Declaring the Grand Bargain Dead Is Premature

By Joe Firestone

Stories in The Washington Post and the New York Times have some in the blogosphere proclaiming that it’s time to celebrate the death of the Grand Bargain, and others at least raising a question about its death. I’ll go on record as saying that celebrating its death is definitely premature.

It is so because we’ve yet to go through the budget or continuing resolution-passing activities coming up in September, and also have yet to go through the debt ceiling conflict to come in October. Mainstream Washington commentators believe John Boehner is determined to avoid a government shutdown crisis of the budget/CR conflict and that one or the other will be passed before October 1. Assuming they’re right, that still leaves the matter of the debt ceiling “crisis,” which the same commentators are saying will happen because Boehner has to promise his tea party caucus a chance to coerce the Administration, if he’s going to get their acquiescence on the budget/government shutdown matter.

So, they think, we are looking at a debt ceiling crisis around October 15, when Jack Lew says the Government will run out of borrowing authority, and he will be reduced to juggling $50 Billion in available cash to both repay debt and pay for the other obligations of Government legislated by Congress. The position on the debt ceiling being taken by the Administration now is that it will not negotiate over it, and that it’s demanding a clean bill raising the debt limit to pay for spending Congress has already approved.

Matthew Yglesias commented on this position on August 27, 2013:

Back in 2011, in an act of hubris and weakness, the administration decided that debt ceiling negotiations might be a good backdoor way to entrap both mainstream conservative Republicans and liberal Democrats into a “grand bargain” on long-term fiscal policy. We got no bargain, just a panic. It can’t happen again. My favorite solution would be to exploit the platinum coin loophole and put this issue behind us forever. But a smarter political strategy is probably the one Lew outlined on TV. No negotiations. No tricks. Congress just needs to step up.

I’m glad using Platinum Coin Seigniorage (PCS) to avoid the debt ceiling is Yglesias’s favorite solution, since it’s mine too. But, first, I don’t see why that, alone, would put the debt ceiling issue behind us forever unless the President were 1) willing to use it again when the debt ceiling is reached or 2) he then uses Josh Barro’s terrible and unnecessary “negotiation with the Republicans” idea, to trade away the Treasury’s PCS authority in return for repeal of the debt ceiling legislation. In addition, I’d like him to explain why he thinks a smarter political strategy is “No negotiations. No tricks.”

What’s smart about a political strategy that risks default?

What’s smart about a strategy that gives tea party Republicans a chance to creates hysteria in international markets?

What’s smart about a strategy that creates a finger-pointing spectacle where Republicans blame the Administration and the Democrats for ideological intransigence and vice versa, when we don’t need to have this spectacle to completely defang the tea party Republicans?

Sure, the Administration will probably win the shouting match in the short run and the Republicans will be forced to back off, hopefully in time to avert more than minimal damage to the economy. But this kind of brinksmanship by the smart money in the Administration is the same kind, fed by the same underlying attitude, that brought us the sequester, which is now slowing down the US economy.

From where I sit, it would be an awful lot smarter to wait for the Republicans to agree to a CR and then mint the $60 T coin the day after it’s passed. That would make the debt limit a dead letter and also change the political climate in a way that would free up the Administration to push for jobs programs, Medicare for All, reconstructing the economy, doing something concrete about climate change, energy, education, and infrastructure and actually strengthen the safety net by enhancing and extending it. In that new political climate the Democrats could actually win the elections of 2014, and the President could thereby avoid impeachment, which is what he’s going to get from the tea party if the Republicans take over the Senate.

While I don’t think the President will follow that kind of strategy, it seems a lot smarter to me than a strategy of “No negotiations. No tricks.” How about you? If you like it better, then please read this Post and sign the Move-on petition linked from it.

34 responses to “Declaring the Grand Bargain Dead Is Premature

  1. Isn’t the idea of a “Smart Congress”, irrespective of either of the two political parties, now a firmly entrenched oxymoron in the minds of a majority of American citizens?

    • Joe Firestone

      Sure. But, but that shouldn’t stop us from outlining smart strategies, should it?

