizes and then Treasury goes about borrowing what it can’t cover from taxes. This is an important chain of events, in that it supports my contention that Treasury is OBLIGATED to cover what Congress has already authorized, and the president, and certainly not the Treasury secretary, CANNOT simply decide to pay for one thing and not the other if Congress imposes a debt-ceiling. Rather, this is an indirect call to produce debt-free money in the form of the established Greenback (U.S. Note).

              • Scott, I’m sorry but I asked what you meant by saying that FRNs are:

                “backed by debt purchased by the Federal Reserve,” and the “thus generate seigniorage or interest for the Federal Reserve System?”

                What I see is that most money is not in the firm of FRNs, but in the form of reserves. I also don’t think that the reserves are “backed by debt.” Reserves issued by the Fed may be accompanies by debt, but they are created out of thin air as fiat money and they are not backed by anything. There is no “backing” of fiat money. Its value is tax-driven however.

                Also, most Treasury debt isn’t bought by the Federal Reserve. It does own about $1.7 T in debt instruments bought from the market, but the other 14.7 T was “bought” by other Federal agencies or the public, including other nations. Not by the Fed. On wikipedia it’s good to quote it, sometimes. But one has to be careful.

                The article on US Notes wasn’t written by people following a post-Keynesian approach, and whenever it gets the least bit into theory or the relations among the Fed, the Treasury, and the public it makes us think “WTF!”

                • The article wasn’t written in a post-Keynesian approach because Greenbacking is pre-Keynesian. Keynes assumes money must be created as debt. Greenbacking, in its pure form, proposes creating money, debt-free.
                  I believe your $1.7 trillion figure is way too low as to what the Fed purchased. Says Senator Bernie Sanders: “The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression.”
                  And Prof. Randall Wray of the Univ. of Missouri (who works with Michael Hudson), says $29 trillion has been lent, or re-lent: True, this is often in rotating loans, but the point is that it is still outstanding. He also says:
                  “Bloomberg provided an in-depth analysis of Fed lending to the biggest banks, reporting a sum of $7.77 trillion. On December 8, Bernanke struck back with a highly misleading and factually incorrect memo countering Bloomberg’s report. Bloomberg has largely vindicated its analysis.”

                  Sorry, I don’t understand your other questions.

                  • Scott, I was referring to the Treasury debt-subject-to-the-limit that the Federal Reserve holds when I cited the $1.7 T.

                    You figures on the Fed’s extension of credit facilities to banks are correct, but they don’t represent Treasury debt, and are not subject to the limit. Anyway here’s the link: See Table OFS-1 for the amount ($1.744T) owned by Federal Reserve Banks at the end of fiscal 2012.

                    Also, post-keynesian approaches like MMT are not Keynesian. That’s the point. And my point about post-keynesian approaches is that they are better economics then Pre-keynesian, keynesian, or neoliberal approaches, and further that the wikipedia article is not good economics when it gets the least bit into theory, as it does when it says that the reserves are “backed by debt.”

                    The reserves created by the Fed aren’t backed by anything except the full faith and credit of the United States.

                  • I can’t read the mind of the original Wiki author, but i believe what he/she is referring to is the double entry accounting notion that all banks assets must be balanced by liabilities. Hence, an asset of “reserves” is also a liability to pay them out.

                  • Joe, can the Fed create/issue reserves by fiat? (Not in exchange for any other asset? Not as loans?) I understand it sets the price of its money by fiat, but I thought it was the Congress that brought about issuance of net new money/reserves by fiat when it deficit spent, i.e., when it borrowed/issued [public] debt. That “backed by debt purchased [e.g., public debt]” characterization thus appeared to me to be correct.

                • The Federal Reserve is in fact a World Bank. Almost all international trade is conducted in US dollars.
                  It must therefore make US dollars available to banks in every country doing international business, including Russia and the Chinese, otherwise trade would be severely constrained. It does this by making loans to them with some form of collateral, which counts as reserves. I don’t know what these comprise, but I imagine they would be in the form of bonds. I read somewhere, that when a central bank buys its own governments securities, it is called quantitative easing and when it buys other bonds it is termed qualitative easing. It seems therefore that the Federal reserve indulges in more qualitative easing than quantitative easing.

                  Since all dollars exist as debts with a corresponding credit, it must be that the Federal Reserve is the originator of all US dollars aka Federal reserve notes. How many trillions is this worldwide ?

      • No, it’s not. See my other replies to this issue, but basically, Congress can “coin Money” in any quantity it wants to, in the form of U.S. Notes, as Lincoln did, as Ray LaHood proposed (HR1452 – 1999 & 2003-04) and Kucinich proposed to replace ALL currency with U.S. Notes.

        • I think you’re evading the point made in Clonal’s reply. He said that the only legal means for Treasury to create more money than the limit of US notes was through PCS. Your reply, says that Congress has an unlimited power to create money. We know that very well, and there’s no need to constantly reiterate it. Clonal’s point was that the Treasury can’t do that without further legislation by Congress, which, of course, it true.

          • This MAY not be true at the moment either. I am currently working on an article for Opednews and Huffington Post about this, but here is a preview:
            In fact, it is the executive branch, whether the president or the Treasury, that is in violation of the Congress’ authority under the Constitution to “tax, borrow and spend.” The executive branch does not just have the “authority” to execute the will of Congress to spend on thing Congress has mandated, it has the requirement to do so. Furthermore, it cannot pick and choose a bit from column A and a bit less from column B and so on. It must spend 100% of the authorized amount for repayment of the debt as it spends 100% for the military and so on.

            So then, does the Executive have an alternative when Congress has imposed an artificial debt ceiling seemingly preventing it from spending to fulfill its own requirements, or, more accurately, those requirements that have ALREADY been met but simply not paid for (a violation of contracts with every vendor that is “stiffed”)? Well, the 14th Amendment has already been much discussed. Completely unmentioned it the precedent set forth in the original Article VI which provides that all debts incurred under the old Articles of Confederation were to be paid after the Constitution was adopted. That is twice, once after the Constitution was adopted, and again, after the divisive Civil War, that American government has dedicated itself to repay its debts, even at a time when they were even more onerous than now. A pretty clear precedent.

