Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
Mitchell’s laws:
●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which ultimately leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive.
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If you were to select the one best measure of a nation’s greatness, you would be hard pressed to find one better than health care of its people.
Look around the world, and you will see the “best” nations providing the best health care and the “worst” nations providing the worst health care.
The U.S. Declaration of Independence says, “. . . [all men] are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” Surely, good health is part of that trio.
Because private healthcare insurers do not provide affordable coverage to the broad populace, Medicare and Medicaid were great improvements. But the problem of significant uninsured and underinsured remains.
For a nation that views itself as the world’s leader in most things, this is unacceptable.
Obamacare, nee Romneycare, was an attempt to include more people, but it is a complex, convoluted, inefficient program no one fully understands. Both those who favor it, and those who disfavor it, do so out of ignorance.
For years, I have favored providing full Medicare for everyone — a Medicare coverage so complete that neither Medicaid nor supplemental policies would be necessary.
And such a bill exists — almost. It is H.R. 676, Medicare for All:
“To provide for comprehensive health insurance coverage for all United States residents, improved health care delivery, and for other purposes.”
Some features of the bill:
All individuals residing in the United States (including any territory of the United States) are covered under the Medicare For All Program entitling them to a universal, best quality standard of care
The health care benefits under this Act cover all medically necessary services, including at least the following:
(1) Primary care and prevention.
(2) Approved dietary and nutritional therapies.
(3) Inpatient care.
(4) Outpatient care.
(5) Emergency care.
(6) Prescription drugs.
(7) Durable medical equipment.
(8) Long-term care.
(9) Palliative care.
(10) Mental health services.
(11) The full scope of dental services, services, including periodontics, oral surgery, and endodontics, but not including cosmetic dentistry.
(12) Substance abuse treatment services.
(13) Chiropractic services, not including electrical stimulation.
(14) Basic vision care and vision correction (other than laser vision correction for cosmetic purposes).
(15) Hearing services, including coverage of hearing aids.
(16) Podiatric care.No deductibles, copayments, coinsurance, or other cost-sharing shall be imposed with respect to covered benefits.
The Program shall pay physicians, dentists, doctors of osteopathy, pharmacists, psychologists, chiropractors, doctors of optometry, nurse practitioners, nurse midwives, physicians’ assistants, and other advanced practice clinicians.
Medicare for All not only would cover everyone, but by eliminating deductibles, co-payments and coinsurance, it eliminates the need to shop around for additional coverages, or even to worry about which form of Medicare to acquire.
Simple, complete healthcare coverage for all of America — exactly what the greatest nation on earth should provide.
So what’s the problem? I can imagine a couple, easily addressed, problems:
Government bureaucrats, not doctors, would make life-or-death decisions about coverages.
As with every health insurance policy, public or private, bureaucrats advised by the medical community, make coverage decisions. Medicare already does that, as does Blue Cross et al. But with no limits, deductibles or co-payments, Medicare for All would be far more generous than any private insurance — and of course, cost-free.
Private health insurance companies would be put out of business and their employees would lose their jobs.
True. Medicare for All is far more efficient, requiring far fewer employees, than the patchwork of private and public insurance options now available. Some people would find jobs in Medicare for All. Most would not. It essentially is what happens when any more efficient system is put in place, whether in private industry or public.
Who would pay for Medicare for All?
And here is where H.R.676 falls apart, for it says that funding would come from:
Funding:
(A) Existing sources of Federal Government revenues for health care.
(B) Increasing personal income taxes on the top 5 percent income earners.
(C) Instituting a modest and progressive excise tax on payroll and self-employment income.
(D) Instituting a modest tax on unearned income.
(E) Instituting a small tax on stock and bond transactions.
The authors of H.R.676 make the tacit (and wrong) assumption that federal taxes pay for federal spending. They do not accept or understand the fact that a Monetarily Sovereign government creates its sovereign currency by spending.
Whenever our Monetarily Sovereign government pays a bill, it merely instructs its creditor’s bank to increase the numbers in the creditor’s checking account. That is how dollars are created.
Unlike state and local taxes, federal taxes are destroyed. Upon receipt; federal taxes no longer are part of the money supply. They pay for nothing, because they cease to exist in the economy. Dollars exist only outside the federal government.
In reducing the money supply, all federal taxes are recessionary. Medicare for All should be funded by federal deficit spending. The populace would receive a double benefit: Better health care and the economic stimulus of federal spending.
In summary, H.R. 676, Medicare for All, is a great concept. It need not, and should not, be associated with tax increases. The federal government simply should pay for it.
Our current Medicare, Medicaid, Obamacare state exchanges are the most inefficient, cockamamie approach to health care insurance ever dreamed up in a bureaucratic nightmare.
Medicare for all solves those problems. It would require no state participation, no proof of eligibility, be completely portable, massively reduce employer expenses, cost Americans nothing and provide everyone, rich or poor, with the best available health care.
Why then haven’t Congress and the President jumped aboard? Two reasons:
The rich in total, and the health insurance companies in particular, spread bribe money to maintain the current, inefficient, unfair system. Medicare for All would close the gap between rich and poor — something the rich do not want.
So, I urge you to read the bill and it’s simple explanations at: H.R. 676, Medicare for All, then contact your Congressperson and demand Medicare for All, fully funded by the federal government.
It’s the best thing you can do for our nation.
Rodger Malcolm Mitchell
Monetary Sovereignty
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Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
The Ten Steps will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
Two key equations in economics:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports
#MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
Hi Rodger, I agree with this post entirely, but have two amplifications. First, a few years back, the California Nurses Association (CNA), Now part of the National Nurses Union (NNU) sponsored an econometric study estimating the likely impact of HR 676 on jobs: http://bit.ly/19gJyiH The bottom line of the study is that HR 676 would lead to creation of 2.6 million jobs. I’ve also seen it estimated elsewhere that the loss of jobs in the insurance industry would amount to 400,000. So, there’d be a net gain of 2.2 million jobs if we passed that bill.
Of course, CNA’s research arm assumed that the new program established by the bill would be “funded” by the revenue sources outlined in it. As you’ve pointed out, “paying for” the program through taxation would cost jobs and GDP. But if the program were “paid for” implemented through deficit spending, as you’ve suggested, then that would avoid any recessionary effect and replace it with a very big and permanent “stimulus” indeed. Specifically, if we kept current taxes collected for government health care programs in place, and covered the remaining amount of the likely cost of the program threw deficit spending then, there’d be about $900 Billion annual injection of net financial assets into the private economy. And if we eliminated all taxes related to health care, then the injection would be $1.9 Trillion annually. Either way, I don’t think the CNA impact study took that into account. So, we might be looking at an impact 10 times as large as they estimated.
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Joe F.
So, with a minor net gain of 2.2 million jobs and a major net gain of “medicare for all” , I would imagine that the CAN is fully supportive of this Bill, just exactly as it is, funding and all.
As am I.
Not sure why paying through taxation would cost jobs. Did CAN consider this? Doesn’t the GUV just take the tax revenues in from one taxpayer and pay the same ‘revenues’ out to another taxpayer, as users of the system? How, exactly, does that action cost jobs?
And, why is it OK to ‘keep’ existing tax revenues for present levels of health services, but not increase taxes to match that increased level of care to the non-served population?
And just to be clear, the preference for NOT taxing and using the existing money supply in this manner is to deficit-spend (borrow) and thus indebt the American taxpayers to private lenders to the tune of increasing the monetary assets (wealth) owned by the lending/owning class by either $900 Billion, or alternatively $1.9 Trillion?
Has the CNA, or anyone, logged the financial transfers that result from these two options for their impacts on income and wealth concentration?
I just don’t see the problem with paying for an essential public service provided by a benevolent government. Of course, if the government can provide the service without either taxation or debt – well, sign me up.
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Hi Gerry, It doesn’t cost jobs relative to not passing it. As I said it net gains 2.2 million of them. But, it does cost jobs relative to using deficit spending to implement it. That would produce a lot more jobs.
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Joe, thanks.
It must be much more simple than it seems.
If I understand correctly, you said that funding H 676 by deficit spending (and borrowing?) would produce ‘a lot more jobs ’than funding the same Bill, with all of the same actions and same results, via tax revenue.
Simplicity tells me that the source of the funding should be an abstraction to the employment effects that result from the implementation of the Bill.
Is there a number of jobs that would get added to the 2.2 million by debt-funding the project, rather than tax funding the H 676 as proposed?
Or, how do we know that debt-funding “anything” produces more jobs than tax funding that same anything?
Thanks.
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“Joe, thanks.
It must be much more simple than it seems.
If I understand correctly, you said that funding H 676 by deficit spending (and borrowing?) would produce ‘a lot more jobs ’than funding the same Bill, with all of the same actions and same results, via tax revenue.
Simplicity tells me that the source of the funding should be an abstraction to the employment effects that result from the implementation of the Bill.
Is there a number of jobs that would get added to the 2.2 million by debt-funding the project, rather than tax funding the H 676 as proposed?
Or, how do we know that debt-funding “anything” produces more jobs than tax funding that same anything?”
Didn’t say borrowing, Gerry. I’d just create the deficit spending credits by forcing the Fed to do that through platinum coin seigniorage. See: http://amzn.to/Z7kG5q. The reason why is political. Doing it that way just shuts the debt police up!
We know that deficit spending, other things being equal, creates more jobs, because we know that taxing correlated to spending destroys aggregate demand. Not necessarily as much as the spending does. The specific spending may create more jobs than the taxing takes away. That’s true if the taxes are on the wealthy. But if deficit spending is used then no demand is taken away and no jobs are destroyed.