      • In one sense no and I greatly admire your work in putting forward and explaining the PCS solution but it is still a technical fix whereas as what is lacking almost uniformly in Congress is the perspicacity to understand that human life with its use of money is an accounting of obligations, that money is simply used to express our eusociality. This is an anthropological or sociobiological concept, a far cry from the Libertarian paradigm that currently dominates Congress namely that government holds back the private sector from meeting human needs. The PCS solution merely reinforces that paradigm by appearing to push against it!

        • “. . . a far cry from the Libertarian paradigm that currently dominates Congress namely that government holds back the private sector from meeting human needs. The PCS solution merely reinforces that paradigm by appearing to push against it!”

          Sorry, the only reinforcement of the idea that Government holds back the private sector from meeting human needs in the HVPCS solution is negative reinforcement of that idea. And, if you negatively reinforce an idea enough then both neuroscience and psychology tell us that the idea gets extinguished. If HVPCS is used, and then progressive programs reinforcing cooperation get passed because the “we can’t afford it” excuse is no longer there, then I think the result is likely to be the death of the libertarian paradigm.

          • But Libertarianism is largely about rejecting positive liberty in favor of negative liberty only. In other words minimizing accountability to other human beings. So why should a Libertarian paradigm dominated Congress be emotionally persuaded to raise money for positive liberty projects, namely promoting “basic” well-being for all when the belief is the market with its supposed virtue of self-organization ( as opposed to centralized control ) achieves the same ends? You and I might understand that eusociality only works when a society engages in both securing positive and negative freedoms, I mean where is there a market in procedural fairness for example, but Congress is just not on that wave length at the moment. Even if you explain that the creation of money by both government and private sector can only be understood from a consolidated balance sheet perspective the accounting of obligations for the sake of eusociality still stands as a barrier. I think we must agree to disagree about our degree of optimism in regard to the take up of the PCS solution.

            • I don’t think the Congress is dominated by a libertarian paradigm. Perhaps the House is, but not the Senate. But moving to the House, it may be more libertarian-minded than the Senate because the right-win teahadists are dominating the R party right now. But part of the reason for that is the emphasis on austerity and Grand Bargains in both parties. Rightist opposition to spending fits in well there. But when there’s no reason for austerity, and no possibility of talking poverty to constituents, then I think the right won’t be able to stand against these programs. If they did, they’d be done in the election 2014.

  2. . . . . . …….. what makes you think Barry won’t cave in to GOP pressure & roll over & give them everything they want? He’s done it every. single. time before, & there is nothing in any of his actions (as opposed to statements & campaign promises) indicating he even wants to advance a truly progressive agenda. he always manages to get himself ‘forced’ into doing what Republicans & Wall St want to happen. He is still palpably itching to cut social programs, in order to appear ‘moderate & reasonable’. If he holds out this time, & actually tries to show Americans what the GOP is up to, I will count myself wrong. I hope he does. . . . but that has never happened before, & I can’t imagine it actually happening now.

    • Joe Firestone

      Look. That’s irrelevant. We still have to do and say what we have to do and say. That affects his environment, and could affect what he does. Isn’t that what just happened with Syria? He backed off, at least for awhile.

  3. It’s hard to understand why the tea party Republicans would want to impeach President Obama since he is already doing their dirty work for them; giving them sequestration, reduced expenditures, and offering up Social Security and Medicare as sacrificial lambs in a grand bargain. Perhaps they are like piranha, when they taste blood there is no stopping them until the bones are picked clean. Given that alternative, it is even harder to understand why the President doesn’t use PCS to defang them.

    • Joe Firestone

      The tea party doesn’t like him for all sorts of reasons, but one important one is that he says he wants to raise taxes. Then again, you’re also right. They’re like piranha.

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  6. My own feeling and view about a $60T coin is that it would be a very foolish idea. If America does this then it will turn the legality of the dollar into an overtly manipulated scam and laughing stock. That’s the way it would quite rightly be viewed by foreign governments. What else can you say for America, once the proud post-WW2 powerhouse Mercantilist nation, turned and twisted into a country where all its top manufacturing industry has already fled its rocky economic shores and moved to Asia in order to stay competitive rather than suffer America’s own sick and sad business environment within her borders ? What else can you can you say about such an economy, whose only successful major exports appear to be the dollar and dollar inflation? Is that really something to be proud of ?

