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There never was a fiscal cliff.
There will be no fiscal cliff.

I'm trying to cover all the tenses because some Con "thinkers" seem to have a peculiar or non-existent relationship to time. Some apparently exist in an ineffable present in which all reality is simultaneous and, therefor, insignificant.

The United States federal government is not running out of money. Can't run out of money. But, you don't have to take my word for it. The current head of the Federal Reserve Bank, Ben Bernanke, and the former head of the Federal Reserve Bank, Alan Greenspan, agree.

For those who can't watch Youtube, I'll try to provide a transcript:

Video from CNN:
"In a recent interview, President Obama was asked about the 1.7 trillion dollar debt the government has racked up, along with an eleven trillion dollar defict, and had this sobering respons:
Interviewer on C-SPAN:
At what point do we run out of money?
Obama:
Well, we're out of money now. We are operating in deep deficits.
Interview with Ron Paul:
Do you agree that short-term spending is OK?
Paul:
Well, he contradicts himself. He wants to spend more money but he admits we don't have any money. So, the question is where does he get the money.
Interviewer to Ben Bernanke:
Is that tax money that the Fed is spending?
Bernanke:
It's not tax money. The banks have accounts with the Fed, much in the same way as you have an account in a commercial bank. So to lend to a bank we simply use the computer to mark up the account they have with the Fed.
Greenspan:
The United States can pay any debt it has because we can always print money to do that since there is zero probability of default.
On screen:
UNDERSTAND the "money" that government creates.
Richard Nixon, August 15, 1971
I've directed Secretary Connoly to suspend temporarily the convertability of the dollar into gold or other reserve assets, except in the amounts and conditions determined to be in the interest, the monetary stability and the best interests of the United States. I am determined that the American dollar must never again be a hostage in the hands of international speculators.
On screen:
lets say that again....under a fiat money system, the government is the only reason there is any money in circulation; the government does not need to finance its spending because it is the source of all money.
the government
does not need to tax before it can spend
it does not need to borrow before it can spend
it does not need to dig holes to look for gold
it does not need to move into war to gather
the government (We the People)
by definition has all the money it could possibly need
lets all work to build a better world and
not fight for money
(since 1971 money is no longer a commodity)
How long will it take before all understand
that Life can be better?"
The following is an excerpt from a presentation by Randall Wray in which he asks why the President lies about the availability of money.

The answer, I suspect, is because from the perspective of the Executive branch, there is no money, if the Congress, which is in charge of the purse, refuses to dispense any to the government, unless and until, what has been previously dispersed comes back.
The Richard Nixon quote, I think, is of particular interest because he, no doubt, did not envision that the dollar would be held hostage by the denizens of Capitol Hill and their henchmen, the speculators on Wall Street.

The real question that should be asked needs be addressed not to the President, but to the Congress. Why would the Congress seek to deprive citizens of the currency the economy needs to thrive?
The answer, I would suggest, is power. Ever since 1971, when the dollar was released from the bands of gold, another signal event has bedevilled the Congress -- universal suffrage.  That both events, the dollar being set free and all adults getting the right to vote occurred in 1971 was probably a coincidence. In any event, as so often happens, good intentions gang awry.  In this case, the prospect of citizens taking the reins of self-government into their hands, instead of being content to let some people and some select individuals decide for them, was scary. And the election of Jimmy Who? in 1976 probably didn't help, especially since the former nuclear engineer turned out to be a peacenick. So, some new way had to be found to control the populace and the manipulation of the dollar was it. Nixon already tried price controls and failed. Reagan witnessed the ballooning of interest rates. Then the savings and loan industry collapsed as a result of inflating housing lots unconscionably. Finally, in the early nineties, Greenspan determined that the value of American households, the equity they had accumulated in their homes, should be "liberated for the market" -- i.e. people should be encouraged to sell, spend and borrow to churn the economy, so investors could continue to rake in in excess of 8% for doing not a lick of work. And everybody got hooked on money.

President Clinton believed the line about a balanced budget being Nirvana, persuaded Congress to increase taxes and started filling the supposedly empty federal coffers. And then Greenspan announced this surplus was bad, accounted for the falling federal interest rate on bonds and Bush/Cheney rushed to reverse the generation of surpluses. Of course, the Congress, feeling its oats with a do-nothing executive in charge went along and spent like drunken sailors on two wars. Until the wrong guy got elected!

