Slapping Trillions of Obligations Into the Diapers of the Next Generation

By Stephanie Kelton

I get a huge volume of e-mail, but I don’t get the kind of hostile stuff that guys like Joe Weisenthal and Paul Krugman sometimes joke about.  I got one today, though, and boy is this guy steaming over my MMT coloring book!  Here’s the message:

It’s hard not to sympathize with a guy like this.  He apparently has kids, and he’s scared to death that his children and grandchildren will suffer real harm because Washington won’t get its fiscal house in order.  And why wouldn‘t he think that?  I mean, really.  Politicians on both sides of the aisle have spent decades labeling the government’s finances a “fiscal train wreck” that will leave future generations with a “crushing burden of debt.”  The mainstream media hypes these fears on a daily basis, and even NPR appears to be shilling for the debt scolds.

So it’s no wonder a guy like this is blasting me. He had probably never before encountered anything that rejects, so forcefully, the entire compilation of debt and deficit tropes.

He doesn’t strike me as a particularly open-minded guy, but I think I’ll send him this list of suggested readings anyhow.  Maybe he hasn’t finished his holiday shopping.

Recommended Inoculation

Freedom From Debt by Frank Newman

7 Deadly Innocent Frauds of Economic Policy by Warren Mosler

Understanding Modern Money by L. Randall Wray

Also these short articles:

Does Debt Matter? by Robert Skidelsky

Balanced Budgets and Depressions by Frederick Thayer

* I did bother to reproduce, by the way.  These are my little burdens of joy.  Both will find copies of the coloring book in their stockings on Christmas morning.


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54 responses to “Slapping Trillions of Obligations Into the Diapers of the Next Generation

  1. Here is a response I would love to see made to the comment that the federal budget should just be like a household budget. “Are you prepared to say this? If I am annoyed by my neighbor, I cannot respond by slapping on some handcuffs and dragging my neighbor to a dungeon in my house. I would be charged with false imprisonment. I expect government to held to the same constraints, therefore, all the jails and prisons should be emptied immediately.”

  2. It’s hard to believe he saw the coloring book and then somehow missed all the other content on this site that says over and over and over again how a household (currency user) is fundamentally different than a sovereign government (currency issuer). I think when certain close-minded people visit the site, they are so blinded by confirmation bias and the decades of myths branded in their brains that they blaze through the content, missing the point entirely. Oh well.

    BTW, nice looking kids. Happy holidays everyone!

  3. MMT Coloring books?!? Oh man, their friends are gonna be sooooo jealous! 😉

  4. Consider for a moment what Mr Joffre once said:“[…]guided by the beautiful principles of critical thinking and the reasonable expectation that the laws of physics will not change overnight. In contrast, blind religious faith demands that otherwise reasonable people believe in unreasonable things — and therein lies the danger.”

    I think he should take his own advice to heart because his failure to try and understand the reality of how our economic system works, he has fallen into the danger of “reasonable people believ(ing) in unreasonable things”.

  5. Of course, this Tea Partier who seems so concerned about his children being able to “pay the bills” for the supposed debts of Krugman and Kelton, never seems to raise even a whisper about the massive debt incurred by his own conservative friends in favor of the super wealthy, not to mention the excessive spending to maintain the world’s largest military, or the world’s largest surveillance/incarceration state, or even the blizzard of corporate welfare showered upon Wall Street’s elite. But, I guess he figures that balanced budgets should be only to protect people like him from “those people” (read, anyone poorer, darker, and less fundamentalist than him).

    As I always say, Professor Kelton, “Haters gotta hate, and if you don’t have a few, you’re not doing it right.”

  6. Thornton Parker

    Stephanie, this is prime example of where you need a really simple explanation of the basics of MMT that the public can understand.  One problem with the Coloring Book and things like it that appear aimed at children is that many adults such as the one who wrote to you take them as insults. A significant part of the right wing’s power comes from the feeling that its leaders have generated among many of their base that liberals are talking down to them, not with them.  This guy will probably never read any of the material that you referred to him and would probably not understand it if he tries.   

    Incidentally, another problem with the Coloring Book is that its first, and probably its most effective part concentrated on driving home the competition’s message that you are trying to overcome. That ain’t no way to sell soap!

    • Stephanie Kelton


      I know, I know. Don’t Think of an Elephant and all that. I did the book on a whim, just to give my students an example of what I wanted them to do. They were supposed to cast the MMT arguments in positive frames (i.e. what is/can be instead of what is not). Unfortunately, I didn’t get very many good ones. So the work still needs to be done. Why not make a few suggestions to help us along? Bill Mitchell and Randy Wray have both tried their hand at the framing thing. We still don’t have what you’re suggesting — a working document that can be shared with and (adult) audience that is new to the arguments.


      • Hi Stephanie, I always liked Warren’s explanation of money in this post: Essentially, Warren says capitalism thrives on sales. When sales are down, businesses start firing people. To keep sales up, the federal government either lets people keep more of their money (known as a tax cut) or buys lots of stuff (known as an increase in federal spending).