    Is it any wonder that other proper trading nations and Mercantilist economies are so rapidly dumping the dollar now? Anyone notice how China, Russia, India, the Middle East are dumping the transaction dollar right now? Anyone notice that China is now the largest producer of gold in the world (and her government is buying every gold nugget she can)? Has any economist notice that, for the last year, China and Japan have been trading their currencies to the complete exclusion of the transaction dollar? Anyone notice that 7 out of 10 ASEAN nations have now tied their own currencies to the renmimbi and not to the dollar?

    Any American economist seeing red lights out there about the conseqquences of American dollar manipulations yet ?

    Therefore the dollar would not seem to have a very good reputation at the moment with all these foreign nations. So what further effect would a $60T American gold coin have on American democracy and its already rather tarnished reputation of late?

    Furthermore, if America produces the $60T coin legally, then how would her government feel if China or Russia also produced an equivalent $60T coin. Can any economist out there see how ridiculous this scam would become and what further economic trouble it could cause if America sets this as a global economic precedent? And I’m afraid long gone are the days where America could order other global economies to “Do as we say, not as we do”. Nope, not a hope in Hades now.

    Gone are the days when a country truly stood on its own legs and was truly prepared to succeed or fall through its own honest trade and where the manipulation of currency on the scale that exists today was never ever contemplated as the norm. Now the solutions are all scams — money out of thin air — and most American economists seem to support this. Is that the best they can do ?

    The majority of American economists seem to support QE forever, they also support all the megabanks corrupt activities without any regulation now as well as completely ignore their high risk behaviours under the excuse that “Oh Great Heavens!! But we need the banks !!”. Old hat and thoroughly unconvincing now I’m afraid and any economist that still recommends such a scam approach is either being paid by a megabank bank or quite possibly suffers from a special form of dementia — probably a rather common form of trickle down Alzheiner’s is my best guess. In this respect, some economists appear to be no more than completely inadequate magicians or sorcerers now, where logic has for so long been excluded from the dark swamp of economic ideas that now always seems to pervade the also-corrupt political arena. What hope is there?

    I await the demons.

    • Since China has been using its own form of PCS for a very long time now I think you are failing to properly identify the reasons for the United States slow economic decline.

    • OK, Joe, time to fess up. Are you being paid by Bank of America, CITI Group, Goldman Sachs, or is Ben Bernanke personally signing your paychecks? 🙂

    • Bill, this is just an incoherent rant. First, the $60 T would not all be spent in the short run; it would only be used to fill the public purse, pay down the debt, and pay for deficit spending appropriated by Congress. Second, the public purse is filled by using PCS so that the debt ceiling would be irrelevant, and no debt need be issued any more. Third, there would be no more or less inflation then there is now as long as deficit spending doesn’t continue beyond full employment. Fourth, if foreign nations don’t like the dollar any more, then they can just go export somewhere else. Then perhaps our manufacturing can recover. But seriously there’s no danger of that, because they’d have to find other nations willing to let them export their goods without insisting on a fair balance of trade. Fifth, China has no need to generate $60 T coins because it can already create as much money as it needs for whatever it wants to do. Of course, it constrains itself because it pegs its currency to the dollar. But that’s because it wants to run large trade deficits with us. Russia can also print whatever it wants, but, it too, is striving for an export-led economy.

      Enough. All your objections are already covered in some previous posts and in my book linked to above. Do yourself a favor. Read those things and learn from MMT more generally. Isn’t that why you’re here at this site?

      • I certainly appreciate that you are looking for solutions, but unfortunately, in your criticisms, you seem to have ignored some of my questions, which I guess you regard as rants. But I still want answers. Here’s a reminder:

        What effect would it have on America if other countries printed their equivalent of a $60 T coin?

        Anyone notice how China, Russia, India, the Middle East are dumping the transaction dollar right now?

        What else can you can you say about such an economy[America], whose only successful major exports appear to be the dollar and dollar inflation? Is that really something to be proud of ?

