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The U.S. Dollar is not a limited commodity like gold. It is a social construct, a tool, an accounting term used to measure and facilitate economic transactions-it is infinite.  

Think about that for a minute.  

Most people do not understand how money is created.  Economists should know, and they do, but they have been trained to look at it in the wrong way.  They use scary terms like debt, and deficit.  The endless tears and the rending of garments in the media and on Capital Hill over our debt has reached a fever pitch.  All this does is obscure the real problems we face in this country and we cannot solve them until we stop thinking of money as a commodity.  It is not. It is simply a tool that we use to measure our economic activity and tally the value of our resources.  

Money was created as a method to exchange goods and services.  Our world would be rather difficult if when we received our paycheck, it was a bag that held all the goods and services we need to consume for the next two weeks.  Or worse yet, we received in return for our labor, the very product we had produced and then we have to go out and exchange that with other laborers for what we really need.  It would be sort of hard to drag our 'paycheck' home on Friday.  It would be even more inefficient for us to then have to stand at the corner on Saturday hoping someone would come by with what we need to trade while willing to take what we had.  This method of exchange may have worked a few thousand years ago in a simple economy, but they also used money then to measure the exchange of goods when it got too complicated.  Back then money was often a valuable commodity because it was what gave it value.

Today, we get a simple piece of paper with a number printed on it that represents the value our labor has in the market.  We can then exchange that labor that is measured in dollars at a future date for what we need or want to consume.  It makes our economy and our markets operate efficiently and has for thousands of years.  It really does not matter what an individual, group or government choose as the vehicle designated as money, anything we agree on would work.  Now, most money and its exchange is simply an entry on a computer with a number that measures the value and it is designated in U.S. dollars (USD.)  

Now if you haven't already formed a petrified opinion it's possible to start thinking of money in a new way when it comes to our U.S. economy.  But first, you need to throw out everything you think you know and stop listening to the chicken little Budget Monsters™ or Ron 'love me some gold' Paulbots on the news.  WE ARE NOT BROKE.  Far from it.  How can we be broke when we still have a large labor force able to produce?  How can we be broke when we have natural resources at our disposal?  How can we be broke when we have the infinite power of our minds to create?  If we think of money as the vehicle to measure our economic activity then we must accept that we have a huge gap to fill when we have many out of work, creative minds to educate and idle factories boarded up for lack of business.

It is ridiculous that people who should know better push this fantasy that we are broke.  Even Alan Greenspan admitted this was true.  

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press
It is a dysfunctional world they choose to live in when they tell us we have no more money to spend.  This falsehood is designed to obscure the real agenda [insert conspiracy theory here] and it is also why we need to understand where money really comes from and how it should be used. Since money is a tool, we should think of it as one and stop letting it control us.

Our economy creates no money, zero, nada, zip. Our currency does not exist and will not exist until the government 'spends' it into existence.  Some people call this "printing money" and will try to scare you with all kinds of conspiracies and boogeymen cometh type stories.  Ignore them.  First, you need to understand that our U.S. Constitution gives our government the power to create money.  

To coin Money, regulate the Value thereof... Article 1; Section 8 - U.S. Constitution
This power is infinite as the Constitution does not put a limit on the amount.

But what gives that money value?  It used to be that our money was backed by gold.  People thought it would only have value because they could go to the government and ask for their dollars to be exchanged for gold, which as a commodity, has value on the open market.  In this respect we could use oil or wheat as money because it will always be worth something on the market.  Gold is just easier to carry.  But our money no longer can be exchanged for gold and it doesn't need to be.  It is not backed by anything but the "Full faith and credit of the United States."  

So what does that really mean?  Faith and Credit are the important concepts here to understand.  There are two main reasons why that gives our money value.


First, our country has been and still is the largest economy in the world.  It has a stable democracy and large resources.  Our laws are designed to allow business to operate through enforceable contracts, patents, trademarks and regulations that prevent other entities from encroaching on the market unfairly.  We also have a trained labor force through publicly funded education that is mobile throughout our economy.  Our infrastructure is well developed and allows our businesses to function efficiently to bring their goods and services to market.  We also have a large Public University structure and a Military that funds research and development that then benefits our private markets.  In short, our country has allowed business to prosper and creates the opportunity for new business to be formed.  This drives our economy and benefits all our citizens.

The faith that the world has in our economy to continue to function and grow is why the dollar is considered a reserve currency.  What continues to makes it a Reserve Currency is also important to understand.

*The U.S. has the world's largest economy and well regulated financial markets.

*International trade has been mostly settled in dollars. The World Oil market completes transactions in U.S. dollars.

*The dollar is used in 85% of all foreign exchange transactions according to the Bank of International Settlements.

*Central banks hold more than 60% of their reserves in U.S. dollars according to the International Monetary Fund

Up until just recently the faith in the U.S. government and its ability to pay its debt was not questioned.  But of course we have more than a few trolls who have tried mightily to undermine this faith.  When they try to tell us that our dollar is losing value, that we are 'broke', that we will 'default' on our payments by not raising the debt limit and that we have too much debt, they are chipping away at the faith in our currency which is the true cause of it losing value.  If more people understood what was at stake they might rethink their position.


Second, our Treasury could create a $16 Trillion coin tomorrow that we could use to pay off all our debts.  

Every. Single. One.

This gives us unlimited credit.  They could even create second coin for any amount that they would then hold in our 'bank' account (Federal Reserve) that allows us to spend all the money we need to meet our budget, maintain or build our infrastructure, fund healthcare for all, provide a college education to every citizen, pay out all Social Security, Medicare and Medicaid benefits and provide a job to everyone who needs one.  This ties back quite nicely with the Faith part of the statement "Full Faith and Credit".  If foreign countries, business and the citizens of the U.S. have faith that the U.S. has unlimited credit, they will consider our currency to have value because they know they will always be paid back.  The large amount of U.S. Treasuries purchased by foreign governments is further proof of their faith in our currency.  In truth, the U.S. 'debt' held by China is simply the dollars they took in payment from us for their goods which they then turned around and invested right back into a U.S. treasury 'savings' account that pays interest.  If that is not faith in our creditworthiness, I do not know what is.