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Gerry says, “If the government can provide the service without either taxation or debt – well, sign me up.”
Great. Please sign on the dotted line. The U.S. government can provide limitless services without taxing or borrowing, since MONEY IS NOT PHYSICAL.
A person who operates an electronic football scoreboard creates or destroys points by changing the numbers on the electronic scoreboard.
Likewise, banks are the keepers of the money scoreboard. Banks create loan money, and the federal government creates spending money, by changing the numbers in bank accounts.
Money is destroyed the same way it is created: by changing the numbers in bank accounts.
Bank loan dollars are destroyed over time, by the act of paying the loan off. Federally issued dollars are destroyed instantly, by the act of paying federal taxes.
Ergo, the U.S. government has no need or use for tax revenue, and actually destroys such revenue upon receipt.
Ergo, the US government does not need to “borrow.” It sells T-securities by choice, not by necessity. For the U.S. government, “debt” is trivial.
Ergo, there is limitless money available for H.R. 676, without taxing or borrowing. However the rich and their puppets (i.e. politicians) don’t want you to know that. They want you to grovel before them.
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Mark, thanks.
Not quite signing on yet.
A lot to think about.
“”The U.S. government can provide limitless services without taxing or borrowing, since MONEY IS NOT PHYSICAL.””
Are you saying that government does not need to have money in its bank account (from taxing or borrowing) in order to make a payment for something it buys – like health care in this instance – just because money is ‘not physical’? Does that also mean that if money were physical, like using paper currency, the government WOULD need to have money in its account to spend?
So, the ‘freeing” event is digital money?
“”Ergo, the U.S. government has no need or use for tax revenue, and actually destroys such revenue upon receipt.””
Mark, how do you know that the government destroys the balances it receives as tax revenues? Hardly seems logical. Did somebody in government tell you this? Have you seen it? Why would they not just spend the revenues on ‘stuff’?
““Ergo, the US government does not need to “borrow.”” It sells T-securities by choice, not by necessity. For the U.S. government, “debt” is trivial.”
Mark, how does this square with Joe F’s comment that, rather than tax funding H 676, the government should borrow the balance in order to provide the funding? You have said here that government needs NEITHER taxation nor borrowing to pay for H-676. How do you know this is true?
Thanks.
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Gerry,
The statement that government does not need to tax or borrow in order to spend is based on the powers of the monetarily sovereign government, not necessarily on the laws that government has created and voluntarily lives by. Needing money in its account is the result of the laws, the way government has CHOSEN to do it. It didn’t NEED to do it that way. It could have set up a different system, under which it simply spent, without taxing or borrowing, or having an account to spend from, like the rest of us need to have.
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Mark, thanks.
Agreed.
The government could establish any money creation and issuance method that works.
But today we have an ‘endogenous’ money system where the government does not create the money, rather the banking system creates what serves as money, and the government uses that money system to fund its accounts through taxation and borrowing from the private sector in order to spend.
Given the endogenous money system is the one we have now, these statements appear to not square:
1. ”The U.S. government can provide limitless services without taxing or borrowing, since MONEY IS NOT PHYSICAL.”
2. “”Ergo, the U.S. government has no need or use for tax revenue, and actually destroys such revenue upon receipt.””
3. “Ergo, the US government does not need to “borrow.”” It sells T-securities by choice, not by necessity. For the U.S. government, “debt” is trivial.”
In other words, while we agree the government “could have set up a different system”, absent a change to an exogenous money system, or minimally to shared money-issuance powers, the government needs tax revenues or borrowing proceeds to spend.
I would sign up for a new public money system in a heartbeat, but the one we have now drives the tax-or-borrow-to-spend government finance paradigm.
But once more, from where did you get the idea that government actually “destroys” its tax revenues?
Thanks.
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Both the federal government and the banking system, create and destroy dollars. Dollar destruction is necessary, for without dollar destruction, the money supply would grow exponentially.
The banking system creates dollars by lending, and destroys dollars by accepting repayment of loans.
The federal government creates dollars through the banking system by spending, and destroys dollars by taxing.
When the federal government pays a bill, it sends instructions to the creditor’s bank, to increase the number in the creditor’s checking account, which is what creates dollars.
One can debate about whether the government or the bank created those dollars. That debate is sophistry. The government made the decision and the bank served as a conduit, making no decision in the process.
It’s like debating whether you drove to work or your car drove you to work.
The government has the unlimited power to send instructions. It can do so without taxing or borrowing. As repeatedly has been proven, the government even can borrow from itself, to satisfy any obsolete (since 8/1/71) laws.
Taxing destroys money. Dollars sent to the federal government no longer are part of the nation’s money supply. While records are kept of taxes collected, those records are not dollars and are not part of the economy. They are just records. They are not part of ” Federal Government; Credit Market Instruments; Liability,” which is the broadest measure of the money supply.
Bottom line: It is functionally impossible for the U.S. government to run short of its sovereign currency, even without taxes or borrowing from outside sources. That’s what makes the government Monetarily Sovereign.
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E. GERRY SPAULDING SAYS: “Are you saying that government does not need to have money in its bank account (from taxing or borrowing) in order to make a payment for something it buys – like health care in this instance – just because money is ‘not physical’?”
>>Correct. Banks and the U.S. government create money by simply changing the numbers in bank accounts. Money created by banks is called “loans.” Money created by the U.S. government is called “spending.” Likewise, money is destroyed when the numbers in bank accounts are lowered. Physical currency (coins and bills) represent money, but they are not actually money. Actual money is 100% digital. A dollar is merely a digital unit of account. The US government can create a trillion dollars as easily as changing the number on a football scoreboard from ‘0’ to ‘one trillion.’ When you change the numbers on a scoreboard, you have no need to “tax” numbers from the spectators, or “borrow” numbers from anywhere.
E. GERRY SPAULDING SAYS: “Does that also mean that if money were physical, like using paper currency, the government WOULD need to have money in its account to spend? So, the ‘freeing” event is digital money?”
>>Yes, you could look at it that way. Most people falsely think that money is physical, as though little men behind the scenes exchange bags of currency for every one of the trillions of electronic transactions that occur every day. The U.S. GDP is about $15 trillion, which means that roughly $15 trillion changes ownership in a course of a year. $15 trillion in one-dollar bills would physically weigh 15.9 million tons, and would physically stack up 40,000 miles high. (One million dollars in one-dollar bills weighs 2,125 lbs, and each dollar is .0043 millimeters thick.)
E. GERRY SPAULDING SAYS: “How do you know that the government destroys the balances it receives as tax revenues? Hardly seems logical. Did somebody in government tell you this? Have you seen it? Why would they not just spend the revenues on ‘stuff’?”
>>Remember that money is not physical. When I send a $1,000 tax check to the IRS, the IRS sends instructions to my bank to lower my account by $1,000. The numbers don’t “go” anywhere, since the numbers are not physical. If my bank account is changed from $2000 to $1000, then the $1000 simply vanishes. It is destroyed. Poof. If a football team scores seven points from a touchdown, and then must give up those points because of a penalty, then where did the seven points come from and go to? Answer: nowhere.
Thus, at the federal level, the government has no need or use for tax revenue. In fact, tax revenues do not even exist, neither physically or digitally. What politicians and media morons tell you is LIES.
E. GERRY SPAULDING SAYS: “Today we have an ‘endogenous’ money system where the government does not create the money, rather the banking system creates what serves as money, and the government uses that money system to fund its accounts through taxation and borrowing from the private sector in order to spend.”
>> All money exists as bank accounts. No exceptions. (Coins, bills, bonds, securities, etc merely represent money in bank accounts.) If you have electronic banking, you can use the Internet to “move” money from one account to another, simply by typing in numbers. However, only the U.S. government has the authority to unilaterally order banks to change numbers in accounts, such that money is created from nowhere. Banks do this too, but as loans. Banks need borrowers. The US government needs banks in order to create money, but the US government does not get money “from” banks. The US government gets its money from nowhere. The “national debt” (i.e. amount of T-securities outstanding) is a trivial sideshow that has no effect whatsoever on the U.S. government’s ability to spend.
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Response to RMM on 6/20 at 9:31am
RMM : Both the federal government and the banking system, create and destroy dollars. Dollar destruction is necessary, for without dollar destruction, the money supply would grow exponentially.
Indeed the money supply MUST grow in order for the economy to grow, as the money system provides the media of exchange that enables commerce and the production and consumption of goods and services.
Every time a bank loan is repaid, another must be issued or else the economy would suffer from inadequate exchange media. So, debt must continue to grow in an endogenous money system.
RMM : When the federal government pays a bill, it sends instructions to the creditor’s bank, to increase the number in the creditor’s checking account, which is what creates dollars. …… The government has the unlimited power to send instructions. …..It can do so without taxing or borrowing.
From WHERE does it get this power? Can the government (Treasury) send instructions for payment without having a balance in its TGA account? If so, from what government financial operations workbook does that authority derive? Please answer.
Your statement appears in conflict with Joe Firestone’s comment above that acknowledges the need to have money to make a payment.
J.F. – “The statement that government does not need to tax or borrow in order to spend is based on the powers of the monetarily sovereign government, not necessarily on the laws that government has created and voluntarily lives by. Needing money in its account is the result of the laws, the way government has CHOSEN to do it.”
RMM : Taxing destroys money. ……While records are kept of taxes collected, those records are not dollars and are not part of the economy. They are just records.
Are you saying that when my tax payment goes through the federal payments system and into Treasury’s TGA account that this M-1 money is “destroyed” ? Please explain where you learned this.
Thanks.
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This is to Mark Robertson on 6 / 20 at 4:22 pm
Mark, thanks.
