A Counter Narrative to Peterson’s

By Joe Firestone

Stephanie Kelton writes:

The US is broke. Government deficits are de facto evidence of a government gone wild. We’re careening toward Greece. Entitlements are the root cause of our fiscal woes, and the Chinese are coming for our grandchildren. How many Americans believe this garbage? My guess? Most of them.

Pete Peterson has won and the American people have lost. There is no effective counter narrative, not even from the left. Nearly all “progressives” have accepted the fundamental premise that the federal government is like a great big household. That it faces the same kinds of constraints that you and I face. That it should spend only what it takes in and that deficits are morally and/or fiscally irresponsible. President Obama told the nation, “We’re out of money.” . . .

Stephanie knows that there is a counter-narrative out there to Peter Peterson’s take on fiscal responsibility, because she’s one of the people who best expresses it. But she thinks it can’t be called “effective,” because we’ve been unsuccessful so far in getting the fiscal responsibility counter-narrative developed by Modern Money Theory (MMT) economists communicated broadly enough to create a break in the Washington/New York political consensus, which insists that now our most urgent need is for austerity to bring the deficits and the public debt under control. I agree with Stephanie, of course. We’ve not been successful in persuading enough people yet.

So, in this Post, I’ll make yet another effort to counter the neoliberal austerian fiscal responsibility ideology by juxtaposing the primary claims underlying the narrative, with my construction of the MMT answers to them. The austerian claims below all link to MMT-based posts that critique them. And they are all juxtaposed against an MMT-based claim that refute them. The paragraphs following each pair of claims, summarize my version of MMT answers, and together provide a counter-narrative.


The Government is running out of money

MMT answer: The Government cannot involuntarily run out of money

The US Government has the Constitutional Authority to create an unlimited amount of money provided Congress appropriates the spending, and places no constraints on spending, such as a need to issue debt instruments when the Government deficit spends, or debt ceiling limits. So, all constraints on spending appropriations are purely voluntary in the sense that they are due to Congressional mandates that Congress can repeal at any time, and not to financial limits inherent in the Government’s authority.

Having said that, the constraints mentioned are now in place, and, so, it’s important to emphasize that even with them, and without legislative changes, the Executive can always create enough money to pay for whatever spending Congress has appropriated and also repay debt, so that even with a Congress willfully maneuvering for default, or brandishing the threat of it, the Executive can still ensure that the Government doesn’t run out of money even without more taxing and borrowing, because the Executive can use the option of Proof Platinum Coin Seigniorage (PPCS) as one method of getting around the debt ceiling.  Originally suggested by Beowulf some time ago, there are any number of PPCS options the President can use to generate coin seigniorage profits to use for a variety of purposes. I’ve outlined some of them here. Some PPCS options stop with $1/2 Trillion coins, some go over $1 Trillion up to $5 Trillion, and still others envision very high face value coins ranging to $60 Trillion and up.

For getting around the debt ceiling, coins with face-values up to $5 Trillion will certainly remove the need to issue further debt subject to the limit and break the debt ceiling. However, minting a platinum coin with a face-value of say, $60 Trillion is also a political game-changer, because it results in filling the Treasury General Account with enough in credits to make it obvious to the most concrete thinker that the Government has the capacity to pay all the debt subject to the limit, issue no more such debt if it so chooses, and also spend whatever Congress chooses to appropriate in the way of new programs to solve current problems.

So, issuing a $60T coin, removes the issue (excuse) of whether the Government of the United States can afford to pay for employment programs, educational programs, infrastructure, new energy foundations, a Medicare for All program, new R & D programs, or expansion of the social safety net from the political table. Issuing that coin can and would  create a new political climate moving American politics much further to the left within the space of a few months. In short, it would dramatically illustrate the MMT counter to the austerian deficit hawks, namely that the US Government is not running out of money and cannot do so as long as it has the intention to use its authority to create more of it.


The Government can only raise money by taxing or borrowing

MMT answer: The Government can create money; so it can never involuntarily run out

The austerian claim is false. First, the Federal Reserve, a Government agency can create unlimited money “out of thin air,” as the saying goes, though not for purposes of deficit spending, or directly liquidating Treasury debt. But second, I’ve just pointed out that PPCS can be used in the present legal framework to create money other than by taxing or borrowing. And third, if Congress doesn’t want to use PPCS, it can authorize the Treasury to spend appropriations without issuing debt instruments any time it wants to take an afternoon off to get that done. So, plainly the Government can “raise money” without taxing or borrowing it by just creating the necessary money while spending.


We can’t keep adding debt to the national credit card.

MMT answer: We can if we want to. There’s no limit on the credit card except the one imposed arbitrarily by Congress.

Congress has placed a debt ceiling on the Government, and it has also mandated debt issuance when the Government deficit spends, by prohibiting the Fed from lending the Treasury money. So, it’s only the self-imposed constraint of Congress that prevents the Government from continuing to add “debt to the national credit card.” There is nothing inherent in the international economic system, or our own Constitution that prevents us from adding debt as needed.

And even if current constraints on debt ceiling constraints remained in place, Treasury can still issue debt without breaching the debt ceiling. Beowulf, the blogger/commenter, who first proposed using high face-value PPCS to get by the debt ceiling, recently came up with a new option to avoid breaking the debt ceiling. That option follows:

Another way to sidestep the debt ceiling is to go the opposite extreme from one-day maturities, issue perpetual T-bonds with no maturity date (what the Brits call consols). Look at the debt ceiling law, the public debt adds up, for all outstanding debt, the face amount of the guaranteed principal. The future interest payments to be paid aren’t counted. (“The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government“).

If there’s no maturity date, then there’s no promise to repay principal and thus there’s nothing to add to the public debt total. They could issue an unlimited amount of consols without tripping over the debt ceiling.”

Beowulf has more on consols here. But the possibility of consols is enough to show that the Treasury has an unlimited credit card under current legal arrangements, and can use it without breaching the debt ceiling, though of course, it can’t spend more than Congress has appropriated, and is also required to repay debt and interest that is coming due.


If the Government borrows more money, the bond markets will raise our interest rates

 MMT answer: The bond markets don’t control US interest rates.

The Treasury can flood overnight bank reserves and float short-term debt to meet its targeted interest rates, however low they may be. The Government, if Congress would let it, can even stop issuing debt subject to the limit when it deficit spends (using PPCS or consols, or by Congress moving the Fed into Treasury where it belongs) in which case the bond market interest rates would become entirely irrelevant to the United States.


If we continue to issue more debt, then our main creditors may refuse to buy it, an event that would lead us to insolvency and severe austerity

MMT answer: They’ll most probably buy it for the foreseeable future; but if they don’t we won’t be forced into solvency because we can always create the money we need to meet our obligations

Our creditors all want export-led economies. This means that they must accumulate dollars, because the US is where the consumption power is, and if they want to keep exporting they must keep the American consumers’ business. Their dollar surpluses can sit idle in their Federal Reserve accounts or be used in a way that makes them money. Buying our debt makes them some money, however little it may be at current interest rates. Buying our goods and services reduces their trade surpluses with us, and goes against their export-led policies. Selling our currency, weakens the value of the USD holdings they retain. In short, they have little choice other than to buy our debt, unless they want to gradually adjust trade balances with us over time.