Our government has set up a political construct to the amount of money we can 'borrow' with a legal debt limit.  Our Constitution gives congress the power...  

To borrow money on the credit of the United States... Article 1; Section 8 - U.S. Constitution
This debt limit is like the brakes in a race car.  But the key word here is credit.  We are not borrowing money from other countries, we are actually issuing our own currency and borrowing it from ourselves.  Our 'debt' is simply an accounting entry to show what amount of currency was issued.  When the U.S. Govt sells a Treasury Bond, the money did not exist before it was 'spent' into the economy.  When someone redeems a Treasury Bond, the Treasury just issues new 'debt' to pay for it.  This means the debt limit was designed so that our government will use their unlimited credit in a fiscally responsible way.  Unfortunately, it will only work effectively if we understand that we DO have an unlimited credit and that it MUST be used responsibly.  Our failure comes in not understanding that a debt limit must be set that allows for growth and full employment for all.

But let us understand what that word debt really means in this context.  

The U.S. maintains an accounting of all currency spent into the economy.  The yearly budget is a plan for how that money should will be spent for the public benefit.  Each budget that is approved can be in surplus, balanced or in deficit.  What this means is the difference in the net amount of money created and spent by the government minus the amount of revenue received.  This is where the confusion comes in.   Since it appears from the use of the term 'budget' it needs to be in balance or surplus just like the budget you or I would make.  When we talk about the U.S. budget as if it is the same as a household budget, everyone assumes that the revenue the government collects is what pays for it's spending.  This is false.  Our government is not like you and me.  Remember, they can add NEW money through spending or by just throwing it out onto the street whenever they choose, they don't need revenue to fund it.

Still confused?

Okay, first remember that 'revenue' = taxes, and 'spending' = new money.  Now, imagine if the net amount of NEW money spent into the economy is LESS than the amount of revenue received?  That would mean we had LESS money going into the economy than we are putting in.  In Washington they call this a Budget Surplus.  By this same logic a balanced budget means that the Government is spending the same amount of NEW money into the economy as it is taking out of the economy in revenue.  Everything would be equal and we would have no growth.  So if you have followed this logic so far you would already have figured out that - In order for an economy to grow, NEW money must exceed the amount of money taken out of the economy.  This kind of turns all their talk of running out of money on their head now doesn't it?

But why do we need to have revenue at all if we can create money up to the point where all our needs are taken care of?  

Well for two reasons, first; This 'budget' construct is a way to get us to do something that none of us like, but some of us think is necessary in order to have a functioning government.  Pay taxes.  But we also pay taxes in order to DESTROY money in the economy.  If we continue to put NEW money in, eventually it will lead to an imbalance that will need to be dealt with, but the way to take it back out is to tax.  The trick is to find that right balance and stop talking about our currency in terms of debt, deficit and being broke.  But there is another reason we pay taxes, it gives our money value.


There are two things that common wisdom tells us we cannot avoid; death and taxes.  We must pay our taxes to the government in U.S. currency.  If our government did not require us to pay taxes, we would have little reason to use the currency they issue.  This also gives it value.  Try paying your taxes in Gold and see how far you get.  I am pretty sure they do not accept payments in Yen.  So in order for us to pay our taxes, the U.S. government must 'spend' our money into existence first.  They could just give it to us too, and then tell us to return a portion of it back in taxes, but what would be the point of that?  Think about it.  I promise to give you a dollar if you give me back $0.20.  You well may ask, why not just give me the eighty cents and be done with it?  Good question.  And the answer is that transaction would create nothing of value and would not give our government power over our currency.  Talk of a 'flat tax' misses the point of taxes in two ways.  First, taxing authority gives our government issued currency value, but secondly, it is also used to encourage or discourage behaviors.  Because the reason for taxation is not understood, our conversation about it is mostly silly.  We don't need to tax to raise revenue in order to spend, so we should be using our ability to tax to encourage and discourage behaviors in our economy.  

So if you put it all together, our government has enormous power to create an economic system where everyone is able to have a minimum level of the necessities to live; life, safety, health, food, warmth and an education.  They not only can create all the money they need, they can manipulate the economy by increasing or reducing the amount of money they put in and take back out to keep everything in balance.  They can use their tool, money, to do so many things but yet we have many who can't seem to grasp basic math.  Creating enough spending in the economy to take care of our needs - To promote the general welfare of it's citizens - is a true balanced budget.

Originally posted to whoknu on Sun Nov 18, 2012 at 01:28 PM PST.

Also republished by Money and Public Purpose.

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Comment Preferences

  •  In the interest of presenting the same information (8+ / 0-)

    We organize governments to provide benefits and prevent abuse.

    by hannah on Sun Nov 18, 2012 at 01:46:28 PM PST

  •  A good layman's version - Terry Pratchett's (5+ / 0-)

    Making Money, in which lovable rogue Moist von Lipwig winds up running the Royal Mint and the associated Bank, and takes Ankh-Morpork off the gold standard...

  •  Republished to Money & Public Purpose (11+ / 0-)

    Thanks for this really great, clear diary.

    I'd like to add that it's not only because folks can't grasp basic math, but also because of the human difficulty of envisioning abstract concepts. We are so tied to concrete things like gold, and the latter has been associated with money in the world's thinking for so long that eradicating the misconception is exceedingly difficult.

    For the first time in human history, we possess both the means for destroying all life on Earth or realizing a paradise on the planet--Michio Kaku.

    by psyched on Sun Nov 18, 2012 at 02:05:09 PM PST

  •  I'm inclined to thing everything YOU think (3+ / 0-)

    you know about debt and deficits is wrong.