Suddenly, what was probably a limited exercise to get McCain into the end-zone became a four-year effort to teach the electorate that electing the wrong guy has consequences. If the electorate doesn't behave as demanded, it's got to be punished. Besides, the money mavens still haven't got their traditional vig back. Recall that in 1991, the return on thirty year Treasuries was 8.1%. That's a nice cut out of every tax dollar spent. Some people might call it just a trickle, but compared to the 2.77% they're getting now, it was a flood.

Originally posted to hannah on Sat Nov 10, 2012 at 08:40 AM PST.

Also republished by Money and Public Purpose.

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Comment Preferences

  •  By this logic (1+ / 0-)
    Recommended by:
    shypuffadder

    (the government can just print money and spend endlessly), the government shouldn't need to take in tax revenue at all...if it can just create value out of thin air, why does it need to collect taxes at all?  

    •  to offset inflation (3+ / 0-)
      Recommended by:
      illinifan17, jellyyork, splashy

      nt

    •  because money would be worthless (5+ / 0-)

      you only want to print new money to keep up with a growing population. Otherwise you can get run away inflation.

    •  Money is a measurement tool. It's like an inch or (10+ / 0-)

      a centimeter. It symbolizes value, but it is not worth anything in itself.
      Imagine hoarding inches or centimeters.

      But, you say, people trade and exchange money.  True.  People also trade and exchange used postage stamps.
      Some people like to accumulate stuff.  For some people it becomes obsessive.
      It's fine. It's not a problem. Unless the rest of us make their obsessions significant. It doesn't matter if people hoard money, as long as the Congress doesn't exploit that by claiming there's not enough money to do what needs doing.

      We organize governments to provide benefits and prevent abuse.

      by hannah on Sat Nov 10, 2012 at 09:14:07 AM PST

      [ Parent ]

    •  You misunderstand the diary if you think that (6+ / 0-)

      follows from the logic laid out. The effectiveness of printing money is obviously constrained by legitimate economic demand. That doesn't mean the government can only use existing money, but it doesn't mean they can print more money than what's needed to sustain market conditions without diminishing its value. A government paying its own bills exclusively with printed money obviously falls outside the confines of legitimate economic demand.

      You must understand that the government here doesn't print money at will, but to respond to lending pressures exerted by banks that are part of the Federal Reserve system. Drawing an analogue with a country that actually does print money willy nilly (e.g. Zimbabwe in the 2000s, Yugoslavia in the 1990s) and the consequences therein is inaccurate because the Federal Reserve operates in a different manner --- and under different circumstances --- than the central banks in countries where monetary policy is more centralized.

      Compassion is not weakness, and concern for the unfortunate is not socialism.

      by Zutroy on Sat Nov 10, 2012 at 09:21:21 AM PST

      [ Parent ]

    •  to give state money it's value: If you have to (8+ / 0-)

      pay taxes and the only currency accepted by the gov is dollars, then you will work to earn those dollars.

      Also, as another person said, to cool off the economy if it gets too hot, ie, too prevent inflation by reducing the amount of dollars in circulation.

      When you pay taxes, those dollars are destroyed.  Poof, gone, thus reducing the amount of dollars in circulation, thus reducing inflation.

      •  Yes, and thanks to modern technology, we (1+ / 0-)
        Recommended by:
        katiec

        already have the capability to raise and collect taxes at a moment's notice. All we need is a universal payroll system.

        Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

        by hestal on Sun Nov 11, 2012 at 06:00:19 AM PST

        [ Parent ]

    •  The need for government deficits (2+ / 0-)
      Recommended by:
      splashy, katiec

      The need for deficits comes from two sources.

      One is the need for actors in the economy to save. In other words, if the money does not get recirculated, but ends up in a safe lock box in somebody's basement. This savings generally is as a percent of income. These savings act as a buffer stock for an individual entity to tide against bad times.

      The second need for deficits comes from the need to stimulate the economy out of recessions and depressions, and also from the desire of the population to increase their levels of consumption - in other words a better quality of life. This is a macro need, that comes about because of the actions of the entire society (compared with individual need in the first point I made.)

      Thus from a very real perspective, the accumulated deficits of the government can be considered the accumulated savings of the society as a whole.

      The needs for the deficits will fluctuate depending upon the economic conditions. However, as long as the society desires to increase its levels of consumption - either due to an increase in population, or from a desire for improving its standard of living, there will be a need for continued deficit spending on part of the government.

