By L. Randall Wray
To Fix or To Float, that is the question.
MMT argues that a sovereign government that issues its own “nonconvertible” currency cannot become insolvent in terms of its own currency. It cannot be forced into involuntary default on its obligations denominated in its own currency. It can “afford” to buy anything for sale that is priced in its own currency. It might be able to buy things for sale in foreign currency by offering up its own currency in exchange—but that is not certain.
If, instead, it promises to convert its currency at a fixed price to something else (gold, foreign currency) then it might not be able to keep that promise. Insolvency and involuntary default become possible.
By Joe Firestone
Let’s look again at the new populism through the lens provided by Robert Borosage in his recent attempt to tell us what it is about. He says:
The apostles of the new inequality have unrelenting sought to starve the public sector. President Reagan opened the offensive against domestic investments. Perhaps the hinge moment was in the final years of the Clinton administration when the budget went into surplus, and Clinton, the finest public educator of his time, pushed for paying down the national debt rather than making the case for public investment. He left the field open for George W. Bush to give the projected surpluses away in tax cuts skewed to the top end.
The hinge moment wasn’t then. It was when he decided, either early in his first term, or even before he took office, to rely on deficit reduction coupled with low interest rates from Alan Greenspan, on the advice of Robert Rubin and Larry Summers, rather than on deficit spending on human capital investments as advocated by Robert Eisner and Robert Reich. Rubin’s victory in the internal debates within the Administration was well-known at the time (1993), and set the deficit reduction course that played along with the Fed’s bubbles to create the private sector debt-fueled “goldilocks” prosperity, and surpluses of his second term. By the time Clinton faced the choice Borosage refers to, the die had already been cast. It was very unlikely that Clinton would turn away from further Government austerity policy, and turn instead toward investments in infrastructure, public facilities and “human capital.”
Posted in Joe Firestone
Tagged #PCS, Alan Greenspan, bill clinton, CAF, Congressional Progressive Caucus, CPC, goldilocks economy, MMT, modern money theory, platinum coin seigniorage, Robert Borosage, Sector Financial Balances, the Job Guarantee, the new populists, trade deficits, trade surplus
A big MMT thanks to Donna D’Souza aka Trixie aka @HaikuCharlatan. She has done an awesome job of animating J.D. Alt’s wonderful new ebook Diagrams & Dollars: Modern Money Illustrated. For your viewing enjoyment, Donna’s video is below.
By J.D. Alt *
I’m most appreciative of the comments and suggestions that followed my recent post. The comments were so encouraging I decided to expand the essay slightly and turn it into a small eBOOK available on AMAZON. I did my best to incorporate many of the commentary’s suggestions. For example, I tried to minimize the problem of reinforcing the “wrong” ideas in my effort to debunk them—a problem rightfully and forcefully pointed out not once, but twice, by Bob Eisenberg! I did not go so far as I think he would have liked, but I did incorporate a warning, just prior to the “incorrect” diagram, advising the reader not to get too enamored with it because it was INCORRECT, and the purpose of the eBOOK was to explain why.
By Chris Mayer*
Warren Mosler tells a good story that shows how our economy works at its most basic level.
Imagine parents create coupons they use to pay their kids for doing chores around the house. They “tax” the kids 10 coupons per week. If the kids don’t have 10 coupons, the parents punish them. “This closely replicates taxation in the real economy, where we have to pay our taxes or face penalties,” Mosler writes.
By J.D. Alt
5. TREASURY BONDS—Are they really what we think they are?
Recall that in the old diagram we started out with—the one Congress seems to be using as a guide for its budgeting process—Treasury Bonds appear to be the mechanism by which the Federal Government “borrows” Dollars from the PS pot. Since we now understand that a Dollar is actually the Federal Government’s I.O.U. for tax credits, we can also see that it is illogical for the Federal Government to “borrow” these I.O.U.s. Why would it “borrow” its own I.O.U.—something it can instantly create any time it wants by simply saying, “I Owe You”? If that is the case, why does the FG “sell” Treasury Bonds?
By J.D. Alt
1. The “unsolvable” riddle of our National Budget
Being an architect, I’m fascinated by diagrams visualizing things which otherwise are invisible. In designing a building we usually begin with diagrams to explore and understand the functional and spatial relationships—the flows and often unexpected interactions—the architecture needs to accommodate. Getting the diagrams right is important—if they’re wrong or incomplete, the building we design could turn out to be a dysfunctional disappointment for its owners and users.
By Stephanie Kelton
Another year has come to pass, and we at NEP would like to offer our sincere appreciation to all of you, our readers. NEP was launched in the summer of 2009 when Stephanie Kelton, Randy Wray and Bill Black teamed up to offer commentary and policy advice about the most dreadful economic meltdown of our time. Many of you have been with us from the beginning – engaging us in the comments section, challenging us to do more, and spreading our ideas beyond NEP – and some of you have even joined us as contributors. A lot has happened since 2009, and we could not have achieved all that we have without your support. So thank you!
Before we turn the page on another year, we’d like to take a moment to look back on some of our proudest moments from 2013.