        You would, perhaps, regard these as rants but I am speaking more from a Hudson-Keen-Black viewpoint. It’s easy to dismiss my questions as rants rather than to directly answer them. I am personally fascinated by the ongoing and one-sided and heavy dollar manipulations of America whose only purpose ever seems to be to benefit just the American elite(the bankers). I say this because not one dollar of this QE money appears to have reached US citizens because there still seems to be such a lack of liquidity and demand on American soil. If you have another view, excuse or resolution to this problem (that does not involve feeding money continuously to corrupt banks) I would be delighted to hear it.

        I found it also particular impressive how the Chinese government zoomed out of their own recession problems of 2008 within only one year after implementing there own QE whereas America still oddly suffers economically after so many expensive bouts of TARP and QE. China achieved her economic goals relatively easily because when her govt ordered its nationalized banks to lend and spend, that is exactly what they did because they had no choice. When Obama ordered the regulation-free American banks to spend and lend their QE, the bankers simply rubbed their hands with glee, completely ignored his order, and either just consolidated their own assets to avoid insolvency through Treasury purchases or, because they were too big too jail anyway, threw all the QE out onto the markets(which is why we had that strange and peculiar market peak with terrible unemployment in 2009) — they could do this because they are completely unregulated; because they are too big too jail; because they have the illicit mark-to-market rules to protect them; bank CEOs will never ever be prosecuted in America because they are all big buddies and in cahoots with the US politicians; they can make money faster from foreign investments via Wall Street then from any slow-paying loans to failing American businesses and/or mortgages; and anything to get out of a rapidly devaluing dollar. Thus that’s how American QE turned into invasive foreign hot money, something that foreign governments certainly didn’t appreciate, hence the ongoing currency wars — which still seems to have New Keynesians completely stumped because most of them still seem to be in denial of this fact and just say “So what?”.

        The New Keynesians way, for example, is to always compare the dollar against perhaps the Euro and then spout — “Ah, the dollar is doing well!!” But the ordinary US man-in-the-street would quite naturally compare the US dollar against a commodity or a commodities index – because this actually and more accurately represents his dollar purchasing power. What citizen buys other currencies everyday with their dollars for Pete’s sake? How is the New Keynesian Dollar/Euro comparison supposed to help the ordinary citizen to properly understand actual dollar value when all fiat currencies are also going down in value constantly because of inflation, albeit at different rates ?

        Furthermore, in terms of Fed statistics, the only real function and purpose of excluding energy and food (both commodities you will notice) from US CPI would seem to so successfully hide the real depreciated value of the US dollar from the American people. How can any honest and self-respecting economist or statistician, therefore, possibly except the obvious and huge disparity between US Core Inflation figures and Real Inflation figures as acceptable and the “norm”?

        Many modern economists would earnestly and unhesitatingly say that the US CPI more usefully and properly measures the inflation rate of manufactured goods in America (now there is an amusing ghost concept in itself!!). I find this view particularly anachronistic, since most manufactured goods in America are now fed to us by China. So what is the US Core CPI actually supposed to be measuring here? Is this statistical method, with all its complex weightings and adjustments, really measuring the true inflation rate of manufactured goods in America or is it really an overall measurement of the inflation rate of Chinese imported goods to America?

        The above are just more reasons meant to illustrate some more of the ongoing manipulations by the Fed, this time against the American people constituting yet more reasons to avoid PCS like the plague.

        From America’s current poor economic status, it would also seem that Tiffen’s Dilemma holds firm. Yet another cogent reason for America’s inevitable dollar decline. Indeed, it’s well known that Keynes himself pushed hard for the neutral ”bancor” to be instated as the worlds currency. He was voted down and opposed at every turn by every American economist at Breton Woods all those years ago. This opposition was entirely political — America so badly wanted to dominate global economics with her world reserve dollar. It is also my opinion that J M Keynes well knew the currency manipulations that go on when any country owns the world currency. Both New Keynesians and the Chicago School seem to have so conveniently forgotten these salient facts about Keynes but continue to insist that fiat, as well as gross market manipulations by the Fed, are now the true and acceptable norm.

        Since China is soon to take the baton from America as King GDP nation of the world, and as their economic influence spreads rapidly, one also wonders about the fate of the dollar and the inevitable rise of the Yuan. One wonders what will your $60 T coin be worth under such unfriendly economic conditions…

        And when China further starts to manipulate her own currency, how can any American economists complain about this, since it was America who so proudly and overtly set the precedent for such gross currency manipulations in the first place. Therefore, in such an economic situation, any whines against subsequent Chinese manipulations by any American economist would seem to me to be utterly hypocritical.