      •  In the case of saving, if the govenment (1+ / 0-)
        Recommended by:
        katiec

        provides an adequate safety net to help those in need work their way through hard times or disasters then the need to save is greatly reduced. In effect, rather than save, we citizens can purchase an insurance policy that will cover our losses when disaster strikes. And obviously, we already have the technical capabilities to do this, we merely need to add things to the range of covered losses. We are very well positioned to transform our society by adopting MMT and adapting existing systems and technologies.

        Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

        by hestal on Sun Nov 11, 2012 at 06:03:45 AM PST

        [ Parent ]

        •  I've really enjoyed reading your comments. &... (0+ / 0-)

          I assumed you were a woman cuz you're so nice and reasonable :)

          •  No, I am male, but I am old and wise. (1+ / 0-)
            Recommended by:
            katiec

            my mother and my grandmothers were very smart and deeply analytical, and they were all three very, very strong. My father was the smartest man I have ever known. He had only an eighth grade education but he knew so much about so much, he was fascinating, and he understood what was important in life. The first two decades of my life were an intellectual adventure but I didn't know it until I went to college. Forgive me, but anonymity frees one to say what one thinks.

            Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

            by hestal on Sun Nov 11, 2012 at 05:51:59 PM PST

            [ Parent ]

  •  I agree the fiscal cliff is not a cliff (7+ / 0-)

    It's more like a driveway. But tax rates will go up on Jan 1. And cuts will happen if the law is not changed. This has nothing to do with Government running out of money.

    •  Lawrence O'Donnell (9+ / 0-)

      described it as a "fiscal curb" -- guess that means you do have to watch out for it so you don't trip and break your ankle, but it's not the end of the world if you do fall off.

      "If we ever needed to vote we sure do need to vote now" -- Rev. William Barber, NAACP

      by Cali Scribe on Sat Nov 10, 2012 at 09:13:03 AM PST

      [ Parent ]

    •  Right. It has to do with Congress asserting (8+ / 0-)

      its power.  Power, to be felt, has to hurt.  So, deprivation under cover of law has always been on the Congressional agenda. After all, before the ink was dry on the Constitution, a significant segment of the population was legally declared to be less than a whole person.
      Now they want to declare a thimble full of fetal tissue to be a person. And the woman in whom that fetal tissue is sprouting has no right to bodily integrity, privacy, or appropriate health care.
      It's not recent that our legislative bodies have been stuffed with people who want to rule, not serve. Indeed, the principle of "sovereign immunity" persuaded them that they were right to consider themselves as rulers and fonts of the law of the land. "Sovereign immunity," btw did not begin to be phased out for public officials until the passage of the Federal Tort Claims Act of 1947, in response to profiteering during the Second World War. But, it really didn't take off until the FOIA and government in the sunshine legislation made it possible for citizens to know what the public officials are actually up to. Which, in turn, accounst in large part for "privatization," an effort to hide what is going on by letting private corporations act as surrogates for public officials.
      Even the introduction of "professional administrators," whose decisions are protected from scrutiny by public officials is an effort to render decision-making opaque.
      Administrative professionals or technocrats are not to be questioned because they are smarter than everyone else and, presumably, have no personal interest. Of course, like the prosecutors in the judicial system, they do.  The interest is called "ambition," but that is supposed to be good. Nobody would fudge information to make themselves look good in some important person's or even the electorate's eyes.

      But, Congress is different.  The Capitol Hill Gang have learned to promote their own power by not doing their jobs. They don't regulate to protect the environment. They don't provide for the general welfare. They don't even promote special interests. They just make promises and take money for their re-election efforts and even assert with pride that they recognize no obligation to their supporters or their constituents. It's very clever.  How do you prosecute someone for not doing anything?

      The Party of No is almost impervious to correction.

      We organize governments to provide benefits and prevent abuse.

      by hannah on Sat Nov 10, 2012 at 09:38:26 AM PST

      [ Parent ]

      •  Hannah, the last paragraph of your (1+ / 0-)
        Recommended by:
        katiec

        comment is very apt and very powerful. May I steal it?

        Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

        by hestal on Sun Nov 11, 2012 at 06:04:48 AM PST

        [ Parent ]

    •  Our system of taxation collects revenue when (8+ / 0-)

      money moves. When individuals or corporations sit on cash, it is not taxed. So, the rate is immaterial.  It could be 95% and, if it doesn't move, we can't collect.