            But there was something else that came out of the second commitment. At the height of the Civil War, when the NY banks wanted 24-36% interest on loans to the U.S. Government, president Lincoln, via the Treasury Secretary Salmon P. Chase, created United States Notes, directly from Treasury, debt-free, with (after the first year) no redemption in species (gold) but simply money. The principal need not be repaid, despite a subsequent SCOTUS 8-1 ruling in 1884 in Julliard v. Greenman that this was only allowable under the “borrowing clause” of the constitution.

            This is an even better option than the coin because it shows ANY kind of money, coin, paper, and even electronic, can be “coined” to pay for those things Congress has already mandated. There is currently a law, undoubtedly unconstitutional, but going back to the original legal tender laws under Lincoln for U.S. Notes, and affirmed by the Treasury’s Report on the Debt, that forbids U.S. Notes from being counted toward, or being used to pay, the debt. Fine. Let this questionable law stand. Use the authority to spend the Treasury account in Federal Reserve Dollars toward the debt, while using U.S. Notes to pay for everything else that there is insufficient funds in FRNs to pay for. This will make it clearer than anything where and how money is actually created.
            The president has not just the option to do this, but the requirement. He would just be following the constitution, something this so-called constitutional scholar has repeatedly failed to do.

            • To use US Notes, you have to show that the limit placed upon the money value of those in circulation, no longer exists. I read your post, and I still don’t see a clear argument that it’s no longer in place. Forget about all your contextual stuff, and the various asides that don’t target the question at hand, and just focus on this answering this question. Where is the bill that repealed the limit on US Note issuance, and when was it passed? And if it wasn’t passed, then what delegation by Congress gives the Executive the right to issue US Notes of unlimited face value?

              • I could turn that around slightly and say, “What gave Treasury the right to discontinue printing US Notes”? They just stopped in 1971, claiming – falsely – that there was no difference between them and FRNs. What was their authority to do that then? If Congress did allow Treasury to go unchallenged in SUPPRESSING production, then why should they/could they object to RESUMING production?
                After that, it is a matter of how MUCH.
                I maintain the executive branch is required to carry out the will of Congress, nothing more and nothing less. The president can’t create new money to fund unauthorized expenditures, but must create debt-free money to meet the authorized ones. What are the executive’s options otherwise? At the very least, the executive should choose the least bad option, which in this case ought to mean fulfilling Congress’ intent with debt-free money, not deciding on its own what the fund, not to fund, and whether to default on debt obligations and when – all clearly in violation of the constitution under both the 14th amendment and at least the spirit of Article VI.

                • Again, you’re evading the point and my question. Perhaps the Treasury had no right to stop issuing US Notes and is now violating the law. But that is neither here nor there; since if it had continued to issue US Notes it would still have been limited to $351 million in circulation at any time, and therefore could not supply “debt-free money” to the US now. However, PCS can provide that money.

    • Printing Treasury Notes beyond a limit too small to make any difference is illegal. But using platinum coin seigniorage isn’t. Also, if Ellen is skeptical about Congress, then I think she should think about what will happen in Congress if the Treasury suddenly has $60 T in the bank and is far from running out of money. I suspect Republicans will suddenly hit a lot of pressure to pass programs that people like but will cost money; and that Democrats will suddenly revert to an earlier identity when they no longer saw the need to be “fiscally responsible” but still were concerned about full employment, universal health care, reinventing infrastructure, education, energy foundations, and solving environmental, real sustainability, climate change, and inequality problems

      • “Printing Treasury Notes beyond a limit too small to make any difference is illegal.”

        So why not issueUS Treasury Bills with a zero interest rate ? And print them up to look exactly like US dollars, without the Federal Reserve written on them.

        • Even a zero-interest bill, if you could sell it, would be part of the debt subject to limit. The principal is debt.

          • It is certainly appealing— bonds as near perfect substitutes for cash. Only difference is they come due one day. So there would be a limit on how many could be outstanding.

            • What is the difference between a zero interest, zero term 1$ bond and a dollar bill? It seems to me they are functionally identical. Bonds are redeemed for dollars, and a dollar can always be “redeemed” or exchanged for another dollar. If bonds are debt instruments, then dollar bills are debt instruments – they are both IOUs, payable in dollars.

              • In theory that makes sense. But there is a part of the US code that defines the instruments that shall be considered “debt subject to limit”. It might be somewhat arbitrary, but its the law.

        • Because those would be redeemable in full in currency, and so would count against the debt limit. The issue isn’t the interest, it’s the principal. So, for example the Treasury could issue consols which are instruments that pay interest in perpetuity, but never require principal repayment. Consols would not count against the debt limit; so Treasury could use them to get around it. I against that, however, because I don’t like the idea of the Federal Government being constitutionally obligated (14th Amendment) to pay interest to rich people, banks, and foreign governments forever. PCS is a much better solution that that.

      • That simply isn’t so. Lincoln produced U.S. Greenbacks in quantities up to 40% of the currency during WWII. Ray LaHood – then Congressman, now transportation secretary – created a bill (HR1452) that would have created $350 billion in U.S. Notes to pay for transportation infrastructure, interest-free (it could have been principal free too, but LaHood’s bill required repayment of principal alone). Kucinich’s bill (HR2990), would have replace ALL FRNs with USNs. There is no limit to the amount of U.S. Notes that can be issued, just a limit under the OLD issuance, which was lowered form $450 million to $351 million in the 1870s, then left that way for over a century, under indeed, it was too small to matter. In 1996, Treasury burned its last stock, claiming falsely that there was nothing USNs could do that FRNs couldn’t do. In fact, the seigniorage difference makes it impossible for FRNs to perform the same function as USNs (just like coins) as a matter of accounting fact.
        See also the lawsuit at – my petition to revive USN printing is exhibit B.