First, congratulations because I believe you have taken the somewhat inane ‘scoreboard’ anecdote to new heights here.
Second, another far out claim.
MR : “Physical currency (coins and bills) represent money, but they are not actually money. Actual money is 100% digital. A dollar is merely a digital unit of account.”
Please do not conflate money with ‘dollars”. The “dollar” is the denominational unit of account of the “money” system. ‘Money’ in the money system is defined as that which universally serves as the media for exchange within the location(nation) where that money system is used.
However, under the “Money System’ statutes, there is no question and no possible doubt but that physical currency (coins and current bills) are “actually” universal-means-of-exchange money.
Sorry, but again, from where did you learn such a thing?
MR : “The US government can create a trillion dollars as easily as changing the number on a football scoreboard from ‘0’ to ‘one trillion’ ”
Again, you take the ‘monopoly-issuer of the currency’ ‘scoreboard’ anecdote to new height. Wray and Mosler only raise the ‘scoreboard’ in conjunction with THEORETICAL ‘monopoly-issuer’ status.
Here you repeat that banks create money by making loans, which is the correct description of what endogenous money is all about. So, we have two “scoreboard keepers’ issuing the 0s and Trillions, proving the analogy both awkward and unworkable.
In reality, Joe Firestone is correct. In order for the Treasury to ‘create a trillion dollars’ it must either adopt a new money system order, or attempt the ‘platinum coin’ route. The same is true for every dollar of ‘actual’ money created, except coinage.
And your point about ‘digital’ money being what frees the government to create all the money it wants is a conflation of technology (computerized accounting) with real political economy. Was there a date for that freedom from currency to digital money?
MR: “Thus, at the federal level, the government has no need or use for tax revenue. In fact, tax revenues do not even exist, neither physically or digitally.”
Again, new unsubstantiated, no safety harness heights of MMT pronouncements.
MR: “However, only the U.S. government has the authority to unilaterally order banks to change numbers in accounts, such that money is created from nowhere.”
Source, please.
As I said to RMM, this is in conflict with Joe’s Firestone’s correct statement that under present law, the GUV needs to have the money in its account before it can order banks to adjust anyone’s bank account.
MR : “the US government does not get money “from” banks. The US government gets its money from nowhere.”
Source, please.
MR : “When I send a $1,000 tax check to the IRS, the IRS sends instructions to my bank to lower my account by $1,000. …..If my bank account is changed from $2000 to $1000, then the $1000 simply vanishes. It is destroyed. Poof.”
But, Mark, did the Treasury(IRS) not “receive” your $1,000 check into ITS TGA account from the national payments system? Was there not a “corresponding” crediting of the TGA account with the balance that was debited from your checking account?
And did the government not spend that $1,000 in exactly the same manner as it did the other +/- $4 TRILLION that it received from ALL taxes and debt-issuances?
And, when it spent that $1,000 and paid the postal-worker, did that MR $1,000 NOT go into the postal worker’s checking account – said MR money being NOT poof-destroyed ?
Again, if you answer that it did NOT do this, please explain with a specific reference HOW you know this is true.
Thanks.
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Gerry and Rodger,
Gerry: “Your statement appears in conflict with Joe Firestone’s comment above that acknowledges the need to have money to make a payment.
J.F. – “The statement that government does not need to tax or borrow in order to spend is based on the powers of the monetarily sovereign government, not necessarily on the laws that government has created and voluntarily lives by. Needing money in its account is the result of the laws, the way government has CHOSEN to do it.”
I don’t see Rodger’s statement as conflicting with this. Both MMT and Monetary Sovereignty view the Government as broader than the Executive Branch alone. It includes the three branches of Government and also the so-called “independent agencies” like the Federal Reserve Board of Governors and Fedral “instrumentalities” like the regional Fed banks.. Som from that point of view the Government doesn’t need money, even if the Treasury does.
Btw, the Treasury can also get money without either taxing or borrowing. It can do this by minting platinum coins in denominations it chooses. If it does this it can force the Fed to generate all the electronic credits it needs to fill the TGA and enable it to deficit spend all the money Congress appropriates, and also pay off all of the national debt as it falls due. For details check my book here: http://amzn.to/Z7kG5q
Also, on the subject of money being created and destroyed, Warren Mosler, his 7 DIFs takes a bit of space to talk about “physical money,” and asks what happens if you pay your Federal income tax bill with cash? The answer is that after you leave the office, the IRS person takes your money and shreds it and then credits your account electronically. So, your “physical money” is destroyed, while your tax account is credited with electronic money.
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Rep. Conyers was the first co-signee of both the Kucinich Medicare for All Bill and the Kucinich National Emergency Employment Defense Act of 2011, the revolutionary reform to our nation’s immoral and corrupt system of money..
We thank Rep. Conyers for his leadership at this time.
While it is unfortunate that the Bill identifies several small tax increases that may be needed to fund our collective healthfullness, it is a tax that most anyone would support, given the level of health benefits attained for themselves, their children and their friends and neighbors.
RMM:
“The authors of H.R.676 make the tacit (and wrong) assumption that federal taxes pay for federal spending. They do not accept or understand “the fact that a Monetarily Sovereign government creates its sovereign currency by spending.””
Fact not in evidence.
So, before we further despoil “one of the best Bills in history”, how about we try to establish by fact WHETHER our government “creates its sovereign currency by spending.””
Not by inference. Nor innuendo. Nor anecdote.
Not by asking what ‘monetary sovereignty’ means, nor how Illinois is different from the United States.
No foregone conclusions about whether “federal taxes pay for federal spending”, or not.
A lot of us know a lot of [the sponsors of the bill].
Some pretty smart, and respectable, folks in there.
They think their people will be willing to pay a tax for their Medicare benefits.
What do we tell them?
On WHETHER “federal taxes pay for federal spending”, or not., and on WHETHER “our government “creates its sovereign currency by spending.””.
What do we tell them?
Thanks.
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Gerry,
Dollars are created in two ways:
1. Lenders create dollars by lending
2. The federal government creates dollars by spending
Dollars are destroyed in two ways:
1. Borrowers destroy dollars by repaying loans
2. The federal government destroys dollars by taxing.
Those are the facts. But, if you disagree, tell how you believe dollars are created and destroyed.
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Rodger,
Let’s leave the bankers creation and destruction of money as a given.
And how I believe dollars are created and destroyed is quite irrelevant to this discussion.
I tried to be very clear that the article’s statement that “the fact that a Monetarily Sovereign government creates its sovereign currency by spending.” was a claimed fact, but not in evidence, asking for evidence to support the stated fact, evidence that could be presented to the H-676 Bill’s sponsors, whose opinions about money are relevant.
In response you repeat: “the federal government creates dollars by spending”. Yet you offer no evidence and no proof. Each of the Bill’s sponsors “knows” that the federal government does NOT create money when it spends. Everyone knows that. And they will all continue to know that unless you can come up with some evidence to support your claimed fact, evidence that is as unambiguous and succinct as the claim itself.
If you are not able to provide any evidence to support this seemingly erroneous claim, then please do not be surprised that none of the sponsors will listen to your position, and we will be left with tax-based funding for this proposal.
Which, again, to me would be fine.
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Gerry,
Money creation by spending is a basic observation of government monetary operations, which include buying and selling Treasuries (asset swaps with no net effect), spending (adding money to the private sector), and taxing (removing money from the private sector). I don’t have a reference handy, but there are writings at NEP and maybe at Mosler’s site detailing and analyzing these operations in detail. The explanation is not as succinct as the statement. They never are. Readers here are familiar with the explanation, and so do not find the statement erroneous.
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E. Gerry Spaulding… this will not be popular but MS and MMT has a serious flaw and that is in the idea of how money is created and is destroyed and the twisting of common terms.
It is important to understand what MS and MMT mean when they say a
” “destroys money by taxing” so it does not use tax money to pay for spending and therefore does not need to tax.
One of the problems is that as the system currently is (yes the system can be changed so the government can directly issue money but that is another discussion) MS and MMT see the federal government and federal reserves system as one entity rather than two separate entities. The federal reserve system may be under the roof of the federal government but they are two in fact two separate entities. Further the federal reserves is quasi government agency which is operated by private banking system but is overseen by government appointees who have control over the system outside of government control.
Further our system has fractional reserve banking so when you deposit money in your bank, your bank then needs to keep a certain % as reserves but can then lend out the rest. Critics of fractional reserve banking call this process creating money “out of thin air”.
In any case when the federal government taxes and collects those taxes, the governments accounts are credited. When the IRS for example debits my account by $100 it then credits the governments accounts by $100. The issue of whether money is physical or electronic is irrelevant and is used as a distraction in these discussions since most people do understand that money is mostly electronic and is simply a unit of account.
Note that, the money is still available to the federal government to spend. When the $100 is transferred from my account to the gov account, the governments account does get credited by $100. If the money being transferred out of my account was the only transaction taking place (there are literally thousands of transactions taking place at any given moment), the governments account do not remain at zero, their account will increase by $100. That amount is there for the government to use or then credit to someone else account ie spend.
However what happens at the federal reserves is another matter and this is where MS and MMT are correct in saying money is destroyed.
Remember when when I deposit $100 with my bank it affects the banks reserve requirements and has an effect on the money supply (a certain % stays with the bank but the rest gets lent out and when that happens it creates money and affects the money supply).
The US government on the other hand has similar accounts with the federal reserves however when money is credited to their accounts that money is not counted against the reserves of the federal reserves, that is it is not counted against the money supply (for reasons I am not 100% sure of).
So when the federal government accounts are credited they do in fact keep that money that can then be spent however it is not counted against the money supply and in that sense it is destroyed.