      Now, the cons, being wedded to indirection, may well be convinced that tax rates influence behaviors. They have been hoping for a long time that, if tax rates are lower, people will move the money around. It didn't happen.

      It's my sense that the only way to get the currency moving is to persuade people that what they are sitting on is worthless and simply issue more to compensate for what they hoard.

      Just look at this graph.  The rate at which money is moving is still falling.

      http://research.stlouisfed.org/...

      We organize governments to provide benefits and prevent abuse.

      by hannah on Sat Nov 10, 2012 at 09:54:03 AM PST

      [ Parent ]

      •  The wealthy having too much = (5+ / 0-)

        Money not moving.

        Money has to get into the hands of the poor and near poor to move, because they are the only ones that don't have enough for necessities so as soon as they get money they spend it on what they need.

        Give money to anyone with money, and they save it, stopping it from moving.

        It's quite simple, why don't people get that? They spend all their time moralizing about who "deserves" money, as if that is relevant at all.

        Women create the entire labor force. Sympathy is the strongest instinct in human nature. - Charles Darwin

        by splashy on Sat Nov 10, 2012 at 02:29:24 PM PST

        [ Parent ]

  •  Cliff (8+ / 0-)

    Obama should tell them no deal on anything unless the Bush cuts go. Let them know now that it isn't even up for debate. Just let it expire,let the defense cuts go into effect. The pubbies will be squealing to the negotiation table to make a deal.

    •  That appears to be exactly what he is doing (6+ / 0-)

      in regard to taxes. He has stated that he will veto any bill that extends the tax cuts for the rich. The politics of this are just awful from the House Republican point of view. They are between the proverbial rock and hard place.

      They will probably end up letting everyone's taxes go up, which will be political suicide, but Boehner can't control the tea party contingent. Hell, he can't even take a stand against them without jeopardizing his Speakership.

      Obama is holding all the good cards.

      Here's my take on it - the revolution will not be blogged, it has to be slogged. - Deoliver47

      by OIL GUY on Sat Nov 10, 2012 at 10:01:29 AM PST

      [ Parent ]

      •  This is why I see no action on this until the new (0+ / 0-)

        Congress is in session. Being an establishment Republican, I suspect Boehner will be more apt to compromise and allow the House to vote on issues which get support from both parties, rather than continue the "majority of the majority" hardline partisanship ushered in by Gingrich in 1994.

        Free: The Authoritarians - all about those who follow strong leaders.

        by kbman on Sat Nov 10, 2012 at 10:30:48 AM PST

        [ Parent ]

  •  I think I'm getting tired of laughing at (5+ / 0-)
    Recommended by:
    2thanks, katiec, hannah, Eric Nelson, splashy

    the average person's inability to understand that money has no intrinsic value and is always "just printed".

    We're fools whether we dance or not, so we might as well dance.

    by PowWowPollock on Sat Nov 10, 2012 at 09:26:56 AM PST

  •  He's not really "lying"... (4+ / 0-)
    Recommended by:
    kbman, hannah, Eric Nelson, tofumagoo

    if we're all being held hostage to Congress' power to control the governmental purse strings.  We saw this all through the first 4 years of Obama's presidency, and I don't pick up any indication that our so-called representatives are ready to stop now.  BTW, I heard our fave Orange Guy on NPR saying that it's intrinsically unfair to increase taxes on the rich because "most of them are small businessmen."  !?!?!?!?!?  Since these guys don't really think they have to present any facts to back up their arguments, they just say the first thing that pops into their heads (other than "I'm rich, and I don't want my taxes increased -- so there.")

    •  The Koch Brothers' empire is classified as (8+ / 0-)

      a small business, because it is closely held by a family trust.

      The Cons dissemble.  Period.  Willard was not an anomaly. He fit right in with the dissemblers.

      Deception is actually a very primitive behavior. The killdeer does it. So does the pitcher plant.

      We organize governments to provide benefits and prevent abuse.

      by hannah on Sat Nov 10, 2012 at 09:45:31 AM PST

      [ Parent ]

    •  And consider the position of several high profile (3+ / 0-)
      Recommended by:
      hannah, lostinamerica, Eric Nelson

      CEO's on the election, how they bleated constantly about Obama being bad for their businesses. As many here know, Obama has been great for business and they haven't returned the favor in support or jobs, instead sitting on piles of wealth like Smaug the dragon. Also, businesses have been shown to fare better under Democratic administrations than under Republican ones. As such, I believe that, far from acting in the best interests of their companies, these CEO's were selfishly focused on their personal bottom line, not wanting their income taxes to rise regardless of the impact of Republican policies on their businesses. But then I realize, "overpaid executives acting in their own personal self-interest? ... Nah! can't be!"