        • I’m surely not the authority on who said what first, but I heard the sales –> production –> jobs –> incomes –> sales cycle from Stephanie before I heard it from Warren.

          Anyway, it is a powerful concept, as much so as the sectoral balances and a lot more intuitively understandable to the layman (who knows, even without formal training, quite a bit of microeconomics).

          What the basic equation of GDP Y=C+I+G+(X-M) is saying is that production equals sales plus changes in inventory. Everything produced is sold, or it’s not. Nobody can dispute that. What do businesses do when inventory builds up? They cut back production, lay off workers. When the shelves get empty, they hire and produce more. Simple stuff, everyone gets that.

          One man’s spending is another man’s income. It’s a cycle. When spending goes up, inventories go down, businesses hire and produce more stuff, workers have higher incomes, and they spend more.

          And it works in the opposite direction, too.

          So if it’s working in the opposite direction, or not going fast enough in the direction we want, what should government do about it? Government is, after all, the sponsor of the economic system, and so is responsible for its performance. It can’t sit back and do nothing, and it shouldn’t do things that make things worse. It is itself a large part of the system, so whatever it does has an effect.

          Government can influence the cycle in order to increase production and sales at three of the steps: it can buy more stuff it wants, depleting inventories, and kick off the cycle. It can hire people itself, increasing incomes and causing its new workers to spend, depleting inventories. It can give people money, or let them keep more of what they earn, and the people will spend it on what they want, depleting inventories.

          No economist would argue with these things, and neither would many ordinary people, regardless of their political or economic views. It’s basic microeconomics that people who live and work in a monetary economy understand and deal with every day. Once agreement is reached on this, there can be a good-faith discussion of the issues that people have with what they consider to be undesirable side effects of various government actions, and the way MMT views them: inflation, debt, deficits, size of government. That is where you can begin to “convert” them, allay their fears, so that they can see the light. Turn hawks and doves into owls. So they see that whatever their political views, MMT doesn’t thwart them, it enables them.

          This approach bypasses the wonky details of accounting, reserve balances, central banking and origins of money that are part of the foundation of MMT but not things that ordinary people care much about or are dying to understand, and are the source of many MMT statements that go “against the grain” of the microeconomics that they understand so well.

          I think the approach taken in an economics classroom, which is based on the desire of the students to learn and understand and pass the test – whether or not they agree – is doomed to fail in the context of persuading the electorate to change its views. They won’t listen to anything until they hear something that they can agree with.

      • This is (imo) THE problem that MMT faces. I stumbled across MMT while looking for a good explanation of what debt to gdp ratio would be acceptable. This was in 2011 I think after Randy had written the first dozen or so MMT primer entries. As someone with a mainstream undergraduate economics background, but progressive leanings I was enthralled with what he was saying.

        However, and this is my key point, even though I had a stronger economic background than most people (even college educated people with non-econ degrees) and I wanted philosophically to agree with what Randy was saying, I still had a hard time catching on. Now it seems so clear and it’s hard to believe people can be too dense to understand it. It’s like trying to recall what it was like not knowing how to read or ride a bike. If someone who wants to believe you still has this much trouble, you can imagine how easy it is for the layperson to just dismiss it.

        I really think your approach is working. You are teaching the new economists to think about things correctly. (side note: I took Perry Mehrling’s Coursera course and it was awesome, sorry UMKC I don’t have the time or money to attend a post-grad program). You are getting out there on the TV finance shows and getting people like Chris Hayes to understand you. This is the long thought battle you are fighting. For comparison, it’s taken decades for the gay crowed to sway public opinion in their direction and it’s all happened a little at a time. Don’t think what you are doing isn’t effect just because there aren’t immediate results.

        • aj, great post. I have no economic background, and when I stumbled across some of James Galbraith’s writing in late 07 early 08, I was thinking the same thing. Basically that this sounds too good to be true, and why aren’t others discussing it.

      • Stephanie, I liked the idea of your kids MMT colouring book. I have a suggestion that might be worth considering. I posted the following on Bill Mitchell’s blog a while ago when he asked how MMT could penetrate the public psyche (sorry if it’s a bit long I just wanted to post the examples that came into my head):

        To penetrate the public psyche I think it might be very useful for MMT principles to be broken down into short basic phrases and additional short comments for each key phrase in layman’s terms that can be easily understood. The key phrase describes the principle and few additional comments help expand it. Some phrases may not necessarily be MMT specific but draw out a key MMT concept which can then be discussed if desired. Anything complex and I think Joe Public’s eyes will soon glaze over, so short and sweet phrases if possible. It’s the general public, not economic graduates that is the target here.

        Some examples: (note some of the additional phrases below could also be key phrases)
        Key phrase:
        – A country that issues its own currency cannot go broke (and can meet all future obligations).
        Additional provisos:
        – Its currency must be floating freely
        – It must borrow in its in own currency
        – Unless it CHOOSES to default (debt ceiling)
        – A federal govt budget is not the same as your family budget – It issues its own currency – you don’t
        – If you could issue your own currency would you go and borrow it from someone else?