    Yes the government, indeed ANY government, can simply print more money to pay off its debts. That is what the Weimar Republic did after WWI and Zimbabwe did in 2009. The result is hyperinflation. When you dramatically increase the supply of money and put more in circulation there is more of it competing for essentially the same supply of goods and services. Prices shoot up. In addition, any savings you had managed to accumulate over a lifetime of hard work will now be worth less.

    Also, it isn't a law of nature that the US dollar has to be a reserve currency. Before WWII it was the British pound sterling. The US dollar seems to have peaked as the reserve currency in 1999. If we become stupid and careless about our money supply the world will simply move to something else like the euro.

    •  sigh... (8+ / 0-)

      Go do some reading before you come here and make the same old tired arguments.

      start here

      or more detailed analysis here - The Efficiency Fairy and Inflation Goblins

      Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

      by whoknu on Sun Nov 18, 2012 at 02:47:06 PM PST

      [ Parent ]

      •  You know what? (2+ / 1-)
        Recommended by:
        Neuroptimalian, cynndara
        Hidden by:

        The argument of which I am tiring is the one that this diary promulgates.

        The solution -- the only stable, sustainable solution -- to The Fiscal Problem (by which I mean, The Fiscal Problem, not to be confused with the USA's immediate fiscal difficulty) is to use taxation to counter the accumulation of wealth by the financial elite.

        Endlessly creating new spending power must devalue old spending power -- which will certainly accomplish the goal of dialing back the wealth accumulation of the financial elite, but will unfortunately simultaneously dial back the rather more modest wealth accumulation of everybody else. It's a ridiculous way to attack the problem, because it creates all sorts of impossible-to-control 2nd and 3rd and nth order downstream effects of unknowable magnitude.

        I do not comprehend why otherwise intelligent humans cannot understand the not-remotely-obscure difficulties inherent in such an approach, beginning with the most obvious: Why should or would anyone accept US money at face value, when they know that the people in charge of maintaining that face value don't actually believe they have any obligation whatsoever to do so?

        So, go sigh in the mirror, smartypants. Until one of you -- any of you -- can put this argument into a form that I find even remotely persuasive, I'm going to dismiss it and you with an air of superior condescension one full octave higher than the one you affect in dealing with people who aren't drinking your koolaid.

        To put the torture behind us is, inevitably, to put it in front of us.

        by UntimelyRippd on Sun Nov 18, 2012 at 07:28:00 PM PST

        [ Parent ]

        •  Do you have any data (3+ / 0-)
          Recommended by:
          psyched, dorkenergy, katiec

          to back this up?  

          Endlessly creating new spending power must devalue old spending power --
          And you do realize that our currency is no longer backed by gold, and hasn't been since 1971, so I am not sure why this would be a logical statement.
          Why should or would anyone accept US money at face value

          Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

          by whoknu on Sun Nov 18, 2012 at 08:04:19 PM PST

          [ Parent ]

          •  oooooh. and now the Modern Monetary Theorists (0+ / 0-)

            are HR'ing people who call them out on their threadbare new clothes.

            If you were clever enough to understand what the hell you are talking about, you would be clever enough to understand that the concept of "face value" is not essentially connected to gold, it's connected to an understanding of what one is getting when one gets a dollar. If I accept $10 for an hour of my labor today, it's on the assumption that I will be able, within a reasonable time frame, to exchange that $10 for an hour of somebody else's equivalent labor. If I can't, then I will discount the value of whatever is being given to me -- or I will simply decline to accept it in trade.

            To put the torture behind us is, inevitably, to put it in front of us.

            by UntimelyRippd on Mon Nov 19, 2012 at 05:12:40 AM PST

            [ Parent ]

            •  you seem awfully touchy (0+ / 0-)

              and defensive about your beliefs.  To me that makes it seem you are feeling a bit threatened.  Why do you find it necessary to call people names?  It is a discussion, not a war.  

              Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

              by whoknu on Mon Nov 19, 2012 at 05:04:59 PM PST

              [ Parent ]

            •  Good Comment, actually (0+ / 0-)

              UntimelyRippd: Good comment. But what you are espousing here IS MMT, which is nothing but the good old New Economics of the 30s & 40s, of Keynes, which is nothing but the good old Institutional Economics of Veblen, Mitchell & Commons.

              What your saying is close to thinking about the "labor standard", the JG that is the essential policy of MMT - which they have said themselves is the ONE TRUE ADVANCE that they have made in their synthesis of the past. And which like everything else, was prefigured in the works of our great science fiction seers, like Jack Vance. :-)

              The whole point of it is the empirical observation that states DO NOT endlessly create new spending power. In fact, states create too little spending power. They tend to create so little that they almost always have substantial room to create more, without devaluing old spending power. And what spending power states do create, is almost always spent in the most inflationary, devaluing, stupid ways imaginable.

              Basically, states spend by giving money to rich people to do (a) idiotic things  (b) destructive things [military] & (c) nothing [bonds].  

              All MMT suggests is : giving money to poor people to do Good Stuff. Thinking that this, the JG, is MORE, rather than muchmuchmuch LESS inflationary, possibly deflationary, is cuckoo for cocoa puffs.  An MMT-guided US economy would have the hardest currency the world has ever seen, with faster economic growth than has been seen in decades.

              •  NO, no, no (0+ / 0-)

                MMT is not about "giving money to poor people to do Good Stuff."  

                Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

                by whoknu on Tue Nov 20, 2012 at 06:27:16 AM PST

                [ Parent ]

                •  Really? (0+ / 0-)

                  Really? Then what is the Job Guarantee? What is public works spending? What is even military spending in the rare case of a war of self-defense?

                  Why speak in a more complicated high-falutin manner than necessary? The Good Stuff is just "Public Purpose". Any state, by definition spends for public purpose. Usually it is giving money to rich people to do insane, evil or worthless stuff, as said above.

        •  Taxation: A basis for Valuing Money (3+ / 0-)
          Recommended by:
          psyched, katiec, whoknu

          The use of taxation by the issuing government can serve several purposes.  One is to limit the money supply.  Another is to redistribute the money supply in ways that are seen as more useful for fulfilling the functions of government.  