      Free: The Authoritarians - all about those who follow strong leaders.

      by kbman on Sat Nov 10, 2012 at 10:41:42 AM PST

      [ Parent ]

    •  Except the Pres could just tell Treasury (3+ / 0-)
      Recommended by:
      Eric Nelson, tofumagoo, hestal

      to issue a "jumbo coin" in any amount.  He has legal authority to do so.

      Then, poof, money appears without Congressional or Fed action.

      •  The Congress (2+ / 0-)
        Recommended by:
        katiec, tofumagoo

        still needs to authorize its spending. But the Secretary of the Treasury could use that money to "pay off" the "debt" held by the Fed, and lo and behold, in a simple minting of a 1 oz (or 1/2 oz or other weight) $60Trillion platinum coin (the coin does have to be made from platinum,) the "debt ceiling" goes poof!

        •  Thanks for the clarification. Question: (1+ / 0-)
          Recommended by:
          clonal antibody

          The Treasury would need Congressional approval to spend for, say, paying someone to build a smart grid?

          But it doesn't need Congress approval to pay off the debt held by the Fed?

          Is this right?

          Also, is the debt held by the Fed owned by the Fed or owned by Treasury?  Or some other entity?

          Thanks,

          •  It is the government owing money to itself (2+ / 0-)
            Recommended by:
            katiec, tofumagoo

            The Treasury owes the Fed. This happened, because the Treasury acquired these T-Bills as a part of buying assets from troubled banks under Congressional authorization. Normally, the Fed cannot buy T-Bills from the TreasurSo this would be considered an asset swap between on arm of the government and another arm of the government. Something that I believe is allowed by law.

            Since these T-Bills are "owned" by the Fed, Bernanke and the Board of Governors of the Fed could also "gift" thes Treasuries to the US People in order to retire the National Debt, just as you can send in extra money to the IRS asking that money to go toward "retiring" the National Debt. Of course they (the Fed) will have to carry a loss on its books - hey but who cares! (and they have the capacity to carry as much loss on the books as they want - just as the government has an infinite capacity to print money!)

            •  Thanks for the response. (0+ / 0-)
            •  Sorry (1+ / 0-)
              Recommended by:
              katiec

              Instead of saying

              the Treasury acquired these T-Bills
              I should have said "The Fed acquired these T-Bills"
            •  Hey clonal (1+ / 0-)
              Recommended by:
              katiec
              Normally, the Fed cannot buy T-Bills from the TreasurSo this would be considered an asset swap between on arm of the government and another arm of the government. Something that I believe is allowed by law.
              This is an asset swap. But I think it would just be booked as repayment of debt by the Fed.
              Since these T-Bills are "owned" by the Fed, Bernanke and the Board of Governors of the Fed could also "gift" thes Treasuries to the US People in order to retire the National Debt, just as you can send in extra money to the IRS asking that money to go toward "retiring" the National Debt. Of course they (the Fed) will have to carry a loss on its books - hey but who cares! (and they have the capacity to carry as much loss on the books as they want - just as the government has an infinite capacity to print money!)
              I've never agreed with the feasibility of the "gifting" idea. The problem is this. The Fed system as a whole is the Central Bank of the US. However, only the Board of Governors is unambiguously a Federal Agency. All the regional banks are privately owned and it is they, probably the NY Fed, that has bought up this Treasury debt from the private sector. So, then the question becomes can the regional banks "gift" the debt they hold to the Government? They can but the owners of the regional Feds then would have to see a huge reduction in the value of their balance sheets. I don't think they would agree to accept that. So, I don't think this "gifting" business is going to happen. On the other hand, PPCS is up to the President and his underlings alone. No one else involved in the process really has a choice once the President takes action.
          •  Even if the Treasury had the $60 T (1+ / 0-)
            Recommended by:
            katiec

            it can only use the proceeds for debt repayment and for deficit spending. New deficit spending is always based on Congressional Appropriation. So, Congress has to "approve" i.e. appropriate the spending that turns out to involve deficits.