In the same way the government can “create money” by spending. Similar to when I deposit $100 dollars and then the bank lends out the rest and “creates money”, the government does something similar.
When the government accounts are credited at the federal reserves through the government banks that money is not counted against the money supply but the governments accounts are credited.
When the federal government deficits spends it is spending money not covered by taxes (it does not have enough credits in its accounts to cover the spending…again there are thousands of transactions going on at any given time so it is hard to see). It is the federal reserves that covers the spending by issuing the government ie.. issuing treasury notes. In the same way that a bank creates money through lending, the federal reserves creates money by lending to the federal government or you could say when the federal government defecit spends it “creates” money.
If this were not the case then the amount of treasury’s issued would not equal the deficits for any given year.
Because MS and MMT see both the federal government and the federal reserves as one they see this as one process initiated by the federal government.
Because they see this as one process they then say that taxes “destroys” money and the federal government does not need or use tax money for spending. They say that the federal government “creates” money when it spends. Because they see the federal government and the federal reserves as one and the process as one, they cannot point you to any real hard or concrete evidence that the government creates money by spending and that taxes are not needed, the only thing they can do is reiterate the mantra.
MS and MMT have a lot of good points and I am not trying to put either theory down, both are great at explaining the accounting of the US government but this is one major flaw that they will not address and it is also why people scratch their heads and “don’t seem to get it”.
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tom,
“….why people scratch their heads and “don’t seem to get it”……”
Most people are lost when it comes to the mechanics of money, sovereign or non-sovereign. It’s a complex shell game…. now you see it now you don’t; it’s over here, no it’s over there; it exists, no it doesn’t. Sort of like physicists and quarks.
What we need is someone who can write a book in the style of a children’s book. Break everything down to metaphors and analogies relating to real life situations, simple words, pictures, etc. That won’t be easy because there is a basic rule of life that states nothing can be created or destroyed. Consequently, the idea of money being created and destroyed is going to take someone with the ability to handle a legal fairy tale in a childish way. Because that’s what money reduces to–a legal fairy tale with no basis in science, i.e., nonscience.
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This is resonse to golfer1John on 6 / 19 at 9:59 pm
John,
Both NEP and The Center of the Universe are HUGE websites.
There should be a clear explanation in Wray’s Money Primer. Can you cite one?
Mosler is THE SOURCE for the WAN that tax money is destroyed when received – he uses a cash-tax-payment-shredder analogy that is so seriously flawed that no serious MMT adherent would ever repeat it again, if a read were had of the government’s very strict rules on handling cash tax payments. Yet, we repeat. Again. And again.
The closest to a valid observation on government money creation is a link to Stephanie Kelton’s early paper on
Can Taxes and Bonds Finance Government Spending?
Click to access wp244.pdf
“”Abstract
This paper investigates the commonly held belief that government spending is normally financed through a combination of taxes and bond sales. The argument is a technical one and requires a detailed analysis of reserve accounting at the central bank.
After carefully considering the complexities of reserve accounting, it is argued that the proceeds from taxation and bond sales are technically incapable of financing government spending and that modern governments actually finance all of their spending through the direct creation of high-powered money. The analysis carries significant implications for fiscal as well as monetary policy.””
I believe it is in Section 5 that Stephanie bridges “The Nuance of Reserve Accounting’, which, in reality joins the issue of a sovereign government (Treasury) using the private banks’ national payments system for account settlement – somewhat of an enigma, but proof of nothing.
Yes, I agree that readers here are familiar with the MMT explanations and thus unable to find those statements erroneous.
Have you read the American Monetary Institutes evaluation of these MMT tenets?
Click to access AMI-Evaluation-of-MMT.pdf
Thanks.
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This is response to Tom at 6 / 20 at 11:02
Tom, thanks.
I definitely agree with almost EVERYTHING you wrote here.
Serious flaw is MMT’s construct of the ‘government sector’ including the central bank.
But as you said, it is much more than that.
I have tried to explain above on the mechanics of government taxation and spending.
The part where I do not agree has to do with ‘reserves’ – not on the mechanical explanation – again, but whether the reserves are money and created by the government.
I say neither.
It is not a difference worthy of very much discussion.
I’m aware of the ‘verticalist’ construct, of M0 and so-called high-powered-money, but it all has zero relevance to the important matter of monetary autonomy. Reserves are an unnecessary throwback to the gold-standard era and should be abandoned completely. Were we to do so, the light would shine on the actual ‘money’ in the economy, and the issue of private money creation would become painfully self-evident, as today it is the endogenous money system prevails in the modern monetary economy.
As always, Tom.
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I have a feeling we’re into an endless helix, like when my grandchild asks, “Why?,” I explain why, and he then again asks, “Why?” and on ad infinitum.
If I tell you the facts, I suspect you’ll say, “That’s not evidence, ” after which I’d try to give you more facts, after which you’d again say, “That’s not evidence,” and again, on ad infinitum.
Why do I say that? Because I sense you absolutely refuse to accept that the federal government, which originally created its sovereign currency, the dollar by passing laws, now is unable to create its sovereign currency, the dollar, using its laws.
The fact is, every government that is Monetarily Sovereign, has the unlimited ability to create its sovereign currency. That is what “Monetarily Sovereign” means.
If you think the federal government needs to tax or borrow in order to obtain its own sovereign dollars, then you need to ask yourself where the taxpayers and lenders obtained the government’s sovereign dollars to lend and pay taxes.
And if you believe the banks can create dollars (over which they are not sovereign), but the federal government cannot create its own sovereign dollars, you’d have to ask yourself how that could be.
I’ll try one last time to educate you: When the federal government pays a bill, it sends instructions to the creditor’s bank, to increase the number in the creditor’s checking account. That creates dollars.
Being Monetarily Sovereign, the federal government has given itself the right to send those instructions, forever. It does not need to ask anyone for its own sovereign currency.
So why does the government ask lenders and taxpayers for its own sovereign dollars? The answer to that is the whole point of this blog.
This probably will not satisfy you, but it’s as far as I’ll go to explain it. There are, however, more than 1000 posts, listed at the left, many of which explain it. I suggest you begin at the bottom one, and work your way forward — if you truly wish to learn.
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Rodg, thanks.
I’ve read all the pertinent ones.
There’s no explanation in there anywhere.
If, after posting 1,000 articles, you cannot point to the one that explains clearly your belief system about sovereignty – which is, BTW, totally confused with Monetary Autonomy – you must realize a ‘fail’ at some level of your effort.
RMM : “…. I sense you absolutely refuse to accept that the federal government, which originally created its sovereign currency, the dollar by passing laws, now is unable to create its sovereign currency, the dollar, using its laws.”
Rodger, that is another of MMT’s flaws. The federal government, newly created, was $6 million in debt BEFORE we minted a plug-nickel. From where did we borrow the money? Oh, gee, that was the private banks, no?
What happens to the “GUV-first” logic?
It’s NOT that the GUV is “unable to” pass laws giving it the power to create money – it IS that it has not done so. Yet. And it should.
RMM : “If you think the federal government needs to tax or borrow in order to obtain its own sovereign dollars, then you need to ask yourself where the taxpayers and lenders obtained the government’s sovereign dollars to lend and pay taxes.”
Actually, as above, it is YOU who needs to ask yourself who has created all of the money in this country since we were born. Have a read of Bray Hammond’s “Banks and Politics in America – From the Revolution to the Civil War”.
The faint logic that the GUV needed to create money before the private banknotes were issued as money has no basis in fact whatsoever. Any academic economic research on this? Certainly NONE in Wray’s latest book, or any of his writings. So, any proof of that?
The only government sovereign dollars have been Greenbacks.
Yes, Rodger, I accept as fact THAT the federal government now is unable to create its sovereign currency, the dollar, using its laws. Pick any 1 of the 1,000 to show me wrong.
Thanks.
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Brother Rodger,
“For a nation that views itself as the world’s leader in most things,”
This statement is just another example, in a long line of examples, indicating how stupid the American people (who knows, most likely all societies are as stupid, they just have different cultures) truly are. The USA is way down on the list of almost every criteria when compared to the other OECD nations, its an embarrassment really, and yet people maintain the mythological ‘American exceptionalism’
As an aside, the Chicago Trib is one of the worst neo-liberal papers in any blue state….I think we deserve better here in our terribly corrupt and inept state of Illinois….I have given up reading it since I’ve learned about MMT\MS\MR etc….go blackhawks!!!
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It’s pretty simple. If the majority have more to spend, the minority have more to profit from. If the gap between rich and poor widens, the rich will have less by comparison. What is it with them? Don’t they get it, or is the gap more important than a significant rise in their income? Maybe they have so much that they don’t consider more in their wallets as being better than the GAP. If they think they can have it both ways–the gap and ever more money–they are and we are in trouble big time!
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Tetrahedron, “wealth” is 100% relative. For the rich, the only important thing is the wealth gap. Whether I gain a billion dollars more than you do, or you lose a billion dollars more than I do, it is the same. The difference between us is a billion dollars.
The gap between us is the only thing that matters. The purpose of austerity is to widen the gap between the rich and the rest, and to increase the supremacy of the financial economy over the real economy.
This occurs because society is insane. Literally. To paraphrase Nietzsche, “Madness in individuals is rare, but among large groups it is the rule.” (Beyond Good and Evil, 1886)
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John Conyers (Democrat – Michigan) has been introducing and re-introducing HR 676 for ten years, most recently on 13 Feb 2013. Conyers always gets numerous co-sponsors, and he always gets the bill referred to several committees, which is unusual, but the Republicans always defeat it by letting it die in committee. Republicans can’t let it out on the floor for a vote, because the public would know about the vote.
