MMT and Social Norms

By J. D. Alt

Chris Hayes’ recent MSNBC show on the Trillion Dollar Coin brought four aspects of the Modern Money debate, for me at least, into a clearer focus. I list them here not in their order of appearance on the show, but in their order of importance and logical connection.

1. The first aspect is structured by Stephanie Kelton’s remarks that yes, indeed, there are very REAL constraints on what the federal government can spend, but those constraints are not on the FINANCIAL side (whether or not the government has “enough money” to spend) but, instead, are on the RESOURCE side—whether the labor, materials and manufacturing capacity are actually there to be put to work by the proposed sovereign spending.

This, I believe, is the central truth of MMT that people are trying to understand and wrap their minds around. In framing it this way, Dr. Kelton takes the focus OFF the idea of “printing money” and puts it instead on the idea of employing people to create useful goods and services. This is a shift in focus that I think serves the goals of MMT well, and there ought to be a concerted effort to continue framing this message.

2. The second aspect is revealed in Chris Hayes’ remarks about social norms (in his intro piece). We like to think of our society as being held together by the rule of law. In reality, however, while laws may form the structural skeleton of the beast, it is “non-articulated” social norms 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. In this regard it is reasonable to consider that Obama’s position on the debt ceiling debate is exactly what it should be: he is insisting that the social norm be maintained. This might also be a guide to MMT advocates as well: It may, in fact, set the cause back to propose or insist on a dramatic shift in the norm. It may well be more effective to propose, instead, very incremental shifts that people can logically buy into without sensing a threat to the underlying social fabric. Dr. Kelton’s focus on the practical idea of employing people to create useful goods and services, it seems to me, could fit well with this incremental approach.

3. The third aspect is Joe Weisenthal’s potent description of how inflation is driven into the economy. This dovetailed logically with Dr. Kelton’s fundamental truth about constraints being on the RESOURCE side of the equation: If the labor, materials and manufacturing capacity are not actually there to absorb the new spending, that spending could be expected to cause inflation and, therefore, ought to be withheld. By the same token, however, if the resources DO exist to absorb the proposed spending, 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. The fourth aspect is reflected in Chris Hayes’ remarks about the “moral subtext” of the debt and deficit debate. He very entertainingly imagines the nation as going crazy, worshiping the  golden calves of profligate spending, and then Moses comes down the mountain calling on everyone to “get good again.” And that means paying your debts and living within your means. This 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.

Moral hazard also plays into the fears about “printing money” to pay American citizens entitlements for “doing nothing”—creating a nation of lazy dependents who don’t have the motivation to go out and find work. Again, Dr. Kelton’s framing of the MMT strategy as NOT being about paying for welfare and entitlements, but INSTEAD being about employing people to create useful goods and services, can potentially deflect these “moral hazard” fears.

5. I’d like to add a fifth aspect which was not directly discussed by the panel: Explaining WHY the U.S. sovereign government has a debt of $16 trillion and growing. The common understanding, stated in article after op-ed with off-handed carelessness, is that when the federal government spends more dollars than it collects in taxes it HAS to borrow the difference from the bond market. Hence, out-of-control profligate spending is WHY the debt continues to grow so large. This seems as common-sense-irrefutable as 2 + 2 = 4.

This, of course, brings us full circle because the true answer, which the American citizen must somehow be made to see, is that the sovereign government—if it chose to do so—could simply “issue” the fiat-currency required for any sovereign spending over and above tax collections; in other words, it does not HAVE to borrow the dollars from the bond market. Why does it then? It can only be because the bond market, itself, has influenced Congress to REQUIRE the sovereign government to borrow. And that is the reason the national debt continues to grow.

“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.

125 responses to “MMT and Social Norms

  1. Great post J.D.

    This, I believe, is the central truth of MMT that people are trying to understand and wrap their minds around.

    Agreed!!!!! There are problems with the financial system. But the key problem is with flawed public choices over the employment (an unemployment) of our resources. Even with the very same, admittedly flawed and sometimes corrupt, systems of public and private finance we can solve our unemployment problems, promote justice and equality and build a more prosperous and healthy world by changing to way we organize production and employ people and material resources.

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  3. jd, great analysis of the situation.

    so, maybe we start with just 1 or 2 TDCs as an “experiment” which is used to fund various infrastructure projects that puts some of the 23 million unemployed back to work? Let’s see what happens!

  4. I strongly agree that the real-vs.-financial distinction wins for us every time, and is also culturally non-controversial. Bill Black likes to make the point by asking what would happen if, say, Germany invaded England. What would determine the outcome? Who had the most pounds? The most marks? Or the most bullets?

    The American version could be a look-back to December 8, 1941. Does anyone believe that, on the day after Pearl Harbor, FDR needed to call up the Treasury Department? Did he need to ask anyone whether the United States had enough *money* to declare war on Japan?

    I think this point needs work, though:

    “… [I]t [i.e. the government] does not HAVE to borrow the dollars from the bond market. Why does it then? It can only be because the bond market, itself, has influenced Congress to REQUIRE the sovereign government to borrow. And that is the reason the national debt continues to grow.”

    I’m afraid this may be both theoretically and historically flawed. I’m pretty sure that the original reason for government bonds and borrowing had to do with gold-standard dynamics, and that we simply retained these obsolete rules after the 1971-3 abolition of the Bretton Woods gold peg. It is perfectly true that the wealthy and the financial sector really enjoy the risk-free income stream which T-bonds etc. return. Bill Mitchell tells a story about the Australian government’s decision, once it was running a surplus, to stop issuing debt. The banks howled and the Australian politicians, perplexed but obedient, starting issuing the bonds again.


    • I think the point about bonds is a good one to stick on. We’re told that government debt is harmful for the country and its citizens. However, government debt (T-bills) are also the safest investment possible. Everybody knows that US bonds are the safest investment known to man, but people don’t seem to be able to equate bonds with government debt.

      I’ve been saying to people, “Look, imagine if the government stopped issuing T-bills tomorrow, and was able to cover all its spending with taxes, who would be harmed? Answer: everyone who wants to hold T-bills, i.e. pension funds and risk-averse investors.” That at least makes people think about it a little.

      The USG should continue to issue debt instruments in order to provide safe investmensts for retirement/pension funds and other social purposes, imo. The Primary Dealer system, however, needs to be reformed, as it is the dealers’ oligopoly on being T-bill middle-men that allows them their free income stream (that and not allowing the Fed to directly finance Treasury issues).

      FWIW, I would prefer to see a government that funds itself mainly through printing and borrowing, using tax policy stictly as means for keeping unhealthy economic inequalities from developing.

  5. There is a phrase that was used during the 20th century Great Depression that puncture the smokescreen of pseudo morality, which perhaps needs to be revived. That is “economic royalists.” It pretty much strips away the veneer of morality. Krugman for instance loves the alleged moral high ground even to the level of self parodying hypocrisy and dullard repetition of econo-nonsense. His recent trumpeting of the Decline of the Deficit is an in your face sort of obdurate ideology. Dr. K also has emphasized the multi-billion dollar a day loss of productivity, which has a clear moral value. The Chris Hayes context apart his intro not being interrupted, quick degraded its standards of civility when the nominal discussion was opened to repeated interruption and posturing. The Printing Money temerity needs to be directly counterpointed with pointing out that if printing money is immoral then what is the $29 trillion bailout recapitalization of control frauds? How is it exactly that printing money for the banksters is a good thing and not using the same means for the general population is then moral. The divine rights of bling and the bling mint, also known as a keyboard needs to be presented as unadorned as possible without tap dancing to the tune of the phoney morality of the economic royalists.

  6. With regard to point 2, I propose a gradual introduction of HVPCS as a way to ease the social perception of sovereign currency creation into the public consciousness. Since the Mint already has a one ounce $100 platinum coin available for about $1850, this could be the first step in introducing HVPCS. The next step would be an half ounce $1000 coin available for say about $1000. Such a coin would make little money for the mint, but should sell very well. A $1,000,000 pc could be next, and even if none are sold, the FR would still have to accept them and the credit could be pointed to as a contribution to debt reduction. From there $1 billion coins could be minted and the seigniorage credited to debt reduction. Now the precedent has be established for the $1 T dollar coin in whatever number is deemed suitable to obliterate the debt ceiling limit, retire the debt entirely, and fund the green, full employment economy.

    • What is HVPCS? Spell these acronyms out in the event people want to show these articles and comments to others less economics-minded.

      • Certainly. HVPCS is High Value Platinum Coin Seigniorage, as used by Joe Firestone. He is generally referring to one or more platinum coins of at least $60 trillion total value.

        • Thanks. I hand these links out of people I’ve been talking to and their eyes glaze over at having to remember insider-acronyms. So thanks.

  7. Unfortunately, the first aspect completely overlooks the spending of 700 billion to bail out the banks, courtesy, Hank Paulson, et al. That is the sort of spending that frightens hell out of people when we talk about the unrestricted “power” of a monetary sovereign government in creating their currency. The restraints of resources has no impact, or relationship, to this type of spending. The warmongering ambitions of a belligerence nation are constrained a little by the loot they are able to plunder and the control they are able to apply to their own citizens.
    Is there anyone in their right mind willing to give a Bush, or an Obama, unlimited access to money? I don’t think so!

    • Congress controls the spigot. No unlimited access to money for anyone but the Congress. We may have to worry about pork though 🙂

    • There was absolutely no need whatsoever for the US Treasury to bail out private banks with $700 million of taxpayer
      money, which was borrowed from the Federal Reserve Bank.

      Paulson committed a fraud and grand theft Treasury and bamboozled Congress and the public.

      The Federal Reserve Bank could have easily created the money out of nowhere and loaned it directly to the ailing banks, just as they did later on without involving the US Treasury.

      • Unfortunately Frank, fraud and grand theft don’t even seem to rank as misdemeanors these days. But what you say is true; that the private banks should not be bailed out by the “taxpayer”.

      • frank
        not to quibble.
        Those were Billions, I believe. (Something large).
        And, as funded by Treasury debt – the source of money was not really the Fed, but Paulson’s group of private hoarders looking for some safe place to put their LARGE until they got the accounting rules changed. A veritable Win-Win.
        Yes, the Fed of course did TONS of other stuff.
        Yes, because they are the bankers’ bank.
        Did you want to change that?

        • Actually, I have no problem with the Federal Reserve bank bailing out other banks. What I object to is the US Treasury bailing them out at taxpayer expense.