            The Executive doesn't need Congressional approval to pay off debts, because Congress has already approved the deficit spending that led to the debt obligation and more directly, the 14th Amendment requires that the Government pay all its debts. In cases where the President has a simple choice between a need to incur further debt in order to satisfy the 14th Amendment, and to satisfy the prohibition of the debt ceiling, the situation would set up a possible constitutional challenge to the debt ceiling legislation, and the President might just ignore the debt ceiling on constitutional grounds and then let Congress go to the Supreme Court to decide who is right.

            However, if this happened, then Congress might not be able to challenge the President's action. The reason is that the Congress has two Houses, and they might disagree about whether to challenge the President on this, since the Senate is Democratic and would not want to challenge the President. If this situation developed, then the SC might deny standing to the House alone to litigate the issue.

            In addition, the situation is made more complex by the existence of the 1996 act allowing proof platinum coin seigniorage (PPCS). Since that statute gives the Mint the authority to mint platinum coins of arbitrary face value, the President really doesn't currently face a conflict between the 14th Amendment and the debt ceiling, since the President could mint a coin whose face value could be in the trillions and whose seigniorage profits could be used to remain within the debt ceiling in any such crisis. So, the question arises: when the debt ceiling approaches and the President must continue debt repayments, does he have an obligation to use PPCS to avoid the conflict between the 14th amendment and the debt ceiling? I think you can make a case that he does. See here:

            Finally, the debt held by the Fed is owned by them, but it is the Treasury's debt.

  •  Question #3 is True. (1+ / 0-)
    Recommended by:
    katiec
    The National Government borrows money from the private sector to finance the budget deficit.
    I know what he's trying to say here, and agree the rest of the statements were false, but this is just sloppy.  Yes, the government can print money rather than borrow it.  But the result of that seignorage is revenue, which goes directly to the treasury because the Fed every year turns over all of its profits.

    So if seigniorage is used, then there is no deficit.  If there is a deficit, then seigniorage was not used, and the money must instead have been borrowed from the private sector.  

    This is fundamental.  If there is a government deficit, there must be a private surplus (foreign or domestic).  

    I agree with 95% of what Randall Wray says, but sometimes he gives the impression that government spending doesn't matter at all, which isn't quite true.  Once we do get exessive overall spending in the economy as a whole, producing signigicant inflation, then we really should be pressing congress to cut deficits.  This is much preferable to the trend of the last 30 years to instead have the Fed curtail private spending through interest rate hikes.  

    •  Personally, I think the government collects (5+ / 0-)

      revenue to keep the money moving and that's why I agree the hoarders should now be taxed more.
      On the other hand, all of this only applies to the federal government. The states are in a different situation, as are the cities, because they don't issue their own currency. Indeed, the countries of Europe who have recently adopted the Euro are discovering what that's like. The citizens approve because having to change currencies is a nuisance, but the countries are finding it hard to resists the imprecations of investors who bought debt and now want to be paid interest for doing nothing.
      Getting over the idea that currency has value is going to be difficult everywhere because, as long as it was tied to relatively scarce metals, it did.

      Just think, it took just one generation for all the gold plundered by Spain from the Americas to be transferred to the Dutch vaults and sequestered as the backing for notes that were issued to finance Britain's industrial revolution, from which the Dutch benefitted without doing anything but handling money.
      There was good reason for Jesus to drive the money changers out of the temple.

      We organize governments to provide benefits and prevent abuse.

      by hannah on Sat Nov 10, 2012 at 10:19:13 AM PST

      [ Parent ]

      •  Currency does have value (0+ / 0-)

        Currency is backed by the power of the government to collect taxes.  And even to seize property.  

        So ultimately, currency is backed by the entire output of the economy.  The trick here is, if people are unemployed, and not creating output, then it really costs the government nothing to pay them to then create output.  The new currency is backed by the new output.  

    •  Wray never (7+ / 0-)

      gives the impression that spending does not matter.  In fact, he goes out of his way to stress just the opposite.  What he does say is government has the fiscal ability and responsibility to spend exactly what is needed to achieve full employment and price stability, and that deficits or surpluses are nothing more than a part of the outcome of achieving that goal and responsibility--a deficit or surplus objective is a meaningless economic goal and will only promote disaster.  The goal of economic policy is to promote employment and growth not to meet some meaningless fiscal objective.  If the economy needs stimulus to promote growth and stabilize inflation, then a deficit outcome is great.  If the economy is growing to fast with inflation, then a surplus might be in order.  It's the economy, not the balance sheet, that matters.