Even more importantly, as I keep repeating, we don’t need to raise money by borrowing USD from them or anyone else. We can simply spend/create it ourselves if Congress repeals its constraints prohibiting the Fed from “monetizing” the debt, or if the President decides to use PPCS or consols. The result of no more debt issuance, along with use of these other methods, would be paying off the national debt over time, without austerity. So, if we care so much about the high debt levels, then why don’t we do that? Could it be that the austerians want austerity for political rather than economic reasons, and that the fiscal sustainability/responsibility justifications they give are just part of a complex fairy story they tell to avoid being candid about why they want austerity?


Our grandchildren must have the heavy burden of repaying our national debt

 MMT answer: We’re obligated to pay all US debts as they come due. But since we have an unlimited credit card to incur new debt at interest rates of our choosing, or, alternatively can create all the money we need to pay off debt subject to the limit, without incurring any more debt, our national debt cannot be a burden for our grandchildren unless they wish to make it make it so by stupidly taxing more than they spend. So, let’s educate them well in MMT-based economics, so that they never make that mistake

No US generation except one has ever repaid the national debt by running budget surpluses. After the debt was paid off in 1835, that generation was rewarded with the depression of 1837. Moreover, each time the nation ran substantial surpluses for a period of time, the country fell into depression or recession, most recently the recession of 2001, following Clinton’s four years of running a surplus. It’s a bad idea to repay the national debt by running surpluses, because taxing more than a Government spends destroys net financial assets in the private sector, unless one also exports more than one imports.

So, provided we continue to run a trade deficit, our grandchildren won’t run surpluses. They may not issue debt subject to the limit while “deficit” spending. But that’s possible, only if the Congress repeals the mandate to issue debt when the Government deficit spends, or alternatively, the Government freely uses its PPCS power. In both cases the national debt can then be repaid without requiring that tax revenues match or exceed Government spending.

In any event, our grandchildren will not have the burden of repaying the national debt, if they are wise enough not to run surpluses. But if we are silly enough to attempt to pay it down, or pay it off, by running surpluses and practicing austerity, then they will have the burden of growing up in poor families, attending very poor schools, living in mal-integrated communities where they’ll be subject to crime and violence, and living in a class-ridden nation run by a kleptocratic elite that monopolizes both the artificially constricted supply of financial wealth, and the increasingly scarce real wealth produced by a stagnant, broken economy. That’s not what any of us want; but that’s what the austerian/deficit hawk policies are producing.

I can’t emphasize this last point enough. Austerity isn’t moral. It’s immoral! It kills, and it eventually impoverishes most people including our grandchildren, both those who are now living and growing up in difficult economic circumstances, and those yet unborn, who will be born and will grow up in a stagnant economy crippled by attempts to reduce the national debt, at the expense of full employment, and lost output for years on end.


There is a deficit/debt reduction problem for the Federal Government that is not self-imposed.

 MMT answer: All together now, there is no such problem. Since the US Government has no limits other than self-imposed ones on spending or borrowing, the level of the national debt, or the debt-to-GDP ratio don’t affect the Government’s capacity to spend Congressional Appropriations at all.

These numbers aren’t related to fiscal sustainability or responsibility in nations like the US with a non-convertible fiat currency, a floating exchange rate, and no debts denominated in a currency it doesn’t issue. Such nations can’t become involuntarily insolvent because they always create more currency to pay debts denominated in that currency.

If the debt-to-GDP ratio were 300% and there were no other changes in current policy, the US would still have the same ability to deficit spend it has now. Conversely, if the debt-to-GDP ratio were 10%, the same would apply. To put this simply, the size of the public debt subject to the limit, and the size of the debt-to-GDP ratio have no impact at all on our capability to deficit spend, because we can always make the money we need, if need be, through PPCS. So there is no need for a long-term deficit reduction plan to lower the debt-to-GDP ratio. There is also no need to run surpluses to decrease the size of the debt, since we can always use profits from PPCS to do that without either borrowing more or raising taxes.

Even though neither the level of the national debt, nor the level of the debt-to-GDP ratio creates a sustainability problem for the US, depending on conditions, the deficit itself can be “too high.” But the question of when a deficit is too high isn’t an issue of fiscal sustainability in the sense that we can run out of money, but instead is an issue of the negative consequences of an excessively high deficit. The most important of these consequences is demand-pull inflation, and when that is observed, Federal spending should be reduced to control or eliminate it. However, there are two questions arising here. First, which spending, if cut, will produce the most overall benefit. And second, what’s the impact of cutting spending vs. the impact of doing nothing, vs. the impact of raising taxes.


The Federal Government is like a household and that since households sacrifice to live within their means, Government ought to do that too.

MMT answer: No, the Federal Government is not like a household! Households can’t make their own currency and require that people use that currency to pay taxes.

Households can’t make their own currency and require that people use that currency to pay taxes. Households can run out of money; but the US can’t ever run out of money as long as Congress decides to appropriate spending and gives the Executive the authority to implement that spending. So, the Federal Government doesn’t have to sacrifice to live within its means, since its “means” to create new currency is limited only by its own decisions and not by any factors external to it. Put simply, Federal spending including deficit spending doesn’t cost anything in the doing. The only relevant question is its real effects on the economy.


We should also find a bipartisan solution to strengthen Social Security for future generations

 MMT answer: Social Security has no fiscal problems. The SS crisis is a phoney one. So, no solution to this nonexistent fiscal crisis, bipartisan or partisan is needed. What is needed is a solution to the political problem of getting SS’s funding guaranteed in perpetuity

Again, this austerian claim assumes that Social Security funding is a fiscal problem and that the program needs to be strengthened by making the program “fiscally sustainable.” But that claim is at issue. Apart from the fact, that it isn’t obvious that a bi-partisan solution to a fiscal problem would produce a real solution, it’s also true that this is a fake fiscal problem.

Social Security should be strengthened alright. But the way to strengthen it is to guarantee its funding in perpetuity, and to greatly increase benefits for many seniors whose current benefits leave them scraping the poverty line. Try doubling SS benefits while providing full payroll tax cuts. That will strengthen SS and the economy as well.


We face a crushing burden of Federal debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead

MMT answer: This is total nonsense, because federal spending is costless to the Government

If the debt subject to the limit bothers the neoliberal austerians so much, they ought to be supporting full payoff of the debt using PPCS profits. Doing that won’t harm the economy, and it won’t cause inflation either, since the bonds retired are more inflationary then the money paid to redeem them.


The United States is in danger of becoming the next Greece or Ireland

MMT answer: Greece and Ireland are users of the Euro, not issuers of it. So, their supply is always limited and that’s why they can run out of Euros. The US is the issuer of Dollars; so it’s supply of dollars is limited only by its desire to create them, and that’s why it can’t become Greece, Ireland, or any other Eurozone nation.

This one is a real laugher. Greece and Ireland can run out of Euros. California can run out of dollars. But the United States can’t run out of Dollars. Japan can’t run out of Yen. The UK can’t run out of Pounds, and Canada and Australia can’t run out of Canadian or Australian Dollars. So, governments like California, Michigan, Wisconsin, etc. can become the next Greece or Ireland if the Federal Government allows that to happen by refusing to bailout States if they need it, but the US can’t become the next Greece or Ireland, because it can always bail itself out if it chooses to do so.

The real danger for the US is in becoming the next Japan and losing a decade of economic progress by following neoliberal deficit reduction doctrines. The US is now four years into the decade we are losing. Why are we losing it? Because, as Warren Mosler is fond of saying: “. . . we fear becoming the next Greece, we continue to turn ourselves into the next Japan.” That is, we’re making ourselves a stagnant economy by imposing fiscal austerity, rather than creating/spending the money we need to solve our increasingly serious national problems.


Fiscal Responsibility means stabilizing and then reducing the debt-to-GDP ratio and achieving a Federal Government surplus.