          There may be a good exception to that when General Motors was saved, but I regard that as necessary for strategic reasons and job loss mitigation.

          • frank
            There are two aspects of the thing.
            One is the sublime – that of the people’s government borrowing the bankers’ money and paying interest on that money in order to bail out the banks. That’s beyond ridiculous.
            The reason the Fed’s bailout is also ridiculous is because it IS the bankers’ banker, it is captured within the moral hazard paradigm. That is why its actions merely extend the bankers’ ability to carry on in the same way – which is why the surviving banks are BIGGER now than they ever were, memorializing within the banking/finance industry that another bailout will be just around the corner.
            What we need to do is to separate out the ‘money’ function from the banking function – making our money supply INDEPENDENT FROM the bankers’ bad behavior, which would end immediately upon the few biggies going bust.

    • Guggzie is hitting the public’s fear square on. The restraints of resources has no impact, or relationship, to this type of spending. Precisely. And why didn’t they, if the thinking and action and common sense on the issue was available to government economists?

      Guggzie is underscoring the disconnects among what MMT says is possible and correct, what the politicians do, what the average schmoe doesn’t know about how the economy works, what MMT is failing to clarify properly as the difference between what people know and reality, how media gets it wrong, and how people in government/banks can get away with taking what they want.

      At the Columbia series on money and public purpose, Dr. K said that she and some others (Mosler?) went to congress and described the monetary system and federal accounting to some lead people. The reaction? ‘Oh, we could never admit that’. It is time for Dr. K and others to name names, and leave it up to us to get these people to talk. Moslers’s The 7 Deadly Innocent Frauds of Economic Policy describes how Summers and Gore were told. Summers’ excuse? He didn’t understand reserve accounting. The man does not understand how the Federal Reserve’s checking accounts work. I spend eight hours a day without income delving into this stuff as a private citizen to alleviate my life-long ignorance, and this man, responsible for the economic health of this country and its hurting citizens in 2009 and 2010 couldn’t be bothered? Name the name, Dr. K. Name the names.

  8. BTW, the FR has accumulated over $1 billion of uncirculated one dollar state coins in its vaults without even a whimper of protest.

    • They should hand them out on street corners to the needy and everyone would benefit. Otherwise they are going to waste.

      Reminds me of when I visited Delhi, when beggars would approach me with their hands out. I would oblige with a rupee for each person until I ran out. This is where the US is headed if we don’t do something.

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  10. Thanks, J.D. The “real goods and services” frame is key: every generation gets to use and benefit from whatever it can produce; there’s nothing much of real value we can leave the next generation except the capacity to produce and consume well when their time comes. We can’t save human skills and experience for later – if we don’t take advantage of them now they’ll be gone forever. There is no shortage of meaningful work to be done, and we are wasting the abilities of every American citizen that wants to contribute and cannot. If the private sector can’t or won’t employ every willing American worker, We the People must. That sort of thing…

    FWIW, I count the giggles as a good thing, clear symptoms of cognitive dissonance, worlds colliding.

  11. There is a paradoxical side to MMT. Under a stably running MMT regime, the prices are presumably very good measures of the relative values of goods, services, and resources out there in the market at any given time. And then, it becomes quite reasonable to substitute financial constraints/capabilities for real constraints/capabilities in our analyses. I think this paradox tapers off, though, as we start to look at things over longer terms.

  12. As I understand it the treasury issued its own currency from the civil war until 1971 – these were United States Notes and they were issued (spent) into circulation without debt, even after the Federal Reserve came into being. Very early on they were discounted because of not being convertible to gold. When they became convertible they exchanged at par with good-backed notes. After the Fed was established the United States Notes exchanged at par with federal reserve notes, and they continued to be issued by the Treasury contemporaneously with federal reserve notes. So, “issuing” currency without associated borrowing is nothing new or irregular, as over 100 years of our history reflects. The platinum coin controversy/discussion seemed simply another expression of the reality that the borrowing part is a political choice rather than a need.

    • Actually, the Treasury’s original issuance of Greenbacks were all authorized by Congress and happened by 1865.
      True they remained in circulation for all that period of time, the most misunderstood aspect of public debt-free money being its permanence.
      As such they remained in circulation equivalent to FR notes, until more recently becoming primarily collector’s items.
      I think the main point is that the legality of public money has been well established throughout our history.
      And J.D. Alt’s point here – certainly among others – is that we could do it again if we chose to do so.
      All agreed say aye.
      Let’s get on with it.

  13. Thank you for this very well-written and necessary reality check on the enthusiasm with which some of us, myself included, have tried to carry the MMT ideas to others. I had tried once to point out here that it would take a lot more than ” ‘splainin’ things” to people on an intellectual basis to sell MMT, but was not nearly so articulate as you. This especially struck me:

    And that means paying your debts and living within your means. This is a very powerful message to the religious psyche that permeates our cultural norms.

    Money and virtue/goodness are inextricably tied up together in our culture. Money is taken as (sometimes divine) proof of virtue, and it is often suggested that those who are virtuous will be rewarded with wealth. Debt is associated with sin — some versions of the Lord’s Prayer even use “debt” and “debtors” instead of “trespasses” and “those who have trespassed against us.” Others blame Calvinism, although I honestly haven’t researched that enough to know whether or not it’s a bum rap.

    • So unfortunately true, the messages are all so mixed up and backward ass. We need entrepreneurs to go into debt through risk, praised during the process, commended if successful, and scorned and ridiculed if off mark. The price for failure is too great. This process assures established infrastructures, like polluting hydrocarbon industries and resource depleting unsustainable entrenched monopolies relying on rent seeking to perpetuate, risky alternatives cant by definition compete at scale ,but if the population could digest the macroeconomic reality of modern monetary theory , than government could fulfill it’s primary role as a collective social force for good . Politicians could end their pandering to the 99% and the prerogative of wealth disparity they defend for the minority who buy them. Just as in religious institutions, insanity is the norm and ignorance is the currency. The american culture is hard wired through their religiosity. Debt is sin, so therefore the government must pay its fantasy debt to itself back,austerity is virtuous ,therefore the economy must be held captive so as to insure no body might get something for free they dont deserve. Inflation is the boogeyman , acceptable if killing and warmongering is the precursor, unacceptable, even remotely, if entertained trying to provide a better quality of life for the masses through healthcare, social security benefits, unemployement insurance, or a host of good causes that might decrease the disparity in wealth so disproportionately advanced these past thirty years in our once decent social experiment.

  14. Somebody has to ask for more than enough for the “barely enough” incremental change to be made. I don’t think that the MMT community needs to, or should, send a single policy message (even if it needs to, and should, send a single methodological, or operational, message).

  15. Good article. Let’s also keep in mind the University of Michigan study shows that misinformed people rarely change their minds when presented with the facts. Personally, I got tired of trying to explain MMT to close-minded people and now resort to mockery. If someone won’t listen or change their mind to accept the reality that is MMT then I refer to them as “economically illiterate” and ignore any opinions they may have on the economy. Same way I do flat-earthers.

    I wish the Colberts and Stewarts of the comedy world understood MMT. A little humor would go a long way.

  16. Clonal Antibody

    There is another very good reason for the Government to borrow money. To encourage individual and corporate savings. This is important because individual and business savings improve the odds of the person or business surviving difficult circumstances. This is a good thing socially. So the Government borrowing is really offering a risk free savings instrument for individuals and businesses.

    • CA, government securities as savings instruments can be made available independently of fiscal concerns or conditions, can they not? This mandatory borrowing/debt arrangement is psychologically screwy.

      • Clonal Antibody

        Yes indeed. I was in no way implying that. The savings function could just as well be performed by having Public Sector Banks e.g. the Japanese Post Office Bank. The interest can come straight from the Federal Eschequer.

  17. Thanks for the great synopsis of the discussion of MMT and the Platinum coin on Chris Haye’s program.

    I am not an economist but some one had been mentioning the MMT theory over the past few months and the idea intrigued me. I still do have some concerns but the discussion here, and the bits of reading I have done have convinced me that this is an economic approach well worth pursuing.

    My first concern was covered on Chris Hayes’s although I had already heard it elsewhere is how much money can poured into the system before it causes any damage. The limit I now realize is measured by the resources available. This just makes so much sense simply because anything other than that is an unbalanced equation. The caveat there is that both the money side and the resource side need to be availble. And that brings me to my second concern.

    Right now, as I understand it, we have tremendous amounts of “money” lying dormant. Many corporations have record profits and low capital investments, banks are holding back loans and the profit ratio banks make when they do loan out money is rather high. (please correct my assumptions if they are wrong) Additionally, and probably the most significant is the wealth gap is getting wider. All that wealth being held in so few hands is not creating jobs, its sitting around someplace and as I noted before the banks aren’t lending it out.

    So, with all that excess money that is not available, wouldn’t an all out switch over of our economic policy create a risk that if that money was ever released back into the economy, a risk of an inflationary period is possible?

    To that point, shouldn’t the safest, most saleable way to start a transition to an economy based on keeping the equation balanced include a component of getting those pent up dollars back into circulation first, equalize the wealth gap, then balance the difference with fiat money. The balancing can be a small percentage at first until we can then transition over to a tax policy that serves as an economic tool that takes money out of circulation instead of making it a system of funding the government.

    Just my two cents.

    • Brad, apparently, banks aren’t lending out any money that is “sitting around;” they instead just create money when they make a loan. What’s needed is fiscally-induced “demand” to get it all going again.

      I believe you’d like Warren Mosler’s Seven Deadly Frauds of Economic Policy (free pdf distro).

      • Nihat,

        Thanks for the input. I had already put Mosler’s book on my “to read” list. Nice to know I am on the right track. I guess my real question regarding the banks has to do with the money the banks were provided for the bailout, which we were all led to believe would be used for lending. I had made the assumption (silly me) that it was essentially just sitting around being used to pump up profits and bonuses.

        I also did not fully expand on what I meant by putting the money back into the economy which of course was more directed towards the money corporations are sitting on rather than the banks. If, in fact the banks are sitting on excess reserves, I really have no idea how to get them to loosen up the reins.

        Thanks again.

        • I believe the reason for the original injection of reserves was because banks had stopped lending to each other since none of them trusted the others’ balance sheets; and it now appears they were right. Without interbank loans, the economy ground to a halt. The idea was to re-liquify the market by padding the banks’ balance sheets and then everything would run like a Swiss watch, or at least like a Swiss banker.