          But a necessary function is to provide a basis for the value of the money.  If the issuing government demands payment in its currency, then there is a built-in demand for the currency to pay the taxes.  Add to that that the same government will enforce contracts written in its currency and no other, and there is a basic value for the currency.

    •  I'm inclined to think the truth is in the middle (2+ / 0-)
      Recommended by:
      Blubba, cynndara

      Your comment deserves a rec because the diary fails to consider the inflationary consequence.  On the other hand, the diary makes a good point that debt and deficit are not so important as to preclude other discussion.

      We live in a complex civilization.  Hence, our economy is complex.  If it were simple, all the economists would agree.  They don't!

      •  Just as long as you realize that both Zimbabwe (9+ / 0-)

        and Weimar owed debts in currencies other than their own.

        The US does not.

        Also, the productive capacity in both countries had been destroyed, so production could not keep pace with the introduction of new money.

        The US has lots of unused capacity.

        When this is the case a new dollar has as much value as an old dollar.

        •  Saudi Arabia has, (1+ / 0-)
          Recommended by:

          at various times given serious consideration to pricing its oil in a currency other than dollars and would surely do so if the US flooded the market and depressed its value against other currencies.

        •  The Austrians would disagree. (1+ / 0-)
          Recommended by:

          They differentiate between monetary inflation and price inflation.  For them both the currency and the unused capacity are mostly irrelevant.

          Personally, as more of a Keynesian, I would give a bit more credence to your capacity point.  Still, it could be taken too far.  It is possible (though less likely) to have price inflation concurrent with unused capacity as well as high unemployment.  Having said that, if you add in a low "velocity" of money, then without a shortage of any particular resource (like oil - or energy generally) then the chance of price inflation becomes remote.  

          •  You can't have (7+ / 0-)

            price inflation caused by too much demand in the areas of the economy where you have unused capacity. Of course, if one or a few suppliers controls than you can have price inflation in those areas of the economy. But that's cost-push inflation proceeding from the supply side; not demand-pull inflation rsulting from too much government spending.

            •  Maybe I don't understand (2+ / 0-)
              Recommended by:
              whoknu, cynndara

              You say, "too much demand in the areas of the economy where you have unused capacity" and that makes sense to me.  But what if other areas of the economy don't have excess capacity?  Is that what you describe as "cost-push"?

              Let's do a silly hypo.  Assume there is an excess of capacity of elevators but a shortage of capacity of cars.  If the government stimulates demand for car elevators then (presumably) the overall economy (GDP) grows.  Right?  But there may be an unwanted side effect in that the price of cars goes up because demand (and the money supply) went up without an offsetting increase in supply because there was no excess capacity for cars.

              My point is that the economy is complex.  Do you disagree?

              •  That is where the tax would come in (3+ / 0-)
                Recommended by:
                psyched, dorkenergy, cynndara

                You tax what is overheated to suppress demand.

                Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

                by whoknu on Sun Nov 18, 2012 at 07:16:19 PM PST

                [ Parent ]

                •  Which leads to the question (0+ / 0-)

                  what's the point?

                  There is a phrase which is commonly used by reality-based economists.  There ain't no such thing as a free lunch.  TANSTAFL, for short.

                  Your diary deserves much respect for punching at the right-wing obsession with the debt and deficit spending.  My Keynesian mentality agrees with you and says that now is the time to finance stimulus with more deficit spending.

                  You go too far, in my humble opinion.  Maybe I misread you, but it seems that you are advocating the free lunch.

                  You admit that, "If we continue to put NEW money in, eventually it will lead to an imbalance that will need to be dealt with", but then you advocate offsetting it with higher taxes.  Sorry, but that makes no sense.  You either have NET stimulus through monetary and/or fiscal policy or you have NET tightening.  TANSTAFL!

                  (OK, it could be net neutral, but it rarely is.)

                  •  The Point is that govt. deficits and surpluses (9+ / 0-)

                    are not the instruments of policy but only something that is observed incidentally and after the fact.

                    MMT maintains, that deficits are never a policy instrument. Deficits will go up and down with economic conditions, and should never enter a policy discussion. The relevant policy variables to look at and address are full employment of resources (citizen employment in the main,) inflation and economic mal-distribution of income and wealth. These issues are to be tackled via the two major policy instruments of spending and taxation. Period. Therefore budget deficits per se are never of any concern. The real concerns have to be

                    1) are you spending enough, or too much in the aggregate
                    2) are you taxing enough or too much in the aggregate
                    3) what are the areas for federal spending that are beneficial to the society
                    4) what are the areas for federal spending that are detrimental to society
                    5) what should the level of taxation be in the aggregate.
                    6) can we set taxes as automatic stabilizers - without it becoming a political football in every congressional session.
                    7) where should taxation be directed? What behaviors do we have to curb? What behaviors do we have to encourage?

                    •  thank you (2+ / 0-)
                      Recommended by:
                      Mrs M, psyched

                      Great synopsis

                      Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

                      by whoknu on Mon Nov 19, 2012 at 01:46:12 AM PST

                      [ Parent ]

                    •  And note (5+ / 0-)
                      Recommended by:
                      katiec, whoknu, Justus, psyched, Calgacus

                      that prior to the modern age, this is exactly how governments managed their budgets (I'm thinking of Chinese and Hellenistic kingdoms in particular).  They looked at the real aims they wanted to accomplish, and then taxed and spent as necessary to achieve those aims.  If the bankers complained, the government thumbed its nose at them.  Or hung them, if they made too much trouble.  You didn't have the spectacle of the supposedly sovereign power apparatus of the government running around screaming like frightened chickens because The Bankers Were Concerned.  Rulers ruled.  Bankers, like other private citizens, kept their heads down.

