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Warren Mosler was a founder of Modern Monetary Theory (MMT), a cousin of Monetary Sovereignty (MS).
Recently, Warren posted some remarkable comments by Janet Yellen, Chair of the Board of Governors of the Federal Reserve System.
Here are a few excerpts:
“The long-run deficit probably needs to be kept in mind. With the debt-to-GDP ratio at around 77 percent there is not a lot of fiscal space should a shock to the economy occur, an adverse shock that did require fiscal stimulus.”
The federal deficit is the difference between tax collections and spending. The federal debt is the total of deposits in T-security accounts. The two are unrelated.
The federal government could run deficits without accepting deposits in T-security accounts, and it could offer T-security accounts without running deficits.
More importantly, the debt/GDP ratio is nonsense math, a completely meaningless fraction. Despite what you may have been told, GDP does not in any way help service federal debt.
The federal government could pay off the entire “debt” tomorrow, simply by transferring existing dollars from all T-security accounts back to the account holders’ checking accounts. No new dollars needed.
Short of that, the Federal Reserve Bank simply could buy back the T-securities, which is exactly what the Fed does when it engages in Quantitative Easing (QE).
The federal “debt” does not limit any financial action the Fed or Congress might wish to make.
Apparently, Ms. Yellen has forgotten that Japan exceeded the “magic” 77% level years ago, and today, with the ratio above 225% and growing, still has no difficulty deficit spending or servicing its debt.
Here are a few more “Yellenisms”:
“Importantly, that rise in debt over the long term could mean that policymakers would have more limited options in needing to stimulate the economy if it fell into another deep recession.”
“I also worry that if we were to again be hit by an adverse shock, that there’s not much scope to use fiscal policy. It was used in the early years after the financial crisis — we ran large deficits — but in the course of doing that, the debt-to-GDP ratio rose.”
“And were another negative shock to come along, it’s questionable how much scope we would now have to put in place even on a temporary multiyear basis expansionary fiscal policy, and I think it’s important to deal with these issues — for the Congress to do so.”
“Lawmakers should not get complacent about debt stabilizing over the next few years as it could become a greater problem beyond then.”
“It is crucial that the federal budget be put on a sustainable long-run trajectory. A failure to put in place a credible plan to address our long-run budget imbalance would expose the United States to serious economic costs and risks in the long term and possibly sooner.”
Allow me to describe Ms. Yellen’s comments in the kindest, gentlest, most accurate manner possible: They are 100% bullsh*t.
Does that about do it?
Not only are they 100% bullsh*t, but surely the Chair of the Board of Governors of the Federal Reserve System knows it.
So why does she say it?
The only reason I can imagine (perhaps you can think of others) is that she is a paid toady for the very rich, who want to widen the Gap between the rich and the rest of us.
The Gap is what makes them rich. Without the Gap, no one would be rich (We all would be the same), and the wider the Gap, the richer they are.
There are two ways to widen the Gap: Give the rich more and/or give the rest of us less, the latter being the inevitable effect of reductions in deficit spending (aka “austerity.”)
The federal government can “sustain” any amount of debt. There are no functional limits. But false worries about the size of the debt are what lead to:
- Cuts in Social Security and Medicare benefits
- Claims that universal healthcare is unaffordable
- Unnecessary taxes like FICA and income taxes
- The insufficient funding of programs to aid low income people
- The suffocating student debt
- Insufficient funding of Research & Development, infrastructure upgrades, climate change prevention, food & drug inspection
- And cuts to numerous other federal initiatives that improve our lives.
The rich do not want our lives improved. They want the Gap between their lives and our lives widened.
(If we were well-fed, well-housed, well-educated, and well endowed for the future, where would the rich find their servants? Who could the rich look down upon?)
The Chairs of the Fed are hired by the Presidents of the United States, most (all?) of whom have demonstrated unyielding fealty to the rich. Apparently, Janet understands the source of her paycheck, and will do just as the rich ask. If there is one thing the rich appreciate, it’s obedience and obsequiousness.
Though she is America’s #1 banker, the boss of banking, I’ve not heard of her demanding jail time for the rich bankers who caused America’s Great Recession, and who still cheat America’s homeowners and depositors. (Correct me if I’m wrong on this).
So, for disseminating the Big Lie (the lie that federal taxes fund federal spending), Ms. Yellen should be fired, and if Mr. Trump does it, I’m with him. (Unless he replaces her with someone equally duplicitous.)
Just say it, Donald, as you did on TV: “You’re fired.”
Rodger Malcolm Mitchell
The single most important problems in economics involve the excessive income/wealth/power Gaps between the rich and the rest.
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.
Implementation of The Ten Steps To Prosperity can narrow the Gaps:
Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE AN ANNUAL ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA, AND/OR EVERY STATE, A PER CAPITA ECONOMIC BONUS (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:
Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012
Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONEFive reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE CORPORATE TAXES
Corporations themselves exist only as legalities. They don’t pay taxes or pay for anything else. They are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the government (the later having no use for those dollars).
Any tax on corporations reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all corporate taxes come around and reappear as deductions from your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and corporate taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.