        Key phrase:
        – A government surplus must be someone else’s deficit. Guess whose? YOURS!
        – It’s either the private sector’s deficit (YOURS) or the foreign sector’s deficit.
        – A government deficit is the private sector’s surplus (if foreign sector flat).
        – Government debt is private sector wealth

        Key phrase:
        – The Federal Reserve was created by a stroke of congress’s pen and the same stroke can reverse it (it can be controlled by the govt).
        – Therefore the Reserve Bank (RB) is functionally part of the government from an accounting perspective.
        – Therefore the government can issue its own money
        – Therefore the govt does not need to borrow in order to spend

        Key phrase
        – The government first spends money into existence and then taxes it out of existence.
        – The government does not need to borrow in order to spend.
        – Greater Govt spending increases economic activity (demand)
        – Greater Govt taxes reduces economic activity (demand)

        Key phrase:
        – Why is govt money accepted by the public? A reason…Taxes!
        – Everyone needs to ‘get’ money to pay taxes
        – Taxes drive money

        Key phrase
        – Government spending when there is unused capacity/resources is not inflationary
        – A government does not have a financial constraint, it has a resource constraint (do the resources exist?)

        Key phrase
        – The interest rate is a policy choice. Period.
        – The Reserve Bank (RB) uses Treasury Bills to control the short term Interest rate
        – The RB buys Tbills to lower interest rates and sells Tbills to raise rates
        – If RB wants to maintain the interest rate it is forced to provide new reserves for banks who need them for loans they have made

        Key phrase:
        – Banks create loans out of thin air, they do not need reserves to do so.
        – They acquire reserves afterwards if and when required
        – Loans create deposits

        Key Phrase
        – Quantitative Easing is not money printing, it is an asset swap
        – It is like swapping your checking account for a term deposit (bank reserves for Treasuries/RBMS)

        Key Phrase:
        – Two things must exist for Hyperinflation to occur: Civil Strife/war, Govt Borrowings in Foreign Currency
        – Zimbabwe had internal strife destroying 80% of productive capacity
        – Weimar had war reparations to be paid in gold.

        Key Phrase:
        – Unemployment is a policy choice
        – The level of unemployment is forced by the RB’s policy (NAIRU)
        – Currently the RB manages inflation by increasing/maintaining unemployment through interest rates.
        – A job guarantee overcomes this problem while helping control inflation

        I guess this might be easier said than done but ideally there would be a whole set of short phrases (a matrix perhaps?) covering all of MMTs principles that can be used for explanation purposes or when someone throws up an opposite/neoclassical belief (ie ‘burdening the grandkids with our debt’). The shorter and sharper they are the better chance there is of them penetrating the public psyche. And maybe the key MMT speakers could agree on which key phrases they are going to emphasise (if they don’t already) and use them whenever a specific MMT topic comes up in an interview, so that the public become familiar with them. I’ve heard you (Stephanie) and Warren Mosler use a few in your talks that are starting to stick eg ‘Loans create deposits’, ‘Banks aren’t reserve constrained’, ‘to the penny’ etc.

        Just an idea, put this matrix of MMT phrases in a handout/brochure/card (1 page back and front?) and give it out at every lecture/speaking event like the recent MMT event in Bulgaria which Warren attended, something they can take away and then explain to their friends if they want. Leave it everywhere possible. Some of the phrases will begin to stick…

        Keep up the good work, the kid’s MMT colouring book is a great start!

        • “Zimbabwe had internal strife destroying 80% of productive capacity”

          They were also effectively running a government budget deficit equal to 78% of GDP, and paying 900% interest on excess reserves:

          • True Philipe, they did. But the question is what came first.

            There was destruction of the production capacity first in the late 90s (Zimbabwe was the bread bowl of Africa), and they were involved in a war in the Congo at the same time. They were also saddled with foreign debt (borrowings in someone else’s currency). I believe these things then lead to the issues you mention which subsequently occurred. The point from Randy Wray’s book Modern Money Theory is that you don’t get hyperinflation unless there are borrowings in a foreign currency and/or destruction of economic productive capacity, usually as a result of war of civil strife.

            • If the US government ran a budget deficit equal to 78% of GDP it would be spending approximately $12 trillion dollars in deficit every year.

              • I think that’s probably enough to get you extremely high inflation.

                • Yes, Zimbabwe got into that state because the kept printing money to try to pay off foreign currency debts (which kept increasing because the currency depreciated), and pay soldiers etc at the same time their access to resources (productive capacity of the economy) was shredded by 4/5 (which put cost push inflation factors in place) which destroyed 4/5 or more of their tax revenues hence they got hyperinflationary spiral. Not surprising they got a deficit of 78% of GDP in those circumstances. Not going to happen in the US, it issues and borrows in its own currency.