        The problems with Congress, as Ellen agrees, are political and ignorance. They mostly believe the government is like a household, or the corner store, and must “balance its books” and “live within its means” – meaning in their incorrect understanding, to live within the tax receipts it brings in. The president is no better in this regard. They have a moral misunderstanding related more to a misplaced strain of Calvinist thinking, or even puritanism, that has nothing to do with how nearly all money is created, as debt. The last time the debt was fully paid off was 1936, by Jackson, and we went into an immediate and very deep depression as result of having not enough money remaining in circulation. The Keynesians got it half right, and the MMT folks are closer still, but neither quite grasps that we don’t need debt to have money at all. Greenbacking – issuance of debt-free money direct from Treasury – accomplishes this in a way even MMT cannot (because it still allows for Treasuries to be issued to “buy” dollars, just ignores the debt, pretending the deadweight loss of interest payments through unnecessary middlemen does not matter). Just yesterday I heard in an economics class that we need to pay the Chinese in order that they will buy our stuff, when what we are really doing is subsidizing their low wages in China to steal our jobs. Since interest payments are a form of tax, that means people are paying to export their jobs to China!

        • I agree that with new legislation Congress could delegate to Treasury the authority to create US Notes to implement Lahoud’s bill, or Dennis’s, but Congress’s authority isn’t at issue in this discussion. What is at issues is whether the Executive has the authority to tomorrow morning to get the Secretary to order the Bureau of Engraving and Printing to make a $ 1T or $60 T US Note that would be legal tender. You say:

          “There is no limit to the amount of U.S. Notes that can be issued, just a limit under the OLD issuance, which was lowered form $450 million to $351 million in the 1870s, then left that way for over a century, under indeed, it was too small to matter.”

          Right now the outstanding US Notes thought to exist have face values totaling $239 million. So, if the Treasury started issuing US Notes again, it seems that it could issue $112 Million more in US Notes and then it would hit the limit. Please explain why this is wrong and why the power of Treasury to issue notes of arbitrary face value is unlimited right now. Where is the delegation of legislative authority to issue notes in this way?

          • If you dig into the lawsuit being pursued by Cliff Johnson, at, you’ll see his reference to the Tresury website and other places, where Treasury asserts that USNs were discontinued because FRNs perform the same function. Johnson quotes the Treasury website and says:
            “In particular, its website’s ( “Legal Tender Status” and “US Notes” pages thrice dismiss United States notes as obsolete since 1971, by the following categorical falsehood:
            “United States Notes serve no function that is not already adequately served by Federal Reserve Notes.”
            In fact, only United States notes adequately serve the functions of: (a) large, direct, prompt debt reduction; (b) interest-free financing; (c) exact economic tailoring; and (d) pay-as-you-go, collection free, flat-tax funding. In particular, Federal Reserve notes cannot serve the function that United States notes serve in Johnson’s petitions, of painlessly reducing the national debt held by the public.”

            So, since USNs ended production in 1971, Treasury has stopped issuing them as part of the original amount authorized by Congress. Since that time, two bills were introduced by Congress to authorize more.
            Does the president have the authority to pay for bills with USNs that Congress has not authorized? I believe Congress has mandated that the president MUST pay the expenditures it authorized, and if the borrowing limit prevents that, must find other ways to do so. The TDC is one. USNs are another, though in the latter case, the payment is not toward the debt but towards everything else, leaving more FRNs for the debt. Treasury is part of the executive branch, so the president certainly has authority over Treasury. So the question is really whether the entire executive branch is obligated to carry out the will of Congress, or perhaps whether it is more important to execute 100% of that will by using USNs, or to NOT avail itself of that option and instead partial pay for some things and not others (there is zero provision in the constitution, or even any law, that allows the executive to pick and choose what to pay for, and not pay for).

            • Scott, again, what does this have to do with the question of the limit on US Notes? You need to SHOW that the $351 million limit no longer applies. I still haven’t seen you do that; and unless you can I think you have to grant that US Notes cannot, unlike PCS, be a solution to our problems without further legislation.

              • I did a little more research on this:
                More on the $300m Limit on U.S. Notes
                I understand the limit, and the statute, but it doesn’t quite end there, IMO.
                The $300m limit traces back to the Specie Payment Resumption Act of 1875 ( See the original text here:

                The first two parts of this act relate to converting outstanding gold bullion into coin and issuing silver coins outright. These two parts have been superseded by America’s going off the gold standard (or silver) by Roosevelt and finally internationally, Nixon (perhaps not coincidentally, in 1971, when production of U.S. Notes was also suspended).
                So, is the third provision, limiting ” the Treasury to redeem the legal-tender United States notes in excess only of three hundred million of dollars” still in effect from the statute too? And what about ” H.R. 3474 (103rd): Riegle Community Development and Regulatory Improvement Act of 1994 ” shown here:
                The only section that deals with United States Notes is this one (renamed United States Currency Notes to “preserve clarity” in earlier legal references):
                (14) Section 5119(b)(2) of title 31, United States Code, is amended by adding at the end the following: “The Secretary shall not be required to reissue United States currency notes upon redemption.’.

                OK, so the Treasury is not required to reissue United States currency notes upon redemption (of other forms of currency), be is it allowed to? The Riegle Act is the one that “phased out” U.S. Notes, so this distinction is important, as is the question of whether the old $300m limit went away as well, with the same Act.

                Furthermore, the entire basis for limiting U.S. Notes to $300m, which wasn’t done until 1875 (actually fulfilled in 1878), some ~16 years after the original, and much higher ($447,300,203.10) amount was issued during the Civil War (1862-1863) (see here), could, I believe, be challenged on constitutional grounds. There is no limit to the Congress’ ability to “coin Money” in Art. 1, Sec. 8. Sure, Congress, as a practical matter, and for monetary coherence, has an implied duty to limit issuance, but see Riegle Act above. What are the limits now, if any?

                Anyway, I don’t expect THIS president to do anything so bold as to direct Treasury to issue Greenbacks to provide for government services (even assuming the Treasury isn’t so institutionally captured by the private central bank and other private banks as to make it unlikely for them to act independently). He is not Lincoln, after all. That much is abundantly clear.

