Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
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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
Monetary Sovereignty
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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.
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
Rodger – One small quibble with an otherwise excellent takedown of Janet Yellen:
The deficit and the federal debt are not unrelated given current practice. The deficit is a flow that adds to the stock of the federal debt. (I’m sure you already know this.) And, of course it is unnecessary, as you detail. Maybe it’s just easier to say they’re not related within the frame you are using, i.e., T-security accounts as the label for the federal debt, instead of trying to explain this relationship. But, still I quibble.
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The quibble is fine, especially since you essentially are correct. According to the law, deficits are matched by T-security deposits.
And, as you have noted, the relationship is unnecessary and arbitrary, something like my bank requiring me to put $1 into my savings account every time I write a check for $1.
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The rich really don’t want us peons to understand money – let alone economics – do they? The whole Mainstream economics regime is filled to the brim with toadies and sold hacks all paid to produce mindless models couched in obscure language, all addresses to one another. Only occasionally does a true picture partly emerge like when Ben B admitted on Sixty Minutes in 2009 that the fed just marks up numbers in accounts and does not use tax dollars.
It would be interesting to ask Ms Yellen for a response to that admission.
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Right. Exactly. Here is the conversation you referenced:
In fact, the Fed and the federal government NEVER spend tax money. They spend dollars created ad hoc. Tax dollars are destroyed upon receipt.
There are two ways dollars are created and two ways dollars are destroyed.
CREATED:
1. Federal deficit spending
2. Borrowing
DESTROYED:
1. Federal taxing
2. Loan repayments
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Actually this is a little misleading. Bernanke was not referencing government spending in general or if the government spends tax money but they were talking about the bailout programs in 2009 and if those programs were being “paid” for by taxes.
Bernanke said they were not being paid for by taxes, that the fed was creating money by marking up accounts.
This is one of my problems with MS (I do have a couple others), the idea that government does not “spend” or offset spending or whatever you want to call it with tax money just because the fed can mark up accounts or print money or just because the government is not limited in how much it can spend or even just because the government does not need to collect taxes first (like you or I) before it can spend ie no one is going to bounce a government “check”, so to speak.
In any case here is the full part of that conversation…
“THAT SECOND WEEK OF OCTOBER, THE DOW FELL 18 PERCENT. ITS WORST WEEK IN HISTORY. IN THE MIDST OF THE CRISIS, BERNANKE HAD FREEDOM TO ACT IMMEDIATELY, HE DOESN’T NEED PRIOR PERMISSION FROM CONGRESS OR THE PRESIDENT. WHILE THEY DEBATED ON CAPITOL HILL, BERNANKE CUT INTEREST RATES NEARLY TO ZERO THEN HE USED DEPRESSION ERA EMERGENCY POWERS TO LAUNCH A DOZEN RESCUE PROGRAMS OF HIS OWN. THERE WAS SUPPORT FOR MONEY MARKET FUNDS, MORTGAGES, SHORT TERM LENDING TO SMALL BUSINESS, AND SUPPORT FOR AUTO LOANS, STUDENT LOANS AND SMALL BUSINESS LOANS. –COMMITMENTS OF A TRILLION DOLLARS�”DOUBLING THE SIZE OF THE FED’S BALANCE SHEET.”
PELLEY Is that tax money that the Fed is spending?
BERNANKE It’s not tax money. the banks have– accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. so it’s much more akin to printing money than it is to borrowing.
PELLEY You’ve been printing money?
BERNANKE Well, effectively. And we need to do that, because our economy is very weak and inflation is very low. when the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation.
HE’S NOT KIDDING ABOUT PRINTING MONEY. THE FED ISSUES U.S. CURRENCY. THAT’S WHY IT SAYS FEDERAL RESERVE NOTE ON ALL THE BILLS IN YOUR WALLET. THIS IS THE BUREAU OF ENGRAVING AND PRINTING JUST A FEW BLOCKS FROM BERNANKE’S OFFICE. THE FED’S MANDATE FROM CONGRESS IS TO PUT ENOUGH MONEY IN THE SYSTEM FOR MAXIMUM EMPLOYMENT, BUT NOT SO MUCH THAT IT SETS OFF INFLATION. THE FED ACTUALLY PAYS FOR ITSELF AND RETURNS BILLIONS IN PROFITS TO THE TREASURY.