                  Just for discussions sake the question to be asked if the US govt ran a deficit of 78% of GDP or $12 trillion is whether there was unused (idle) productive capacity and resources in the economy of that level. Companies typically don’t increase prices when meet with extra demand if they have idle capacity, they produce more at the same price. It’s when resource constraints or bottlenecks occur that inflation happen. I would imagine that bottlenecks and a lack of resources would be encountered if the US tried to run a $12 trillion deficit next year and would get some serious inflation! The question is what is the level of idle capacity and resources? 10m+ unemployed, crumbling infrastructure, and plants laying dormant seems to suggest there is substantial idle capacity and that the government should spend to generate demand because the private sector wont or can’t. And MMT says it can spend without creating inflation until it hits resource constraints.

                  The government is resource constrained not financially constrained.

    • I can’t see anything wrong with any of the MMT narrative; the problem seems to be the absolute confidence about 90% of us have that those in positions of power are somehow bound by some force to use that power to advance a common good, and so accept that we must do whatever mainstream economics instructs if a better future is to come.
      Many of the upper 10% (upper middle class and above) do not understand the mechanisms that keep them in that position but will support anyone and any idea they believe can help keep them there.
      My feeling is that only when that educated and politically influential upper 10% begin to feel the pain the bottom 90% feel will change begin to occur.
      The target audience MMT needs to reach is that 10%, and with the message that things could be simpler and better.

  7. Scott Phillip Hedlin

    I may need diapers after enjoying your critic’s metaphor, I about…..(no need to be graphic/disclaimer). In the spirit of good fun on the subject this relic of advertising came to mind. Regardless of whose approach to parenting goes without a hitch, at the outset we know a lot more about the wrong prescription than the one we discover by being aware and thoughtful. Merry Christmas Dr. Mom

  8. Wait a minute. He’s got an idea there. Recycling Trillions of Dollars of Uncle Sam’s debts into Baby Diapers is brilliant. That’s what the Treasury can do when it receives back its own IOUs in tax payments. That would (finally) teach Tea Partiers that Uncle Sam doesn’t spend tax revenue, he uses it to absorb baby wee. Brilliant Proposal. Maybe he’s a lot more clever than you all are giving him credit for.

  9. That’s it. Wind him up even more Stephanie
    No point. He has morality on his side.
    Can’t touch that.

  10. At least you do seem to understand WHY he feels the way he does, I’d say he’s probably not an economist or has really studied it beyond the mainstream (do you have any idea if he is one/has??) I used to feel the same way. Until you know better, it just makes logical sense…we personally have to fiscally responsible and all, so naturally the government must. We can’t spend more than earnings so of course the gov cant!
    And of course, when I would listen to economists all, even the liberal leaning ones like Krugman spoke of balancing budgets overall and etc etc So that’s the real shame, unless you want to dive into how modern economics really works…you’re gunna rely on common sense and what experts say. Shame it’s all wrong 🙁

    Maybe this is a good thing? If you guys start getting the hateful emails that Krugman does that must mean the ideas are getting better known!

  11. “even NPR appears to be shilling”

    NPR knows better than to bite the hand that feeds them.

  12. Stephanie: I admire your patience and your compassion with this particular line of criticism, which we also heard from an ECB member in Athens, as he was congratulating the Greeks for being so responsible with their fiscal policy as to produce an unemployment rate of 27%+ and a youth unemployment rate well above 50%. It should take no more than 5 seconds to realize the burden of future generations implied in the latter statistic. Really, this is a true tragedy, staring us right in the face, as an entire generation in Greece either has to emigrate to Germany, or lose themselves is various distractions (drugs, alcohol, video games, black market production and exchange, etc.), all while becoming increasingly disenchanted, disillusioned, and depressed. I would heartily recommend to all people who take this “burden on future generations” (to pay interest expense to future generations, and to enjoy the benefits of all the human and tangible capital put in place by appropriate full employment fiscal policy today) that they voluntarily cede they adopt a Greek youth, voluntarily ceed their current jobs and other sources of cash inflows to them in full, and sit there for months (years?) on end until they come to realize the real burden imposed by Austerian fiscal rectitude and other attempts to impose good housekeeping budgeting principles on an entity – the currency issuer, the creator of the money that we must acquire to pay taxes and buy government bonds – where such principles are totally and thoroughly IRRELEVANT. End of rant. Glad you are still able to be diplomatic about this “burden on future generations” meme. Personally, I have completely had it with this recurring line of attack on full employment fiscal policy, and have gone to a zero tolerance stance against such terrorist economics.

    • I’ve had success introducing MMT with 2 simple frames. Both of which aren’t really original, but I figure sharing anecdotal evidence is what a blog is all about, right.

      1. We should be focusing on real outcomes. Employment rates, inequality rates, social mobility, inflation, etc. and not on accounting which is a lesser problem. Here I’m basically introducing someone to Functional Finance in laymen’s terms. I’ve never had anyone disagree with these statements when put simply like this. Even very fiscally conservative people will agree with these statements before beginning to offer up their “buts.”