                • I am skeptical about this USN business. If these were to be put in circulation, in physical, so-called hard-cash form, then maybe. Otherwise, they have to enter the electronic realm (which is where most everything is and does occur nowadays), and then you have a problem of two very similar but non-identical animals in constant friction. One (FRN) is interest-bearing (cf. interest on reserves), the other (USN) isn’t. The banking system will naturally want/need to keep them separate, and perhaps will want/need to discount the latter? I don’t know. It might be more trouble than its worth if they were to be taken as equivalent. In the case of PCS, the Fed would incur the IOR expense, but it would have something quite shiny and beautiful to show for it…

                  • NIHAT, I certainly am no expert on gov. operations, but I don’t think the Fed wouldn’t have to pay any interest on the TDC(s) because: 1. they would be cash on hand, just like a roll of quarters, which are not reserves and which do not earn interest, and 2. if they were considered reserves, the interest would be credited to the Fed which holds the reserve (TDC), so the Fed would just be crediting interest to itself. That wouldn’t be too painful.

                  • Yes, the USN was so threatening, that the bankers spent most of the 1860s and 70s cajoling, bribing and threatening Congress members into putting a cap on them of $300m. There’s good evidence form suppressed testimony in the Lincoln Assassination trial that bankers were bankrolling John Wilkes Booth and his dozen or so conspirators as well. See Gerry McGeer’s 1935 book, “The Conquest of Poverty” Chapter 5 (
                    USNs would allow us to pay for government expenses, debt-free, and in amounts only constrained by the productive capacity of the nation, not by artificial constraints imposed by banks. In a fiat money economy like ours, you CANNOT run out of money. It is not even theoretically possible. Banks must convince that money is scarce, or we would not pay them for the privilege of using it.

                  • Scott, my comment compared the USN idea, which I think is practically troublesome and ill-conceived under current arrangements (even if there wasn’t a cap on it), and the PCS idea, which I think is practically and legally sound if lacking express congressional blessing. So… you wanna get rid of banks or something… be my guest… best of luck to you…

                  • Sunflowerbio, a HVPC (or a TDC) is different from a roll of quarters in that it can’t be put in circulation in the same manner, and therefore it won’t do anybody any good as cash in vault. (I believe the originator of the idea, or somebody of that stature, also contemplated $50-million coins that could serve as savings instruments for corporations, which according to his analyses are currently experiencing negative yields on their other means of savings.)

                    Correct me if I am wrong, but a HVPC is envisaged to be deposited at the Fed, and the Fed in return would credit the Tsy account by the face value of the coin. And then, a suddenly-awoken and enthused Congress would appropriate spending out those newfound funds; and when that spending occurred, new reserves would be added, and the Fed would pay the going IOR on those new reserves.

                  • NIHAT, you are correct that a TDC could not be put in circulation (practically at least) but the question is how is it treated for accounting purposes, as cash or as reserves. The FR has over a billion uncirculated $1 state coins in its vaults. Are they treated as reserves or cash?
                    As for your second point, the increased spending allowed by High Value Platinum Coin Seigniorage (HVPCS) would end up increasing bank reserves, but since the FR creates reserves by fiat keystrokes (according to Ben Bernanke in testimony before Congress about QE) it wouldn’t take any more effort to credit interest on reserves with another key stroke or two.

                  • Sunflowerbio, I am like you, no expert, that is. But that shouldn’t keep us from speculating, should it now?

                    I presume any coins the Fed holds (out of circulation) would count as an asset to it. Since the Fed is the creator of reserves, it doesn’t need to worry about how to classify those coins so long as it holds them as assets (or I don’t see why we should worry about that question at that stage). But when it releases them into circulation, like if and when a bank requests some, it’d do so in exchange for payment in equivalent amount of reserve dollars from that bank, and the coins would go as cash into that bank’s vault.

                    I am not sure if or how IOR would or wouldn’t cause any pain on the Fed. I think they are paying it as a matter and an instrument of monetary policy. I think Bernanke has reportedly come against the TDC idea, but I strongly suspect that his opposition might rest more on political concerns than on monetary concerns. He might have been supportive had the Congress had a favorable disposition. Who knows…

                  • It is fun to speculate and doesn’t cost us much either. Since the FR is creating money out of thin air, it doesn’t cost it any more to create a few billion dollars more out of the same substance; so IOR is really not an expense to the Fed whether it is paying it to itself for holding a TDC or to other banks as a result of Treasury expenditures into the economy as a result of HVPCS. That’s my speculation. The air is still free as of today.

  6. When MMT says the “means” we have to live within are not “money” based but “resource” based it needs to go on to say that this is because “money” acts as an “instructor” by allowing labor to be instructed to interact with “resources” to produce the goods and services a society needs or indeed to go to the marketplace and purchase goods already produced by this process. This makes clear that “money” is first and foremost a “social interaction tool or technology” and we are accordingly foolish as a society to constrain ourselves in making optimal and minimally inflationary use of resources by restricting the amount of money in active circulation within our economy. The social norm we live by, therefore, is a form of amnesia in that we’ve lost track of the purpose of money. We sleep walk wandering aimlessly unable to direct ourselves to the destination of a healthy society where there is well-being for all.

    • Interesting but also:

      . . . because “money” acts as an “instructor” by allowing labor to be instructed to interact with “resources” to produce the goods and services a society needs or indeed to go to the marketplace and purchase goods already produced by this process.

      There’s something weird about the imaging of money here!

  7. Joel David Palmer wrote above that Try Bonds “sit in an account at the Fed” — they are not spent.

    They stay put — at the Fed.

    Could someone explain this to me?

    I thought they were spent — by Treasury.

    • Buyers purchase securities which sit in accounts at the Fed, and then are either sold to other buyers (including the Fed) by their owners, or are paid off by Treasury when they fall due. Reserve Accounts at the Fed are like checking accounts; Security Accounts are like savings accounts. Of course, buyers of securities from Treasury have their reserve balances at the Fed marked down; while the Treasury Tax and Loan Account at the regional Fed involved is credited the amount of the purchase.

    • Katie,

      The Federal Reserve Bank can create money out of thin air and credit the US Treasury bank account with US dollars aka Federal Reserve notes. The Treasury then proceeds to spend them on government programs. In return, the US Treasury gives the Federal Reserve bank an IOU in the form of an interest bearing US Treasury Bill, which it can sell to other investors or cash in at maturity.

  8. Way to go Joe. Carlos Mucha pointed out in another site that the FR already has over a billion dollars in uncirculated state coins in its vaults that have been credited to the Treasury at face value. I don’t know how much additional coinage is deposited there, but the precedent has been established that coin seigniorage can fund Treasury expenditures. Admittedly, $60 T is a lot more, but its the same kind of transaction, just a different scale. A little additional amo.