    • Brad, I’m not an economist either. I’m an architect. So I can’t technically answer your question (maybe somebody else will chime in.) It seems like you’re raising an interesting point. One thought: money sitting on the corporate sidelines will not be “spent” into the economy unless it is used to pay for real goods and services–and it won’t be spent unless those goods are actually available. Another thought: that money sitting on the corporate sidelines won’t be spend to create “public goods and services” (since they are not profitable) and it is well documented that there are trillions of dollars of public goods and services that we desperately need AND for which the labor and resources are definitely available.

      • J.D.

        Thank you for response response.

        Actually I do have ideas on how to make the money corporations are sitting on get pushed back into circulation. Its a 3 part plan. First raise the minimum wage to 67% of a living wage. I am hesitant to go all the way 100% since my gut tells me that would create constant upwards pressure on wages and possibly trigger an inflationary cycle. Second reduce the FLSA work week to 36 hours and mandate that wages also go up by 10%. Third, make the requirements for workers to be classified as exempt from the 36 hour work week harder for employers to do. The net result is that employment increases, the excess capital is then directed back into economy.

        Combine this with government spending on infrastructure funded by PCS and the economy can be booming.

        Of course we just need to convince Congress, the President, and probably 75% of the American public..

        Again, these are just my ideas, and people like yourself that have been looking at these issues longer than me, may find some holes, but its how I learn.

    • @Brad,

      This is the ignorant informing the ignorant, so bear with me. Others will correct me. Regarding your point

      Many corporations have record profits and low capital investments, banks are holding back loans and the profit ratio banks make when they do loan out money is rather high. (please correct my assumptions if they are wrong) Additionally, and probably the most significant is the wealth gap is getting wider. All that wealth being held in so few hands is not creating jobs, its sitting around someplace and as I noted before the banks aren’t lending it out.

      The key thing to remember is that consumers create jobs, not businesses. The ‘job creators’ are the consumers, not a hedge fundie drinking a Cosmo on Necker Island right now. Consumers are the job creators. So what’s happening to them?

      Dr. K’s famous cycle is:
      • Income drives spending
      • Spending creates sales
      • Sales create jobs
      • Job create income
      Rinse and repeat. This is the simple definition of the American capitalist system.

      Businesses, which account for around 11-16% of national spending, are sitting tight with their money. Trillions. They have no reason to spend when the households (account for 70% of national spending) aren’t spending or buying their products. Households are de-leveraging, or getting rid of their massive debt (a result of the Clinton surpluses and the 2000/2008 recessions). There is no reason for business to invest (or spend, hire) if there are no consumers. Would you start a business if there were no customers? Would you invest in plants? Would you buy raw materials?

      J.D. Alt did a great bathtub drawing in an article explaining MMT to his brother or brother-in-law. I’ll use it now. Only verbally. Sorry.

      Go back to Dr. K’s four-part cycle above, and imagine that happening in a bathtub (mentally view it as a slice, sideways, and there’s a drain too). Those four operations are happening in a bathtub where the water (output) in the tub is half-full, the water being the output of what those four things produce in the economy. It isn’t enough. We can’t get more water in there with the way things are at the moment. Everything is being recycled (or saved) with no new input. The drain is taxes, and that gradually reduces the water available in the economy (bathtub).

      We need more water (income, spending, sales, jobs). We don’t need taxes draining $$ out of the economy, not now.

      Who is the one entity that can increase the water so that those four things operate properly and at full capacity? Who has the ability to do it in the amounts appropriate to the level of government and full employment we, as a country, want? Who can do it without creating inflation? Who is the sole entity globally with the monopoly legal right to issue US dollars (which is why ‘borrowing’ US$ from China is ridick)?

      The federal government.

      The federal government can act “counter-cyclically” to correct this situation at this point in time, by adding to the spending part of the four-part cycle, which at this point in time means increasing the budget deficit–not decrease it, which will take money out of the bathtub–to kickstart this cold economy. This would happen if congress were implementing a correct fiscal policy (using the resources argument) to do that. But it’s not. Instead, Congress is diddling around with financial indices (and political party neck vises to defeat a Prez using gold-standard thinking) that are the effect of its neglect and abdication of it constitutional duties. And the American people don’t know this, or that it could be corrected within a few months, because they don’t know how federal accounting works.

      Neither does Obama, or his Secretaries of the Treasury, BTW

      [I wrote above that Dr. K has to names the names of the people in Congress who do know how it works and aren’t talking. We need to split this thing wide open with tiny cracks, whose fissures will reach the WH.]

    • “…banks are holding back loans and the profit ratio banks make when they do loan out money is rather high.”~Brad Sandler

      This is correct. Banks, of course, need willing borrowers as well, and credit-worthy to boot (now that sub-prime lending has been postponed), before they can make a loan. These are notably lacking on the current economic scene.

      One thing to understand about the banks’ record-breaking reserve levels is that much of that money swelling banks’ accounts came from selling MBS (mortgage-backed securities) and other financial assets of questionable value to the Federal Reserve. Thus, banks have managed to turn bad loans into good money.

      The banks should not be allowed to lend their massive reserves into the real economy, imo. Rather, their reserve balances should just be reduced to pre-crisis levels via keystrokes. Allowing them to lend the money out only allows them to further profit from Fed’s policies. They profit first from the Fed’s QE policies, and then again when they loan the money out. Just doesn’t seem right to me.

      I would rather that Treasury engage in some QE of its own, via PCS that, at the very least, might actually do you or I some good.

      • Can’t you just hear the banks howling if the Fed announced it was debiting reserves handed out in QE1-3? Perhaps the Fed should say, we are recalling our QE gifts, minus any mortgage backed securities you want to repurchase at the price we paid for them. I’ll bet there wouldn’t be many if any takers.

  18. casino implosion

    I think we’re watching the birth of MMT consciousness in the poplous at large right now.

    For instance, as per Ezra “Ezra” Klein, the GOP has won the tax battle (“low taxes are the best taxes”) and the Democrats have won the entitlements battle (“SS and Medicare are good things”). This all began with Jude Waninski and “2 santa theory”.

    Everyone (in the low information populous at large) agrees with both points. Yet this requires deficits.

    I call this “The MMT Truce”.

  19. “that the sovereign government—if it chose to do so—could simply “issue” the fiat-currency required for any sovereign spending over and above tax collections; in other words, it does not HAVE to borrow the dollars from the bond market.”
    So clearly stated.
    If the government so chooses to become the monopoly currency issuer, we could do whatever it takes to achieve the goals we agree upon – using the government’s deliberative process for decision-making. Economic democracy.
    If you, or anyone mentioned anywhere in any MMT posting can get this truthful message across to Chris Hayes or Joe Wiesenthal or Max Kieser, or anyone in the NSMSM with the guts to speak truth to power, we’re on our way home.

  20. Very good piece. But what will stop Congress/White House in their push for reduced spending, especially to Social Security and Medicare programs? A Public push is needed to point out “folly of austerity… depressed economies in Europe” Our public media and leaders seem to have completely disregarded the results austerity has produced in Europe. Or is that part of US moral psyche that requires more suffering (financially)? It may be since many Americans are decendants of Europeans.

    • I’m not sure it will stop BHO, but Congress people do listen to seniors, esp. AARP and other organized types. They should be encouraged to keep the heat on.

      • Maybe time to educate the local AARP chapters, then. Educating this group is key because the majority grew up when Bretton-Woods was still in place internationally. They were around the gold standard was killed internationally (1971) but never, not ever, learned the importance of it because Watergate intervened within 18 months and overtook the national consciousness. The same thing happened after we went off the gold-standard domestically in 1934. WWII intervened , and no one got a chance to understand what it meant, even though a marvelous 2011 book by military historian Jim Lacey called “Keep from All Thoughtful Men: How U.S. Economists Won World War II” describes how misfiled documents in the National Archives show how three government economists were able to take advantage of the fact that we we now had a fiat non-convertible currency and plan the national production for WWII. Which put everyone back to work.

        • The example of government spending bringing full employment during WWII and after (GI Bill, FHA, Interstate Highway System) should resonate with seniors, but the “live within your means” mantra needs the full Kelton treatment.

    • We should perhaps be pushing for increased payouts from the Social Security trust fund at this point.

  21. “Dr. Kelton’s focus on the practical idea of employing people to create useful goods and services …”
    Hmm sounds like the same focus that Dr. Jill Stein (Green Party) ran on in the last Pres. election – too bad she didn’t get more support from various quarters –

  22. Since you raised the topic of the Green Party, I made a proposal to the state Green Part here to prepare briefing materials for the Green Party candidates, and I never received any response at all. Until Green Party candidates finally get the idea that they need to be both economically literate enough to advocate for fiscal choices based upon a function sort of economics (which means more that hand wringing at a microphone about “inequality and bad ole corporations) and to be fluent in the economic and fiscal details of the US Green Party platform it is not really a political alternative they will not actually represent an informed alternative. Jill Stein was an excellent candidate, and seemed poorly supported at the state level except for a lot of posturing. Much like the “inequality socialists,” they tend to point out an agenda of problems, but are empty handed when it comes defining functional policies. Worse yet they tend to swallow whole neo-classical economics as if it defined economics in its entirety and there were no other possibilities. Mind bogglingly dense and self righteous.

  23. Great post J.D. ! rsp, matt

  24. Here is something else MMT people might care to address. Just now, the Yahoo front page has a story on a “professional investor” named Doug Casey who says that the United States should declare bankruptcy because it supposedly has $86.8 trillion in “unfunded liabilities.”

  25. HERE’S PART OF an e-mail, titled “Better than gold,” I received from an advocate of MMT. It seems to parallel this post:

    “Today, a huge part of our productive capacity is unused, e.g., the official labor underutilization rate is 14.4%. What we need is the money to put America back to work (building a 21st century infrastructure, for example).

    “Thankfully, the U.S. went off the gold standard forty years ago: we have fiat currency.

    “Yet a mythology advantageous to a sliver of Americans prevents us from doing what we need to do.

    “Ellen Brown, an attorney and author, does some excellent demythologizing in this new article: . …”

    • That was a really good posting by Ellen Brown.
      I look forward to the day when she is again capable of recognizing that a Bill was introduced in the last two sessions of Congress that calls for re-Greenbacking our economy through EXACTLY the type of state monetarism that Greenbacks represented and also the$TDC.
      It is public monetary autonomy manifest.