Yes, the funding part is where HR 676 fails, since it consists of unnecessary tax increases.
We can “afford” B-2 bombers at $2.1 billion each, and we can “afford” to spend $88.7 billion (and rising) on the F-22 fighter program, but we can’t “afford” Medicare-for-all. Amazing, huh?
Oh well. I suppose Americans deserve what they get. Most Americans are so stupid that they would rather die from lack of heath care (literally) than listen to the facts about federal finances. They can’t even accept that money is not physical, even though the truth is right in front of their noses (e.g. direct deposit, payroll debit cards, electronic banking, etc).
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The Republicans have not had control of the House for 10 years. When Democrats controlled the House, they let HR 676 die in committee, too. Democrats had the chance to ramrod any health care bill they wanted into law, and they chose Obamacare over HR 676. So, whatever happens, don’t blame (or give any credit to, if you like it) the Republicans. It was done without their votes or consent or input.
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That’s all true. The Dems followed Obama down the road to the PPACA clusterfuck, which is likely to leave us with 26 million people still uncovered in 2019, and many medical bankruptcies among the insured whose inadequate plans under PPACA with leave them with enormous co-pays and high insurance costs that they cannot afford. PPACA is a gigantic and murderous distraction from what needed to be done. And the Ds do bear the blame for it.
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Rodger,
If Medicare for All were passed, I would have taxes in it, too, although different taxes.
They say health care is 17% of the economy. I don’t think increasing the annual deficit by 17% of GDP would be a good idea. I think something on the order of 6% (depending on the starting point) would be sufficient to achieve full employment, and anything beyond that would be harmful.
I know you believe inflation can be controlled by interest rates. If government were to spend 11% of GDP beyond full employment, what interest rate would be required to hold inflation to 2%?
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Golfer:
I don’t know:
*What your definition of “health care” includes.
*How much spending it entails
*How the 17% was calculated
*How the 6% was determined (especially since employment is based on many factors, not just on federal deficit spending)
*How high interest rates would need to be to prevent excessive inflation, especially since during the past 40+ years, there has been no relationship between federal deficit spending and inflation (See the post titled: ” Federal deficit spending doesn’t cause inflation; oil does”)
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Golfer and a lot of other people who comment at the NEP blog are pro-austerity. It might be called “austerity lite,” but it is still austerity.
To support their views, they speculate about inflation, just like deficit hawks, and they rationalize their love of federal taxes by using slogans, e.g. “taxes drive money.” Further, they refuse to admit that bankers and rich people bribe politicians and corporate media morons to champion and impose austerity. Many of them insist on calling austerity a “failed policy.”
All this is inexcusable.
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Mark
I usually agree with the things you write, but not this time
1. MMTers (most of the folks who post at NEP) cannot rationally be considered pro-austerity….austerity is a smaller deficit relative to the current baseline…..nobody at NEP supports a smaller deficit until if and only if it is necessary to prevent inflation at full employment\capacity. There is no historical negative correlation between interest rates and inflation. see Rodgers MS summary here….
https://mythfighter.com/2009/09/07/introduction/
they seem to be positively correlated, the opposite of what would have to be true if raising interest rates were to lower inflation….. As always, I am willing to be persuaded with reasons why the historical record doesn’t match this theory, but as it stands….I side with the data.
2. There is no need for you to be combative with MMTers, we few souls who understand federal finances are all on the same side, regardless of what we label ourselves MMT MS MR PK etc…..
3. NEP regularly has stories about the corruption of political officials
4. Taxes do drive demand for a currency, that is a point of logic that cant be denied. Yes, there is an argument to be made that state and local taxes plus the efficiencies of scale would be sufficient to continue the use of the dollar sans federal taxes (I fall on this side of the argument), but I think most MMTers would be welcome to running the experiment….again, no need for you to be a dick….”slogans” my ass
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Thanks, Auburn. I think he has mistaken me for someone else.
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I think he’s mistaken you for someone else, too.
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Seemingly a generalized characterization by Robertson to be sure, but please Auburn, there is no reason to resort to name calling. It is juvenile and completely non-instructive. Personally, I find your rudeness and pompous attitude extremely off-putting. Lighten up.
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For the definition of health care, and how much spending it entails, let’s use the definition described in your post, the 16 categories of medically necessary services. Actually, I think the 17% I cited was just the medical, regular doctor and hospital things, not dentistry or vision. It’s the one commonly bandied about in political discussions, and never disputed. Perhaps based on S&P 500 industry classifications?
The 6% is just my guess, based loosely on sectoral balances. We’re down to about 6% for fiscal 2013, and it’s clearly not been enough. Longer-term, in equilibrium if such a thing exists, we seem to have 3-4% trade deficits and 3-4% savings rate, although that is quite variable, so 6-8% of GDP annually might be in the middle of the necessary range. 12% right now (6% higher than planned) is to give the economy the boost it needs to get back on track toward full employment.
40 years (back to the 1973 oil embargo) is a convenient time frame, as it just barely excludes the latest period considered to be a case of demand-push inflation in the late 1960’s.
Maybe a more general question. Suppose, as you suggest, all federal taxes are eliminated, and spending = deficit, about 28% of GDP. What interest rate would be necessary to entice the private sector and the foreign sector to increase their savings rate from 6-8% to 28% of US GDP?
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Hi John, first, If we implemented HR 676 entirely through deficit spending, the spending would amount to 12% of GDP not 17% or 18% as we have now, provided we do as good a job as Canada of implementing it. Btw, our current Medicare program is pretty efficient in maintaining low overhead, so that suggests we can do as well as Canada does. Second, 12% of GDP in deficit spending might work fine without demand pull inflation to create full employment. The reason is that imports will go up as a percent of GDP and savings will too. We could easily see 7% savings and 5% trade deficits, meaning that Government deficits of 12% would not be very inflationary.
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Yes, the 17% includes, I suppose, the current Federal spending on health care. But we already have a deficit, the 12% would not be the total deficit, it would be an increment. Without higher interest rates, I don’t see why savings would increase now. The savings rate has already dropped a significant amount from 2009.
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If the 12% is enough to reach full employment, then the Fed would raise rates, and there would be more saving. In addition, if full employment occurs then tax revenue would also increase.
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What I’m trying to get at is some sort of quantification of Rodger’s differences with MMT: that taxes are not needed, and are the wrong way, to reduce aggregate demand so as to prevent inflation, and that inflation can be controlled by raising interest rates. MMT states that raising interest rates is in fact pro-cyclical in a time of inflation, and the natural rate of interest is zero.
Under less than full employment, I tend to agree with Rodger that raising interest rates dampens aggregate demand. That is the Fed’s belief as well, and their policy prescription for an overheated economy. Historically, it does seem to have worked, although it is a blunt instrument. Every time the Fed has inverted the yield curve, recession follows. It is not, however, instantaneous, and other things are changing very rapidly at those times.
Under full employment, additional government spending, trying to consume resources that do not exist and cannot be created, would be purely inflationary. If interest rates were raised then, how much would they have to be raised to counter the effect of a given amount of additional spending? Would a 1% rise in rates cause 1% of GDP to be saved? Or would it take a 3% rise? If the excess spending were 11% of GDP, could it be offset by raising the overnight T-Bill rate to 3%, or 6%, or is it 33%?
Are there any studies of the savings rate vs. interest rates?
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Actually, I don’t believe raising interest rates dampens demand. The reverse is true, because higher rates force the government to pay more interest dollars into the economy. So, to that degree, higher rates would cause inflation.
However, an even stronger effect of higher interest rates comes from the increased reward for owning dollars, which increases the value of the dollar, and is anti-inflationary. The Fed raises rates to make the dollar “stronger.”
So there are two opposing effects of higher interest rates, one inflationary and one deflationary, and the deflationary is the stronger, which is why the Fed uses it.
You ask, “Would a 1% rise in rates cause 1% of GDP to be saved?” Not sure how an increase in interest rates directly affects the savings rate as a percentage of GDP. Probably lots of variables involved.
However, because higher interest rates force the federal government to pay more interest into the economy, they are economically stimulative (which is why counter to popular wisdom, QE is not stimulative, but recessive).
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If raising interest rates does not dampen demand, then how is inflation stopped? What is the point of raising the reward for owning dollars if it does not incent people to own (i.e., hoard, or save) more dollars?
Put another way, if higher interest rates cause only lower prices, and people still spend the same amount of dollars, they are trying to buy even more goods and services, when the problem is that they were trying to buy too many in the first place.
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Inflation = reduced Value of a dollar when compared to the values of goods and services.
The Value of a dollar = Demand/Supply.
The Demand for a dollar = Reward/Risk.
The Reward for owning a dollar is interest.
Increasing interest rates increases the Reward for owning a dollar, which increases the Demand for a dollar, which increases the Value of a dollar.
That is why the Fed increases interest rates to fight inflation.
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That’s only one half of it.
The value of goods and services = demand/supply, too.
The demand for goods and services depends on people’s incomes and their relative desire to spend or save out of those incomes. Increasing people’s incomes (by government deficit spending) until their demand exceeds the capacity of the economy to produce goods and services is what causes prices of goods and services to go up. (Absent some outside shock like what happened to oil in the 1970’s.)
It seems to me that what needs to be affected by interest rates is the relative desire of consumers to spend or save (the only two things they can do with their incomes). Higher interest rates would change that desire in favor of saving, and the reduction in spending is what reduces the demand for goods and services until it is equal to the production capacity, so that the increase in their prices no longer occurs.