          •  If as you say (4+ / 0-)
            Recommended by:
            katiec, Justus, psyched, whoknu

            they treat the currency and the unused capacity as mostly irrelevant, then their models are unrealistic in that manner.  Generally, when a model discounts certain real-world features of a complex system in order to simplify the calculations, you need to look at that omission very carefully.  Often a value can be discounted under certain circumstances corresponding to stable areas under the curve, but a change in other factors  can make those values suddenly become relevant.  There is also a tendency of economists to discount what they WANT to ignore, which doesn't necessarily  mean that it is unimportant.

            The classic Austrians were writing nearly a century ago, and the world financial system has undergone a great deal of change since then.  You also need to remember that despite its popularity among the Libertarian fringe today, the Austrian school was academically rejected IN ITS OWN TIME as being unscientific and outmoded.  It was revived for political purposes by those who benefit from its prescriptions, i.e. those who already hold large supplies of specie and other commodity capital.

    •  First, Weimar and Zimbabwe both owed debts in (9+ / 0-)

      foriegn currencies.  The US does not.  Also, both had their productive capacity detroyed, so production could not keep pace with the introduction of new money into the system.

      That is, hyperinflation is caused by too much money chasing too few goods.

      The US, in contrast, has lots of idle capacity.

      Finally, while eventually I"m sure that the US dollar will cease to be the world reserve currency, it's a long way off.  No one's going for the Euro, that's for sure.  Not any time soon.

      And also, there's no reason for the US to issue debt instruments anyway.  A currency soveriegn of a fiat currency doesn't need to borrow in order to spend.

      •  I agree it won't happen soon but (0+ / 0-)

        there are advantages to having a reserve currency and the Chinese have even taken tentative steps to positioning the Yuan to become one.

        •  If we continue down the (2+ / 0-)
          Recommended by:
          psyched, katiec

          path of treating money and our spending like it's a bad thing then we are opening the door for the Chinese to become the reserve currency.  Try reading through the diary again - especially this part...

          Up until just recently the faith in the U.S. government and its ability to pay its debt was not questioned.  But of course we have more than a few trolls who have tried mightily to undermine this faith.  When they try to tell us that our dollar is losing value, that we are 'broke', that we will 'default' on our payments by not raising the debt limit and that we have too much debt, they are chipping away at the faith in our currency which is the true cause of it losing value.  If more people understood what was at stake they might rethink their position.

          Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

          by whoknu on Sun Nov 18, 2012 at 07:19:29 PM PST

          [ Parent ]

          •  Just saying we don't have too much (0+ / 0-)

            debt doesn't make it so. I get that what the Kansas City crowd is saying resonates with you but don't confuse that with fact. All economic models appear rational and internally consistent until something happens that it didn't think possible, such as having inflation and excess unused capacity at the same time like existed in the 1970s, at which the proponents give explanations that sound suspiciously like excuses and special pleading.

            I am not an economist (and will go out on a limb and guess you aren't either) but it is a serious hobby of mine and am constantly either reading about economic history or theory. I will definitely be checking into what these upstarts are suggesting but I for one will not equate theory with Truth.

            •  If the debt were even meaningful, how much is too (1+ / 0-)
              Recommended by:

              much? If you went to the bank to borrow money they would look at your debts but they would also look at your assets. The money assets of the US are infinite, but we don't need to count that. $16T in debt against the real assets of the country. That total is estimated at up to $330T. That's debt to equity of 5%. A conventional mortgage puts you at 400%, car loans 1000%. What's your overall debt to equity position? That's why treasuries sell like hotcakes and money can't find it's way into dollar denominated assets fast enough.

              •  Banking 101 (0+ / 0-)

                If you go to a bank and ask for a secured loan it would look at your assets. In that case the bank would attach a lien on the property you are borrowing against. But as far as I can tell when the Chinese and Japanese buy up our Treasury notes we aren't putting up Mount Rushmore and the Washington Monument as collateral. For unsecured loans, on the other hand, a bank will look at a number of factors such as your income and the amount of outstanding debt. For a country the Gross Domestic Product (GDP) is like a country's income and the debt to GDP ratio would be a major input in any international FICO score. The US has a public debt-to-GDP ratio of around 100% and some economists believe anything over 90% or so can put a drag on the economy. Japan has a debt ratio of around 200% and their economy sucks. The Euro zone has roughly our population, aggregate GDP and "assets" (if that matters) and a lower overall debt ratio but the ratio of some individual states are much higher and a Greek default could start a domino effect that brings down the entire currency. Hence, US treasuries seem safer in comparison.

                The reason China and Japan buy Treasuries has nothing to do with our "debt to equity" because they aren't secured loans. It has to do with trade flows, keeping their own currencies depressed so they can sell us more, the stability of the dollar vs. the Euro, etc. Of course the US can always print dollars to pay off its debts but that would decrease the value of the dollar versus other currencies, Chinese and Japanese goods then would become more expensive in comparison (and they would sell less to us as a result), and we would likely see inflation at home. At least that is what the conventional economic wisdom says. But according to the Modern Monetary Theory folks conventional wisdom is all wrong. From what I've read on economist blogs and podcasts, MMT hasn't earned a lot of street cred yet and, if anything, seems to be dismissed by many in the field.  

                •  Not unsecured, "full faith and credit" (1+ / 0-)
                  Recommended by:

                  and a constitutionally imposed mandate does it for me

                  Japan has a debt ratio of around 200% and their economy sucks.
                  Japan has a 9/2012 unemployment rate of 4.2%. On what basis do you say the economy sucks. Interest rates? The domestic bond yield is .001%. GDP growth is sluggish (0.5%) but the population is CONTRACTING (-.28% in 2011) so per capita GDP is even better.

                  The reason China and Japan buy our bonds is they have traded away real assets (stuff they sold us after investing their own capital, labor, materials, energy and social costs) for non performing financial assets. Offering to exchange the non-performing cash for interest bearing bonds is entirely largess on the part of the United States Government.

                  Copernicus did what MMT has done. He look at the object of his curiosity with scrupulous care after first suspending a-priori judgments. And I'm sure some Blubba back then said, "But according to Copernicus and the heliocentric folks conventional wisdom is all wrong. Well it hasn't earned a lot of street cred yet and, if anything, seems to be dismissed by many in the field."  