      2. Fiat money operates like video game money, like World of Warcraft or any other game that you know of. The government being the money issuer can’t ever run out. It uses that money to encourage social activity and reward people for hard work. Also, there is no unemployment in video games (that would make a pretty crappy game) so it’s possible to run an economy at full employment. This is basically taking Warren Mosler’s ‘points on a scoreboard’ analogy and reworking it for the younger crowd. Actually video game economies offer a lot of good analogies for the real world. Some, like EVE online are actually pretty complex economies with fraud, deception, violence as well as corporations and social hierarchies, etc.

      • Don’t you hate it when you do really well at some video game, and get the highest score ever, and then the game says “Sorry, we’re out of points. You can’t play anymore.”

        • I hate when that happens 🙁

          In my head it was more the unemployment thing. Imagine some kid’s luck when he goes up to a quest-giver in his mmo, “Sorry GoblinSmasher365, this quest has already been done by 100 people. As the 101st person, you are just out of luck. Better luck next time.”

  13. I think that’s because the coloring book doesn’t explain anything. It is just a bunch of statements that an out-of-paradigm person will view as completely wrong if not insane. So I am not certain it is helpful. Explaining is better than stating facts that make no sense to the receiver.

  14. 40 % of Americans reject Science and 59% believe that events in the book of Revelations will occur. Setting those stark realities as a backdrop it should not be surprising that certain folks are worried about a non-existent fiscal crisis.

    • roger erickson

      and oddly, they probably mostly responded by telephone, internet or cell phone

      go figure

      • Roger ………. Your comment has left me laughing …

        Not at you ……. but, with you. 🙂

        I spent several years of my youth working in Amish country.

        No phones, however, many, many trips to the nearest town to use a phone when an emergency happened.

  15. Mark Robertson

    Stephanie thinks this clown is brainwashed by politicians and the media. My view is less charitable that Stephanie’s. I say that anyone who seriously studies U.S. government finances will chance upon an MMT-relevant article, and will see that the $16 trillion in “national debt” is a Fed asset. It simply represents deposits by investors, and the deposits have no effect whatsoever on the U.S. government’s ability to create money out of thin air. No individual will ever have to pay a single penny on these deposits.

    However, the average person does not want to hear this. Granted, he is bombarded by lies, but the true source of his brainwashing is his own smugness. He is smarter than you, more hard-working that you, more righteous and reasonable than you, more innocent than you, and so on. If you do not see his “superiority,” then you lack “common sense.”

    As reader Andy says above: “No point. He has morality on his side. Can’t touch that.”

    Therefore, when the average person rejects MMT, it is not a product of brainwashing, or of intellectual failure. Rather, it reflects a moral failure, a character failure. It is a product of selfishness and self-righteousness.

    Show me someone who rejects MMT, and I’ll show you a petty, mean-spirited little whiner who projects his flaws onto everyone around him. Such miserable cretins believe that they alone are entitled to “entitlements,” and that everyone else is a “taker.”

    Meanwhile their wretched condition is co-sustained by enablers — i.e. those weaklings who think he means well, but “just doesn’t get it.” The enablers help to maintain the austerity that is killing us all.

    In light of the above, when average people reject MMT, they do not frustrate me.

    They disgust me.

    Reader Anthony Kennerson is correct: “Haters gotta hate.”

  16. I respectfully disagree that a government budget is somehow different from a private family budget. The difference lies in how money is acquired to spend. Most families earn money to spend, some families acquire unearned money, while the government creates money to spend in the form of cash and credit. Banks are charged with the distribution of government cash and credit in lieu of spending. Most individuals earn wages by exchanging their labor for these money tokens; some individuals acquire unearned income by ownership of an asset, like a rental house, land, or more commonly, a collection of machines in a factory or a financial product that bears interest (welfare for the wealthy). These money tokens have transient and universal value established by confidence from frequent transactions, including the payment of taxes. Both the government and individuals are involved in these value establishing transactions. There have been many schemes attempting to cement the value of labor, the value of money tokens and the value of durable goods. The shifting value of goods and labor has driven those that hoard money tokens to distraction because money tokens never have been a long term store of value, the tokens intending to be a short term medium of exchange to acquire labor multiplying assets, necessities, wants, or luxuries. In the end, the government balances its budget by taxing back the tokens, eventually. Governments can also provide services and earn the return of tokens. When governments earn back tokens, or exchange labor for goods, it is called socialism by the capitalists. Socialism is a profitless exchange or transfer. Capitalism is the private taxation of an exchange or transfer made possible with money tokens. Capitalism also encourages private ownership and maintenance of assets, assets that we find socially beneficial as well as encouraging consumption which increases the quality of life of both the individual and society.