    • Yes, I saw beo’s comment, and have been commenting a lot myself on that thread. Seigniorage is actually well established as a source of Federal revenue. It’ll be hard to make the case, if it ever gets to Court that the situation is different because the coin involved has a face value of $60 T.

  9. I continue to be dismayed by all this hifalutin’ theorizing. Sell this shit to Joe Sixpack, ’cause that’s what will be required ultimately.

    Read some Graeber first. Ponder at length.

    • It’ll be easy to sell it to Joe Sixpack when the proceeds are being used to pay off the national debt.

    • … and Graeber is not high-falutin’ theorizing?

      Anyway I found his book very disappointing. It’s supposedly an account of the history of debt, but I don’t think he has a clear idea of what debt is.

      • Seriously? That’s pretty funny. If rather patronizing.

        • Please ‘splain to this Ruffian how a work of social anthropology is hifalutin’ theorizing. How so?

          What is this, another instance of The Revolution Eats Its Own?

          • I’m not sure why it needs explaining that the anthropological work of an academic anthropologist is filled with theorizing, at least as much as the monetary theories of MMT writers. I doubt “Joe Sixpack” will find Graeber any easier that anything written here.

            The history of the concept of debt and debt institutions is virtually coextensive with the history of law. Graeber ignores almost all of this history, and the routine and pervasive nature of debt in almost every aspect of a modern economy, and ends up saying a number of bizarre and uncomprehending things about the nature debt. The whole book is like reading some ocean-dwelling creature from another planet wrestling with strange human books about walking and lungs. It’s a scattershot, half-baked and self-indulgent book that, sadly, has found a certain audience among young people looking for gurus in their confusion.

            I’m not sure what revolution you are talking about, but I am not interested in anarchism and Graeber’s Rousseauian primitivism.

            • I will take in in good faith that you’ve actually read his book. I had the good fortune of reading in closely before I even knew who he was, so I didn’t have your a priori burden of disdain for his politics.

              Moreover, on quick review (I have it here on my iPad, all marked up with highlighted passages), I have to push back and note that I found his scholarship worthy and style utterly accessible. Much more accessible than a lot of the abstract liturgical babble overpopulating these threads.

              apropos of “law,” yeah, of course, a blinding glimpse of the obvious. See “Law’s Order” by Friedman.

              • To each his own. I found Graeber’s arguments unpersuasive and his general framework for thinking about the issues he raises too impoverished to shed much light on them, or deliver plausible ideas for reform.

            • “young people looking for gurus”


              I’m 67. And, now I’m having this vision of all these grimy OWS twenty’sters curled up in their sleeping bags in rapt reading of Guru Graeber.

              C’mon, bro’.

              • We obviously have different views about David Graeber and the value of his work. Maybe we should juts drop it.

                • Dan,

                  You don’t think Graeber has a clear idea of what debt is? Come on, that’s just silly on your part, but for the sake of argument let’s say you are correct . How the heck would you expect the masses then to have a clear idea on what debt is (and a hoped for paradigm shift) if someone as astute as Graeber, who has written 500 plus pages on the subject, can’t?

                  BTW, not to be snarly, but do you have any academic works of your own to back up your views that contradict Graeber?

                  • In my opinion, Malmo, the average corporate employee working in an accounts payable or an accounts receivable department has a clearer understanding of the nature of debt than does David Graeber.

                  • Silly? It’s patently absurd.

                    Malmo, do an search. First on “Dan Kervick,” and “Daniel Kirvick.”

                    Zilch. You just rolled a donut. Twice.

                    Then search “Graeber.”

                    Note that Mr. Kervick has a PhD in Philosophy, not Econometrics or Finance/Monetary Theory (or Social Anthropology, for that matter).

                    Hey, what do I know? I’m just a guitar player & songwriter.

                    But, to me, Mr. Graeber has a very clear take on the nature of debt and its abuses by the ruling class.

                  • Serves me right for skewering one of the sacred cows.

                    Perhaps I’ll write a post one of these days on the weaknesses of Graeber’s arguments. Then everyone can decide for themselves whether my arguments or Graeber’s CV have the better case.

                  • Dan,

                    I don’t view Graeber as a sacred cow, but I certainly don’t think he’s remotely approaching being an academic lightweight. I also enjoy, very much, his writing on anarchism and primitivism, and am more familiar with these works than those of his on the nature of debt. He is thoughtful and provocative, which is what most accomplished academics strive for in their work, and he has a very engaging way about him too. And just because he’s an avowed anarchist, that in no way limits his understanding of economics, as you implied above. No matter what you might think the intellectual tradition of anarchism (which has a significant range in theoretical underpinnings to boot) can stand toe to toe with any social or economic thought (MMT thought included) you care to trot out in juxtaposition.

                  • No matter what you might think the intellectual tradition of anarchism (which has a significant range in theoretical underpinnings to boot) can stand toe to toe with any social or economic thought (MMT thought included) you care to trot out in juxtaposition.

                    I don’t agree with you Malmo. I have very low regard for the anarchist tradition. But I’m in no mood to argue about it.

                  • Dan,

                    No problem. I don’t want to argue over it either.

  10. There are approximately 33 million Americans of working age, who do not have a job. This is a huge resource going to waste. Putting them back to work using debt free Treasury notes would benefit the whole country and revive the economy.

    • Ahhhh… A bit of succinct clarity.

    • Putting them back to work using Federal Reserve notes would have the same effect. The big problems we are facing are not problems with the monetary system. They are problems about:

      1. Who owns all the stuff?
      2. Who controls the means of production?
      3. Who decides who works and who doesn’t work?
      4. Who decides what portion of the national output is to be handed over to a given worker for that worker’s work contribution?
      5. What things can be handled via private enterprises, and what things should be handled via public enterprise?
      6. How active and direct a role should democratic government play in social choices about production, investment and consumption?

      Money is involved in all of these things, but is a secondary factor.

  11. Joe Firestone.

    “Interesting but also:

    . . . because “money” acts as an “instructor” by allowing labor to be instructed to interact with “resources” to produce the goods and services a society needs or indeed to go to the marketplace and purchase goods already produced by this process.