MMT answer: No! REAL Fiscal Responsibility is fiscal policy intended to achieve public purposes while also maintaining or increasing fiscal sustainability viewed as the extent to which patterns of Government spending do not undermine the capability of the Government to continue to spend to achieve its public purposes.

So, the REAL Government fiscal responsibility problem is not the problem of everyone “sucking it up” and responsibly accepting austerity. It is not targeting the debt-to-GDP ratio and managing Government spending to try to stabilize it. Instead, it is the problem of people facing up to the need to use fiscal policy to stop our out of control economy from ruining the lives of any more Americans.

This means that the REAL solution to the REAL fiscal responsibility problem is for our leaders in Congress and the Executive Branch, to remove fiscal constraints and use the fiscal powers of the Federal Government to fund solutions to the many national problems we face, starting with creating full employment, and a real universal health care system in which no one is shut out, or forced into foreclosure or bankruptcy by medical bills, and then all the other serious problems we face, but now will not handle because we claim a non-existent fiscal incapacity of the Federal Government. There is no incapacity! We have not run out of money! We have only run out of smarts, morals, will, and courage! We need to get those back, and do what must be done to reclaim the future for working Americans.


Federal Government austerity will create jobs

MMT answer: Right! Show us one case where austerity is working

Well, let’s see. We’ve got austerity now in Ireland, Spain, Portugal, Italy, the Baltics, and, of course, Greece, among nations in the Eurozone, and also in the UK. Is it creating jobs anywhere? Is there even one case, in which the “austerity will create jobs” theory isn’t being refuted by events? Some may think that Latvia is beginning to recover because it’s unemployment rate has now fallen to 15%; but that’s because 200,000 Latvians (10% of the population) have chosen to emigrate, a particularly effective way of both leaving the labor force, and lowering the rate of unemployment. Bet we could lower unemployment here too, if we first ran the economy down by 30%, drove U-3 up to the 20% level, and then had 31,000,000 people leave the United States for parts unknown. Oh austerity, will thy wonders never cease?


Conclusion: Saying No to Neoliberal Austerity

So, the importance of continuing to counter austerian propaganda coming out of the Peterson Foundation and the organizations it allies with, and funds, remains. We must continue to try to break through the screen of the Petersonian closed system, the Washington/New York consensus. One of the popular slogans for the austerians this year is “Debate the Debt.” There’s a petition web site urging politicians to debate the debt. There was even a proposal demanding that the presidential candidates devote a whole presidential debate to the debt and deficit issues.

But, what is it the austerians want us to debate? They want us to debate how we should reduce deficits over the medium and long-term by spending less and taxing more. But they most emphatically don’t want to debate whether the debt, deficit, and debt-to-GDP ratio, represent real problems relating to fiscal sustainability or fiscal responsibility. Put simply, they don’t want us to debate whether their deficit/debt “problem” is really a problem either for our capacity to spend in the future, or for government solvency, or for our grandchildren.

They say there’s a government solvency problem and that all of us must and should suffer to solve it. MMT says that there is no solvency problem and there’s no reason for people to suffer any more than they have already due to the crash of 2008. That’s the debate about the debt we badly need right now, When they say debate the debt, they mean debate how we should all suffer to get rid of it. When I say “debate the debt,” I mean debate whether the public debt subject to the limit is a real problem, or a just a massive distraction from coming to grips with our real problems. I think that my debate question is clearly prior to the austerians’ because it doesn’t assume what it should prove, namely that there is a problem and that focusing on it isn’t a distraction.

But, I think it is a massive distraction; and the President can prove it! Just mint that $60 T platinum coin and the debt problem will  go away. Then the Peterson Foundation and other agents of the emerging plutocratic elite, will need to invent a new fairy tale to distract us with; or maybe they’ll do all of us a favor and just go out of business, so we can re-build our country without having to deal with their insolvency fantasy first!

67 responses to “A Counter Narrative to Peterson’s

  1. John O'Connell

    They have 25,000 or so signers of their petition.

    If you can get more signers on an MMT-based petition, maybe the rest of the media will start listening to you instead of to them.

    Where is your petition?

    They have a “toolkit” for their followers, telling them how to write letters to the editor, etc. Where is your toolkit?

    They are controlling the debate because of their better tactics, not because of a superior message. Upgrade your tactics.

    • “They are controlling the debate because of their better tactics, not because of a superior message. Upgrade your tactics.”

      Give me a break. . They are controlling the debate because they have successfully bought off the WH, Congress, and MSM. Tactics got nothing to do with it. Unless you call a couple of billion dollars worth of payoffs “tactics.”

      • John O'Connell

        So, you believe that Romney and Obama and 535 members of Congress understand MMT and are deliberately sabotaging the economy because they’ve been paid off? If I could buy them all, I’d insist on a much better return on my investment than that.

        MMT has an upstream battle against 40 years of teaching obsolete gold standard economics in our colleges. Reinforcing that teaching is much easier than reversing it, but those guys are also much more slick and have much higher visibility than you. You have to be better than them in order to change the people’s minds. I’m not so worried about changing the politicians’ minds, they will begin to change when the first MMT-aware politician is elected to something.

    • Econobuzz has it right. Peterson has invested at least $1 Billion in his effort in just the past few years since Obama’s comes into office. He’s created or penetrated dozens of existing organizations, and has caused numerous new web sites to come into existence to spread his message. Considering the scale of funding involved, it’s a wonder that he and his allies don’t have far more than 25,000 signatures on their petition. That 25,000 isn’t a record of success; it’s a measure of the unpopularity of their position. Give MMT $100 Million and we’d have 10 million signatures on a petition in the time they’ve had to spread their message..

      • Money or message?
        Money makes the great wurlitzer play. Heck Romney and his ideas could easily win this election. But it seems to me there is something more going on here.

        MMT seems to have plenty of people out there writing books and blogs, making speeches, giving seminars and getting in the media. And we have close allies in Krugman, Baker and Stieglitz. I would have thought the left wing would be supportive of MMT. But even here the message is muted. You would also think that once an idea gets out there it would attract money to its cause. But so far, not much there either.

        One small thing I have encountered whenever I talk about this in my small groups is disbelief, or rather an idea that just creating money will always lead to inflation. Once you introduce that idea it becomes very hard to gain any traction. Could it be our message is really not clear enough? Or are we simply not working closely enough with other interest groups?

        • First, I think it’s not been that long that MMT has been working the popular side of the street, as well as the academic side. And second, MMTers don’t have automatic access to the commanding heights of the popular media. The MSM define Stieglitz, Krugman, Baker, Jared Bernstein, and Robert Reich as the left of the “serious” spectrum, and none of them really talks or writes MMT. They’re all deficit doves.

          The deficit owl position has gotten very little exposure so far in places like the New York Times, WaPo, MSNBC, CNN and so on. There are some exceptions. Articles have appeared by extremely junior people on MMT, and by columnists. But there aren’t any articles from MMT mainstream economists appearing even on Rachel Maddow’s, or Chris Hayes’s shows, or even on shows on Current TV, so I think that even with all the MMT activity, there have been no direct breakthroughs yet when it comes to the top media outlets.

          On inflation, the zombie Quantity Theory of Money still commands the mind of most people. We need to be prepared to answer people whose questions clearly stem from that theory when we speak. We have to be familiar with it, the major points of refutation of it, and the empirical evidence against it, and we have to patiently explain why the prediction it makes, increasing inflation with increasing deficit spending is unlikely to occur.