    •  I don't think Wray disagrees with you. (1+ / 0-)
      Recommended by:
      hestal
    •  The deficit (0+ / 0-)

      We can get lost in the words. From the standpoint of the sectoral financial balances model which you alluded to above the government deficit is defined as taxes - spending. The model doesn't take into account seigniorage profits. From the point of view of the model deficit spending would be continuing regardless of the level of seigniorage profits in any time period.

      So, for example, let's say tax revenues are at $3 T and Government spending is at $5 T, then the $2 T gap is funded by seigniorage; but the deficit still remains. This is a good thing, because the deficit is necessary for government to create that private sector surplus.

      On Randy, I think he's very clear in his writing that "deficits do matter, but not in the way you think." All MMTers hold that excessive deficit spending can produce demand-pull inflation. The question i: what is excessive? MMT says that excessive is a deficit greater than the sum of non-government savings and the trade deficit. For example, if savings desires amount to 6% of GDP and the trade deficit is 4% of GDP then if one sets up the proper regime of automatic stabilizers you'll get a right-sized deficit of 10% of GDP. That number can vary and be even greater if your deficit is made up of low fiscal multiplier spending or tax cuts, as is the case now.

  •  Thank you Hannah. (8+ / 0-)

    It's most important to understand, first and foremost, what money in a fiat system is and is not.  Money is something that users must acquire fist to spend, but is not something that the issuer must first acquire to spend.  For without the issuer first spending, there is no money.  The Federal government cannot acquire its own money unless it issues it first. Since money becomes the medium to move products and services in a fiat system, a lack of that money can slow the system down and stop that exchange activity.  If too much of the money being issued is being saved and not spent, then the issuer of the money must issue some more to fill the gap or the economy sinks--as is now the case.  So a deficit is really nothing more than the government's responsibility to back-fill dollars that are being saved in the private sector.  Cutting the deficit, then, only discourages private savings while at the same time deflating the economy.

    Bottom line: the fiscal cliff is nothing more than the issuers of the currency acting like they are users and abrogating their fiscal responsibility.

  •  I see echoes of the recent past in the coverage. (2+ / 0-)
    Recommended by:
    hannah, Eric Nelson

    It's a political meme to give cover for making unpopular cuts to programs that Americans support and stave off tax increases that the wealthy don't want to pay.

    The Conservative elite hates social programs and having failed to convince the public on their ideas, to slash funding and/or privatize programs, they've hatched a new plan. Use the same tactics that sold the invasion of Iraq. Create a artificial crisis, flood the media with propaganda, co-opt the press and the public will support it because the alternative is a smoking mushroom cloud.

    Worked before.

    "The human eye is a wonderful device. With a little effort, it can fail to see even the most glaring injustice." Richard K. Morgan

    by sceptical observer on Sat Nov 10, 2012 at 10:25:31 AM PST

  •  Hannah, great job. Thanks so much!!!! (1+ / 0-)
    Recommended by:
    johanus
  •  Oh, if you want to watch the whole (4+ / 0-)

    presentation at Columbia.

    http://www.youtube.com/...

    http://www.youtube.com/...

    http://www.youtube.com/...

    http://www.youtube.com/...

    I have to admit to a personal prejudice.  Although I have no credentials as an economist whatsoever, it struck me ages ago that economic theory was/is grossly unrealistic and that accounts for why economic predictions were consistently wrong. John Kenneth Galbraith, one of the few people to ever answer my letters, explained that the reason economic analysis is inaccurate is because they hadn't developed the ability to track dynamic systems. Economic analysis is always focused on a moment in time that is already past by the time the analysis comes out.
    So, now that Jamie Galbraith is continuing his father's work, I'm prejudiced.

    We organize governments to provide benefits and prevent abuse.

    by hannah on Sat Nov 10, 2012 at 12:04:33 PM PST

  •  Love your work on this hannah, but don't like .. (2+ / 0-)
    Recommended by:
    peregrine kate, tofumagoo

    ..the use of the word "lie" when referring to the President's adoption of the "out of money" spin to make their points. That language was representative (unfortunately) of the success of the GOP spin and was used in an effort to show that the president is not blind to the debt & deficit. Not a good choice to futher a republican meme, but not a lie coming from the President imo.