MMT’s solution would be to reduce people’s incomes by taxing them, and leave interest rates alone (at 0% risk-free, short-term).
Either one could work, but it is not clear to me how much of an increase in interest rates would cause how much of a change in consumer demand.
And how to avoid our previous history of over-reacting and causing recessions.
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Questions: What would be the effect of a social program of deficit spending on an optional basis, i.e., tied to inflation? If there’s no inflation a monthly dividend is awarded to every adult citizen (electronically). This continues until there is inflation as computed by the BLS and CPI. When inflation subsides the dividend is reinstated. Would this be a good way to find the true production capacity-limit of an (any) economy as well as a mechanism for bringing supply and demand into balance? It would run into multi-billion$ if successful and would be stimulating and discretionary. But would it also act comprehensively to control inflation by involving everyone in a reward system and give greater pause to the act of raising prices by large and small business, especially large ones, since aggregate price increases (inflation) “shoots everyone in the foot” by denying the monthly dividend? Ramifications not seen?
We bail out the well healed in all sorts of ways, why not the not so well healed?
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Tetrahedron,
I like it the idea of the monthly dividend. If it turns out that we need to abolish all Federal taxes in order to achieve full employment, it would be a good automatic stabilizer. I might means-test it, though, as the propensity to consume is inversely relate to incomes, so giving it to the well-heeled (who would not spend it) would not have the intended effect. Maybe the payment is X times (1-2*marginal income tax rate), or 0 for the top bracket.
I don’t think it’s the case that we can’t achieve full employment while there remain some Federal taxes, so I favor doing adjustments like that via a very broad-based, low rate consumption tax, a gross receipts tax on all businesses, no deductions or exclusions. It would replace the corporate income tax, and would be adjusted monthly in increments of 0.1% by an “independent” government body (structured kind of like the Fed’s Board of governors), so that it can be far more responsive than Congressional action. It would have guidelines, set by Congress, that tell the board, generally, when to raise it and when to lower it, based on inflation and unemployment (or the size of the JG workforce).
But, if we don’t need any taxes to control demand, then a negative tax like your idea is the way to go.
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golfer,
Means testing would reduce the cost of the idea, that’s a good thing. I didn’t draw any line in the sand out of concern for those who might feel left out or jealous of non-inclusion.
I didn’t mention that not only is the concept tied to inflation; it’s also a quid pro quo. Periodically, federal taxes are reduced (as you stated) as an additional reward for keeping inflation in check. So those who receive the dividend (and those who don’t) will also receive tax cuts. In short, it’s intended to be a win-win feedback loop, fueled by the anticipation of more purchasing power from various rewards in exchange for aggregate price stability. The price stability itself becomes an additional reward, especially for those who desire more predictability and certainty.
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To Spaulding:
“Indeed the money supply MUST grow in order for the economy to grow, . . . “
Correct. Now you’re starting to get it.
“The government has the unlimited power to send instructions (to create dollars) . . . From WHERE does it get this power?”
From the Constitution
“Can the government (Treasury) send instructions for payment without having a balance in its TGA account? If so, from what government financial operations workbook does that authority derive?”
The federal government owns all federal accounts and makes all the rules. There is no higher authority to tell them what they can and cannot do.
“Your statement appears in conflict with Joe Firestone’s comment . . . “
No, it doesn’t.
“Are you saying that when my tax payment goes through the federal payments system and into Treasury’s TGA account that this M-1 money is ‘destroyed’?”
Yes, destroyed, as in, it no longer exists as money. It no longer is a part of the money supply (Federal Government; Credit Market Instruments; Liability, the broadest measure of the U.S. money supply) and no longer available in the economy. The TGA account is just that — an accounting, a record keeping — but it is not money.
The government has the power to increase the size of the TGA account by trillions at any time it wishes, which is one reason the federal government never can run short of its sovereign currency, the dollar. Before 1971, it could (and did) run short of gold, because it was not sovereign over gold, but it never can run short of its sovereign dollars. That’s why we got off the gold standard.
The key word is “sovereign.” Being Monetarily Sovereign, the federal government can do anything it damn well pleases with the dollar. The government makes all the rules regarding U.S. money. It can, and does, create and destroy dollars at will. It can, and does, set the value of dollars. It is sovereign over the dollar.
You need to visualize the implications of being absolutely sovereign.
Now, here’s one for you to chew on: Where does the Fed get the trillion dollars per year to buy those long-term bonds as part of QE? Think about it.
.
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” Where does the Fed get the trillion dollars per year to buy those long-term bonds as part of QE? ”
I don’t buy this point of view, but I think the “endogenous money” people like Gerry would say this:
“The Fed” is a collection of private banks, and they get the money to buy those bonds (i.e., make a loan to the government, or to the issuer of the MBS they buy, nowadays) from the same place any private bank gets the money to make a loan to you to buy a car or a house: They create it from nowhere. Private banks create all the money in existence, except coins.
The debate about whether the Fed is government or not government sheds no light on macroeconomics, I think. It is a waste of time and electrons.
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I agree with your final statement. Though some thinks it’s a vital distinction. I don’t buy it.
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Correct me if I’m wrong, but can’t we just as easily visualize and describe QE as simply transferring the money an entity has deposited into its securities account back into either its reserve account or deposit account? (obviously, the additional interest payments come from the TGA) In other words, if I buy a treasury bond…my money never leaves my account at the Fed, so when my timed deposit is up, my money is simply transferred back to an account which I can withdraw it from? From this POV, the Fed is never actually creating any new money, its simply storing already existing money. Its not like a commercial bank where the bank actually needs to use my money for other purposes, the Fed simply credits the TGA with brand new money in an equivalent amount as my deposit.
All of this is simply sophistry….Rodger put it best when he has previously said,
“there can be deficits without bonds and there can be bonds without deficits”
Nobody should need to know any more detail about monetary operations than that to realize how silly this shell game of “Govt debt” is
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When you buy a treasury bond, yes, it’s simply a transfer from your “checking” account to your “savings” account at the Fed. Both the checking account and the savings account are financial assets, but only the checking account is “money”.
Sort of like your checking account at the local bank is M1, but your CD is not (it counts in M2, I think).
When the Fed buys a treasury bond from the public, it creates the money in the seller’s “checking” account. That money did not exist before. The money that the seller originally used to buy the bond is in someone else’s account somewhere. The Fed doesn’t swap it for the bond.
The mechanics are similar to a commercial bank making a loan: when you borrow from them, they create a deposit for you. The money in your account as a result of a loan was created by the bank from nothing. The bank does not need to “use your money for other purposes”. Before the loan, you had no money. After the loan, you are free to withdraw that money from the bank, and the bank suffers no ill effects from that.
Some things are not sophistry. It is important that money is created by Treasury spending it (and destroyed by taxing). If there is no net money created by government (i.e., balanced budget) then the money to grow the economy can only come from the foreign sector via a trade surplus, which we don’t have, or from bank loans, and every bank loan transfers interest from the producing sectors of the economy to the banking sector, and that is shrinkage, not growth.
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Technically, since my securities account always had a digital entry in it equivalent to the money I deposited….my money never went anywhere else. The Fed doesn’t have a vault where it keeps my deposit. When my money is transferred back into either my reserve or deposit account, this is not “new money”….this is why I wrote about sophistry, why is my money not counted in the money supply in my securities account yet it is counted in my reserve or deposit account? Thats just an arbitrary distinction…..The credits in the TGA account that the Fed puts there equivalent to my securities deposit is “new money” and it enters the system through Govt spending.
In this scenario….there are only 3 accounting entries from the private sector POV…. deposits for securities (a wash) and then new deposits from the TGA (Grandma’s SS payment)….as you well know, this is why only the Feds can create NFAs.
Its just my opinion that its stupid to have all the chinese fire walls. It serves to act as a means of mass confusion to the public.
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” why is my money not counted in the money supply in my securities account yet it is counted in my reserve or deposit account?”
For one thing, it is not quite as liquid as cash, and that is the main distinction made between the various M’s.
But mainly because that would be double counting. If money is created when Treasury issues a T-bill, and again when it spends, then that money would be double-counted. I suppose you could choose to count either one and arrive at the correct answer, but MMT has chosen to count the deposits, not the treasuries.
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joe firestone,
“…the IRS person takes your money and shreds it. ….”
really? Have you seen this?
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I’ve not seen it personally, but Warren Mosler points out that you can buy the shredded money in DC.
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spaulding,
You repeatedly ask for references, then when given references, you deny they are references, and keep asking — something like the child who repeatedly asks, “Why?, when given a response..
So let me ask: What do you believe and what are your references?
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I found this reference that does a good job of dispelling the idea that taxes do not pay for spending (as the system currently is set up not how it could be set up which is a different issue.
It also dispels the idea that money is “destroyed” and created at least in terms of how MMT/MS folks see it or their definition of the terms. Again the effects on the money supply/reserves is a separate issue.
I would like to hear any criticism of the article from MMT/MS folks…
Click to access v_2011_10_27_lavoie.pdf
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Tom, I really hate when someone sends me to a 30-page document (!) and says, “This disagrees with you. What do you say?”
If you understand what the document says, just summarize it.
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Rodger,
If you have not read it, I suggest you read it, it is an important paper.
In any case the two sentences I wrote goes into what the paper is about. I didn’t go any further because I did not think I could do a good a job summarizing it especially since it is more of a technical paper along the lines of Stephanie Kelton’s paper, part of it is a response to her paper.
In any case here is a couple bullet points to try and summarize it.
1) That MMT/MS folks combine the treasury (federal government) and the federal reserves into one entity and look at it as one operation. Far from being a semantic shell game it is important to make the distinction otherwise false assumptions and conclusions can be drawn.