          We also have to be very tough in insisting that the QTM is wrong, and we also have to be really smart about staging out arguments. For example, if we’re running through the criticism of austerity and the need for and defense of deficit spending in relation to solvency arguments and someone comes up with a question based on the QTM, at that point we have to say that there are two classes of issues here. Those like the ones discussed here, related to the possibility of fiscal sustainability that relate to solvency and a second class related to impact. Then you point out that you’re first discussing solvency-related issues because the austerity arguments are based on those, and have been pointing out that there are no valid solvency related issues. Then you ask everyone you’re talking to if they agree, and refuse to go on to the impact issues until agreement is reached on the solvency issues.

          When you do get agreement on that; then you say, OK now let’s turn to the impact issues, and then talk about inflation as one of the possible impacts of deficit spending, along with full employment, inflation, and a host of other outputs listed in the social value gaps section here: http://www.correntewire.com/the_job_guarantee_and_the_mmt_core_part_fifteen_components_of_the_knowledge_claim_network

          I think it’s important that inflation be talked about in the full context of all the possible impacts of deficit spending, because if you want to persuade people about the need for deficit spending you need to get them to see that an excessive concern about inflation and deliberate actions to minimize the possibility of it have costs of all sorts. Unemployment is one sort of cost, but there are also a myriad of economic and social costs of austerity that inflation hawks ought to have to speak to and take responsibility for. Bringing them face-to-face with the full spectrum of risks associated with their thinking then softens them up for the final arguments.

          Those arguments should be the ones denying the validity of the quantity theory of money and they’re outlined in the various references I gave in my reply to Sam Foster below. I think this kind of staged response to the inflation objection can have devastating effects on the inflation hawk arguments because they are like believers in the bogeyman, when you consider that there hasn’t been a serious instance of demand-pull inflation in the United States during the post-war period. When you confront them with the costs of believing in the bogeyman and the arguments against believing in him, their cries of inflation will seem much less persuasive to the adults in the audience.

          • From a non-expert: I read Dean Baker all the time, and I don’t agree with your characterization. To me anyway, he seems to be VERY close to a full MMT point-of-view. He is also aware and not particularly derogatory about MMT and its advocates. I have gotten him to write an e-mail response to me twice, so I would not call him inaccessible. I think you should concentrate your efforts on getting these ‘left’-designated members of the MSM to understand and adopt the concepts of MMT. Dean seems to me the closest. Krugman is probably the most influential, then Stiglitz? Paul Krugman seems to have developed an emotional resistance to MMT, and maybe that will be tough to overcome. But, can’t you get a meeting (Kelton, Mosler, someone) with someone like Dean Baker. I know Warren Mosler has talked to some of these people (he responded as such to a question) and he sounded discouraged, but I would say … don’t give up.

      • John O'Connell

        “Peterson has invested at least $1 Billion ”

        Chump change for Soros.

  2. We’ve got austerity now in Ireland, Spain, Portugal, Italy, the Baltics, and, of course, Greece, among nations in the Eurozone, and also in the UK.

    Really? What are the figures? How many government employees have lost their jobs in Italy? Whose pension payments haven’t been received in Spain? How much has the UK budget been reduced? None of these things have actually occurred. The only “austerity” has taken place in the private sector, where taxes and onerous regulations have eliminated small businesses and nobody is crazy enough to start a new one.

    • Google is your friend — for “austerity:”

      “For example, according to the CIA World Factbook Greece improved its budget deficit from 10.4% GDP in 2010 to 9.6% in 2011. Iceland, Italy, Ireland, Portugal, France and Spain also improved their budget deficits from 2010 to 2011 relative to GDP. However, with the exception of Germany, each of these countries had public debt to GDP ratios that increased (worsened) from 2010 to 2011 … Greece’s public debt to GDP ratio increased from 143% in 2010 to 165% in 2011. This indicates that despite improving budget deficits, GDP growth was not sufficient to support a decline (improvement) in the debt to GDP ratio for these countries during this period. Eurostat reported that the debt to GDP ratio for the 17 Euro area countries together was 70.1% in 2008, 79.9% in 2009, 85.3% in 2010, and 87.2% in 2011.”

      So, they all should just double-down on that?

    • Where are the figures? Have you been dead these past few years? Haven’t you seen the UE numbers mount in those countries?Do you read Bill Mitchell’s blog? Or Warren Mosler’s? Or Marshall Auerback’s posts? Or Michael Hudson’s coverage of the European situation. Don’t you know that the economy in the UK has tanked? There are plenty of numbers in the blogs I’ve referred to. Please read the literature before displaying such gross ignorance. I’m not going to take the time to provide the links for you.

    • http://en.wikipedia.org/wiki/United_Kingdom_government_austerity_programme

      You might be right about the Spain pensions being intact (I have a feeling you were just throwing darts with a blindfold on with your comments), but compared with the rest of the austerity package it’s a rather trivial point. The almost impossible level of stupidity in your comment suggests maybe you were in fact paid to be here by Pete Peterson himself, where is this fantasy world where taxes and regulations are the major impendiments to growth?

    • Tax rises are part of the austerity package. Warren Mosler is particularly keen on reducing taxes btw.

      Some regulations are unnecessary. Some are not.

  3. If there’s no maturity date, then there’s no promise to repay principal and thus there’s nothing to add to the public debt total. Beowulf

    The problem with the National Debt IS the interest since it generally transfers wealth to the already wealthy from the non-wealthy. Consuls do that in perpetuity so they are a very bad idea. At least now, we CAN pay off the National Debt and end that privilege for rentiers; consuls would make that impossible.

    • I don’t favor consols vs. PPCS, in part, because I don’t like us providing welfare for the rich and foreign nations. But the fact remains that they are another way of making the debt ceiling irrelevant, so I covered them. In addition, note that we control the interest rates, so consol interest rates could be set very low at our option, making interest costs low also.

      • The interest rate should be negative to cover adminstrative costs, to pay for what is essentially risk-free storage, and to punish hoarding.

  4. Robert P Willis

    Joe, you leave me with more hope for the future ever in my 89 years and frustration–how on earth are we going to attract the attention of enough citizens to enact MMT and support minting that $60 Trillion Platinum Coin?
    That coin would create an even greater vision than the stone first unearthed by primitive men in “2001 a Space Odyssy”
    Bob Willis

    • Thanks Robert, one blogger friend of ours at DailyKos, Seneca Doane, has suggested a $1 Quadrillion coin to fill the public purse. I didn’t do that because eventually, I want Congress to take the next step and just re-organize the Fed under Treasury, making the whole coin trick obsolete. A $60 T coin gives us 15 – 20 years or so to change politics to accomplish that, but a 1 Q coin might remove all incentive to make this change.

      How can we attract the attention of people to support the coin? Well, first, I just want to get it widely recognized that it is an option and that the President can do it. And, I think that if I and others keep blogging about it, and we have another debt ceiling crisis, then this option will come to the fore.

      • I personally like the idea of minting a coin. You pick the number. But has anyone outside the MMT community spoken of it seriously? Can you imagine the President announcing in an news conference he will mint a coin to solve the debt crisis? I can’t. Dennis Kucinich had some idea about the Fed but it went nowhere as I recall. Not opposed to any of it. But it seems to be in a place where the public is not even close. Maybe a vote for Jill Stein will solve all our problems?

  5. No declaring victory yet for them… 🙂 MMT has broken the surface. No putting the genie back in the bottle. Yes, it’s going to be painful watching the ongoing irrational, clownish debate about affordability and insolvency – BUT – I do believe we are on course. Keep up the good work! The army adds to its ranks daily, and our voices grow louder. We are well equipped thanks to you all… Marley (who is back in uni doing a masters in Econ because of MMT!)