                  In the field, Krugman and Stiglitz are both beginning to see the light. Here's a recent paper by Krugman (pdf).

                  •  Any country can use the (0+ / 0-)

                    "Full faith and credit" line, even countries that aren't doing well. It isn't copyrighted for our exclusive use and means nothing.

                    Unemployment in Japan may be low but that is in no small part because their banks prop up unprofitable and uncompetitive "zombie" companies. That strategy is not sustainable long term. Its workforce is aging even more quickly than in the US meaning. By 2020 there will only be 2.3 workers per retiree, putting tremendously strain on their economy to deal with the medical and infrastructure costs.

                    I would be interested in what other economists say in response to Krugman's article. Yes, a drop in the dollar as a result of people not buying our bonds would make our exports more competitive. But it would also make imported goods more expensive. So if you are a farmer or work at Caterpillar you would probably make out OK. If you wait tables or cut hair or work in some other service industry maybe not so much.

                    •  So you don't trust the currency even as it stands (0+ / 0-)

                      That makes this an entirely useless conversation, don't you think.

                      •  I didn't say that. (0+ / 0-)

                        The discussion was about whether Treasury notes are secured or unsecured and your inaccurate analogy to banks looking at a person's assets. Currently T-bills are the tallest pygmy but it isn't a status we should take for granted. That is my only point.

                        •  No, the discussion was about whether the debt was (0+ / 0-)

                          excessive or even meaningful. You seem to be concerned about bond vigilantes. I suggested the assets of the country were so far in excess of debt as to not be meaningful even in neoclassical terms. You rejected this and argued that Treasury securities are "unsecured." You rejected my argument that the full faith and credit of the USA and the specific language of the US Constitution secured treasury notes. Apparently, you believe that a legal pledge of property is the only means of securing a loan. I find it interesting that you have more reliance on statutory than constitutional arrangements. In both cases it is the majesty of the law and the power of the state being invoked, but you accept the lesser and reject the greater power. Curious.

                          •  Google it. (0+ / 0-)

                            Treasury notes are BY DEFINITION unsecured. BY DEFINITION a secured note is collateralized. ALL countries issue UNSECURED bonds that effectively rely on the "full faith and credit" of the country that issued them. The US is not unique.

                          •  So, as I said. You prefer to place you reliance on (0+ / 0-)

                            statute and trust that it secures your debt, because if you do not take physical possession that's all you have to rely upon. My point is that is low order debt. Horizontal debt among agents in the private sector, that relies upon the public sector for enforcement. However, this is all extraneous to the original proposition.

                            What is too much debt and why? What are your arguments in support of your position? The contrary argument has been expounded in this comment string and in the original diary. I read that you reject the arguments in MMT, but you offer nothing cogent in rebuttal. You said you were an interested amateur student of economics. Let's see that and not CW or talking points, because I'm not really sure what it is your are arguing except that perhaps everything MMT is fantasy? If you believe that, fine. Why don't you take one MMT concept, spell it out, and disprove it with either a mathematical or logical verbal analysis. Find a good one, though, something that will make it all unravel, because all of the objections that I have raised have been answered to my satisfaction.  

      •  I find the assertion that the US has (0+ / 0-)

        "lots of idle capacity" to be rather ... amusing.

        Prove it.

        And after you're done proving it, try this: Repeat your analysis, but this time constrain the USA to using 1/20th of the planet's sustainable resources.

        To put the torture behind us is, inevitably, to put it in front of us.

        by UntimelyRippd on Sun Nov 18, 2012 at 07:30:51 PM PST

        [ Parent ]

    •  I trust (3+ / 0-)
      Recommended by:
      katiec, Justus, whoknu

      that you DO know that the situation with the Reichsmark in the Weimar Republic was MUCH more complicated than you make it, not to mention nearly a century ago when the world had a great deal less experience in handling fiat currencies.  Otherwise, you raise valid points which need to be remembered while the concept of money evolves.

      The loss of reserve status is likely to have significant effects on the American economy, but the US is probably the single economy in the world MOST capable of rebounding and providing adequate standards of living from the resources entirely within its own monetary boundaries, despite our current adaptations to international interdependence.  Most nations, including the US, have subsisted almost entirely on their own production throughout history, making the international value of national currency a minor issue until the 19th century.  The US certainly has pretty much everything it needs within its own borders.  The primary force behind dependence on international trade today is the relatively low price of foreign labor, with the profits accumulating to persons like Mitt Romney and his offshore capital funds.  A loss of reserve status and foreign acceptance of the dollar could actually rebound to the advantage of the majority of working Americans, who could once again be employed in production of things that are currently being manufactured for our corporations in China, Vietnam, Singapore and Burma.

  •  This is well explained (11+ / 0-)

    I often find something to quibble with in these diaries, but this is pretty much spot on.

    There is no danger from the Government printing as much money as is needed to put everyone to work and utlize all available resources.  

    Where there is a danger is if the economy as a whole tries to consume more than it's capable of producing.  At that point you do get inflation.  But that only occurs when the economy as a whole, public and private combined, is overspending.  But right now we aren't spending beyond our means, we are spending short of our means, and as a result we are producing short of our potential.  

    When wage inflation actually does begin to get out of control (for example say it gets over 5%), that's when you are supposed to cut government spending (or increase taxes or interest rates, which instead cuts private spending).

  •  but see: inflation. (1+ / 0-)
    Recommended by:
    •  The US is a long way from inflation cuz it has (6+ / 0-)

      loads of idle capacity.

      •  The capacity linkage to inflation is gone (1+ / 0-)
        Recommended by:

        we live in a global economy.  Capacity is no longer limited to what the US can produce.  There is no unused capacity in the US for making TVs, but TV prices are falling.  