2) This is exactly what Stephanie Kelton did in her paper mentioned above. She viewed the the federal government and federal reserves as one. In doing so she looked primarily at the effects of taxing and spending on banking reserves/money supply.
3) In the process she ignored several steps and did not look at the federal governments accounting on the issue.
4) She broke out the taxing and spending process into two parts where money from taxes get credited into the federal government account at the federal reserves then noted the effect on the money supply. She then created a wall so to speak and looked at the spending side, the federal government crediting of other’s accounts and its effect on the money supply/reserves.
5) In doing so she never closed the circle and did not account for the fact that the federal government had to have a beginning balance in order to spend or the fact that at the end of the cycle all money minus interest is to the federal government. She also did not account for things like the rules that make the whole system a shell like like the federal reserves not being able to directly buy or sell T bills bonds.
6) because of this she drew false conclusions including the idea that taxes do not help finance spending etc..
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“as the system currently is set up not how it could be set up which is a different issue.”
No, the economic issue is what the government is able to do, regardless of how it has encumbered itself with obsolete laws. Leaving people unemployed and miserable is not justified by semantic arguments such as this one.
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Tom, thanks for the reference. I hadn’t seen this one, and can’t review it quickly enough to help with this discussion. But, Marc Lavoie is someone MMT economists take very seriously because he has much in common with MMT thinking. So, it’s hard for me to believe that MMTers haven’t answered his evaluation at length. I’d look at the Levy institute publications to find a reply. If that fails, the next place to look is Bill Mitchell’s billyblog. Since Bill often gets very technical in his posts, he is likely to have covered this criticism.
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Thanks Joe…
They may have but his arguments seem pretty solid to me. If I get time I might take a look but I was just hoping someone might have read it before or may read it now and point out where he is going wrong although as I said if I understand him correctly I don’t see where he is off.
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Since Lavoie concludes with “The main message that I wish to convey is that the neo-chartalist analysis is essentially correct”, I doubt you’ll hear much substantive criticism from MMTers. Lavoie has issues with the way things are presented, but not with the substance of MMT. He does not “dispel”, or attempt to dispel, these two ideas. He acknowledges the truth of what MMT says about them, but thinks there is not much to be gained (in the debate) by saying it.
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@Golferjohn…sorry but I think you need to reread the article and or what I wrote… he does dispel certain specifics of MMT and MS which is what I said…not the theory as a whole which is what you seem to suggest or am I misreading you.
However he concludes that those specifics are not a huge deal (not a hudge deal for MMT/MS people to come around on the issue). So in his view and mine it is silly to hold on to certain ideas that are wrong when it does not affect the overall theory/argument.
As for your comment about semantics and what the government could do vs what it is able to do…I am not sure what you are talking about. However there is a difference between what the govement is doing and what it could do and there maybe some semantics there but there are important differences which as my previous post notes has serious implications and to suggest otherwise is just a red herring.
Right now the government does use tax money to fund spending, although it can spend as much as it wants again up to it’s effects on the economy. That is how the government operates now. The government could change this to operate how MS folks would like but right now it does not and to suggest that government does not use tax money for spending has some serious implications.
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Tom
if you are really worried about Govt deficits and debt….then either advocate for
A) allowing the Treasury to overdraft at the Fed….deficit spend without an equivalent securities issuance
B) allow the Fed to purchase securities directly from the Treasury\
C) advocate for the continued purchasing of existing securities on the secondary market
or
D) Advocate for the minting of high-value platinum coin seignorage like Joe Firestone
Any of these 4 operations would further render US “debt” meaningless, as it is already meaningless in nearly every way
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“As for your comment about semantics and what the government could do vs what it is able to do…I am not sure what you are talking about. ”
OK, some examples.
The government is able to change the laws they have passed. It can modify them, or repeal them. Some laws left over from the days of the gold standard, for instance, including the ones about the Fed not being able to lend directly to Treasury, or the ones about Treasury having to issue bonds in order to spend in excess of tax receipts. Monetarily sovereign governments do not have to do those things, but ours has elected to do them. They are able to do differently, but they choose not to.
The TDC is an example of one that is arguably allowed even under current law. And there is no economic difference between issuing a $Trillion coin and issuing $1T worth of quarters, or $1T worth of $100 bills, and using any or all of them to buy things or pay salaries.
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I don’t think we read the same article. The one I read says
“The main message that I wish to convey is that the neo-chartalist analysis is essentially correct.”
That is agreement, not disagreement.
and
“In trying to convince economists and the public that there are no financial
constraints to expansionary fiscal policies, besides artificial constraints erected by politicians or bureaucrats that believe in mainstream theories and in the principles of sound finance, neochartalists end up using arguments that become counter-productive”
Again, the essence is correct, in Lavoie’s opinion, but he doesn’t like the way MMT states its case.
and
“There is nothing or very little to be gained in arguing that government can spend by simply crediting a bank account; that government expenditures must precede tax collection; that the creation of high powered money requires government deficits in the long run; that central bank advances can be assimilated to a
government expenditure; or that taxes and issues of securities do not finance government expenditures.”
Again, he does not say these things are wrong, simply that they should be put forth in a different way, so that more could be gained.
He does not try to dispel anything, including the two items you picked out. He just wants them stated differently.
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Seems to me that if Lavoie wanted to critique MMT on grounds of disagreeing with its communication strategy it would have been more appropriate to do it in a blog post, rather than an academic paper. -:) -:) -:)
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Joe, he did call it a “friendly” critical look, not a refutation, and he does seem to be a friend. 🙂
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True, John. But what academic or other qualifications does he have to pontificate on what he thinks the best public education strategy is. He’s entitled to his opinion about that, but that opinion isn’t academic in nature and is better expressed in the blogging environment, where it’s clearly identifiable as an opinion..
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@Golpherjohn
As for Lavoie…no one said he dismissed the whole of MMT. As you say he is a friend but he did refute certain aspects of it.
One of his criticisms is what your actually doing now. You may disagree with how he refuted certain aspects of MMT (and that is what I was asking for people’s input on) but is pretty clear he did refute certain aspects of it and not just the terminology used.
If your not convinced then re-read this part of the conclusion (actually it is most of the conclusion)…and tell me where he suggests that things should just be restated differently, either that or tell me where he is wrong… Especially take note of the last paragraph….
“This article has focused on the nexus between the clearing and settlement system and the financial requirements of government
expenditures. I have not tried to go beyond this. The main message that I wish to convey is that the neo-chartalist analysis is essentially correct.
In particular, it can be argued that the framework of modern monetary
theory has been validated by its analysis of the main flaws of the eurozone setup, much before these flaws became apparent to most of us as the eurozone entered into its home made crisis in 2010. Once again,the main flaw of the euro system, as I see it, is that the Eurosystem is a pure overdraft system, with the ECB being prevented (
mainly by custom, not so much by rules) from purchasing and
selling government securities as it sees fit, in contrast to what occurs in the UK, the USA, Canada or Japan.
However, in my opinion, neo-chartalism carries some excess baggage, which must be gotten rid of. In trying to convince economists and the public that there are no financial constraints to expansionary fiscal policies, besides artificial constraints erected by politicians or
bureaucrats that believe in mainstream theories and in the principles of sound finance, neo-chartalists end up using arguments that
become counter-productive. There is nothing or very
little to be gained in arguing that government can spend by simply crediting a bank account; That government expenditures must precede tax collection; that the creation of high powered money requires government deficits in the long run; that central bank advances can be assimilated to a government expenditure; or that taxes and issues of securities do not finance government expenditures. All these counter-intuitive claims are mostly based on a logic that relies on the consolidation of the financial activities of the government with the operations of the central bank, thus modifying standard terminology. I believe that such a consolidation leads to the avoidance of crucial steps in the analysis of the nexus between the government activities and the clearing and settlement system to which the central bank partakes, and hence leads to confusion and misunderstandings And so do references to a leveraged vertical component of the money supply
The proponents of modern monetary theory have forced post-Keynesians to dwell into the details of the clearing and settlement system, and to take into consideration the role of
government in the payment system, whereas before post-Keynesians had focused almost exclusively on the relationships between commercial banks and the central bank. Modern monetary theory is thus certainly an improvement, but it must get rid of its counter-productive statements and convoluted logic based on the fictitious
consolidation of government and the central bank.”
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I still don’t see any refutation, just a tactical suggestion.
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I agree.
Consolidation of accounting entities is standard practice, so that you can see the effects on the whole related entity without getting confused by the details.
Treasury and Central Bank are part of the same supra-entity. They are related entities under common control. The interaction of the supra-entity with the rest of the economy and the interaction of the individual Treasury and Central Bank with the rest of the economy *must* be the same or the model is inaccurate.
So I would suggest that Marc’s approach is at odds with standard accounting practice. The most appropriate models fit in with standard accounting practice, as that makes them easier to check with reality and to communicate.
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@golpherjohn…when you say….
““As for your comment about semantics and what the government could do vs what it is able to do…I am not sure what you are talking about. ”
OK, some examples……
The government is able to change the laws they have passed. It can modify them, or repeal them. ”
Maybe I was not clear… if so I apologize and maybe this won’t be any clearer…but that is exactly my point.