  6. The Dork of Cork.

    “Well, let’s see. We’ve got austerity now in Ireland, Spain, Portugal, Italy, the Baltics, and, of course, Greece, among nations in the Eurozone, and also in the UK. Is it creating jobs anywhere? Is there even one case, in which the “austerity will create jobs” theory isn’t being refuted by events?”

    Well yeah it is creating jobs although they are not sustainable.
    There is a big bubble growing in Turkey for example.
    Me thinks its because of the extreme leverage in Europe and that “capital” is seeking a return in a very desperate manner – be it the Gold trade in Istanbul or Ford UK moving its transit van operations to a place with 4 euro a hour wages despite the lack of capital and infrastructure in that country.
    So the Euro car industry is moving beyond Poland now – to Russia & Turkey , but for them to have a market they must increase the leverage or Ponzi even further in Western europe via consumer debt.

    PS -did you ever hear of the “Chicken Tax” ?


    To circumvent the 25% tariff on imported light trucks, Ford imports all Transit Connects as passenger vehicles with rear windows, rear seats and rear seatbelts.[9] The vehicles are exported from Turkey on cargo ships owned by Wallenius Wilhelmsen Logistics, arrive in Baltimore, and are converted into commercial vehicles at WWL Vehicle Services Americas Inc. facility: rear windows are replaced with metal panels and rear seats removed (except on wagons).[9] The removed parts are then recycled.[9] The process exploits a loophole in the customs definition of a commercial vehicle. As cargo does not need seats with seat belts or rear windows, presence of those items exempts the vehicle from commercial vehicle status. The conversion process costs Ford hundreds of dollars per van, but saves thousands over having to pay the tax.[9] Partly because of this, only the long-wheelbase, high roof configuration is exported to North America. In most places, the high-roof Transit Connect, like most Ford Econoline vans, is unable to access multi-story parking because of its height (6′ 6″).”

    We live withen a very sick pro metaphysical capital , anti real capital & labour world / bubble and I really don’t think MMT can solve this as it likes to get its money for nothing and the chicks for free.

    Europe needs to turn back the clocks much further – to a pre 1648 world where the banks are kept as far away from the sov as it is possible to be – this of course rules out the MMT thingy.
    Of course this will not happen this side of the dark age.

    • Europe needs to turn back the clocks much further – to a pre 1648 world where the banks are kept as far away from the sov as it is possible to be – this of course rules out the MMT thingy. Dork of Cork

      How so? A monetary sovereign has no need for banks or to borrow money.

      But yeah. The government should have nothing to do with banks other than to enforce the laws against fraud and to ruthlessly close them down when they become insolvent.

      • The Dork of Cork.

        Look up Olie Cromwell and the lads that came before

        The Kings before this time were foppish or servents of the catholic darkness which was the first multinational in my book but what came after was a Venetian disaster.

        The modern banking republics need a distant hinterland which they can strip and then they can claim freedom and all that nice democratic , legal freedom stuff.

        Thinking of setting up a fringe don’t believe in any of this shit party but such lack of belief in anything tends not to gather any loyal support…..so its a sort of dead end – “It will be called I’m right of course party but can’t offer any bounty……..sorry party.”
        Never a political runner.

      • The Dork of Cork.

        At most my Party would consist of 5 ………not so famous or bright people.


  7. The MMT message is like a tree falling in a Siberian forest–for all intents and purposes no one hears it. I wish it wasn’t so, but let’s face reality and accept this fact.

    MMT’ers have a daunting task ahead. If they expect success, even years out, then I’m afraid they’ll be disappointed. This is going to be a marathon not a sprint, and victory is not assured, but at least there’s a chance. That’s enough to keep me in the game.

  8. Butch Busselle

    I’ll sign it. I know some other people who will, too.

  9. Some of us are trying to get the word out in our own small way. A version of the following was submitted as a letter to the Albuquerque Journal a couple weeks ago. It might not get a good grade at UMKC, but it’s a try.

  10. Eugene Bersing

    MMT, especially when combined with 100%- reserve banking with the Treasury also being the Central Bank, is absolutely fabulous- except for two things: first, we would need some wise people administering the system (unlike the [edited by admin] clowns we have in gov’t. today), and second, even with wise administration, the moment of truth would arrive at full employment if the economy began to overheat with severe demand- pull inflation. This, of course, would call for higher taxes. My fear is that the sheeple would probably balk at the increase in taxes; if they didn’t, the bourgeoisie certainly would. Yes, Keynes was correct in saying that the boom may be the time to impose austerity, but would the polity be enlightened enough to realize its necessity?

    • John O'Connell

      Are you old enough to remember the 1968 income tax surcharge?

    • If wisdom includes morality then I agree with you. But if you see wisdom as just a particularly good understanding of the impact Government actions are likely to have, then I’d say having moral people dedicated to public purpose is even more important than having wise people. Moral people will fix their mistakes but able and immoral people will just make what are mistakes from a public purpose point of view features rather than bugs!

      On the difficulty of imposing taxes when the point of demand-pull inflation is reached, I favor automatic imposition and removal of taxes at particular rates of inflation as part of a redesigned system of automatic stabilizers including presidential authority to short-circuit the tax increases if the executive determines that the inflation is to due to cost-push rather than demand-pull factors. Other measures would then be used to handle cost-push inflation in such as areas as the oil market.

      This wouldn’t be perfect, but I think it would work fairly well and would let us get closer to real full employment.

  11. Wonderful interview, Stephanie. Just terrific. I’ve emailed it to everyone I know. Shearer is right. Your students are lucky to have you.

    As I was listening to your explanations, I saw the contrast between all that followed logically from MMT, and all that MMT has to explain owing to inherent complexities owing to legislation that was basically ignorant of the currency system–I refer to the whole section where you had to tackle reserve banking and bond selling in a very short space of time.

    Would it not be interesting to systematically tease out and isolate in an article precisely those aspects of our currency system which result from ignorant and unnecessary legislation, and do not follow necessarily from a purely logical or consequential development of MMT?

  12. This is a great article. However, I think you forgot a core “inflation” argument that many people use to combat the commonsense economic policies you recommend. The argument simply is that: you are correct that the government can print money at will etc., but it shouldn’t because to do so would create inflation. Of course, I personally understand why the inflation argument is bogus in virtually every scenario, but it would be great to have a succint and articulate response to give to the “inflation” fear mongerers.

    • Hi Sam, I’ve treated inflation in other places relying on work done by Bill Mitchell, Scott Fullwiler, Marshall Auerback, and Rob Parenteau. In addition, John Harvey and Eric Tymoigne have written well on the subject at NEP more recently. My $60 T plan post, linked to above has a discussion of inflation, and Scott’s post on coin seigniorage and inflation, also linked to above does a thorough job of discussing the relationship of high value coins to inflation, though he doesn’t specifically focus on the $60 T case.

      In addition, I’ve done a post on “printing money” here: http://www.correntewire.com/printing_money_thing which may treat some of the things you’re worried about. Summarizing, I think my treatment of inflation in the $60 plan post may be succint enough for your purposes, and people interested in more detailed treatments can go to the authors and references I’ve just given.

  13. Austerity is immoral. Agreed but by creating money by minting $ 6o trillion platinum coin , do you think that the debt will go away? Every house will be full of million of dollars and if goods and services cannot be correspondingly increased, that would result in unjustified increase in prices. Moreover if there is unexpected sudden decrease in the exchange value of dollar at the international level, how this devaluation will be affect the exports and imports. And also there should be a predefined limit on broad money that means some reasonable percentage of hard currency to GDP be allowed.