        The most important way to protect the environment is not to have more than one child.

        by nextstep on Mon Nov 19, 2012 at 09:07:15 AM PST

        [ Parent ]

        •  There are 3,000,000 construction workers idle (1+ / 0-)
          Recommended by:

          There is a minimum $2.2 T infrastructure deficit.
          Were there ever 3,000,000 tv makers? Was there ever a TV deficit? We can toss around anecdotal evidence all day long. I've looked at yours and found it unconvincing. I've looked at MMT and found it internally consistent and intellectually compelling. I suggest an open-minded reading of MMT before coming to any conclusions about what it says and (importantly) what it does not say.

  •  QE1-3 are good examples. Lots money printed, very (4+ / 0-)
    Recommended by:
    whoknu, Kevskos, acerimusdux, cynndara

    low inflation.  So, what are the chances of getting a congresscritter, senator, or the pres to talk about the debt.and federal.spending this way?

    •  Zero (at least for my congresscritter) (4+ / 0-)
      Recommended by:
      David PA, whoknu, millwood, adrianrf

      He's pushing for a balanced budget amendment -- a really bad idea. In times of recession, it could drive the economy into a depression. While proponents talk about states and households having to balance their budgets, it ignores the fundamentally different way the federal government functions. From a letter written by group of economists last year:

      Unlike many state constitutions, which permit borrowing to finance capital expenditures, the federal budget makes no distinction between capital investments and current outlays. Private businesses and households borrow all the time to finance capital spending. A balanced budget amendment would prevent federal borrowing to finance expenditures for infrastructure, education, research and development, environmental protection, and other investment vital to the nation's future well being.
      The letter was signed by seven leading economists, including five Nobel laureates. Of course my congressman, Steve King, because he ran a dirt moving business, thinks he know more about economics than the experts.
  •  Movie re Pancho Villia shows Villa after winning (3+ / 0-)
    Recommended by:
    FishOutofWater, cynndara, Justus

    control of most of Mexico, commissioning a printer to print currency.  (This was late 1930s--maybe '40s movie starring Wallace Beery as Villia).  

    When the printer presents his bill, Villia pays him with the printed money.  The printer is unwilling to accept it, and prefers gold. Villia pulls his gun and demands to know if the printed money is no good because of its design.

    Save the Home Planet

    by Mayfly on Sun Nov 18, 2012 at 03:54:58 PM PST

  •  Banks have the power to create money too (1+ / 0-)
    Recommended by:

    Fractional reserve banking lets banks loan out money they don't have.

    look for my eSci diary series Thursday evening.

    by FishOutofWater on Sun Nov 18, 2012 at 07:22:10 PM PST

    •  Yes -- but they are subject to very fixed (1+ / 0-)
      Recommended by:

      and particular constraints on how much money they can create.

      One problem with this magical elixir of NMT is that it is founded on peculiar slogans like "no inflation when there is idle capacity" -- but nobody can actually do the calculations to figure out how much "idle capacity" there actually is.

      Another problem with this magical elixir of NMT is that it doesn't address the essential problem, which is that our economy is structured so as to create an exponentially-growing flow of financial wealth up towards a tiny fraction of the population. "printing money" -- which is exactly what these people want to do, regardless of how many times they say, "Nobody is talking about printing money, this is just a matter of creating bookkeeping entries in the Treasury's bank account," as if somehow creating those bookkeeping entries as ink printed on pieces of paper called banknotes is semantically distinct from creating those bookkeeping entries as blobs of uniformly oriented magnetic particles on a hard disk drive -- and handing it out as wages will not prevent it from being siphoned up by the financial class and transformed into a net burden on the wage-earning class. Ever more credit will need to be created to keep chasing the last round of credit up the financial ladder.

      To put the torture behind us is, inevitably, to put it in front of us.

      by UntimelyRippd on Sun Nov 18, 2012 at 07:41:43 PM PST

      [ Parent ]

      •  Capacity ultilization (2+ / 0-)
        Recommended by:
        Odysseus, whoknu

        This works pretty well for capital:

        And this works pretty well for labor:

        And commoidties of course should be ignored, as it would be pointless to limit growth due to commodity constraints.  Commodity prices should be allowed to fall where they may.

        In addition, even if for some reason you don't trust the above measures, we also have pretty good measures of what actual wage inflation we have.  As long as that's under 5%, the plan ought to be to spend and print money until there's some evidence we've done enough.

        Employment Cost Index: Wages & Salaries: Private Industry Workers

        And this theory is basically textbook standard Keynesian economics, that has been taught for over 70 years (and much of it frankly was well known and understood long before then, the elites just managed to forget it by the 1920s).  

        •  Keep singing your no-inflation song. (0+ / 0-)

          These sorts of estimates are, as always in economics, first-order. They assume "all else equal", when all else is never equal. They also assume that inputs are essentially unlimited. (I wonder, incidentally, what you mean by, "It would be pointless to limit growth due to commodity constraints". Huh? And why should commodity prices be allowed to fall where they may? Is it somehow obvious to you that doing so produces a safe, sustainable, equitable, and intelligent pattern of distribution and consumption?)

          There is already far too much American money in circulation. We overheat our own monetary system, making it impossible to "compete" with workers elsewhere (though of course, nobody has ever satisfactorily explained to me why we should compete with workers elsewhere). If you keep pumping money into the economy, you aren't going to see a uniform decline in "idle capacity", because:

          A. There isn't enough energy available to keep driving growth.

          B. After the first round of such stimulus, the money will fly up the food chain, with the vampires at the top taking their disproportionate cut while sending the rest to China. As the money is flying up the food chain, you will see a resumption of the kinds of inflation that struck us during the first decade of the century, especially overheated real estate.

          There is no reason to perform this weird experiment in fiat currency, when the problem is easily solved with confiscatory tax rates.

          To put the torture behind us is, inevitably, to put it in front of us.

          by UntimelyRippd on Mon Nov 19, 2012 at 05:30:43 AM PST

          [ Parent ]

          •  Take a look at the real world...... (1+ / 0-)
            Recommended by:

            Very little that you say in that post can be supported by factual evidence.  