    There’s something weird about the imaging of money here!”

    Not quite sure what you mean by “weird” here. Do you mean that seeing money as a social relationship is weird or do you mean something else?

    • I’m down with money as a social relationship, alright. My problem is with it acting as an instructor to people. The terminology reminds me of idolatry. But the idea that money is relational and also information is fine with me

  12. Robert Bostick

    Progressives must fight for the “coin”, if Republicans so deplore Federal spending because it incurs debt, they too must fight for the “coin” since it is the only legal alternative for debt free funding of America’s needs.

  13. Robert Bostick

    “Progressives must fight for the “coin”, if Republicans so deplore Federal spending because it incurs debt, they too must fight for the “coin” since it is the only legal alternative for debt free funding of America’s needs.”

    But both the Democratic and Republican parties work for the kleptocrats and they like to receive large amounts of rent from money’s use.

    • “Those few who can understand the banking system will either be so interested in its profits, or so dependent on its favors, that there will be little opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear it burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”

      Rothschild Banker

  14. Pingback: Good Luck Stopping Austerity With Incremental Platinum Coin Seigniorage! | |

  15. “That simply isn’t so. Lincoln produced U.S. Greenbacks in quantities up to 40% of the currency during WWII… The last time the debt was fully paid off was 1936, by Jackson, and we went into an immediate and very deep depression.”

    Joe, I think you’re being trolled. I will say even the sincere Greenbackers drive me nuts. They don’t seem to grasp the point Clonal made above, solutions that are legal are better than solutions that are illegal. Congress will never lift the lid on US Notes in circulation. Even if someday they did, Tsy would then have no more power than it does today with platinum coinage. Put the whip down people, the pony’s dead.

  16. OK, Abraham Lincoln was not president during World War II, nor was Andrew Jackson in office in 1936. If these are just typos, fine, we all make mistakes but you should correct them in follow-on comments once you see them. These are not obscure facts, why would a reader believe you on the complex issue of public finance if you’re wrong on basic American history?

    Also, this paragraph confuses the authority delegated to the Mint and authority delegated to the Federal Reserve:
    “This is an even better option than the coin because it shows ANY kind of money, coin, paper, and even electronic, can be “coined” to pay for those things Congress has already mandated.”
    Coins are a different kettle of fish from federal reserve notes and bank reserves. Only coins can be “coined” by the Mint. Otherwise, money is created by the Fed.

    • Gosh, that’s what I get for writing at 4:00am, or so. Replace WWII with Civil War, and 1936 with 1836.
      My articles are better proof-read. :(

    • However, money can and has been produced by Treasury directly. I have two $5 U.S. Notes – one on my wall and one in my wallet. Both bare the RED seal for Treasury, not a Federal Reserve Bank green seal. They were produced debt-free from Treasury and are USNs, not FRNs.

    • It seems to me that these questions about who issues our money, and through what mechanisms, while important, are secondary matters. Just as Congress could, if it had a mind to do it, issue US notes or institute some new form of direct treasury issuance; it could also, if it had a mind to do it, direct the Fed to issue some volume of central bank liabilities and credit them directly to Treasury’s account. It could also direct the Fed to open up an overdraft facility with the Treasury, so that deficit spending is booked in the Treasury account as a perpetual interest-free negative balance representing one of those loopy “liabilities” of the US government. The US government, seen as a bank, can run in a permanent state of negative “equity”.

      Or Congress could direct the Fed to purchase debt directly from the Treasury, at the direction of the Treasurer, maybe with some pre-established interest rate, just for the sake of appearances. The debt can then be rolled over perpetually. This would cut out some of the rentier middle-men.

      Congress can do any of these things, if it has a mind to do them. The Fed is a creature of Congress after all, and Congress can unwrite any laws it has previously written, and put new ones in their place. It can shift the locus of monetary policy authority from the Fed to the Treasury, or modify that authority. It can determine that we should continue to issue public debt as a kind of utility for savers. Or it can decide to end the practice. These are all just alternative mechanisms for accomplishing a lot of the same things.

      But the problem is that Congress doesn’t have a mind to do any of these things. And even if it re-jiggers monetary policy and institutions, that doesn’t mean anything if it doesn’t change its spending policies. We mainly have a spending problem, not a monetary system problem.

  17. Nihat.

    How about Money-o-Phobia Disease where the very rich seek a very large rent to fund public investment creating the stupidity in the minds of many people that for a nation living within your means is money based and not resources based. Start it off with the Bank of England 1694 ship it over to America and ship it back to the Eurozone.

    • Your general meaning may be fine, but I don’t see many people who fear money. So, I must object… to the term “Money-o-Phobia” ;)


      • People do not fear having money, but they are fearful of not having any or not enough to pay their bills. Debt slavery is not particularly appealing, is it ?

        For the 1% to be super rich, the 99% have to be in debt to them directly and indirectly via mortgages, credit cards and student loans. Money is a zero sum game. No debts = no money.

  18. In a technical sense, it’s clear, we needn’t have an austerity problem. But … does anyone really expect Pres. Obama to act “outside the box”? He is a pro-Wall Street conservative by any measure except, perhaps, the carefully crafted rhetoric he uses from time to time.

    • No. I don’t expect him to act outside the box. But he is individual; and a single individual may occasionally surprise us; not always in a good way, of course. We’ve had enough of that already from the President. But one can always hope that he will dig deep into his sense of history and realize that no one will love him for a legacy of austerity when his presidency is over!

  19. No there Joe,
    Cullen at pragcap recently posted saying that the problem with government self finance (no bonds) is private sector instability

    What is MMT response?

    • Josh,

      If the US government was the sole creator of US money debt free, as proposed by Dennis Kucinich in HR 2990

      Spending on infrastructure for the benefit of the country as a whole, which would include private citizens and corporations, would be achieved by putting out contracts for competitive bid. The corporation would employ the workers and make a profit. What is the problem ?

      In my opinion, in a capitalist economy, it is not the function of government to directly provide investment vehicles such as US Treasury bills for private investors to park their money. If the private sector wants to issue bonds or sell shares in order to raise capital, all well and good.