    • John O'Connell

      The $60T doesn’t need to be spent all at once. It’s deposited in the Treasury’s account at the Fed, so no further borrowing is needed in order to deficit spend. Money is not created until the government spends it. Houses will not be filled with millions of $. The balance will stay in the Treasury’s account at the Fed for a long long time, even if we do make major policy changes as well. What it does is remove the debt and the demographics of SS and Medicare from the debate, so as to focus on other things. We will not have full employment or danger of inflation just because the debt isn’t increasing.

      • Good reply, John. I’d just add two things. First, the debt will go away, but gradually as it falls due. Second, Javed may want to read my $60 T post where I’ve discussed the possibility of demand-pull inflation and argued that whether or not that happens has nothing to do with a full public purpose, but depends on whether and how Congress appropriates deficit spending in the future beyond the needs of the economy. Btw, if savings desires are at 6% of GDP annually, and the trade deficit is running at 4%, then we need a Federal deficit of at least 10% of GDP annually for full employment, if we want to accommodate both of these things. 10% of GDP is now $1.6 Trillion per year, much more than current levels of deficit spending, which, in any case, are badly allocated from a fiscal multiplier point of view.

  14. The sad fact is that the majority are in thrall to a Neo-Liberal Primitive view of money in which society can only create one form of money and that is “indebted” whereas it can create an “un-indebted” form too.

    • There’s no “unindebted form.” Government-issued money is just a debt of the government to the holder of the money, whereas money borrowed from and created by banks involves a debt of the holder of the money to the bank.

      • There’s no “unindebted form.” Joe Firestone (LetsGetitDone)

        Not true. If the monetary sovereign never runs a surplus and sometimes runs a defict then some debt-free fiat will accumulate in the economy equal to the sum of the deficts since that fiat would never be repaid.

        • John O'Connell

          F, a dollar bill in your pocket (or a dollar in your bank account) represents the government’s obligation to forgive a dollar of your tax liability, when you present it to them for payment.

          Obligation = debt.

          Don’t get too hung up on the semantics.

          If you owe the government a tax, that is a debt. It is canceled by the government’s debt to you, that dollar in your pocket.

          Think of how that dollar got into someone’s pocket in the first place. The government gave it to someone in exchange for some real goods or services. The dollar bill represents the government’s debt to that person, incurred when they took the goods. The paper itself is worth nothing. It is simply an IOU. Documentation of the debt owed by the government.

          • You’ve missed my point. If a dollar is spent into existence without borrowing via a budget “deficit” but never taxed out of existence via a budget surplus then that dollar is essentially debt-free (ignoring the National Debt which should be paid off as it comes due with new fiat).

            Some people insist that money can only be created as debt (Cui bono?) but the above is a counter-example. Common stock as private money is another potential debt-free money form.

            • F, When the dollar is spent, it goes into a bank account and increases the bank’s reserve by a dollar. It is a free reserve as it does not result from a loan deposit. However, it is still a Fed liability. Later, when the gov sells a bond to balance reserves that dollar is scooped up in the bond, which is another form of money (Fed liability).

            • John O'Connell

              I understand your point. It’s a semantic one, but it is crucial to MMT. The only reason money has value is that it can be used to extinguish a tax liability. As such, it is a debt of the government to the holder. You can’t tell the difference between a dollar that was created along with issuance of treasury securities and one that was created without such issuance. They are both obligations of the government.

              • When one talks about debt one has to distinguish who the debtor is and what the debtor is on the hook for. In the case of a Government bond, the debtor is the Government and it is obligated to repay the principal plus interest. In the case of a Government dollar, the debtor is the Government and it is obligated to accept the dollar in fulfillment of tax and fee obligations of the holder of the dollar and also as payment for any of the products or services sold by the Government the holder of the dollar wants to buy.

                So, it seems to me that the Government owes something to the holder in both cases. As John says: the issue is semantic. You can call situation debt and other debt-free if you want to. But, functionally the two situations seem quite analogous, though the debt instrument situation does involve the Government paying “welfare” (risk free interest) mostly to the rich and foreign nations. That’s why many MMTers are in favor of getting rid of debt instruments that pay interest.

  15. Kind of late to this thread — I read this last night and have been pondering it for a while. It seems to me that there are two distinct, but related, parts to getting the word out about MMT, PPCS, etc. We can call them educational goals.

    First is the basic message of countering the current conventional wisdom about debt and austerity and teaching the basic principles of what money is, how it works, and how we can use it for public purposes. This is basically an intellectual endeavor like any other effort to teach people something “new.”

    The second task is to address a much deeper, more ingrained level of understanding, at the level of cultural or religious values. To put it simply, there is a strong undercurrent of belief in our culture and many others that debt = sin; there are good people and there are bad people and the bad people don’t deserve to have nice things, let alone “free money.” This attitude goes back thousands of years. It is expressed in many different variations, to a greater or lesser degree depending on the time and place, but it is always there.

    The first task is merely very difficult; the second is many times harder. But we must fight to do both or we are going to finished as a civilized species, or even having the chance to be one.

    • Kyrill Problyad

      I think you’ve really nailed it on your second point. This has been my uneasiness about MMT for a while: “money for free” is a great concept if you’re not neurotically obsessed with punishment and consequences for bad behavior, but most people are neurotically obsessed with punishment and consequences for bad behavior. MMT offers nothing for the judgmental.

      • That actually isn’t true. MMT seeks to not punish bystanders. Money is a like a common water supply that can be polluted. In an MMT system a bad loan would punish the borrower with foreclosure and punish the lender who cannot collect their asset. However liar loans paid out bonuses while allowing the liars free rent in a house they could not afford. The corrupt creditors with their influence where made whole and by not adding a supply of new credit it just gives their swindled gains more buying power. Not implementing MMT principles rewards them.

        I would however not leave it at that. We should have had defaults all along, but merely with the idea to keep prices stable for the rest of us.

    • To put it simply, there is a strong undercurrent of belief in our culture and many others that debt = sin; Tim

      That’s not Biblical. Moreover, the Bible condemns counterfeiting and forbids usury between fellow countrymen (Deuteronomy 23:19-23) both of which are the basis of our current money system. The Bible also commands periodic debt forgiveness in Deuteronomy 15 and Leviticus 25.

      there are good people and there are bad people and the bad people don’t deserve to have nice things, let alone “free money.” Tim

      Even bad people are entitled to justice and the current money system (so-called “credit creation”) has cheated both debtors and non-debtors. Both are entitled to restitution which is a far cry from “free money”.

      • I never actually said the belief is “Biblical” — not necessarily, anyway. There are many more cultures and a longer history for humankind than just the so-called Judeo-Christian one! And although I could probably find biblical evidence of the debt/sin link, dueling bible-verse exchanges are rarely productive and beside the point. It’s a somewhat complex connection that whole books have been written on and I was simplifying somewhat. I was also trying to avoid pointing fingers and naming names at any specific traditions. There are a people who lay a lot of the blame on Calvinism, but I haven’t studied that aspect of the issue to be sure one way or the other.