    With respect to the letter writer’s concern about the deficit, he should rest easy since the deficit simply reflects the number of money tokens circulating in the economy. If his children need to pay off the deficit, the money is there, money tokens are not consumed. His concern should be where the 16 trillion money tokens reside. Much of them have trickled up, against economic gravity and are held by relatively few people. For example, let us say that only one person, a fictional Mr. Cooperman, has acquired all the money tokens in the nation, thereby gaining everyone’s respect. There are only two ways that Mr. Joffre’s children can pay off the deficit and both require that Mr. Cooperman give up his 16 trillion in unearned tokens. The children must either perform 16 trillion dollars worth of labor for Mr. Cooperman and then the government tax the children 16 trillion dollars, or the government could tax Mr. Cooperman directly and the children do nothing but forage in the forest. Once either tax transfer is accomplished (or perhaps a mixture), no money tokens would exist in the economy and the deficit would be zero. Perfect monetary equality (everyone foraging in the forest) would be achieved (although asset inequality would still exist). Unfortunately, other than barter, no economy would exist and it would become difficult to value existing assets. The deficit also could be satisfied with a platinum token, leaving Mr. Copperman with 16 trillion in tokens and the children still foraging in the forest.

    So, if the government can create cash and credit, why “borrow” the tokens, creating a deficit? This might be a hold over from the past, when governments issued gold coins and, privileged bankers and court aristocrats acquired them via trickle up and then lent them back to the government at interest (welfare to the wealthy), thus funding expensive wars or other projects that required spending. Or a deficit might be a method and measure of controlling the amount of cash and credit circulating in the economy relative to labor and production, neither to little nor too much.

    The Austrians have made a big deal about the amount of tokens circulating in the economy, as measured by the deficit, but a foremost economist has stated that the tokens are worthless, so what is the issue? Milton Friedman was especially enamored with the idea of a negative balance of trade, where worthless tokens were exchanged for durable goods coming from abroad. Perhaps our negative trade balance, a major mechanism of trickle up inequality, is a bigger problem than the deficit, which is a measure of inequality, with deficit spending and deficit total being symptoms of a defective distribution of money tokens or an asymmetric economy that needs adjustment. On the other hand, too much circulating and hoarded cash and credit may create problems not yet addressed in the MMT manifesto.

    The Confederate South had a trickle up economy with a complete reliance on durable goods manufactured from abroad, slavery for domestic production of raw commodity trade goods, and the eventual liquidation of a middle class. Frederich List characterized such a colonial economy as “buying your (manufactured) weapons from your enemies, cheaply (with raw materials)”; which, coupled with technology transfer, makes your competition abroad stronger, (economically, industrially and militarily). Being modern, we call this system of colonial economic inequality and intentional domestic unemployment, globalization.

    • John Q. Public

      Firetruck . . .

    • Government budget is different from household budget because the former is not revenue constrained while the latter is. Households acquire income to spend by selling labor power. Or they go into debt, which is a real burden because the debt is denominated in a money of account that the households cannot create. If there’s ever a job loss (which does happen quite often), households would have to run down savings or default on their debt. The social cost of unemployment is needless to state.

      The federal government, on the other hand, spends its own currency and demands tax payment in its own currency. Its spending does not depend on tax receipt or bond sales. Its spending is direct money creation. Taxation is not a financing option; it fights against inflation by draining income from the non-government sector. Bonds are sold to drain reserves to hit target interest. Again, not a financing option. Godley’s sector balance approach is great to understand the difference between government and household budget. It points out the accounting identity that government deficit equals private surplus, penny to penny, in a two-sector economy. If the economy is running a current account deficit (as the U.S. does), the government needs to run an even bigger deficit to allow its private sector to net save financial wealth.

      The significance of distinguishing government budget and household budget is that while firms are not in the business of creating jobs, the federal government, with no affordability issues, can and should spend enough to achieve full employment. After all, the only real constraint is on real resources, not finance. So, we can conclude that excessive private debt is unsustainable while excessive public debt is a bless. That’s why the two budgets are fundamentally different.

      • Not only IS the government budget different for the family budget, there are compelling reasons why it OUGHT to remain different.
        The government has the duty to provide for the “General welfare” as specified in the constitution, not the “family welfare” or “personal welfare” as any family does (sorry, there is no “family constitution”!). When the private sector can’t, or won’t, create enough money for the economy – which it does every time a new loan is created for a new business, home building loan, or any other purpose – then the public sector needs to do it. In practice, for reasons that are too complex to go into here, the private sector fails on this score quite regularly, and indeed, a look at the historical timeline shows that when governemnt tries to “balance the budget,” or worse, cut deficit spending, we get a recession, even a depression (perhaps the worst depression in American history came after president Jackson paid off the debt in 1836-37).
        So, Congress actually has an obligation to provide for the “General welfare” by spending money into circulation.
        Deficit spending is not the only way to do this, but we’d have to change the accounting rules (sacre’ blu’!) to create money as just…money, as Art. 1, Sec. 8 (the Coinage Act) allows.
        Meanwhile, better to have the debt, than a surplus with too little money in the general economy.