    • Uhm, too much financial wealth, out of safe parking space, causing problems, speculation, instability, etc?

      What is MMT response?

      Tax it away.

      It’s at least one response, isn’t it? Taxes are for regulating the temperature, right? Why just use ‘em to cool down hot flows? Use ‘em to cool down overheating stocks, too.

      Having said that, it’s kind of new for me to see MMT being held to account for debt-free self-finance idea. Isn’t it generally faulted for making light of public debt?

    • If there is a need for the government to provide risk-free, low interest savings vehicles, then that is a perfectly reasonable motive for offering them. However, this is separate from the question of how the government should finance its spending. Currently, our treasury issues interest-bearing and maturing bonds, notes, bills and TIPS, while the Fed issues non-interest-bearing and non-maturing currency. One possibility would be to shift some or all of the operational responsibilities for emitting these liabilities. The Treasury could issue the currency and the Fed, as the bankers’s bank, could issue the savings vehicles. Permitting the treasury to self-finance its spending – in the same way we currently allow the Fed to self-finance its financial asset purchases – wouldn’t necessarily mean that we have to end the practice of providing government-issued safe assets.

      The Fed is a big bank after all. If its the government’s job to offer savings account for large holders of US dollars, why isn’t this the bank’s job?

      The more important issue isn’t the safe assets issue. It’s redesigning our monetary policy institutions so that the overall structure of government issuance of liabilities is responsibly managed, and conducing both to the stability of the currency as well as the highest achievable levels of economic development and progress.

      • As it stands now, member banks deposit required funds at the Federal Reserve bank, which earn interest at 0.25% per annum. However, the Federal Reserve pays 6% to its shareholders.

        It pays back the interest it makes on US Treasury bonds it owns to the US Treasury, which last year was abou $90 billion.

        We really do not know how much more the Fed makes from its worldwide activities.

        • As it stands now, member banks deposit required funds at the Federal Reserve bank, which earn interest at 0.25% per annum. However, the Federal Reserve pays 6% to its shareholders.

          As I understand it, the Fed pays 6% of the original cost (investment) of the shares that a member bank had to purchase to become a member of the regional Federal Reserve bank in the first place. It doesn’t pay a percentage of the current value of the shares.

    • Private sector instability, fueled by over-reliance on the financial sector, is a very big problem.
      As it happens, I am pouring through through the NY State CAFR now, for an upcoming radio interview Monday. The CAFR went down to $110 billion in FY 2008, then back up to $153 billion currently, about where it was in FY 2007. This kind of roller coaster, especially when retirees consistently withdraw just $8.9 billion (slightly less in earlier years), makes it clear that “investing” is a misnomer for gambling. A bit off-topic here, but this is one of the justifications for a State Bank, as I intend to argue on-air Monday.
      Other than that, it points out the need for government non-reliance on the private “investment” sector (which, in the case of NY State’s CAFR, also happens to charge north of half a billion in fees and commissions, and does NOT outperform the benchmarks, at least on a risk adjusted basis).
      If the federal government could “coin Money” it would not need to rely on this banking class, and that would provide better and more consistent revenues, as well as end an enormous amount of graft and corruption generally.

      • Scott,

        Large amounts of money are now held by relatively few individuals, and in reality there are quite limited choices available for placing these excess funds, despite the advertising from Wall St. There are demand deposits at banks, the stock, bond, currency and commodity markets, real estate and venture capital. There are of course small businesses in retail, manufacturing, law and consulting, but these are not usually opportunities for the super wealthy apart from Hollywood stars opening fancy restaurants.

        This has resulted in huge dollar flows in and out of different sectors causing, as you note, increased volatility.
        As I have said before I do not think that in a capitalist economy there is any requirement for a government to provide investment vehicles for the private sector, particularly when it drains money as interest from the US Treasury.

        This money is essentially going to waste with regard to the real nuts and bolts economy. The reason for this is that current demand is being satisfied from existing productive capacity and no one in his right mind is going to build a new factory, when there are not enough customers to justify it. This has arisen, because services and manufacturing are now much more efficient by using automation, robotics, computer and offshoring to cheap labour countries.

        Wages have stagnated or disappeared altogether again reducing consumer demand and a shrinking tax base, which places greater demands on the US Treasury to provide unemployment, food stamps and Medicaid benefits.
        The Austerian stance is to cut benefits and taxes, but this will lead to more unemployment, home foreclosures and misery. About 10% of new graduates are defaulting on their student loans. Student loans now exceed the total credit card debt.

        The minimum wage has been stuck at $7.25 under Obama, since 2009 despite significant increases in the cost of living. By contrast the French just increased their minimum wage to the equivalent of $12.33 per hour with 4 weeks paid holiday. Putting more money into the hands of the workforce would increase consumer spending and everyone would benefit – corporations who make and sell the goods- and government by increased tax revenues and fewer benefit payouts.

        • This is not quite true, though many people think it is.
          First, there is the axiom “There are millions of jobs to be done, and millions of people who want to do them, and the only thing standing in the way is money.” And we know where the money is.
          Second, a State Bank would remove the need for the state to borrow what it has already raised, producing a small dividend instead. That would leave more money for loans to small businesses and individuals. This is what the Bank of North Dakota has been doing since 1919 and it is booming, and no, not just because of the oil/nat gas – other states have that too, and are in deficit.
          Third, the big banks simply don’t want to lend to small business. Too much work for too little return.
          Fourth, North Dakota has the highest per capita bank/person ratio in the nation. Other states could follow that lead and have more community banks that lend to, well, their community.
          Fifth, You’ll have to rely onthe individual states to raise the min wage, as New York just did, to $8.25 or something like that.
          Sixth, investing money in 31 currencies, bonds rated AAA down to B, options, and every fund and hedge fund known to America and beyond, is not prudent or diversified, it is institutional capture and cronyism. And that’s what our CAFR is doing. I just compiled this info. I know.

          • What you say is quite correct, but for businesses to borrow money, there has to be sufficient demand to justify it. There is no point in making stuff that just sits in inventory. What I am suggesting is that demand could be created by spending on infrastructure projets by using debt free money issued by the US Treasury. Of course, it would have to be determined exactly what infrastructure should take priority. However, knowing our Congress, there would be plenty of pork projects. You know, like the bridge to nowhere, which was ultimately refudiated ;-)

    • Sorry, I don’t think Cullen’s views are anywhere near correct! But, I won’t waste my time by critiquing him further.