        I also have no doubt that this post will, once again, be branded as a rant. Like I have said, easier to say that this post is rant trash rather than actually answer the points, questions and peculiar anomalies that I have posed regarding the rather vast manipulations of both the US dollar and Fed statistics that I’ve already mentioned in passing.

        It is for these reasons and more that I still do not support a $60 T coin by America.

        • Bill, I really don’t mind rants. But yours isn’t just a rant. It’s an incoherent rant. Now, I think I have already answered all your questions. And I think you’ll understand that if you really think of the implications of what I wrote.

          If you want to confront the various points I highlighted because you disagree them, then I will respond to such a reply. But otherwise, unless you have something entirely new and a line of argument that is incoherent, I am satisfied with what I said at this point, and have no wish to take the time to deconstruct your very long, rambling, statement of your views about the problems we face from the international system if we mint that coin. The bottom line is that there will be no trade balance impact of minting the coin after the initial undoubtedly hysterical psychological reactions from gold standard-minded economists, classicists, and neoliberals. And it doesn’t matter in the least whether other nations remove their self-imposed constraints on their own fiat currencies.

        • Bill, the problem isn’t what you don’t know, but what you know that ain’t so. Many of the concepts you use like “currency manipulation” do not really make sense. And if anything, QE, ZIRP, the $60T coin, “no bonds” are aimed at ceasing “currency manipulation” – and returning to more ancient, more tried and true “monetary systems”/ “currency manipulations”. Government bonds are a novelty. Only a few centuries old.

          What effect would it have on America if other countries printed their equivalent of a $60 T coin?Basically, nothing. It is monetary policy, which is a weak reed. The ONLY reasons the $60T coin is important is (a) it is a workaround of the “debt limit” – a crazy way that Congress has bound itself to not spend, maybe, what it has already ordered spent. The debt limit is Congress playing a game of Simon Says with itself, and then pretending there is a real Simon out there who bosses it around. (b) Educational: It is a big nothing. It would prove what is obvious, what is in front of everyone’s nose, what the US Constitution says: the US spends what Congress says it spends, and creates money by this very act of spending.

          If you have another view, excuse or resolution to this problem (that does not involve feeding money continuously to corrupt banks) I would be delighted to hear it. The solution is obvious, and known to all, and has always worked very well. Spend / create the money to attain full employment, in particular have a JG.

          It is also my opinion that J M Keynes well knew the currency manipulations that go on when any country owns the world currency. Both New Keynesians and the Chicago School seem to have so conveniently forgotten these salient facts about Keynes but continue to insist that fiat, as well as gross market manipulations by the Fed, are now the true and acceptable norm. All money is fiat money. There isn’t any other kind. Since 1971, the dollar and other currencies have been allowed to more obviously be what they always were. This is progress. This is ceasing manipulation, not engaging in it. ZIRP is not manipulation, but the opposite of it. The least manipulated monetary policy would be to have no Fed, but just “print money”. To just stop “printing bonds”, which deranged beliefs hold is more natural and ancient – it isn’t. QE / ZIRP etc is a fair approximation to this policy.

          Saying both that the dollar is being dumped, and that it is a successful import is contradicting yourself. In the long run, a low interest rate / ZIRP, big coin policy – the nonmanipulation you mistake as manipulation, is almost certainly deflationary. Increases the value of the dollar in the long term. There is a short term interest rate carry trade effect that would lower the foreign exchange value of the dollar. But that’s a good way to lose your shirt eventually, as the Asian crisis showed, and which thus caused the big trade deficits/ massive dollar saving of Asia.

  7. There would be a good deal of value to using the HVPCS option from a public education standpoint.

  8. When you exercise the PCS, you are creating an economic environment of printing money, like Zimbabwe or post war Germany. There is no restriction on the amount of debt-free money you can produce. Every home will have a room where money is kept. There will be no need for taxes, simply print money. We can triple wages and start consuming. Bloomberg can produce a list of trillionaires, as credit trickles up. The economy will become dependent on the government supplying more and more money, which becomes socialism? The Austrians prefer gold coins so they can hoard, but that ruins the economy as the velocity of circulating credit stalls. Austrian economics is not sustainable. No tax environment is not sustainable. The wealthy may buy income producing assets, or a big house and yacht, but the credit they accumulate, must be spent, it must circulate. Unfortunately, the PCS does not kick-start the economy, it maintains the current stasis.