    • You’re definitely right about the income inequality being a problem. It is probably the most destabilizing force for any capitalist economy. MMT’s employer of last resort proposal cannot solve income inequality (it requires lots of institutional changes), but it does alleviate the problem. Check it out.

  17. Here’s the problem with explaining MMT in a nutshell. I’ll use a quote from Skidelsky’s linked piece, but similar comments are rife everywhere that MMT principles are explained.

    First, governments, unlike private individuals, do not have to “repay” their debts. A government of a country with its own central bank and its own currency can simply continue to borrow by printing the money which is lent to it.

    The problematic language:

    A government. . .can simply continue to borrow by printing the money which is lent to it.

    You use the same language as states/local govts/businesses/households—the group in the closed system that can’t create its own currency and must either earn income or actually borrow.

    You use the same language as states/local govts/businesses/households, and expect newbies to intuit that you’re not talking about households.

    You use the same language as states/local govts/businesses/households, and to crucify the cliché, expect a different outcome.

    A government. . .can simply continue to borrow by printing the money which is lent to it.

    And it isn’t even what happens. The federal government spends (per congressional appropriations), then it issues treasury securities in the same amount to restore the money supply to balance, if my reading of Frank Newman is correct. The government spends (invests) $500 billion on roads, then issues $500 billion of treasury securities. (I know it’s more complicated than that because a percentage of those treasury securities could be used to pay off maturing securities et cetera, and other obligations, like the interest on securities.) But people need a simplicity that is accurate to start with.

    The point is that people can then understand where the ISSUING PART comes in, which isn’t clear when you say the federal government “borrows” what it prints, which sounds like crazy talk. It’s not just dollar bills (only 11% of the currency/money) and coins that the government issues; it issues the High-Powered Money no one has to pay back.

    Then this makes sense: the federal government issues these securities because people and businesses want and need them for risk-free savings in bank accounts over the FDIC $250,000 guaranteed limit. Or because they want a Savings Bond for their grandchildren. They are the safest financial instrument on the planet; the foreign sector can’t get enough of them, and they sell out at auction. And the federal government issues these securities because Congress wrote a law (during the gold standard days) saying the US Treasury’s general bank account at the Fed can’t be in the red after it spends (invests), so it issues securities to put the money it ‘spent’ back in there. Then it makes sense. And we haven’t even got to explaining the Fullwiler Medusa-head of the Fed yet.

    MMT has to get the beginning right, with a language that is far more precise. Ten-year-olds should be able to grasp it.

    And if I have it wrong here, for God’s sake tell me.

    • Mark Robertson

      MRW writes: “Similar comments are rife everywhere that MMT principles are explained.”

      Yes, sloppy language confuses people, and strengthens the champions of austerity and inequality.

      EXAMPLE: “A government. . .can simply continue to borrow by printing the money which is lent to it.”

      This statement is self-contradictory. Does the government borrow, or print money, or do both, or neither? Since only 3% of the money supply consists of bills and coins, does the U.S. government “borrow” to print those bills and coins, or what?

      The simple truth is that for the purpose of spending, the U.S. government does not borrow from anyone or anything. Instead, the U.S. government creates its spending money out of thin air, simply by crediting bank accounts.

      MMT proponents must be especially careful when using the words “borrow” and “debt” in the context of the U.S. government. For example, if an MMT person says the U.S. government can easily pay off the “national debt,” it makes people think the U.S. government borrows its money, and remains in debt.

      In reality, customers deposit their money into Fed accounts by purchasing T-securities. The Fed currently has $16.7 trillion in deposits, which are classified as $16.7 trillion in assets. These assets are erroneously called the “national debt” by people who favor austerity and inequality, and by MMT proponents who are sloppy with their language. Fed assets (i.e. customer deposits) have nothing to do with the U.S. government’s ability to create and spend money. The U.S. government does not borrow to spend. Not a penny.

      Citigroup has $906 billion in customer deposits. Wells Fargo has $930 billion. Bank of America has $1 trillion. JPMorgan Chase has $1.1 trillion. These deposits are on loan to the banks. Do the banks worry about these “debts” (i.e. customer deposits)? No. The more deposits they have, the stronger they grow.

      And, just as the federal government does not need to borrow in order to spend, so do banks not need deposits in order to make loans. Banks create loan money out of thin air. (Fractional reserve banking is a myth, as is the “national debt.”)

      • “The Fed currently has $16.7 trillion in deposits, which are classified as $16.7 trillion in assets.”

        This sounds like they are assets of the Fed, when in fact they are liabilities of the government and assets of the account owners.

        • Mark Robertson

          Incorrect. Let’s clarify further. A bank regards customer deposits as liabilities AND as assets.

          A deposit is an asset, because the bank can do whatever it wants with the deposit while the bank has it.

          However a deposit is also a liability, since the bank must surrender it back to the depositor upon demand.

          This is standard double-entry accounting as used by all banks, including the Fed.

          Therefore it is accurate to say the Fed has at least “$16.7 trillion in assets.”