      • Hey Joe, have you ever gotten anyone on this blog to say they’ve read HR2990 and give an opinion on it? I know the TDC is all the rage right now, but can’t believe it hasn’t at the least been given a look by all the brilliant people that hang out here.

        to my non-expert eye, it would appear to be a full packaged solution in the form of an actual congressional bill that envelopes many of the great ideas from mmt/nep/mr types.

        • No, actually The Needs bill is a last hurrah piece of legislation sponsored by Dennis Kucinich and advocated by the American Monetary Institute. It is based upon laudable objectives, but the economics is limited to the monetary reforms as envisaged by the American Monetary Institute. In some sense it is a moderate approach that stops with reforming the banking sector and doesn’t address the reform needed on the fiscal side. I call it a last hurrah piece of legislation piece of legislation because it didn’t have a snow ball chance in hell of being passed through either the current US Congress as elected two years ago or in the forthcoming crop of gerrymandered Republicrats. It was pressed by Stephen Zarlenga beginning maybe five years back and finally made it into a bill about a year back.

          Zarlenga unfortunately has been invested in an assumption of celebrity led notion of social change and of history more generally. The chapters that AMI has set up were and are not really prepared for or invested in doing public education. The Platinum TDC gambit has accomplished more in a short period of time than the AMI has accomplished in its ten years of existence, with the additional caveat of the TDC came at the right time and when people were in a deeper sense of pain. The fiscal objectives of the bill are genuine, the strategy to get it through Congress was not that well thought out(IMO). Further, Zarlenga has generally placed AMI as in competition with the MMT/FF paradigm, though he was close to ecstatic about having Michael Hudson and Steen Keen presenting at the just passed AMI annual conference this last October , apparently not understanding their relationship to MMT/FF. MMT/FF is fairly hardcore real world economics.

          Zarlenga is a retired stock and insurance broker who developed a deep grudge against the culture on Wall Street, which to a degree is to his credit but it tends to be a bit messianic and less well schooled. He also tends to frame the nominal banking industry as a vast conspiracy, and anyone who has a constructive or historical relationship with the banking sector as being worthy of obdurate suspicion. I can understand the sentiment, but he tends to judge by apparent association rather than by content. This showed up in a collection essays related to Innes that Randall Wray was putting together at one point. I have tried to persuade him that it was to his advantage to collaborate with the MMT/FF community, but without much in the way of a shift.

          A related side bar is that he considered Ellen Brown to be the biggest obstacle to “real ” monetary reform, and probably at one time she was, given the total conceptual mess and the circu-ambulatory rhetoric of her Money as Debt. Somehow or another, possibly through Randal Wray she received some free tutoring from the UMKC dept., hence the accolades embedded in her recent article on the TDC favoring the UMKC econ dept. To a large degree those honorable mentions have paid off that courtesy, AND the nominal popular level economics people will be much more receptive to the MMT/FF paradigm forward.

          Some of this is serendipitous politics, and part of it is a matter of perpetual cultivation and placing a high value on education over ideology. Perhaps at a later point when the US Congress is more favorable, perhaps in two years or four this piece of legislation can be dusted off and revised under a broader mandate from the people. The celebrity notion of social movement just does not reflect the historical realities of actual successful social movements. The content of the bill is relatively solid but it did not have much in the way of broad popular support that it needs and it was presented rather early in the spin downward it seems.

          This bill though does point out a potential for collaboration between the MMT/FF Endogenous money communities and the world wide network of monetary reform advocate. One of the down sides of the deletion of economic history from neo-classical/neo-liberal economics departments is that it has created essentially a vacuum that allows for trolls and hobby level pop-economics sorts of advocates to have a stage to spout nonsense from

          • That’s a pretty good, if limited, description of the Kucinich Bill
            – It is based upon laudable objectives
            – notably, the fiscal objectives of the bill are genuine,
            – the content of the bill is relatively solid
            – the Bill points out a potential for collaboration between chartalists and reformers.
            Not sure why it never measures up for that circle of rose-throwing monetary consorts.
            The Bill is the most comprehensive reform to both the nation’s money system, and the body of monied-power politic to come down the pike in a hundred years. For sure, it is a moderate approach.

          • Zarlenga has a lot of history of money in his massive book, which is intriguing for that reason. But regular folk are not going to read a three-inch thick book.

            Look, if Benjamin Franklin could explain fiat currency in a pamphlet when he was 23 in 1727, then there are simpler ways.

            • mrw, you’re right, regular folks probably don’t want to read all the minutia of history. What i don’t get is why so many credentialed economists seem to not give ANY analysis what so ever to the history and effect of Lincolns greenbacks….non-gold, debt free, direct issued currency. I mean for all the schooled economic analysis devoted to the great deprecion, never once (except ellen brown i guess and a few blog post now and then) have i been able to find anything remotely suggesting an acknowledgement that Lincoln had solved our monetary/fiscal problems back in 1862. however it was shutdown as soon as the war was won….shutdown by who though?…..Banksters, no?

              the TDC has given us the closest chance we’ve had in recent history to have a public discussion on it, and even today, most economists (with mmt as an exception) can’t comprehend it

              • As Paul Krugman told Bernard Lietaer, “Touching the money system is career suicide. You can do anything you want, but leave the money system alone.”

                And as Upton Sinclair put it, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

                • Josh and Jack,
                  Of course, this is true.
                  It is what gives any signed act on reform to the money system a certain mark of courage.
                  It is why the work of the IMF researchers MUST gain the respect of all monetarians – it stands the highest measure to the money-truism exposed by Lietaer.

                  There’s the draft of a workable law out there – it can be modeled for the world economies.
                  There’s a confirmation of its macro-economic results by the highest technical modeling of the national economy by Dr. Kaoru.
                  And there is the further confirmation in the work of Benes and Kumhof that the two major reforms in the Chicago Plan – that of separation of the banking and money-creation powers, and the issuance of real debt-free money directly by the government – can resolve the crises that are paralyzing our socio-economic aspirations.
                  Whatever we do, let’s not tell anybody about it.

            • Yeah, well actually we need more irregular folks it seems. Zarlenga’s book is a bit of a chunk, but unless you are looking for short cuts, you have to start somewhere, and it is where I started not too long after it came out. I also like progressive and alternative interpretations of economic history. And for sure you will not find much in the way of useful economic history in at least US academia, unless it by someone who was exiled due to “communistic” preferences. Michael Perelman is one such author. You could just concentrate on the nub level economics, but the historical part can provide narratives toward doing education by providing related examples. Depends on what your objective is. He doesn’t really synthesize the state basis for money, and he doesn’t give any space to analyzing how the current system works in depth. But then simply taking someone’s pompous description of economic reality is essentially an acceptance of economic and historical illiteracy, and it is what got us so far down the gold standard rabbit hole. Ordinary people in the later part of the 19th century understood monetary practices much better than what most of the present population seems to comprehend. Zarlenga is an amateur scholar at best, but that is better than accepting the bankster’s fictions and ideology whole hog.

          • thanks for the response. I agree the bill was never given a chance, mostly because it is so wildly different from the norm of things, but there was still many good tennets in the bill. i thought the fact that this bill was actually introduced at all was fairly monumental and would be seen as a good spring point for further discussions.

            the TDC does present a more viable option at the moment, only because it can be done without have to change the law…..just needs the president willing to make the move!

            one thing i don’t quite understand is the impact of full reserve banking in the context of the rest of the bill…would the banks still have enough to fund lending demand?

            • Jack,
              re your question on 2990 and its potential effect on ‘loanable funds’ or recessionary effects. Thanks so much for asking that. It is an issue that must be thought well through if we are to make any progress.
              Bill Mitchell makes much of the ‘lost-economy’ and Stephanie has as well.
              The part that is lost is that between our actual versus our potential GDP. It is part of macro-economic study to ensure the availability of ‘loanable funds’ quote, so that the availability of credit is ensured to achieve what is the GDP potential. Unfortunately, most economic models do not include lenders and money, and you can see the results all around us.

              I would suggest the best answer that is provided today is that of Dr. Kaoru Yamaguchi of Doshisha University School of Business in Kyoto.
              Dr Yamaguchi is a monetary economist who has modeled the effects of the Kucinich Bill, using the methods of the American Monetary Act proposals of AMI. Dr. Yamaguchi has developed and uses the most sophisticated model that macro-economic modeler Steve Keen had ever seen.
              His findings a are simple.
              Resort to public, debt-free money solved the GDP potential shortfall without inflation or deflation, and accomplishes, over time, the elimination of public debt.
              Notably, the research done recently by IMF macro-economists Benes and Kumhof, using the old Chicago Plan reform proposals that were also the basis for the AMA proposal used by Dr. Yamaguchi, found the same results.
              Higher economic growth without inflation or deflation, and a major reduction in both public and private debt. Some of the IMF’s private debt reduction is achieved via a Keen-ish modern debt-jubilee type reduction, only one of the extensions which Benes and Kumhof made to the original CP.
              Finally, this.
              The full-reserve banking proposals of the original Chicago Plan, and the Highway 61 Revisited version of the CP by Benes and Kumhof, are both based on the 1930s proposal of Dr. Irving Fisher for “100 Percent Money”. Dr. Fisher is also the author of “The Debt-Deflation Theory of Great Depressions”.

              The guy who came to identify the debt-deflation theory now popularized by Steve Keen, and who proposed full-reserve banking as the monetary-financial system remedy to the wild fluctuations in the money supply, did not advance these ideas without proper consideration of possible recessionary effects.

              I should note that the Kucinich proposal gets us beyond the gold-era thinking of reserve-based banking.
              It actually achieves 100 percent money.
              We are well served by your honest question of concern.

        • Just got this.
          There has been a small number of people like yourself who have taken the time to understand the K-Bill, and most opine favorably of it.
          Far as I know the only MMTer who directly engaged the HR 2990 was Bill Mitchell, someone I respect immensely, and whose music I heartily recommend, back I think it’s 2 years ago now. (??)
          Bill actually promised a more comprehensive look at it in the future, but he was critical of it – something akin to gold bug Austrian types because it ‘looks like’ full reserve banking – and Pete and I did a video of what we saw in Bill’s analysis.
          Here’s billyBlog’s piece.

          Here’s our Coffee With Joe on it.