        My point is that there are two aspects to “selling” the country or the world on MMT. We could say that one is financial and the other is moral. The financial is “we can’t afford it; we don’t have the money” (money for social spending, infrastructure, etc. that is). An intellectual grasp of MMT takes care of the financial objection, but the moral objection is a tougher nut to crack. Some people will object to social spending even if they know it won’t cost them financially and sometimes even if they themselves will benefit. I have personally heard others rail and rant against food-stamp recipients or homeless people, saying that they are lazy, they should just get off their butts and get a job, blah blah blah. They don’t recognize that there is such a thing as “bystanders,” as James calls them above, or victims of injustice. Wealth is a proof of virtue, so poverty must mean the person did something wrong (not my belief, as you seem to have interpreted above; I am characterizing an attitude that exists in the culture). Really, this is going on all around us all the time and will make it very tough to get the culture to accept MMT fully.

        • John O'Connell

          Let me take a stab at the non-progressive view of the source of the objections to parts of the welfare state.

          First, you must understand their point of view: it is not MMT. They believe it is their tax money that is being given away. They believe that they worked in order to support the recipients of the benefits. Still, they have no objection to some support of the less fortunate, and virtually all of them give a portion of their income voluntarily for that purpose, but the numbers work out to a lot more than that. Government programs for “the poor” amount to about $60,000 for each poor person. If the government simply gave each poor person only half that sum, they would no longer be classified as “poor”. Of course, such a set of rules wouldn’t work, as someone working full time for $1 over the poverty level would be sorely tempted to take $1 less income and 2000 hours more leisure time. Still, it would seem possible to support the poor for something less than twice the requisite amount of “their” money.

          Second, everyone has heard of cheating in these programs, and probably most of the loudest complainers have personally witnessed someone coming out of the welfare office wearing a fur coat and getting into a late-model luxury car they they could not afford for themselves. Politicians of both the left and right promise to reduce, prevent, and prosecute waste and fraud, but there is no visible result in the cost of the programs. The current fad is that millions of long-term unemployed whose UI has run out have suddenly become “disabled”, so that they can no longer work, but they can collect disability benefits in lieu of unemployment benefits.

          Consider your own attitudes and emotions about “the 1%” committing bank fraud and pocketing the profits. The people who object to the excess of money spent on safety net programs are feeling those same emotions and attitudes, and for some of the same reasons. I sometimes say that Americans have an overdeveloped sense of justice.

          Now that you understand them better, perhaps you can frame your arguments better. JG is not proposed to replace any other programs, but in fact people who do want to have a job (the vast majority of the unemployed) would choose JG over UI or disability. They would get higher incomes from it, and better chances at even higher incomes in the private sector. UI costs and all the other “welfare” benefits would be greatly reduced if most of the recipients went to JG instead. That is a very attractive selling point, especially after you have gotten the root prinicples of MMT past them: that it is not their tax money being used, it is money created by the spending itself; and that inflation is not a problem as long as all there exist large numbers of the unemployed.

          So that might mean there is only the one hurdle to overcome, the understanding of MMT. Once that is achieved, they can see that the provision of help to the poor who want to work is just, and is not excessively expensive for them personally, so any objections on moral grounds as well as financial grounds are already nullified. Given the current size of government, full employment and JG are going to require lower taxes, not higher.

          It would also help MMT to be separated from the Progressive agenda. The size of government is a separate issue, and if MMT is seen to be part of an effort to expand government, it will be opposed for that reason alone. Seen strictly as economc theory, MMT can be as attractive to conservatives as it is to anyone else.

        • Really, this is going on all around us all the time and will make it very tough to get the culture to accept MMT fully. Tim

          A universal and equal bailout of the entire population is not only just but should be popular too. Remember G.W. Bush’s “Stimulous Checks?”

          • Interesting sub-thread. My personal view is that the puritans on “debt=sin” and “Money for Free” are a minority of the population, maybe 30%. I think they’re concentrated in the Republican Party. I don’t think they would be a big problem if we could persuade people of the truth, namely that we are not running out of money, cannot be made to run out of money involuntarily, and have no solvency problems. So if we hit hard on the fairy story of fiscal unsustainability and show that it IS a fairy tale we can win the day.

  16. I don’t understand the logic of the proof platinum coin seigniorage (PPCS) proposal. It appears meaningless according to MMT, but I’ve seen it proposed a few times in this blog.

    How can the mint create a coin worth trillions and transfer it to the treasury to pay off debt? From the Mint to the Fed to the Treasury is all within the government. According to MMT, money is created when the government spends in the private sector. Without spending the coin, it is just a hunk of metal with a number stamped on it, it is not money. Therefore, this “coin” seems to be promoting a fiction that the government has new money to pay off debt when it has not actually done so.

    The Mint might get some private entity to buy the coin, at which point the “coin” is essentially a zero interest treasury “bearer bond”. This would not change the amount of money in existence, but it would also not change level of US debt (since the “coin” is a liability of the US government).

    Thus it seems to me that promoting the PPCS proposal assumes an economic theory other than MMT. I’d like to see an explanation of the PPCS theory (on the level of the “government creates money by spending, destroys it by taxing, etc. descriptions) which is consistent with MMT. Otherwise I’m left with the impression that MMT is simply about promoting government spending and not a serious description of how the economy works.

    • John O'Connell

      Coin seignorage is not inconsistent with MMT, it’s been around for a long long time. The Mint stamps out coins all the time. What happens to them? Maybe an MMTer can comfirm this, but I think it must be similar to what happens to the bills they print, they get deposited in the Treasury’s account at the Fed, and the money they represent is then available for the Treasury to spend. (The Fed sends the coins and bills to banks as they need them to make change, or to sell rolls of coins to businesses so that they can make change, or hand out cash to depositors as they make withdrawls, or sell rolls of quarters for the laundromat, or put the bills in their ATMs, etc.)

      The government “loses” money on pennies and nickels nowadays, but makes profits on their other coins. The profits are the “seignorage”. It is equivalent to deficit spending without issuing bonds, but since it is very small relative to the bonds issued it is usually ignored.

      The only difference between minting 300 million quarters and minting one $60T platinum coin is the amount of the Treasury’s profit in the operation.

      The coin would be held at the Fed, not put into circulation like quarters. I suppose that is another difference, but the Fed must hold lots of coins already, to have on hand when banks ask for them.

      Minting the coin does not create money. Depositing it at the Fed does not create money. Spending by the government creates money. The coin is not about managing the money in the economy, it is about avoiding one of the self-imposed constraints that we have, that are left over from the days of the gold standard. It would allow Congress to authorize spending and not have to also pass another bill to authorize the increase in total Treasury bills which those obsolete laws otherwise require to be issued. With the coin in their account, the Treasury need not issue more T-Bills in order to deficit spend.

      Yes, the mint, the Treasury department, and the Fed are all “the government”, and when they exchange money or money-things among themselves there is no impact as far as macroeconomics is concerned. It’s like you moving a bill from your pocket to your dresser drawer. But we have constrained them to do valid financial accounting, so they all have debits and credits as if they were separate, and there are laws concerning how they must operate.

      It would be fascinating, I think, to know who put that section into the law, and what they were thinking. It could easily have been written like the other sections, which specify the values of other coins the Treasury may issue, but it was written quite differently, and apparently quite deliberately so.

      • I did not mean to say that seignorage is contrary to MMT. What seems contrary to MMT is minting a coin, depositing it in the Treasury, and calling it money without ever leaving the public side of the economy. I’m not sure how printed bills are treated, I don’t remember the MMT descriptions I’ve read (Understanding Modern Money, Seven Deadly Frauds) going into the detail of what to call printed pieces of paper when they’re in the Treasury as opposed to given to the public.

        I also note that instead of the PPCS, the Treasury could just print a bunch of high denomination bills (after all, they used to print up to $100,000 bills, no reason bills in the millions or billions can’t be printed).