    Randall Wray was not referring specifically to the President, but the republican and austerity advocates spin/lies
    The President means this:

    Here's a tip. Money is worthless, unless you spend it.
    And this:
    The answer, I suspect, is because from the perspective of the Executive branch, there is no money, if the Congress, which is in charge of the purse, refuses to dispense any to the government, unless and until, what has been previously dispersed comes back.
    [snip]
    The real question that should be asked needs be addressed not to the President, but to the Congress. Why would the Congress seek to deprive citizens of the currency the economy needs to thrive?
    In fact the president's strong message for his first term has been exactly that message - spending as investment and a catalyst for prosperity starting at ground level with the people who work and don't live off their hoarded wealth's accumulated leverage over the economy.

    It hurts the communication of that idea when we use the republican developed misrepresentative language to combat the misconceptions we are fighting to correct imo.

  •  Just a few minutes ago, I saw a (1+ / 0-)
    Recommended by:
    katiec

    discussion on MSNBC, on the Chris Hayes show, in which the fiscal cliff was the main topic. It was painful to watch all of these people talk seriously, and wrongly, about where we stand, how our economy works, and what steps we should take to put our nation on the right path. It almost breaks my heart, not for me, because I am an old man and I have enough money to live until I die, but for my grandchildren and their parents because they deserve better than our leaders, in government, in the media, in academia, are giving them.

    How did stupidity become the defining characteristic of so many of these "very important people?" (How does one denote sarcasm in a written comment?)

    Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

    by hestal on Sun Nov 11, 2012 at 05:53:01 AM PST

    •  I posted the preceding comment before I (0+ / 0-)

      read the comments in this diary. If I had done so then I would have added that it is painful to see so many followers of Daily Kos parrot the idiocy that passes for learned discourse in economics and government. My God, there must be some inherent element that is born or educated into some people.

      Someone once said, "It is not what you don't know that makes you look silly, it what you know that just ain't so that does the trick."

      Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

      by hestal on Sun Nov 11, 2012 at 05:57:13 AM PST

      [ Parent ]

    •  Don't know (1+ / 0-)
      Recommended by:
      hestal

      I watched it too! I think Chris is often a brilliant analyst and commentator whose heart is in the right place. But I also think that he and other "progressive" commentators are woefully ill-prepared in the area of macroeconomics, and are willfully ignoring MMT. They're just researching it to see what it's about. This is true despite the increasing exposure MMT is getting in much of the MSM. For Chris to be so ignorant about MMT thinkers is rapidly approaching malpractice.

      Today Chris gave a platform to the former Bain Executive, Ed Conard, the author of the book unintended consequences. What was striking about the segment was the relative freedom from serious challenge Conard had when he started rattling statistics comparing the performance of the US to Euro nations. Conard's citations should have been met with extreme skepticism and there should have been much more careful preparation for his appearance, which was basically a defense of the 1% and all their accomplishments over the last generation. Listening to Conard felt like entering a fantasy world. But here was Chris complimenting the guy on his book and treating him with kid gloves.

      •  I agree about Chris' intellect, but (1+ / 0-)
        Recommended by:
        katiec

        he goes too far in giving people like Conard a forum. He, Chris, has yet to learn that he will not convert such people, and by giving them a voice then he gives bad ideas some credibility. His naivete was proven when he shook Conard's hand (which he did not do for the other guests), he thanked him for being a good sport, and he remarked how much fun he had arguing with him.

        Earlier today I saw part of a corny movie that showed how the British and German fliers in WWI went from treating each other as good sports to strafing hospitals as they began to realize that the other guys were out to kill them.

        I know that I will be accused of being overly dramatic, but that is the way the world works. We have made societal progress and our battles are less physical than they once were, but on the other hand, by being good sports and well-behaved we let the comfortable delay giving comfort to the afflicted. So we have millions out of work and our representatives fight it out as if it is a sport or a debate.

        FDR, HST, IKE, and LBJ understood the difference. There is a time for talk and there is a time for action. Obama still hasn't learned that lesson, but perhaps he will someday see that rallying the common folks is the best thing he can do to bring about change. If he called for a million person march on Washington in support of the programs that move us forward then it would happen. Maybe he will see it. I hope so, because too many people have suffered for too long. Our representatives play life and death games of chicken with the lives of other people instead of risking their own lives. Something is wrong with this picture.

        Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

        by hestal on Sun Nov 11, 2012 at 10:47:46 AM PST

        [ Parent ]

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