          If there has been any NEP posting on the Kucinich Bill, sorry but I missed it.
          It’s a bit out of paradigm.
          Not on the sovereign fiat money potential, of course.
          That’s why I’m here.
          But things like keeping the private Fed and fractional-reserve banking, as incorporated in the ‘endogenous’ money tenet of MMT.
          That”s the bathwater that needs to be gone for real reform.
          Debt-based money is the real cause for our crises.
          To MMT, debt-based money is natural.

  26. #4 represents an extraordinarily powerful religio-ethical-political metaphor–one of the most powerful in our culture. I do not think it can be defeated by trying to change the subject. Rather, the metaphor must be turned it on its head, to wit:

    The true golden calf is not deficit spending or public debt, but the idolatrous belief in money as a substance with occult power over us, somehow separate from and greater than the human community that uses it–a false god, the seduction by which finds its true expression in the epidemics of speculation and fraud that inevitably result from unchecked ‘financialization’.

    With this narrative in mind, acknowledging our currency sovereignty becomes a way of honoring the first commandment. It is not an escape from responsibility but, on the contrary, a full and mature acceptance of it–an exodus from the servility of the heart that remains after outward bondage has been shed, a true and final goodbye to the golden fleshpots of Egypt.

  27. Very good post, J.D. – great reframing. I think we do need to get MMT to a gut understanding level, and this is definitely a step in the right direction

  28. Look the kleptocratic social norm we’re concerned with here is why the hell shouldn’t the Federal Reserve be allowed to secretly bail out the financial sector to the tune of trillions of dollars but then have to accept Trillion Dollar Coins from any Punk Liberals who think in the name of The People they can circumvent the God given power of private banks and the Federal Reserve to create the bulk of the nation’s money with the prime aim of benefiting the kleptocracy?

  29. Jmarco

    “Very good piece. But what will stop Congress/White House in their push for reduced spending, especially to Social Security and Medicare programs? A Public push is needed to point out “folly of austerity… depressed economies in Europe” Our public media and leaders seem to have completely disregarded the results austerity has produced in Europe. Or is that part of US moral psyche that requires more suffering (financially)? It may be since many Americans are decendants of Europeans.”

    Now here’s the thing Jmarco when things aren’t going so well in the economy we all need to tighten our belts including government shouldn’t we? Didn’t Winston Churchill say this or something to that effect or am I getting confused? We could certainly do without articles like this that muddy the water:-

    • I respectfully suggest that they are only pretending to not be aware of the real effects of austerity, because it produces a situation which serves the plutocrats very well. They are relying on the gullibility of the American public, corporately controlled media, and the short term self interests of the corrupted politicians to jam it down our collective throats.. If it walks like a duck, and quacks like a duck then it is a pretty good chance that its not a horse or camel. Your expectations need to functional first and foremost, and not allowing for the pretense of “innocent” fraud.


    • @Schofield,

      If you’re being serious in this question and not ironic, then the answer is No.

      Now here’s the thing Jmarco when things aren’t going so well in the economy we all need to tighten our belts including government shouldn’t we?

      I don’t know whether you are being ironic or not, so for others who may be confused.

      The following require income before they spend. They are revenue-constrained.
      • Households
      • Businesses
      • 50 US States
      • Local and municipal governments

      The following does not require income before it spends. It is NOT revenue-constrained.
      • The US federal government

      The list of four USES the currency.
      The federal government ISSUES the currency.

      The federal government does not have to tighten its belt. In fact, when the users of the currency are financially stressed, the federal government has to loosen its belt. If the economy were red-hot right now, that is when the federal government would tighten its belt by increasing taxes and reducing spending, the effect of which would be to drain excess cash (all forms, T-bills) from the economy and keep inflation at bay. But we’re not in a red-hot economy right now, are we?

      The federal government has the power–and the legal and fiscal necessity–to act as a balance to what is going on in the private sector (and states). It is not a business. It should not act like a business.

      • MRW
        To lew you wrote
        “MMT is concerned, first, with how things actually work operationally in the federal
        accounting system.
        To Schofield you wrote:
        “The following does not require income before it spends. It is NOT revenue-constrained.
        • The US federal government
        The list of four USES the currency.
        The federal government ISSUES the currency.

        Here’s the thing:
        1. The federal government does not issue the currency – unless ‘the currency’ is not the supply of ‘money’ used to exchange goods and services in the national economy. The private banks ‘issue’ all off the money supply used for that purpose(c.e.).
        2. The federal government requires income before it spends – or more accurately, the government requires a positive balance in its checking account before it makes a payment by debiting that account. Whether that positive balance is supplied by taxation or the proceeds from public debt issuance matters not – the federal government (meaning the Treasury as paying agent for the government) is revenue constrained – not just like households, but by the rules and laws that govern its payments system.
        3. This is exactly how things work – operationally so to speak by virtue of the FASAB accounting rules that govern Treasury’s financial management system – which is what I assume you mean by “the federal
        accounting system”.
        4. The government (again, the Treasury as paying agent for all government services) is the user, and not the issuer, of the national money system.
        5. Of course when it comes to any of those laws, rules and accounting standards that govern the fiscal (payments) operations of the government, or for that matter those that determine who ‘issues’ the money and who ‘uses’ the money system, all we NEED to do is to change a few laws so that the money system, operationally, would function as if the people were in charge, rather than the bankers.

        • @joebhed

          Your #1: The federal government issues all currency or legal tender (paper, coin, debt instruments, treasury securities) in the unit of account. The federal reserve supplies the private banks with paper and coin (from the Bureau of Engraving and Printing, and the Mint) in the amounts demanded, or required. The private banks distribute it; they don’t issue it.

          Your #2: The federal government does not require income before it can deficit spend. (If that were true, preparing for WWII after we ditched the gold-standard domestically would have been impossible.) That would imply that we have to borrow our own currency should we be low on funds. The federal government does not borrow in its own currency. When the Treasury deficits spends, the fed provides an equivalent amount of reserve balances that are then used by banks to buy the treasury bonds. As a result, government deficits are a non-governmental sector’s financial wealth. (It’s a closed system.)

          Further, taxes under our fiat system are not required for revenue. Beardsley Ruml, Chairman of the Federal Reserve Bank of New York, 1946:

          The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements.
          The first of these changes is the gaining of vast new experience in the management of central banks.
          The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold.
          The dollars the government spends become purchasing power in the hands of the people who have received them. The dollars the government takes by taxes cannot be spent by the people, and, therefore, these dollars can no longer be used to acquire the things which are available for sale. Taxation is, therefore, an instrument of the first importance in the administration of any fiscal and monetary policy.
          All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.

          Your #4: The federal government is the issuer of the currency in the unit of account. Period. It’s constitutionally mandated, and the 1870s US Supreme Court Legal Tender cases established that it didn’t matter whether it was a printing press or a die press, as long as the Great Seal of the USA was on it, and a notice of legal tender, it was legal US tender.

          Your #5: How it’s done is determined by Congress, who also appropriates how federal money is spent by the issuer, the Treasury. The bankers are not in charge. Congress is. Its their ignorance of the way it works that we suffer under.

          • @ MRW
            This is important stuff, because we are using terms that have meanings, hopefully in an effort to come to a greater understanding.
            In # 1 reply you use the terms ‘currency’ and ‘legal tender’ in the context that they are both issued by the government. I have tried on these pages to clarify that when we talk about ‘money’ we only talk about currency and legal tender, and not about reserves and other ‘quasi-monies’, because these legal tender monies are the “monies” that solve our economic problems.
            You use the terms ‘supplying’, ‘issuing’ and ‘distributing’ the money.
            So, let’s clarify that only ‘issuing’ is of significance as it holds the legal construct of entering money into circulation – again where it can be useful. There is no money-related definition of ‘supplying’ and ‘distribution’, so let’s forget about them.
            Of the items (parenned) only coins and paper are money. Treasury debt(securities) are not money – See F.A. Mann’s “The Legal Aspect of Money”. These items merely transform money that is already in existence – they are not legal tender.
            I have always said that private banks “issue” all the “money”, coins excepted(c.e.), so we agree that the government actually issues the coins into circulation. The government ‘creates’ through printing the paper currency, but the government sells that paper currency to the private banking system at the cost of the printing, and then the private banking system “issues” the paper money into circulation as a debt – all of it. Please say clearly why you believe that is not true.
            Your No. 2 anecdote of Mr. Ruml is totally irrelevant. I have offered here that the FASAB requirement for the government to have money in its account before it can spend is established fully through law, rule and standard.
            FYI, all the public ‘monetization’ (near-ZIRP) that took place during the Big War SHOULD have remained as a powerful economic force for good, but this was undone in the Treasury-Fed Accord of 1951 , which restored ALL money creation power back to the Fed.
            From the Richmond Fed’s website:
            “The resulting agreement, known as the Treasury-Fed Accord, eliminated the obligation of the Fed to monetize the debt of the Treasury at a fixed rate. This agreement became essential to the independence of central banking and laid the foundations for the monetary policy pursued by the Federal Reserve today.”
            So, to be clear, you can’t change the rules requiring Treasury to have money before it spends by WW II anecdote.

            On #4, the government is the issuer only of coin-currency, which by definition is in the unit-of-account. But the government is NOT the monopoly issuer of the currency – and all currency issued beyond coins is ‘issued into circulation’ by the private banks.
            Those Supreme Court cases relate to the Greenbacks, where LEGISLATION provided for the direct ‘issuance’ of the Greenbacks, in specific quantities and types. What we NEED today is another Greenback law in order to make the government the monopoly issuer of the currency. In reality, not in theory.
            Nothing about the RIGHT of the government to issue legal tender is in question. The government delegated its legal tender right by empowering the banks to create legal tender monies. Do banks create and issue bank-credit money in this country? Is it legal tender?

            In #5 You say that how money is issued is determined by the Congress and that we suffer by their ignorance. Couldn’t agree more.
            That Congressional ignorance, and abdication of its power, is exactly WHY the bankers are in charge here. It’s a little ironic that the economic theorists who propound a new reality based on a sovereign fiat money system just don’t get this.
            Either we have an exogenous government monopoly currency issuer, or we don’t.
            Either we have an endogenous, private, market-determined system of money creation and issuance in place, or we don’t.
            We can’t have both.
            Sorry, but your unsupported claim repeated here, that the Treasury is the issuer of the currency flies in the face of this reality. I have repeatedly asked for any MMTer to bring in the guys from Treasury who you think today have and use the power to issue the nation’s money for a confirmation of this theory.
            Still waiting.