IN A SENSE BERNANKE HAS BEEN PREPARING FOR THIS EMERGENCY HIS WHOLE PROFESSIONAL LIFE. HE GOT A PhD IN ECONOMICS FROM M.I.T. HE CHAIRED THE ECONOMICS DEPARTMENT AT PRINCETON AND HIS SPECIALTY IS THE GREAT DEPRESSION. HE’S AMONG MANY ECONOMISTS WHO NOW BELIEVE IT WAS THE FEDERAL RESERVE ITSELF THAT HELPED TURN A RECESSION IN 1929 INTO A GLOBAL CALAMITY.
Anyway, off to have some Turkey…hope everyone has a great Thanksgiving!
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Federal taxes do not create dollars; they destroy dollars. NOTHING is paid for by federal taxes.
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“He’s not kidding about printing money. The fed issues U.S. currency.”
Money is not printed, since money is not physical. Money is strictly a mental thing, an accounting scheme that has no physical existence. Money is represented by numbers in bank accounts, or by coins and currency notes.
In a football game, points are not physical. Points are strictly mental. Points are represented by numbers on the scoreboard.
The US Bureau of Printing and Engraving (which is part of the Treasury, not the Fed) prints currency notes. The notes represent money, and can be used as money, but technically they are not money. They are currency notes.
So why does a dollar bill have the words “Federal Reserve Note”? Because money and currency only have value in reference to a bank ledger. For U.S. currency the bank that holds the ledger is the Fed. Thus a dollar is a bank note, i.e. a Fed note. A dollar is a “note” just like the title to a house is a “note.” It is a claim; a credit. It also represents a debt.
You seem to agree with the “positive money” cultists who falsely believe that the Fed creates all dollars as loans.
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@Elizabeth, when you say “you seem to agree…” who are you referring to? The sentence you quote about he is not kidding…above.. is part of the transcript and it was Pelly saying that.
@ Rodger, we will have to disagree that federal taxes destroys money (i don’t believe I said federal taxes creates dollars, but maybe I was not clear but I did not mean to say that at all). It doesn’t and I have not see any proof of that and quite frankly the explanations that MS gives don’t hold water!
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The dollars in your checking account are part of the money supply. (M2) When you send those dollars to the federal government they no longer are part of the money supply. Thus, they are destroyed.
Note that when you send dollars to state and local governments, they continue to be part of the money supply, as these monetarily non-sovereign governments deposit the dollars in banks.
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One thing I have discovered is that the monetary system is voluntary. That is, the Constitution doesn’t set any rules apart from who can create dollars.
So governments can support mainstream economics since it’s in line with its political objectives and we others can support MS/MMT since we understand how better to make the economy work. There are no laws as such that allow or prohibit whatever political agenda is dominant, as today occurs with neo-liberal policies.
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The Constitution says whatever the Supreme Court says it says, on any given day.
Apparently, the Constitution even allows POTUS to make billions via conflicts of interest, which is exactly what honest Donald Trump plans to do.
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Wow. I had not known about these comments by Yellen. Thanks for the post.
It’s unusual for a Fed chairperson to lie so blatantly. Bernanke and Greenspan were more careful and circumspect. Both of them admitted on national TV that the U.S. government can never run out of dollars. They likewise affirmed it in congressional testimony.
The sad thing is that Yellen’s lies brainwash people because Yellen is an “authority” figure.
This brings me back to the “positive money” cultists who insist that all money is created by banks as loans, and that all U.S. government money is borrowed, and that this is why there is a “national debt.” They insist that if the U.S. government created money directly and spent it into the economy (which the government already does) then we would have “debt-free” money.
(As you can see, they do not understand the concepts of debts and credits.)
Their connection with Yellen’s lies is this…
The “positive money” cultists cling to their errors because the Bank of England flat-out LIED to them. And the Bank of England is an “authority” like Yellen.
Here is a verbatim quote from the 2014 Quarterly Bulletin (1st quarter) of the Bank of England’s Monetary Analysis Directorate.