        However, it still seems to me that the PPCS proposal is meaningless according to MMT and is just being proposed as a way to make deficits more acceptable. It seems to be promoted to try to convince people that the deficit has been reduced. I can also predict with confidence this won’t work, unless perhaps you can find some private individuals willing to buy the coin(s).

        As to why the platinum coin section is in the law, the law already allowed gold and silver bullion coins (which have been minted since 1986). Several nations had started minting platinum coins in the late 1980s. My guess is that somebody (mint, treasury, congressman) thought the US should mint a platinum coin. They couldn’t get agreement as to denominations, intentionally left it to rule making (as congress tends to do these days), or (most likely) slipped it in as a last minute amendment. I doubt there was any ulterior motive, just expediency.

        • Clonal Antibody dug up some good evidence that it was intentionally put in; too tired to find his postings. Think it might have been at the New Arthurian economics blog or Daily Kos.

          There were people like Henry Gonzalez & Pete Stark who understood money. Be interesting to find out exactly whodunit. Everybody else probably had little idea what they were voting on.

          the Treasury could just print a bunch of high denomination bills. Yes, exactly the same, except that there is a Civil War Era restriction on the amount. $300 million? maybe upped a few times since then, but minor.

          PPCS is just a legal workaround of the debt limit. And it or one of the other increasingly recondite suggestions might be legally mandatory if the Congress orders spending & then refuses to raise the debt limit. The main thing is to get rid of the ludicrous & destructive idea that Uncle Sam is restricted in spending – has to go striped hat in hand to the mighty Bond Market – who he can eat for dinner in reality.

          As a private individual, I’d be happy to head a consortium to take a trillion dollar coin off of the Treasury’s hands, for a cool $900,000,000,000 in bonds. I might even run a lying BS propaganda campaign about how I am sacrificing to reduce the National Debt.

    • “How can the mint create a coin worth trillions and transfer it to the treasury to pay off debt? From the Mint to the Fed to the Treasury is all within the government. According to MMT, money is created when the government spends in the private sector. Without spending the coin, it is just a hunk of metal with a number stamped on it, it is not money. Therefore, this “coin” seems to be promoting a fiction that the government has new money to pay off debt when it has not actually done so.

      I think we all agree that according to MMT the Government taken as a whole and viewed as the interaction of its moving parts: Congress, the Fed, and the Treasury has an unlimited power to create money. In the current situation Congress has delegated its constitutional power to create unlimited amounts of currency and electronic bank reserves to the Fed, while it has delegated its constitutional power to issue debt, up to the debt limit, limited amounts of currency, and unlimited coins to the Executive (The Treasury and The Mint respectively).

      This delegation of authority by the Congress, coupled with common practice dating from gold standards, and the Congressional constraint forbidding the Fed to extend credit to the Treasury, has led the Treasury to practice Congressionally appropriated deficit spending by first issuing debt to “cover” the anticipated deficit spending. The debt it can issue provides interest payments to purchasers of the rich. Also, the amount of debt it can issue is subject to a “limit” periodically raised by Congress. The process of increasing the limit has most recently become an intensely political conflict between the political parties with the Republicans using the debt limit as leverage to force the Democrats to cut spending on policies and programs the Republicans are opposed to.

      The main developers of MMT: Warren Mosler, Randy Wray, Matt Forstater, Stephanie Kelton, Scott Fullwiler, and Pavlina Tcherneva, all seem to favor deficit spending without debt issuance, which would have the effect of driving down the FFR rate to nearly zero in the absence of payment of Interest on Reserves (IOR) by the Fed. In fact, they believe that current Government spending arrangements are a hangover from gold standard days and believe that a more ideal situation is one in the Fed would be subject to the Treasury Department, allowing Treasury to create unlimited electronic credits without issuing debt.

      Now, what the coin trick does is to use the legal tender nature of coins and the legal authority of the Mint to issue 1 oz. proof platinum coins of arbitrary face value to harness the Fed’s power to create unlimited electronic credits without issuing debt to the Treasury’s purposes of spending Congressional deficit appropriations at will and without needing to issue debt to enable that kind of spending. So, the coin trick gets around many of the constraints Congress has put on the Treasury dating back to the gold standard; and it also makes the Fed more subordinate to the Treasury, because it has to continually respond to the Treasury’s addition of reserves to the economy when it deficit spends in order to maintain its target FFR. This change in behavior would move the Fed/Treasury relationship closer to the model of consolidation under Treasury without creating a formal change, which would require Congressional regulation.

      Going further, you are right that the coin doesn’t create money in the private economy, upon minting. In fact, even when the Fed has credited the coin to the Mint, and later moved the seigniorage profits from the Mint’s account to the Treasury General Account. It is still not the case that any money has been created in the private economy. Still further, even when the Treasury repays the $6.7 T it owes to all agencies of Government, including the Fed, the coin will not have added any money to the private economy.

      When the Treasury uses the profits from the coin to begin to repay debt, then one can view this as adding “money” to the economy. But it is, I think, better seen as a swap of bonds for money, very like what the Fed has been doing in its QE program. Whether one considers this as adding “money” to the economy or not depends on how one defines “money.” If one includes Tsys in the category of money, then repayment of debt doesn’t add money at all. In fact, because interest payments would no longer be made, it would actually involve removal of money from the economy.

      In short, the only condition under which PPCS would add “money” to the economy, in the sense of adding reserves without removing Tsys, is when it’s used for deficit spending without issuing further debt instruments. Under the $60 T plan that would happen very often over a number of years, but always subject to Congressional deficit appropriations. So, those additions would still be subject to Congressional control, as is appropriate under the Constitution. And the way to look at PPCS therefore, is not so much as a way to add money to the economy, as a legal way to fill the public purse prior to using Congressional deficit appropriations to open the purse strings, so that Congress’s will can be fulfilled without issuing debt instruments.

      I think this outlook on PPCS, is completely consistent with, and supportive of, MMT and its views of sovereign fiat money systems, and that there is no point at which it disagrees with previous formulations within MMT. This is especially true if one recognizes that PPCS isn’t even being proposed as a permanent solution to the awkwardness of present arrangements for fiscal activity. Rather, it’s being proposed because it’s currently legal and the preferred MMT policy of integrating the Fed with the Treasury would have to be passed by Congress. So, in my view PPCS is a temporary expedient, and one that can prove to people that an unlimited Treasury capability to fill the public purse isn’t tantamount to turning control of federal spending over to the Executive. Once that’s understood, the political barrier to consolidating the Fed and the Treasury and making the Fed more accountable to the people should fall more easily.

      • Finally had time to get back to this.

        In essence, it appears you are saying that your $60 trillion PPCS does not create any money, it merely lets Congress and others feel good and think they created money to spend.

        I would think the goal of MMT advocates would be to show the truth of MMT (Congress can spend without issuing debt) rather than advocating a fiction to accomplish the simple goal of higher deficits.

  17. Who didn’t believe that welfare, specifically AFDC, was “bringing taxpayers to their knees,” “Breaking the budget”? At it’s highest (1970s), AFDC used a mere 6% of the federal budget. Culture of dependency? Before Clinton took an ax to welfare, over 80% of recipients voluntarily quit welfare for work by the time their children started school. Today, Americans can and do die as a direct result of poverty/prolonged deprivation. Infant mortality rates among our poor have increased, the life expectancy of our poor has actually fallen below that of some Third World countries. What does America care about? Most recently, we heard of middle class outrage at a rumor that President Obama was thinking of tossing a few crumbs to our desperately poor.