            • @joebhed,

              You start your definitions in the middle of the process. Dollar bills and coins are 2% of the currency issued by the federal government in its unit of account, the remainder is in debt instruments like treasury securities.

              your unsupported claim repeated here, that the Treasury is the issuer of the currency flies in the face of this reality. I have repeatedly asked for any MMTer to bring in the guys from Treasury who you think today have and use the power to issue the nation’s money for a confirmation of this theory.

              Then read government sites. The US Bureau of Public Debt will tell you that it issues US TREASURY securities as a department of the US TREASURY and labels its sales after it issues them as “borrowing,” which in fact it is the act of spending them into the economy where they become the increased purchasing power of the people. (The Fed can’t buy them directly; only on the secondary market) If the confusing word ‘borrowing’ confuses you too much and you can’t see the flow from inception out of nothing (fiat)–which came first, the chicken or the egg?–I can’t help you. Congress, in our laws, grants the Treasury the right to issue currency and congress determines how much of it. Search

              As for your other questions, I don’t have time to take them apart. But you are not starting at the beginning. Besides, if your beef is with MMT, which it seems to be, why don’t you investigate, prove them wrong, and publish here? We would all benefit. Kelton, Black, Fullwiler, and the others don’t strike me as professionals anxious to pull the wool over everyone’s eyes. I am sure that if their professional knowledge was found to be based on operational falsehoods, they’d want to know it ASAP.

              • @MRW
                Your first para – sorry, but debt instruments are not money. Do you not know that there is a legal definition of ‘money’? See F.A. Mann’s “The Legal Aspect of Money”. He states very clearly that under all domestic and international law, a debt instrument is not money.
                Money is borrowed via debt instruments, and money is used to repay those debts and to void those instruments – which are monetary assets , and not money.

                Your second para is built on your misunderstanding of Treasury debt “being” money. The act of borrowing by the Treasury is not the same as, and can NEVER be seriously considered to be, the act of spending that money into existence. That money ALREADY existed so the government could ‘borrow’ it. The borrowing provides proceeds from existing “money” supplies that the government receives and pays into the economy. The government is THUS a user of the “money” system.

                As to your last para – I AM trying to have a dialogue with MMT right here. I post these positions as clearly and forcefully as I possibly can in the hope of seeing a broader discussion take place. But I keep coming across people, like yourself, who are misled by what are often nuanced hyperbole about things that are very important and in need of greater understanding.
                Like Warren Mosler’s first innocent fraud.
                Read it?
                If you pay your taxes with cash – the IRS shreds the money.
                Warren uses that hyperbolic anecdote to make the case that the government does not need your tax money to pay its bills. It’s not true.
                The IRS doesn’t shred cash money used to pay taxes. (Who does that anyway?)
                There are handbooks of guidance for the IRS on the handling of cash used to pay taxes.
                According to the IRS, they follow the guidelines in the handbook.

                In speaking with Warren, he agrees that the government DOES need your tax money to pay its bills – being one of those self-imposed constraints.
                So, does it, or doesn’t it?
                The cash-shredding anecdote answers nothing.

                MMT recognizes the real fact that a sovereign fiat money-issuer does not need to also issue ‘debt’ to get proceeds to pay for deficits. ONLY MMT really posits that case right now, far as I can see. And as the ignorati of every political stripe prepare again to slash Medicare and Medicaid and privatize social security, THAT is the number one issue out there right now.

                So, I continue to try to make MMT workable.

                • Joeb/mrw, I must say I find this conversation intriguing and at the heart of what avg people will find confusing about mmt. Mmt is spot on about current monetary operations, but seems to discount that debt IS a problem. Not because we can’t create more debt or we can’t pay the interest, but because there are other, better, unused, options available. Options such as using the tdc option or ultimately direct issue of debt free treasury notes.

                  In my limited knowledge, joes points all seem logical. If the govt were truly acting as the issuer of the currency, there would be no debt. however congress for over 100 years has abdicated this sovereign privilege and agreed to pay ridiculous seigniorage in the process.

                  Changing current institutional arrangements between fed/trsry is probably more difficult than passing a constitutional amendment. However the tdc option proved that under the right conditions, it could be broached.

                  I am glad to see many of the mmt’ers have embraced the tdc, as it at least gets the conversation going in the direction of debt free currency issuance.

                • @joebhed,

                  You are simply wrong on so many points. I don’t care what the British international jurist and solicitor, F. A. MANN, has to say about the legal aspects of money (besides who can afford his book to clarify what you say, the used books are over $400/ea, so it’s your gotcha’). Mr. Mann was not intimately involved with US government banking and the economy of the US. He did not have a hand in turning our economy from the gold-standard to a non-convertible currency domestically. In the USA, all currency is issued as “debt” for payment of taxes. They are debt instruments, however inaptly named. Read your dollar bill. It’s an I.O.U., it’s a debt instrument, it SAYS SO, and it’s true whether that’s a physical dollar, a US Treasury security, or a US Treasury bond.

                  In early 1939, Robert L Owen, Former Chairman, Committee on Banking and Currency, United States Senate, wrote a long document for Congress to explain the purpose and effect of going off the gold-standard, which I doubt they read because war intervened.

                  It’s called National Economy and the Banking System of the United States — An Exposition of the Principles of Modern Monetary Science in Their Relation to the National Economy and the Banking System of the United States.

                  It was introduced in the 76th Congress, 1st Session,as Senate Document 23, and sent to the Government Printing Office on January 24, 1939.

                  Owen’s chapter 2 contains a section called, “Money is a Creature of Law.” Here are his words. You can download here:

                  MONEY A CREATURE OF LAW

                  The money of the United States is a creature of law. The Constitution of the United States gave to Congress the broad power exclusively to create money. It withheld and denied to the States this power. The Supreme- Court of the United States in the Legal Tender cases, (79 U. S. 544), gave this interpretation of the Constitution. It has gained unchallenged and is not now denied by any informed person.

                  We quote a portion of the opinion in the Legal Tender cases:

                  Congress as the legislature of a sovereign Nation, being expressly empowered by, the Constitution “to lay and collect taxes to pay the debts and provide for the common defense and general welfare of the United States,” and “to borrow money on the credit of the United States,” and “to coin money and regulate the value thereof and of foreign coin”; and being clearly authorized, as incidental to the exercise, of those great powers, to emit bills of credit to charter national banks, and to provide a national currency for the whole people, in the form of coin treasury notes, and national bank bills and the power to make the notes of the Government a legal tender in payment of private debts being one of the powers belonging to sovereignty in other civilized nations, and not expressly withheld from Congress by the Constitution;. we are irresistibly impelled to the conclusion that the impressing upon the treasury notes of the United States the quality of being a legal tender in payment of private debts is an appropriate means, conducive and plainly adapted to the execution of the undoubted powers of Congress, consistent with the letter and spirit of the Constitution, and therefore, within the meaning of that instrument, “necessary and proper for carrying into execution the powers vested by this Constitution in the Government of the United States.”

                  In addition to the broad power exclusively to create money for the people of the United States, the Constitution in article I, section 8, paragraph 5, gave Congress the explicit direction “to coin money and to regulate the value thereof * * *)

                  When the State banks issued paper money, Congress imposed a tax of 10 percent annually upon such paper money and suppressed it. The Supreme Court held that the term “to coin money” meant to, print money on paper as well as to impress the Government stamp on metal.

                  All of our paper currency is therefore directly authorized by the Constitution, as interpreted by the Supreme Court. All such money is necessarily “fiat” of government and is printed on the printing press. It is necessarily “fiat” money, or “printing-press money,” although these terms have been used derisively by those who preferred gold coin as money, or who preferred paper money made redeemable in gold coin. [@joebhed, if for some screwy reason you think that a treasury security (bond, bill) issued but used to be printed by the Bureau of Engraving and Printing is not currency or money, call the US Treasury and ask.]

                  No one understood the powers of the Government in relation to money better than Abraham Lincoln. As a means of preserving the Union, Lincoln issued legal-tender money in 1861 that was receivable for all public and private debts. This money never fell below gold parity.

                  The Bureau of Engraving and Printing, a division of the US Treasury states on their web site:


                  From 1863 to 1986, the Bureau of Engraving and Printing produced the various debt obligations of the U.S. Government: bonds, savings bonds, notes, bills, certificates of indebtedness, etc. In fact, bonds were the first items ever produced inside the Treasury building by the nascent BEP. Security [treasury securities] production ended when the adoption of electronic methods for issuing and redeeming securities made paper ones obsolete.

                  @Jack Foster When you’re talking about the federal government public sector issuing “debt”, substitute “money” if it makes it easier for you to understand the accounting on the federal side that way. The”National Debt” or the “Public Debt” or the “Federal Debt” (less so) is a record of all the cash/currency issued by the Federal government since 1792 minus the amount of cash/currency destroyed (taxes).

                  • I got the blockquotes screwed up. “The Bureau of Engraving and Printing, a division of the US Treasury states on their web site:” should not be a blockquote under Owens remarks. Neither should the @ note to Jack Foster.

                  • @MRW.
                    Thanks a lot for posting all those quotes – really great stuff.
                    I am thoroughly familiar with the works you quoted. I often use them myself in different forums (Austrian).
                    What I am unable to understand is why you would think that ANY of it contradicts anything that I have written anywhere. It does not.

                    There is a certain irony in quoting Owens’ Ch 2 “Money is a Creature of Law” and then downplaying what is certainly held to be the money-bible of international LAW on the subject of money – the work of F.A. Mann in The Legal Aspect of Money.
                    It is because we use ‘money’ to carry on international exchange that all the laws that govern money become relevant.
                    And it is within that agreed-upon international legal context that it is well-established, including through the use of American law, that debt-instruments ARE NOT MONEY.

                    (FYI – you need to keep searching for the libraries that get the latest edition of Mann’s book – I think the 6th edition is out now – and they will put the old one up pretty cheap on Amazon. I got mine a few years ago for $15 from a UK library, after much perseverance).
                    What’s worth keeping in mind for any reader here is why we are having this discussion.
                    It is because of MMT’s sometimes construct that “money” not only includes debt-instruments, but that the nature of money IS DEBT.
                    The major point would be that those who accept that money IS a creature of law have never carried through with the ‘nature’ of money being debt – let alone that debt-instruments(*) are money. I have never seen that Owens said either that money is debt, or that public debt is money. Have you?