“The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can
also affect the amount of money directly through purchasing assets or ‘quantitative easing’.”
This is a lie, since it negates the fiscal role of government. The lie asserts that there is no such thing as government spending, and that the quantity of money in the U.K. economy is entirely dependent on the central bank’s monetary policy.
Let’s be clear that the central *bank’s* MONETARY POLICY concerns interest rates and reserve requirements. The central *government’s* FISCAL POLICY concerns government spending and taxation. These two topics are entirely separate, although they influence each other. For example, if the central *government* decides to create less money, this forces average people to seek loans, which are influenced by interest rates, and by the monetary policy of the central *bank*.
Here is another lie from the same Bank of England paper (link at bottom)…
“Monetary policy acts as the ultimate limit on money creation.”
WRONG. The central government can create money with or without the central bank and its monetary policy. There is no limit to how much money the central government can create, although extremes of money creation could spark inflation if the money supply is not balanced by increases in the supply and demand of goods and services.
The statement above only makes sense of we believe the Bank of England’s *LIE* that all money is created by banks as loans. In that case, debt loads and interest rates would indeed limit the amount of money that banks can create as loans. If no one can pay his debts, then no one can take out loans.
Further on, the Bank of England paper explains that banks do not “lend out deposits.” Instead, banks create money when banks issue loans. This is correct, but the “positive money” cultists take this to mean that banks create ALL the money, and as loans. Thus we ALL owe the banks.
Again, this totally negates the central government’s creation of money. The U.S. government creates over $4 trillion per fiscal year out of thin air, entirely separate from all banks. That $4 trillion is SPENT (not LENT) into the U.S. economy. Most of it is then taxed back out of the economy, but paying a tax is not the same as paying on a loan. For example, you must pay taxes on Social Security benefits, but this is not like making payments on a house mortgage or a car loan.
Another quote from the paper:
“Just as taking out a new loan creates money, the repayment of bank loans destroys money.”
True. However government spending also creates money, and government taxation also destroys money. For the Bank of England, there is no such thing as government spending and taxation. This is a lie by omission. And since the Bank is an “authority,” the “positive money cultists takes this lie as gospel truth, to wit: no such thing as government spending and taxation. For them, income taxes are loan payments.
This one paper from the Bank of England is their Holy Grail; their “ultimate proof.” It is fourteen pages of lies and distortions couched in gibberish. It is meaningless bullshit, but its garbled techno-babble adds to its “authority” and “truth.”
This single paper is what the “positive money” cultists always refer to when they want to justify their errors. After all, the Bank of England would never lie, right? Just like Yellen would never lie, right?
Behold the Holy Grail (.pdf)…
Click to access money-creation-in-the-modern-economy.pdf
MOTIVE! Always think about MOTIVE. What MOTIVE would the banks have to lie? What REASON do we have to question the lies? As Rodger explains above, it is all about the GAP.
“Everything in economics devolves to motive, and the motive is the Gap.” ~ RMM
Exactly spot-on.
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Yes, every form of money is a form of debt, no matter who creates it, and all dollars (and all pounds) are identical, no matter who created them.
There actually is one sense in which you could say that all dollars are created by banks. For instance, when a government agency pays a bill, it sends instructions (not dollars) to the creditor’s bank, telling the bank to increase the balance in the creditor’s checking account.
When the bank does as instructed, dollars are created. So one could say the bank created the dollars. It’s a bit of sophistry, like asking whether the piano created the melody or did the piano player create the melody.
Because the “positive money” and the “debt-free” money cultists are wrong in their initial assumptions. It’s all downhill from there.
Of course, as we know, the Bank of England is not the only authority figure spreading the “Big Lie.” Here’s one of thousands of examples of what our own government agencies say: The U.S. Department of the Treasury issues securities to raise the money needed to operate the federal government.
Many people don’t realize that T-bills are part of the money supply (aka “L” in the US), so you get the ridiculous belief that the government can create T-securities, which are in one measure of the money supply, but needs to borrow its own sovereign money.