      I’ve already done enough of that in this series. I know the view you’re citing is not addressed there. But I know Cullen’s thinking well enough to know that he most probably doesn’t assume MMT solutions that involve the job guarantee and also that he probably doesn’t mean by “private sector instability” what most people would mean by that term.

  20. Josh

    “Cullen at pragcap recently posted saying that the problem with government self finance (no bonds) is private sector instability

    What is MMT response?”

    One obvious response is to continue to issue bonds as a safe haven savings account but cap the value of bonds held and restrict to the private individual but regularly adjust the value along with inflation.

  21. Equally one could respond to Cullen Roche that withdrawal of bonds as savings accounts does not increase economic instability but focuses the mind to invest more wisely thereby reducing instability.

    • There are three kinds of investments ;-)

      1. If the price goes up immediately after purchase, it was a great investment
      2. If the price goes up slowly, it is still a a good investment.
      3. If the price goes down, it is a long term investment.

      You only time get to find out if an investment was wise, is some time after you have bought in. At the point you get in, you have no real idea. The term investing is in fact often misused. When you buy stock in a public company, you are not actually investing, you are buying a piece of paper from the last person cashing out. The money does not flow to the corporation unless you are a venture capitalist, who funds startups.

      The currency and commodity markets are pure speculation and if you trade on one of the exchanges, you can leverage your bet by about times ten.

      With regard to trading techniques, most brokers would have you believe that esoteric fundamental analysis is the key, but since these gurus rarely trade or make money aside from commissions, it is highly doubtful. Most of the successful traders that I know use trend following with price charts to determine the trend and then go long or short accordingly.

  22. However, to be fair to Cullen Roche it would not appear to be the case that the central tenet of market capitalism that it optimizes the efficient use of resources to best deliver the goods and services we need is actually working out as it should be in regard to this Wall Street generated recession and high levels of inequality within the United States. So economic instability would appear to be a built-in feature of the current model of market capitalism we live with.

  23. Joe,

    Matt O’Brien strikes me as legit, if only for the fact that his Twitter profile picture is of Bobby Kennedy. He definitely strikes me as similar to Krugman, in that he’ll likely gradually agree with us. Another great post, by the way!

    • Hi Tyler, I hope you and your Dad are well. I think Matt’s a pretty good guy too since I’ve been watching his tweets for some time. However, he’s has plenty of time to learn a bit about MMT; and if had then he would not have reacted the way he did to PCS. His was a very superficial piece and needed to be taken down.

  24. Edmund Karner

    Third, I have some background in Complex Adaptive Systems Theory (See Ch. 2)
    Oh, snap – you do? That material is endlessly interesting.

    • I can’t tell if that’s snark or not. But, either way, from my point of view, it is endlessly interesting, and has implications for revitalizing democracy by defeating Michels’s “iron law of oligarchy.”

      • Edmund Karner

        No snark in the slightest – I download paper after paper on the material. Complexity as it relates to economics, sociology, game theory (coupled with how game theory and complexity together related to the former two), and so forth are endlessly interesting.

        • This subject is somewhat above my pay grade, but I am still interested. Do you actually create computer models in order to determine the effect of the known relevant variables in a system, like the climate or the economy ? My observation is that the models are only as good as the assumptions oas to the effect of the variables and how they reinforce each other, or not. Have you done any backtesting to determine if your models ( if any) have predictive accuracy ?

          • Edmund Karner

            I’m simply an outside dilettante trying to learn! Mr Firestone and others would be the men to ask. Always so much more to learn…

  25. Dan Kervick | January 23, 2013 at 7:41 pm |
    Serves me right for skewering one of the sacred cows.

    Dude, in relative terms, no one even knows who David Graeber is (or what he advocates politically). I think I’m the only one here on these comment threads who ever brought up his name.

    You have glossed over and dismissed his scholarship out of your juvie pique over his politics.

  26. We now have a situation where the tribal warfare between the “1% Tribe” and the “99% Tribe” manifests itself as the inability of a society as a whole to create the money supply it needs to optimize its use of resources. This is an imbalance and Nature abhors such things. Nature uses “positive feedback” or cybernetics to remedy such situations where the organisms, individuals and society, suffering under such imbalance eventually and often collectively in a eusocial species such as ourselves make modifications to correct the situation. This is the historical stage our societies are now at. Whether the imbalance can be corrected peacefully by an acceptance throughout society that living within our means is about resources matched by money or whether it has to be resolved violently we will have to wait and see. But one thing is certain the imbalance will not remain.

    • In Randian terms capitalism works perfectly. Greater efficiences in the means of production release people to pursue more profitable opportunities. The problem is that with 18% of the working age population out of a job and no income apart from government assistance, this resource is going to waste. It does however, drive down wages so that corporations can make even bigger profits as they are doing right now. Parking their profits offshore enables them to evade their social responsibility of paying income taxes to a government, which provides them with an infrastructure necessary for them to conduct business. In other words, they internalize their profits and externalize their costs. They have become leaches on society. The further irony is that as they drive down wages, the amount of money their customers can spend on their products is reduced. They respond by cutting production and reducing the labor force even further.

  27. The economy can no longer be run on any kind of optimal basis because the “1% Tribe” will not allow money demand to match up with resources. This tribe has to go or they have to be neutered.

    • The physical resources of the earth are almost limitless, particularly when you take into account recycling, which is a huge industry today. This also applies to all forms of energy, which originated from the sun’s radiation in the past or present. All costs of production are in fact labor costs, directly or indirectly. If there were no labor, then there would be no costs, but also no production.

      It is neither resources nor labor that are in short supply to satisfy the needs of humanity, it is the stranglehold of the current financial system. Money is being hoarded offshore to speculate in the futures markets, which drive up costs for the many and profits for the few. It is not being put to use for the common good.

      Tolerating an unemployment level of 18% of the workforce is totally unacceptable. No wonder Hilda Solis resigned, she was fed up with fudging the numbers.

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