          In any case, the subject is trivial, since the $16.7 trillion merely represents customer deposits, and has no effect on the federal government’s ability to spend.

          Furthermore, no individual will ever pay a single penny on the so-called “national debt.” Instead, the beneficiaries of current depositors (e.g. their children) will inherit the deposits when the current depositors die.

          If anyone is worried about the “national debt,” I say to them, “Give it to ME! I’ll gladly take that $16.7 trillion off your hands!”

          • No, it’s not standard double-entry accounting to count the same thing as both an asset and a liability.

            For the bank, there is an offsetting asset entry on the books for the deposit (the liability). Depending on how the deposit was acquired, the offsetting asset might be a loan, or vault cash, or reserves in the bank’s Fed account. The deposit is not an asset of the bank. The asset is the thing the bank received in exchange for creating the deposit.

            When someone buys a Treasury bill, the Fed (via the clearing process) exchanges one liability for another, no assets of the Fed are involved. The Fed reduces the reserve account of the buyer, and increases the T-bill account.

            The Fed’s assets are the Treasuries and other securities it owns, not the ones in its clients’ accounts. The Fed’s assets are liabilities of other entities (including the Treasury department), not liabilities of the Fed.

            As for the $16.7T “national debt”, some of that is Fed assets – the ones it has bought – and some is Fed liabilities – the ones on deposit with the Fed, that belong to banks and foreign CBs.

            There is no way that a single item can be both an asset and a liability in accounting. One transaction can generate both an asset and a liability, but they are two items: a loan and a deposit, for example. The loan is not the deposit and the deposit is not the loan.

            • Of course that is correct, but a little more explication might help people who get confused.

              There is no way that a single item can be both an asset and a liability to the same entity in accounting. Financial items are always, simulataneously, by their nature, both an asset and a liability. But to different entities: an asset to one entity, a liability to another.

  18. Yes, shame on you and Paul Krugman for making his and your and everyone else’s children pay trillions in debt when they grow up. You irresponsible debt burdening, trillion-dollar spender you. And Paul. Have you no sense of fiscal responsibility?


    Oh my. Poor confused people. That’s some sad sh*t. And he’s not alone, is the scary thing.

  19. On the Skidelsky article (Read more at, he says “Third, the national debt is not a net burden on future generations. Even if it gives rise to future tax liabilities (and some of it will), these will be transfers from taxpayers to bond holders. This may have disagreeable distributional consequences.”

    These disagreeable consequences – namely, supporting an ever wealthier class of idle bond-holding rent-seekers – is too easily overlooked, IMO. Forget running out of money; we can’t in a truly sovereign monetary system (though I wouldn’t put it past most of the politicians to act as if we could and commit economic suicide. Healthy people shoot themselves all the time!).
    But, I believe, eliminating the Treasury market and with it the rent-seeking class (at least for this), is, by itself, a compelling reason for debt-free money (that is, money directly issued from treasury, bypassing the Central Bank altogether, as Lincoln did it during the Civil War, and as Art. 1 Sec. 8’s coinage clause allows).
    This class of people creates asset bubbles that burst and take down the economy while destroying the banks (the former is certainly worse than the latter!). At best, their asset inflation translates into commodity inflation for everyone else.
    So, even if we CAN create debt-money forever, this is not the best, or even a very good, system. As monetary reformers, we need to strive for something better, especially if, as is the case here, the solution is relatively simple: debt/interest-free money directly issued from Treasury.

  20. Pingback: Slapping Trillions of Obligations Into the Diap...

  21. Lee a Reynolds

    So living in roeland park, it’s nice having the homeland team, so I thought I’d post. I see no basis in logic for Austrian, it’s convoluted to incoherence almost instantly, and the reason seemed pretty evident to start, then a few years ago I started learning, then it struck me the real problem- people think currency has innate value. That’s why they are such gold bugs, they don’t understand that money itself has innate value, nor gold, nor houses, value in general- how much money is your money worth? Sigh; I might write an essay

  22. Trouble of MMT is in the semantics. Government debt is fundamentally different kind of thing from private debts, but task trying to explain that is like trying to change meaning of a word. For claritys sake different entities should be called with different names.

    Maybe explanation of MMT should begin with explanation of this dichotomy. Government indebts itself in a system that itself defines. In fact the debt consist of tax credits that provide liberation from tax liabilities that it itself has imposed upon population. Essential difference is in the power relations. While private debt imposes oblications upon debtor, public debt is different matter. Currency is tax credit that provides liberation from tax liabilities and government decides both how large is the tax debt of the population and how many tax credits it provides to it. In this case the debtor holds all the power.

    Debt is feared because we commonly understand that it imposes oblications upon us, such as payback chedules. Non-oblicatory debt is hard concept to understand.

    • “Currency is tax credit that provides liberation from tax liabilities and government decides both how large is the tax debt of the population and how many tax credits it provides to it.”

      Very profound. Very powerful. The essence of sovereignty.