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Rodger – I’m confused by your use of the letter “L” in: “…T-bills are part of the money supply (aka “L” in the US)…”
I thought the money supply was designated by “M”, as in M1, M2, etc. Where does the “L” come from?
Thanks.
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I first should mention that these categories are arbitrary and based on liquidity. All money is money, but some money is more liquid than other money.
Sometimes “term” is a stand-in for liquidity.
You can find a definition of “L” here and a definition of bankers acceptances anywhere online.
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Oh, okay. I am familiar with M1, M2, and M3, but had not heard of L before. I do know what bankers acceptance’s are.
Thanks very much.
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“There actually is one sense in which you could say that all dollars are created by banks. For instance, when a government agency pays a bill, it sends instructions (not dollars) to the creditor’s bank, telling the bank to increase the balance in the creditor’s checking account.” ~ RMM
Exactly correct.
Let me rephrase…
All dollars are created IN banks and BY banks, but not all dollars are created as loans.
Likewise, all money is debt, but not all debts are connected with loans. A credit is a claim to some item that may or may not be money. If I have a title for a car, then my title is a claim. My title is a credit.
For every credit there must be a debt. So if I have a title / claim / credit to a car, then who is in debt to me? Everyone who agrees that my credit is credible. Everyone who agrees that my car title entitles me to car ownership.
A debt is an acknowledgement of a claim; of a credit. A debt may or may not involve money and a loan. If a bus company gives me a ticket for one ride, then I have a credit for one ride, and the bus company is in debt to me for one ride. That is, the bus company owes me a recognition of my claim (i.e. my credit) for one ride.
A dollar bill in my hand is a credit for one dollar’s worth of the full faith and credit of the USA. Who owes me a dollar? Who is in debt to me? Everyone in the world who agrees that my dollar is worth a dollar, and who will accept my dollar as payment. A debt is acknowledgement of my claim. Both debts and credits may or may not involve money, depending on the circumstance.
However for the “positive money” cultists,” ALL debts and credits involve money. So if you tell them, “All money s debt,” they erroneously respond with, “Exactly! All money is loaned by banks!”
I call them cultists because they are the most cement-headed people I have ever encountered.
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Excellent post. I left a response, but it vanished. I’ll write it again…
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Incidentally, Warren Mosler says (correctly) that buying a T-security is not “like” opening a Fed savings account. Rather, it is LITERALLY to open a Fed savings account.
A T-security is just a name for a Fed savings account, just as a “certificate of deposit” is just a name for a savings account in a regular private bank. A CD is essentially a security. Whether you buy a T-security or a CD, you must leave your money in your savings account for an agreed-to time in order to be paid interest.
Can you create a Fed savings account without buying a T-security? No.
Can you create a private bank savings account without buying a CD security? Yes, but it will not pay as much interest.
Today banks have largely done away with CDs for average people, since we are now so poor that banks don’t need to offer us incentives. On the contrary, banks charge us for having a checking account if our account has less than $5,000.
Today’s CDs are mainly incentives offered to the rich who can deposit $100,000 or more.
Back in the days when banks still offered CDs to the peasants, the Savings and Loan industry went haywire by playing all sports of underhanded games with CDs. Later the big banks did the same thing with Collateralized Debt Obligations, which again are securities. Mixed with these scams were other scams involving Credit Default Swaps, which are a kind of insurance. Further added to the mix were complex derivatives. The result was the biggest financial scam in human history, which still continues today, despite the debacle of 2008.
It continues because average people refuse to understand simple facts about money. Not fail; REFUSE.
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Amazing post and even better conversation in the comments; very intellectually stimulating. Thanks, Mr. Mitchell.
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So why does she say it?
political cover for raising interest rates in the near future
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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.
haven’t these existing dollars been appropriated and already spent on goods and services which makes the tea party go bonkers because the piggy bank has been drained and the money is gone. you can’t spend the money and have the money at the same time.
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No, federal tax dollars are destroyed upon receipt. When the federal government spends, it creates brand new dollars, ad hoc.
This is different from state and local governments, that actually do spend tax dollars. The federal government is Monetarily Sovereign; its finances are different from state and local finances, business finances and your finances.
See: https://mythfighter.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/
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