                    As a creation by law, our federal reserve system allows banks to create money as debt, resulting in our money supply being all debt-based.
                    However, as a creation by law, Greenbacks were created/issued not as debt, but as equity.
                    If Greenbacks can be issued as equity-money, then money CAN NOT BE debt.

                    It is in establishing that money forms (currency) are legal tender to be used for settling debts that it becomes obvious that money cannot itself “be” debt.
                    Here the legal definition of ‘debt’ comes into play.
                    It is (*) an authorized ‘instrument’ agreed between parties that acknowledges a certain amount of a certain currency is owed and due for payment at a certain time.
                    The instrument of government debt must comport to the legal definition – and it does. That’s why it is not money.
                    As I said, bank-credit is debt-based and becomes ‘money’ – an exchange media – in a transaction that makes its way through the national payments system.
                    You can make a $100 payment from your checking account to the Treasury today to reduce the public debt.
                    The Treasury will pay that money to the holder of a debt security who will deposit it back in his account that he used to lend it to the government.
                    The national debt is reduced a $100.
                    But the money supply remains the same.
                    Money is used to pay debt. Public debt is not money.

                    I will take your suggestion and ask of the Treasury myself.
                    But one would expect that scholarship requires Dr. Wray to do the same.

                • @joebhed,

                  The IRS doesn’t shred cash money used to pay taxes. (Who does that anyway?)

                  Jerry Nelson, spokesperson for the Federal Reserve, says at 3:35 min. that the Fed shreds bills.

                  • Oh, excuse me.
                    I thought that Warren and now, unfortunately, even esteemed Dr Bill Black have said that the IRS shreds the money when you make a payment of taxes.
                    Read again that first innocent fraud.
                    The IRS. Not the Fed.
                    The Fed does not receive your taxes.
                    There are OTHER handbooks that cover the Fed’s destruction of worn out FRNs.
                    I never said the Fed did not shred money.

                  • Excuse me again.
                    My question was not “who shreds money?”
                    My question was – Who pays taxes with cash?
                    Not clear. Sorry.

                  • The IRS. Not the Fed.
                    The Fed does not receive your taxes.


                    All IRS tax return checks are cleared through a Federal Reserve bank. (Go look at the back of your old ones.) The Federal Reserve is the Treasury’s bank; the IRS is part of Treasury.

                  • I fear that you either (1) have never read the seven deadly innocent frauds of Mosler, or (2) are joking.

                    IF you have read Warren’s epic piece, then you understand why I am referring to the IRS as THE ONLY government office that is authorized to accept federal tax payments in cash.
                    And, please think on this, if the IRS shredded your cash tax payment – IT WOULD NEVER REACH THE FED as the receiver of all payments in the national payments system – which is the only role the Fed has in this transaction.
                    That cash-shredding anecdote is Warren’s way of showing that the government doesn’t need taxes to pay its Bills.
                    Because if the government DID need you taxes to pay its Bills – and it does-, then the IRS would never shred your cash tax payments – which it does NOT.

                    Pg 12
                    “”And what happens if you were to go to your local IRS office
                    to pay your taxes with actual cash? First, you would hand over
                    your pile of currency to the person on duty as payment. Next,
                    he’d count it, give you a receipt and, hopefully, a thank you for
                    helping to pay for social security, interest on the national debt,
                    and the Iraq war. Then, after you, the tax payer, left the room,
                    he’d take that hard-earned cash you just forked over and throw
                    it in a shredder.
                    Yes, it gets thrown it away. Destroyed!””

                    MRW – I have been studying the monetary system for over 40 years,
                    I know how it works.
                    The above is not how it works.
                    I did contact the IRS.
                    I do have their manuals.

                  • And, please think on this, if the IRS shredded your cash tax payment – IT WOULD NEVER REACH THE FED

                    Sure it would. It’s called data entry.

                    You expect me to believe that the IRS, according to your view, takes in cash tax payments and doesn’t register the payment in any database at the IRS as tax paid? Instead, the IRS packs it up and sends it by armored car to its banker, the nearest regional federal reserve bank, so that the bank can “receive” it and register, or hold, it as real money?

                    The dollar bill is a non-convertible currency, fercrissake. It’s a “fiat” of the government. Do you understand what that means? There is no intrinsic value in the paper in and of itself, as “money.” It’s a token. It’s an IOU. It’s a debt instrument, to use the US Treasury’s expression.

                    Maybe the IRS doesn’t shred onsite, and Mosler was simplifying the process for readers. Maybe, as Federal Reserve of Chicago spokesman Jerry Nelson says in the link I provided above at minutes 3:35, the IRS sends its cash for shredding to one of the 12 regional Federal Reserve banks or 21 operational branches that do shred dollar bills nationally every day ($23.5 million daily at the Chicago Fed alone). Maybe that’s where it happens. Not on IRS grounds. [FYI, The Fed, via congressional authority of the US Treasury’s Bureau of Engraving and Printing, prints $695 million new bills/day.]

                    [98% of the currency/asset transactions of the government (including bonds, T-Bills, and all Treasury securities, according to the Bureau of Engraving and Printing) are done with keystrokes, and have been since 1986.]

                  • A lotta maybe’s in there.
                    They all support the notion that Treasury DOES get your tax payment, no matter how it’s made.
                    Because Treasury DOES need your tax payment in order to have money to make payments.
                    Because Treasury IS revenue-constrained, according to their website.
                    Because Treasury does NOT create money when it spends.
                    And that is my point.
                    FYI — the opposite of Warren’s.

                  • Joe, with all due respect, Warren Mosler does not say that the Treasury is/does any of that. He attributes those qualities/abilities to the government in general, and to the Congress in particular.

                  • Nihat,
                    Respect right backatcha.
                    But……most of this is covered in Warren’s First Deadly Innocent Fraud which says that this statement:
                    “The government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax and borrow.”
                    is a FRAUD.
                    1. Warren says that government creates money when it spends – via keystrokes. “There is no such thing as having to ‘get’ taxes(or borrow) to make a spreadsheet entry we call government spending”.

                    2. ALL government spending is done by Treasury. This says that Treasury creates money when it spends, via keystrokes.
                    3. Warren says that the government (Treasury) is not revenue constrained. ”All it takes for the government to spend is to change the number upwards in bank accounts at its own bank – the Federal Reserve Bank.”
                    4. Obviously, all of that means that Treasury does not need to get your tax money from either the cash payment or your checking account, or from government debt, in order to fund government operations, such that government is not revenue constrained.

                    The statement quoted as being a fraud is not a fraud – it is the obvious truth.
                    The real fraud is in making that claim, using both unsupported and irrelevant anecdotes.

                    Please respond with specifics if you think I said anything that is in error.

                  • Joe, for the record, this is what Mosler writes:

                    Deadly Innocent Fraud #1:
                    The federal government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax or borrow.

                    Federal government spending is in no case operationally constrained by revenues, meaning that there is no “solvency risk.” In other words, the federal government can always make any and all payments in its own currency, no matter how large the deficit is, or how few taxes it collects.

                    Note that the subject in these sentences is invariably “the federal government,” not the Treasury.

                    I don’t believe the federal government’s “ability to borrow” is limited, or we must fear the bond vigilantes, or there are sometimes insufficient funds for the government to make revenues out of. The Treasury specifically is, of course, constrained by what the Congress approves for it to spend, and by having to have a positive balance in its account before spending out of it. Beyond that, however, the Treasury –at the behest of the Congress– has infinite capacity to issue treasuries, and thus smoke out any desired amount of reserve balances out of the Fed for its spending. (Natural/real constraints like inflation or moral hazard exist, but they are outside the scope of this discussion.)

                  • Thanks, Nihat.

                    I do agree that the use of the word ‘government’ provides a lot of license to MMT enthusiasts, and is a great source of confusion to a lot of readers when the central bank joins with the government in the ‘public’ sector of functional finance, as well as into governmental financial operations.

                    But this is not functional finance.
                    It involves receipt of taxes and debt proceeds and payments for government services.
                    You will find that the essential mission of the Department of Treasury.
                    It seems a bit of a wander to say that ‘he said government’, when the operational tasks we are discussing – those of governmental financial management – are of the Treasury.
                    One reason it is confusing is using government to describe the non-government, like FRBNY as operator of the paying system for the national commercial banks, and thus the Treasury.

                    Warren also acknowledges what happens with your tax payments paid by check, thusly.
                    “When the US government(1)gets your check and its deposited and ‘clears’, all the government(2) does is change the number in your checking account “downward” as they subtract the amount of your check from your bank balance”. (My numbers)

                    Government(1) is the Treasury receiving, depositing and clearing your tax payment BECAUSE IT NEEDS IT TO SPEND.
                    Government(2) is the Fed as payments manager, because that is what a payments manager does.

                    Taken together, and understood, they say absolutely nothing about whether the government needs money from tax payments and debt proceeds to make payments for the goods and services that the government purchases. As one who has been on Treasury website a lot, surely you have seen their statements that this is what the Treasury part of the government does.

                    I have nothing to say about the discussion of reserves as they do not relate to the discussion of the so-called fraud. And the unlimited ability of the government to issue debt would have nothing to do with whether the statement is a fraud or not.

                    So –
                    “”The federal government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax or borrow.”” (Mosler’s Fraud 1)
                    So, to be clear here. This is me speaking.
                    The federal government must raise funds through taxation or borrowing in order to spend.
                    There is NOTHING false in that statement.
                    There is no fraud in that statement.

                    Me, again.
                    In other words, government spending is limited by its ability to tax or borrow.
                    Period. (I should have said it better)
                    There is nothing false in that statement.
                    There is nothing fraudulent about that statement.
                    There is no fraud. Deadly. Innocent. Or otherwise.

                    The question that goes around in my mind in seeking to gain the economic benefits of a sovereign fiat money system, working for the benefit of all the people, is WHY is this ‘workaround’ of the government’s financial management operations needed to convince people to take back the money system?

                    These operations come down to what is budgeted and what is appropriated. And in a budget, the source of revenues must be identified. Any amounts not covered by tax income must either be debt or ‘new money’ funded.

                    In order to fund that balance without debt and with new money, the money issuance powers of the national monetary system must be reformed. That’s all there is to it. And there’s no reason not to, except the alibi provided by the belief that we already have that power – by keystrokes.