    There is a reason credit circulates and why it is retired. It is no different than the circulation and retirement of dollar bills, the dollar bill being a physical manifestation of universal credit.

    • Ransome, this is pure nonsense, and simply shows you haven’t read any of my other posts, my e-book, or any writings by MMT economists or others on the peculiar conditions in Weimar Germany, or Zimbabwe that caused hyper-inflation in these cases. “Printing” or “minting” or creating money out of thin air is not sufficient by itself to create hyperinflation.

      In any event, here and here, and here, are some places to start your education about the real causes on inflation and hyperinflation.

    • Ransome: Your comment a few days earlier showed better understanding of money. What happened?

      When you exercise the PCS, you are creating an economic environment of printing money, like Zimbabwe or post war Germany. Or postwar USA. Or wartime USA. Or prewar USA. Or any country anywhere. Where on earth does anybody think money comes from, if not someone printing it? During the past few centuries, most countries have issued most of their money in the form of bonds = coins with a date in the future inscribed on them, creating an “economic environment of printing bonds”. Whoop de doo.

      But that is not the true “printing” problem. The real “printing” problem is that people print books and articles filled with nonsense about money and finance. The Biggest Lies ever. Whoppers so ludicrous, so useless, so crazy that a child can see they’re wrong – so it takes years of “economics education”= fuddling your mind with nonsense to learn to parrot them mindlessly without noticing that the Emperor has No Clothes. But the crazy lies are so universal, economics successfully making itself into a Tower of Babel, that the people pointing out the craziness hardly understand each other, let alone being understood by the common man.

      “Printing bonds” = what we do right now. “Printing money” = the platinum coin, greenbacks, Eternal QE/ZIRP. Who cares? If you care, if you think there is a ginormous difference, then the bad printing has done its job of fuddling your mind with nonsense, and the banksters can relax, for their hold on your mind is secure.
      There is no restriction on the amount of debt-free money you can produce. Yes, there is. The amount is zero, since there is no such thing as debt-free money. One can call the Platinum Coin, or greenbacks, or Weimar Zimbabwe dollarmarks “debt-free money”, but that is not the same thing.

      • I became sloppy with slang. Printing is slang for the creation of debt-free money. The PCS satisfies the debt of previously issued credit, in effect, “printing” money.

        Dan discusses the hot potato effect, a few posts forward, using super potatoes that do not rot. Almost every asset we acquire, decays, with the exception of credit and intellectual property. Almost every asset needs to be maintained, with the exception of credit and IP (which could do with a little rot or shelf-life). This property of decay limits our acquisitiveness, limits inequality and creates jobs. (Unless you are a slumlord) There is a part of money I don’t understand; when is enough, enough. When do we move on beyond money-getting? When do we cycle credit, rather than adding to it. Are quad trillionaires socially useful when the general populace is responsible for their debt? At least unless we use the PCS. Money was created for a reason, to facilitate transactions, but we seem to have lost our way. Money (credit) is odd in that you first must earn it, exchanging labor for credit, yet after you spend it, you are still responsible for the debt of it’s creation even though it resides on another’s balance sheet as savings. What is interesting in the past, many of the wealthy living High Society, lived on cash flow with relatively light savings accumulation.

  9. Thanks Joe. But Randy does not really discuss the circular nature of credit (money). Even Jesus said to render unto Caesar, that which is Caesar’s (coin). It is possible that taxes predated money and money was created to employ labor. After all, money is used primarily in transactions where labor is exchanged for goods and services. King Leopold’s Congo economy kept him well supplied with ivory and rubber, made possible by seizing and taxing land, imposing brass rods as a form of money, and paying ivory and rubber workers with brass rods payable to the taxman. A perfect circle of credit.

    The Philadelphia Fed used to have a publication on Franklin, the money printer. Pictures of early money had “Death to Counterfeiters” or some such. Why was that important do you think, if the quantity of money was unimportant?