In order to do some of the things folks here would like the government to do the laws/system needs to be changed first. As it currently stands some of what is being said here is misleading at best because of the way the government and our monetary system operate…
Consider the point I was trying to make in terms of MMT/MS notion that taxes/borrowing does not pay for spending. Folks want certain programs(MMT folks would like a jobs guarantee program while MS folks would like Medicare/Medicaid for all) and to justify them or defend them when the funding issue is brought up they say that taxes/borrowing do not pay for spending. They then say that the government can spend as much as it wants and can never run out of money. But that is how they would like the government to operate and it could operate that way (whether it would be a good idea or not is another issue) if the laws/ system was changed. They are right that the government technically (until it is faced with economic reality) can not run out of money or is not constrained in how much it spends (again until it is faced with economic reality) but unless the system is changed they are wrong that taxes/borrowing does not pay for that spending and that in order to finance that spending taxing/borrowing need to occur.
So we may actually be on the same page here….
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Tom
As I’ve written before…..your entire concept of the Govt being constrained in its spending RIGHT NOW by borrowing and taxing is wrong.
Lets just use one simple example…..say there is a demand of X amount of US treasuries and the Govt creates X + Y amount of new money through its deficit. Without changing any rules, the Fed can RIGHT NOW (as is demonstrated by QE) buy Y amount of outstanding US treasuries leaving X amount of securities outstanding to meet the current demand.
Furthermore, RIGHT NOW the Treasury could issue platinum coins in any denomination and the Fed would credit the TGA with that amount making further security issuance unnecessary.
So, as a matter of reality and fact, RIGHT NOW the Govt is unconstrained in its money creation by taxing and borrowing under today’s current rules. Nothing needs to change for that to continue to be the case. However, some MMT folks advocate for some tweeks to the system so that people are less confused about ffederal financing thus giving the powers that be less of an ability to perpetuate the The Big Lie that the federal Govt’s budget operates the same way as a household or business budget
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Perhaps on the same page substantively, and the argument is semantic.
Laws are changed all the time. Congress appropriates money and passes budgets. There is no operational constraint on how much they can appropriate, and they do appropriate as much as they want and they can never run out of money. There is a debt ceiling law stating the amount of Treasuries that can be issued, and it is changed whenever it needs to be changed. Taxes are raised and lowered at the whim of the Congress and President, with no operational limitations. So, despite the institutional structure, everything MMT says about how monetarily sovereign governments really work is true.
MMT’s and MS’s policy proposals can be implemented without changing the institutional structure, but simply by including them in the laws and budgets that are done on a regular basis.
It’s not about the policies. It’s about understanding that there are in fact no operational limits, that the institutional structures we have today are artifacts of a previous time, and that the limits Congress has imposed on monetary operations are no longer relevant. These limits are just laws, like all the other laws that Congress passes and changes all the time. They can be changed just as easily as any others.
And, despite the current institutional structure, the government does spend without taxing or borrowing, albeit in relatively small amounts, and could do so a lot more without changes to the laws. The TDC is the largest example, but coin issuance in general is spending without taxing or borrowing, and is an ongoing and normal process, and by various “loopholes” and accounting tricks Treasury is able to keep spending for a couple of months after the debt limit is reached. And in the past, some much larger things have been done, most notably the issuance of “greenbacks” during the Civil War. So it is clear that if spending is funded by taxing and borrowing, it is so only when we want it to be.
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@Golpherjohn,
Agreed with most of what you are saying so maybe I am wrong and our disagreement is semantics.
My point is still that the laws do need to be changed…yes the government can do what it wants (change the laws so the treasury issues money directly ie greenbacks or go back to a gold standard etc..) but the laws do need to be changed first and until they do taxing and borrowing funds government spending.
Without changing the laws if you implement this health care bill then it will be funded either by increased taxes or by borrowing (the third option is the treasury could issue a platinum coin as others here mentioned but I don’t think anyone will agree to it).
The one thing I would disagree with you on is how easy a task it would be to change those laws especially in today’s political climate.
@Auburn Parks..Maybe I was not clear but I said the government was constrained by economic reality not by its own making. Yes the government could issue coins or borrow til its heart is content…The government could borrow as much as it wants… but at some point economic reality will kick in. Inflation will kick in and the value of the dollar will crumble.
Do you really think nothing will happen to the economy if the Government funded by borrowing from the federal reserves, spent 100 trillion tomorrow or put 100 trillion in new spending into the economy tomorrow (yes I know…no one is talking about 100 trillion I am just using that number to make a point).
Also as for taxes…yes the government is constrained in how it can raise in taxes..how can you tax me more than I make??
As for the platinum coin you are absolutely y correct on that, which in my opinion just shows how absurd our system is which I think we both agree on. However again the government is constrained on how much it can issue by economic reality..again do you really think it would be good for economy if the treasury issued a 100 million dollar coin and then spent that money?? Maybe they could get away with a100 Billion dollar coin but not 100 trillion…..
So I think you misunderstood what I was saying…if so my apologies for not being clearer…
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What’s the difference between a x billion dollar platinum coin and a x billion dollar t- bond? They’re both debtless instruments not placed on the shoulders of citizens. Every man woman and child does not owe $100,000 to the USA.
If we can’t borrow because congress says it’s a burden to the future; if we can’t tax because politicians don’t want to lose their jobs (read my lips!); if we must suffer from austerity cuts with no proof or guarantee that the austerity will revive the economy for us now ( or later for our children), IF WE ARE REALLY BROKE, then you better hope MS/MMT is correct. You better hope they hold the answer to affordability; that government is not constrained by economic reality but rather freed by economic reality as of August 15, 1971. Otherwise all we have is a continuation of more of the same and who the hell wants that! It’s time to move on don’t you think?
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Tom,
I don’t agree that the Fed is separate from the government. Who is the Fed Chairman’s direct boss? The Fed does what the President wants. Period.
But it is an argument that can go on forever, and not worth the effort.
I really don’t have the time or patience to read the article, but in skimming, I think he opposes MMT’s Jobs Guarantee. True? If so, I agree with him, and have written several posts to that effect. JG is an academic’s solution.
I also disagree with MMT, if they say that deficits cause a dip in overnight interest rates, as these are determined by the Fed.
Finally, there are lots of rules that make the U.S. not purely Monetarily Sovereign, the debt limit being the most notable. But in comparing the euro nations (and our states, counties and cities) with the U.S., the major functional difference is that the former are monetarily non-sovereign and the later is Monetarily Sovereign.
Asking for purity in economics is a fools mission. We are a democracy, but not purely a democracy. Our representatives represent us — maybe.
The same goes for Supreme Court so-called “independence,” “free” speech, “Constitutional” and the land of the free and the home of the brave. Not so pure, when you dig into the details.
But if you don’t like the term “Monetarily Sovereign,” feel free to come up with a better word to describe:
–The difference between the U.S. and the euro nations,
–What happened on 8/15/71,
–And the absolute impossibility of the U.S. running out of dollars, whether or not it collects taxes.
–And the fact that tax dollars, once collected, no longer are part of the money supply, therefore functionally are destroyed.
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Rodger,
Actually the paper may have mentioned the Jobs guarantee program but it only mentioned it and did not focus on it. It had a couple of criticisms of MMT but to illustrate those criticism it focused on payment mechanism and whether it is in fact true that taxes are not not needed for spending or if the government needs to borrow (vs being legally obliged to) or not etc..
As I mentioned earlier I see the fed as a separate entity similar to a subsidiary if you will..think NBC in relation to GE when GE owned NBC. You talk about the 1%… personally I think the 1% (which I also include the government in..you mentioned Obama as being bought by the 1% but I see it more as Obama being allowed to join the lower echlons of the 1%) likes to keep the fed operations and how it is classified as much a mystery as possible so they can fleece the rest of us! In any case as you said this can be debated til the cows come home…
I don’t think I mentioned anything about the name MS being used to described the theory but since you brought it up I have wondered if technically the U.S. was monetarily sovereign because of the role of the central bank or not. In any case I did not mention it here so I not sure why it was brought up but if you are asking me I would just use Fiat vs Euro standard…and I will leave it at that….
PS..we are actually suppose to be a republic not a democracy but so much for that… it went out the window with the constitution and now we are basically a democracy but that is an entirely different subject…
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Hi Folks, I wanted to reply to Marc Lavoie’s arguments in the paper Tom linked to. So, I posted a critique at NEP, Correntewire, Firedoglake, and DailyKos (appearing early tomorrow) Here’s the NEP link: http://neweconomicperspectives.org/2013/06/lavoies-critical-look-at-modern-money-theory-a-reply.html
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Thank you all for this comment section. I am very new to this (Oct. 2012) with no economic or accounting background and long debates in comments sections teach me just as much and more then the original articles.
@ Tom and Gerry (hehe) it seems you follow Cullen Roche’s “private money rules the roost’ thinking and I really like Cullen’s explanations of the processes of government spending. What draws me to MMT and more to MS is Rodger’s explanation above. Once the money is in government’s hands it’s Fredo. It’s dead to me. And to you. Especially with government surplus.
I think this arguing over the simplifications that Rodger and Warren use, although helpful for us new kids is a waste of time for you smart folks. It all seems to end up in the same spot. NFA’s come from the Federal Government as approved by congress and signed by the President. Or we sell more to the foreign devils then they sell to us. Is that about right?
Again thanks.
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I think you’re very perceptive.
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slightly off-topic, but… y’see, the move to dismantle “obamacare” has started, thanks to obama himself.
it’s just as i predicted–that’s the reason why they delayed it to 2014. we all assume that the 1% (.01%, .001%, or .0001%) “bribe” the congress, but how do we know that the “causality” isn’t in the opposite direction–instead of “bribes,” it’s actually “tribute” that congress “exacts” from the wealthy, just like the noblemen did back in feudal times??
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I feel the end result is the same either way. We the people get screwed. Are the very few running or ruining the system? Again time will tell, though it may be too late by the time of the telling.
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The Destructive Effect of Getting a Permission Slip from the CBO in the Politics of Health Care
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