                  • I have nothing to say about the discussion of reserves as they do not relate to the discussion of the so-called fraud. And the unlimited ability of the government to issue debt would have nothing to do with whether the statement is a fraud or not.

                    Joe, too bad, I believe that’s the heart of Mosler’s thrust. The fraud is in the belief that the government can go insolvent due to insufficiency of revenues. There is no “solvency risk.” That’s his emphasis, and that’s his main point. If you said he was wrong about that too, I’d be interested to hear why you thought so. Otherwise, let’s agree to disagree.


                  • Nihat,
                    My closeness to MMT is based on its quasi-understanding of the monetary powers of a sovereign fiat money system.
                    Unfortunately, for the most part MMT confuses monetary ‘sovereignty’ with monetary ‘autonomy’.
                    Any independent nation that exists is naturally sovereign in its powers over money.
                    As such, it can never be insolvent.
                    But it can lose its autonomy via agreements(IMF) and monetary arrangements (EMU).
                    Borrowing in another currency or using another currency that it has no control over can cause defaults.
                    But any nation sovereign, autonomous and independent in money can never be insolvent.
                    That has nothing to do with government finance, or its fiscal operations or whether we NEED taxes to pay for government services, or not.
                    That is all determined by a nation’s laws.
                    And I don’t understand why they would be part of the sovereignty – insolvency discussion.
                    But I agree with Warren that we cannot become insolvent – except on purpose.

                • @Jack Foster,

                  If the govt were truly acting as the issuer of the currency, there would be no debt. however congress for over 100 years has abdicated this sovereign privilege and agreed to pay ridiculous seigniorage in the process.

                  It’s nomenclature. The federal government issues debt. That’s what currency (paper, coin) and treasuries are. The are debt instruments issued so the government can provision itself, and to pay taxes, which is how it controls how much of that currency is in circulation and being used.

                  The government has a central bank to avoid fraud and set monetary policy. Congress, and only Congress, can appropriate spending. It sets fiscal policy. If Congress decides we, as a society, want to fund health care 100% for the elderly, then it sets the policy by which that will happen. Do seniors pay a stipend? Do they dance for the privilege? Do they have to spend a week on a chain-gang? Can they get a card that says they are entitled to health care when they need it? Who pays for it? Does it come out of general revenue as a keystroke without any debt to our grandchildren, as two parts of Medicare currently do? Are we going to loot their retirement accounts and reduce their standard of living? Do we let insurance companies handle it, and wash our hands of their diseases? What, and who are we, as a society? [Don’t forget all the jobs their illnesses need.] Congress authorizes Treasury what we as a society are willing to do. Congress authorizes the Federal Reserve. Many of the pronouncements in Eustace, Kah, and Griffiths have been found wrong, BTW.

                  • hey mrw,
                    The govt issues debt to provision itself because congress many years ago was canoodled into thinking this was the only way it could provision itself. The result has been that the debt of the u.s. continuously grows like a massive snowball rolling downhill. The money changers get to collect massive amounts of interest in return. the money spent on interest could be better spent on provisioning infrastructure and services.
                    And just as congress chooses to issue debt to provision itself, it holds that congress could also just direct issue currency, if it so chose to.

                    i personally believe congress is massively underspending for what the private sector needs, in terms of savings desire and to spur consumption demand. However, the political will under the current debt based monetary structure is begginng to turn and realize, just like we had to get off the gold standard, we will need to remove ourselves from the debt standard.

              • MRW, the US Bureau of Public Debt also accepts donations from private citizens to pay down the public debt.

                • @Nihat, I know. 😉 I read that in their FAQs right after they describe how the public/national debt is paid down:

                  Why does the debt sometimes decrease?

                  The Public Debt Outstanding decreases when there are more redemptions of Treasury securities than there are issues.

  30. Extraordinary claims require extraordinary evidence.

    Here we have handwaving as the support. Logic applied carefully within a framing, a narrative, a sort-of model that is assumed to be a model of reality.
    You are all sharing a fantasy world, which has no contact with the real world. In the real world, there are NO examples of countries that have successfully managed their economies for any long period of time.
    Economists cannot predict the future, and all of these plans require predicting human behavior in an economic future. We can’t predict human behavior very well, either, but that is easier than the economy.
    And we know you can’t predict the future of any significant element of the economy, or you would all be rich from speculation, way too busy having fun with your wealth to post here.
    So this is stilly, group think, identity politics based on shared fantasy worlds.

    • There are plenty of examples of countries that have managed to wreck their economies in short order. If we don’t learn anything from analyzing the mistakes of others, we are sure to repeat them ourselves.

    • @lew,

      No one is predicting anything here.

      MMT is concerned, first, with how things actually work operationally in the federal accounting system. No theory. No economic treatises on how people behave over a generation, or formulae for calculating a risk 20 years out.

      Discussions on this blog separate out the gold-standard chaff from the fiat wheat for regular folk like me, in addition to the highly technical discussions of Federal Reserve behaviors by people like Scott Fullwiler.

      As for your proclamations that this is fantasy, you need to look up Beardsley Ruml, Marriner Eccles, and Abba Lerner.

      China hasn’t been doing too bad keeping its country intact economically for thousands of years. Ditto Persia/Iran, and Great Britain.

  31. Very good Lew. I remember now Churchill said something to the effect of “All I can offer you is blood, sweat and tears!”

  32. I agree that social norms embedded in cultural rituals and social, political, and economic institutions change slowly because the structure itself is resistant to change and also most people fear rapid change as potentially destabilizing. However, that is not a reason to push for incremental change. Pushing for incremental change within existing structures and understandings that are inappropriate to context reinforces the framing that one is attacking and attempting to change.

    A more effective strategy is to reframe the debate. Stephanie did this skillfully did by dismissing “affordability” and “fiscal responsibility” as concerns and showing how the actual issues involve availability of real resources and the inefficiency of needlessly letting available resources lie idle instead of putting them to productive use to improve life in a society when a country controls its own money, hence, has the policy space to do so. The cost of the waste of idle resources is what is really unaffordable in terms of opportunity cost, i.e., choosing to squander potential needlessly rather than choosing to use it productively by using policy space efficiently and effectively. It’s about husbanding real resources, not “saving money,” which a country with a sovereign currency has no need to do.

  33. I’m going to find the episode and watch it. I am pleased that Dr. Kelton was able to add sanity to the debate. I don’t agree that we should show caution when challenging the conventional wisdom. Your point about borrowing and monetizing debt reflects an incomplete understanding of our monetary mechanics. Offering a partial explanation that might be less challenging to convention is not a proper solution to any problem. The facts are simple if examined.

    The more often clear and knowledgeable researchers like Dr. Kelton are able to join the public debate, the sooner the naive will have facts to use and the maliciously duplicitous will be exposed. The foolish, will always have a long row to hoe.

    //so it goes

  34. bungled assassination

    Uncle Joe Stiglitz had a widely reblogged Ny Times piece yesterday perpetrating more gold-standard era monetary myths…ie that due to low tax receipts, government could not invest in infrastructure.

    “… Low tax receipts mean that the government cannot make the vital investments in infrastructure, education, research and health that are crucial for restoring long-term economic strength….”

    Since it’s well known that Stiglitz has his heart in the right place inequalitywise, this makes me think of the reasons why left-leaning pundits might be propping up the zombie theory of the money system: because if they abandon it, they abandon any moral leverage for the idea of the wealthier citizens “paying their fair share”.

    This loops back around to my notion of the defacto “MMT Truce” which states that “ok, you Republicans can keep your low tax rates if we can keep our Medicare and SS”. In other words, win-win for left and right, and “sucks to be you, deficit scolds!”.

  35. Folks, some of this has expanded beyond the domain of just economics, and I believe that this is actually a good thing. the framing of MMT/PK as part of a social movement involves more than framing from within the land of economics and liberal assumptions about how to promote. Reframing the fiscal debate is only going to take the advocacy of MMT/FF so far as long as the boundaries of what currently contain the processes of what passes for democracy in the domain of unleashed plutocracy. So far the economics part is rather solid, and the media level framing has some significant cracks, but for the most part we will be contained by the corporate agenda as processed through mass media, blogs being an exception of sorts though a bit clumsy at times. In a certain sense we need to also exceed the parlor of the the key board-verse. Attempting to change and expand to public discourse needs to have a practical component as well. The TDC knocked on that door and the press secretary was forced to respond to the actual capacity it represents and the response was essentially was “No, we don’t want to even consider that possibility.” We can’t then just back away, looking for the next opportunity to be deflected. We do need to use this moment for the sake of its educational potential toward pressing the actual practice of these utilities. The acceptance of elite level discourse has to change course such that people can re-interpret their reality. I believe that this is part of what Lowe was referring to by his concept of “instrumentality.” People often need to experience that sense of instrumentality to recognize the capacity change their assumptions of what is and is not possible. Arendt described it as “conditioning” and to change the discourse we also need to change our sense of what is normal. This in part means establishing culture of practice. The language of social norms is straight out of positivist sociology, where conformity is the primary definition of “socialization.” To do this we need to also demonstrate historical capacities both through alternative narratives of economic history and through actual practice. Progressive history is NOT dependent upon celebrities riding up on their white steed be they fair maidens or elite males, though positivist history has consistently reframed the process to deny social capacities beyond what supports entrenched interests As per the Highlander Research center of Myles Horton and Septima Clark which operated to develop the capacities of people to organize and operationalize a different standard of democracy. The blog utility is limited relative to demonstrating capacities. The attention provided by Ellen Brown to the TDC concept provides an rsvp to engage what has been a bit of a constant morass of “pop”-level economics. The ambient economic pain has also reached a level where sorting out the cacophony of corporate talking heads and the occasion flashes of bright light insight are there to be channeled into practice, and we do not have to wait for the Titanic ship of state to avert economic catastrophe, when BHO, as Chris Hayes put it is an “Institutionalist,” which by read is deeply trapped in limiting assumptions about what is possible and reasonable. More on this

  36. WRT to your last paragraph, I think we already do/did it with TARP and all those bail outs. The trillion dollar coin is really a gimmick. We don’t need a coin to do anything in reality. It is only bc congress requires the Treasury to “borrow” the money. And why would they do that? Well there was a time when T bonds, the short term ones, earned interest for the plutocrats. There is no reason they should pay anything. If we have to issue them make them zero interest so that they are perfect subsititures for cash. They are nearly so today.

  37. 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 unable to direct ourselves to a destination or destinations of our choosing.

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