    During the housing crisis, the Fed raised rates and money continued to pour in elevating housing prices. That money was called foreign savings; it was hoarded credit looking for AAA yield and it’s volume caused housing value inflation that fed the fire of lending. (I am still paying inflated property taxes.) A house that doubled in value did not appear unusual. This all caused by the availability and marketing of money (credit).

  10. I didn’t mention, but implied that it is how you use credit that is important. That is why originally bankers were tasked with managing the community’s credit. People were furious at bankers when they became community looters.

    Milton Friedman was wary of a Keynesian helicopter drop stimulus because as a Jew, he would pick up the dollar and save it. As an Anglo, it would be spent on beer and cigarettes or a couch and as a Black it would be spent on a block party (Marion Barry). Our relationship with new found money varies by class and culture. People are no longer acting like idiots when credit is cheap. So you are correct, the amount of “money” in the system will not necessarily impact on prices, especially if demand is met.

  11. I’m sure too that Ransome will absolutely hate this article by Paul McCulley and his solutions to the problems of the Paradox of Thrift and De-Leveraging:-

    McCulley quotes Ben Bernanke as saying “perhaps the most severe risk we face is the lack of political will” for commonsense ways of tackling the Great Depression. I would argue it’s lack of understanding how money works within an economy as Ransome typically personifies.

  12. No doubt the coin could fix the debt our way. But I doubt it will be used. Could be wrong and I often am.

    First, I think a crisis is exactly what the doctor ordered if your goal is to pursue a grand bargain – from either side of the aisle. Austerity is the name of the game. Of course, there may be a few business interests who could figure this is not good for their bottom line and may voice some objection through their private channels. But it does seem to me the folks in congress and our President are set on reducing what they think is a bad thing – – the deficit. And business people, or many of them, also oppose the deficit and government spending. (not the MIC folks though.)

    Secondly, I think if the President really does have the stones he can just let congress hang themselves. Shutting down the government, with all that means, falls directly on the House and the Rs control it. No doubt about that. The coin “solution” confuses the issue and gives them a way out. There is an election coming up in a year. I won’t go into what manner of things will be said about a coin. You’ve seen them all and the Rs will throw them all out there. So the political advantage the President has will be lost.

    But if the government is shut down the President can play the hero and direct his Secretary to pay the bills and dare the crazies to do something about it. So you say, this means the people will suffer. Yes, but it would put an end to this nonsense once and for all and likely give the House back to the Democrats. Maybe then something could be done about out problems.

    I doubt the Rs are crazy enough to shut down the government in any case – not with an election around the corner. So my take is this is a political issue, not so much an economic one. There are, of course, many moving pieces whether you want them to mint the coin or dare them to take down the government. I’m a daring sort for now. But I’ve been know to change my mind.

  13. I have posted two posts so far and have received very few actual answers to my inquiries and questions. This has been very disappointing. So I shall try once again to get some answers, but I will restrict my questions and try to qualify them with logical outcomes so they are perhaps more cogent and better understood.

    I have no problem with QE or a $60 T(same result as QE), which should, if its outcome is to be believed, work to increase American liquidity and demand. The reasons that this approach has not already worked and will not work in the current economic climate are given here:

    * There are no guarantees whatsoever that QE will ever reach Mainstreet to help the American economy. Although nobody dares ever mentions the fairytale mechanism anymore — this mechanism used to be referred to as trickle-down economics. During this crisis, this so-called trickle-down mechanism(an incorrect excuse or belief that is still expressed or implied by many erudite economists) appears to have utterly failed in this crisis. Like I said — a fairy tale. Over the past six years, the megabanks have evidently not spent and lent this QE money on America’s medium and small businesses and these banks have certainly not lent in any significant measure to the US citizen. This fact simply cannot be denied because there is still a lack of demand or lack of dollars on Mainstreet in America’s economy even now.

    * How could the banks spend and lend so freely to resolve America’s liquidity and lack of demand when, after the 2008 debacle, credit interest rates simply skyrocketed? And these credit interest rates are still very high. Can any sensible, knowing economist out there please explain to me how high credit interest rates in an economy that is so starved of dollars causing the lack of demand is supposed to help the US citizen and small and medium businesses?

    * It is also quite well known, over the last 6 years, that the US Fed has covertly lent the ECB $13 trillion on the quiet during this crisis. Has this huge amount helped the European economies to come out of their own lack of demand problems or unemployment morass ? It would seem that even shovelling $13 Trillion into the European economy has failed at all levels. So why should the same economic tactic work for America ?

    The real reason MMT economists believe that QE or a $60 T coin will work is because it seems that these economists still believe in fairy tales. Without a firm mandate and stiffer regulation from the US government ordering the US banks, the main conduit to Mainstreet, to only spend and lend their QE money (or the same generated from a $60 T coin) on US soil then the economy will never recover — because these banks, who appear to persistently operate as they like and get away with it, always seem to prefer and are completely allowed to either buy Treasuries to consolidate their insolvent positions or are also allowed to throw this QE money out onto the foreign markets willy-nilly at high risk (who cares about the risk when you’re too big to fail?). With no proper mandate or contract forcing the megabanks to spend and lend on American soil(at much lower credit interest rates) has so far enabled the megabanks to do what they like to make a proper profit by coming out of a rapidly devaluing dollar and investing in more tangible foreign assets that are not so rapidly devaluing. These are the real reasons why none of the QE money generated so far by the Fed has ever seen the light of day on Mainstreet.

    * Dollar inflation may help America but it also erodes the accumulated US Treasury savings of foreign export countries which I have already fully explained. That’s why the foreign exporter countries are defending themselves and their currencies with currency controls and are accumulating more gold — hence the ongoing currency war.

    I have tried to be very logical here.

    Any sensible answers ?

    • OK, Bill.

      First, MMT doesn’t advocate QE. This is just one of many posts by MMT economists and writers debunking QE.

      Second, I’ve never claimed that the $60 T coin would increase demand. What I’ve claimed is that it would get around the debt ceiling by making it a dead letter, and also that it change the political background of fiscal decisions in such a way that there would be greater pressure on Congress to pass recovery programs that would increase demand.

      Third, MMT agrees wuth you about trickle down economics. We think it’s BS; we are for bottom-up programs to create an economy of full employment and price stability.

      Fourth, MMT never supported high interest rates from the banks. They’ve been allowed to charge those rates due to lack of regulation. MMT is for much tighter regulation of bank behavior. Some MMTers are for nationalizing the banks.

      Fifth, MMT doesn’t advocate lending to Euro banks. It advocates a relatively passive central bank and very active fiscal policy.

      Sixth, MMT is not for dollar deflation.

      Seventh, the reason why your previous post were ignored is because they reflected many misstatements about what MMTers say, just as this post does. What you need to do is read and understand MMT before you sound off about MMT saying this or that. Then we would not think your posts are so ridiculous.

  14. Bill, I won’t try to comment on your entire post, but I will respond to your questions about QE. I don’t believe any MMT economist has defended QE as a solution to the recession, first because they understand that swapping overpriced mortgage backed securities and treasury notes for bank reserves does not create new money to be lent into the economy and second because the downward pressure QE exerts on interest rates removes a considerable amount of interest liquidity from the economy. Much of that interest would have gone to retired people and small savers and would have found its way into the economy through purchases. Platinum Coin Seigniorage (PCS) on the other hand could retire existing debt as it comes due and fill the public purse with enough non interest bearing, deficit free, funds to support large scale public works, infrastructure, educational, and research projects for many years, if Congress chooses to appropriate them. PCS would also allow Congress to reduce taxes such as FICA and Medicare while simultaneously increasing Social Security payments, all designed to stimulate spending and create demand in the moribund economy.
    To summarize, MMT views QE as a weak drag on the economy and PCS as a potentially powerful stimulus. At least that’s my reading.

  15. “. . . and fill the public purse with enough non interest bearing, deficit free, funds to support. . . ”

    Not deficit free; but “debt free” in the sense of no debt subject to the debt limit.

    “. . . PCS as a potentially powerful stimulus. . . .”

    PCS isn’t itself a stimulus, not even potentially. Its effect is political. It frees up Congress to deficit spend by removing the rationalization that it cannot do so because the government is running out of money. And, if Congress makes use of that freedom to deficit spend then that is what will provide the stimulus.