            Fiat money is not an "experiment".  Money has been used for thousands of years, and in that time, fiat money has really been the only form that has survived.  There are several hundred fiat currencies in use in the world today.  

            And Inflation is not a first order estimate.  Prices are measured directly, in multiple ways, and these measures have proven to be fairly precise and turn out to be in strong agreement.  

            Also, my comments on labor, capital, and resources (commodities) clearly assumed all three were limited.  Not sure what you are talking about assuming inputs are unlimited.  

            And your assertion that overly expanding the money supply will hurt our ability to compete is the exact opposite of how nearly all international economists understand that relationship.   Look up Mundell-Flemming.  If you reduce the value of the dollar, then foreigners will buy more of our now cheaper goods and labor, and sell us less of theirs.  Why do you think China is accused of keeping it's currency devalued?

            Also, we have good measures of currency in circulation as well:

            Nothing unusual there.  In fact, currency growth as the real estate bubble inflated from 2003-2009 was at it's lowest rate in the last 30 years.  The too strong dollar also inflates asset bubbles (at the same time that it inflated the trade deficit).

            A. On energy, if there is not enough, then energy prices will rise, and people will find subsitutes, including in some cases, simply working harder (including things like walking and riding bicylcles).  There is no reason for this to cause unemployment.  And more precisely, there is no reason to cause unemployment in order to prevent those prices from rising.  The increased prices actually CAUSE the behaviour changes that need to be made.

            B.  There is no reason for stimulus to fly up the food chain.  Did extending unemployment benefits fly up the food chain?  Did the payroll tax cut? Does spending money creating actual jobs, such as rebuilding our infrastructure?  

            On the last point, confiscatory tax rates, I have no objection at all to financing stimulus instead by taxing those who can afford to pay.  But it doesn't matter to me either way how it is financed.  Seignorage is really just another way of taxing wealth.  

      •  Fractional Reserve Banking: Actually, banks are (1+ / 0-)
        Recommended by:

        not reserve constrained.  They make loans first and find reserves later.

        Even the IMF has finally recognized this:  Google Steve Keen IMF.  I'd send a link, but don't know how.

        Yes, banks create credit, but eventually it's only the Fed that creates new net financial assets.  

        •  Man, you guys should hear yourselves. (0+ / 0-)

          "Yes, banks create credit, but eventually it's only the Fed that creates new net financial assets."


          To put the torture behind us is, inevitably, to put it in front of us.

          by UntimelyRippd on Mon Nov 19, 2012 at 05:34:06 AM PST

          [ Parent ]

          •  And it's not true? How so? If the banks fall (1+ / 0-)
            Recommended by:

            short on reserves, the Fed acts as lender of last resort, thus pumping new money into the system.

            Or, do you have proof that this is not the case?

            •  Any debt instrument is a net financial asset. (0+ / 0-)

              The creation of such things is limited to neither banks nor the Fed. To say "banks create credit" but not net financial assets is to talk nonsense.

              To put the torture behind us is, inevitably, to put it in front of us.

              by UntimelyRippd on Mon Nov 19, 2012 at 06:01:22 AM PST

              [ Parent ]

              •  Might want to read up on endogenous (2+ / 0-)
                Recommended by:
                whoknu, psyched

                and exogenous money, MMT, Steve Keen.

                •  Alternatively, I might not. (0+ / 0-)

                  Lemme think.

                  Wait ...


                  Rock on.

                  To put the torture behind us is, inevitably, to put it in front of us.

                  by UntimelyRippd on Mon Nov 19, 2012 at 03:06:59 PM PST

                  [ Parent ]

                  •  Why are you even here (0+ / 0-)

                    if you find MMT so offensive?  Just to cause trouble?  Seems unproductive and inefficient to me.

                    Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

                    by whoknu on Mon Nov 19, 2012 at 05:10:21 PM PST

                    [ Parent ]

                    •  You think it is unproductive and inefficient to (0+ / 0-)

                      engage in public debate with people who are offering policy prescriptions that you consider to be impractical, dangerous, and in the main, pointless distractions?

                      How un-Jeffersonian of you.

                      To put the torture behind us is, inevitably, to put it in front of us.

                      by UntimelyRippd on Mon Nov 19, 2012 at 07:51:41 PM PST

                      [ Parent ]

                      •  My point is you are not (0+ / 0-)

                        engaging in debate.  You are calling people names and being obnoxious.  I fail to see how that is productive.

                        Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

                        by whoknu on Tue Nov 20, 2012 at 06:22:47 AM PST

                        [ Parent ]

                        •  these diaries are not intended to be debates. (0+ / 0-)

                          they are intended to be propaganda.

                          one of you posts a diary.

                          typically it contains a marginal fraction of new ideas, but mostly is just a retread of previous ones.

                          then the rest of you come in and compliment the diarist.

                          and each other.

                          and then you condescendingly "explain" to all dissenters that they:

                          Don't understand money.


                          Need to read some foundational tract of the movement.


                          Lack a sophisticated perspective


                          Meanwhile,  the entire argument is dressed up in deceptive jargon that obfuscates rather than clarifies, throwing the poor uninitiated person into a psychic crisis (Am I  dumb? Do they know something I don't? Can I become an initiate too?)

                          To anyone who does have a reasonable understanding of money, whose only gain from reading the foundational tracts would be to learn the definitions of the obfuscating jargon, and whose perspective is sufficiently sophisticated, thank you very much, the entire proceeding is just as obnoxious and insulting as you perceive my manner to be.

                          To put the torture behind us is, inevitably, to put it in front of us.

                          by UntimelyRippd on Tue Nov 20, 2012 at 07:54:14 AM PST

                          [ Parent ]

              •  Yes (1+ / 0-)
                Recommended by:

                Correct, but that is not what NFA means in MMT, or NMT if you want - the name MMT came from a blog commenter, not an academic. They had called themselves neochartalists, postkeynesians etc before then, but the name & acronym stuck.

                NFA  in MMT means netted out over the whole private or nongovernment sector. So only the government can create NFA, government liabilities, by definition. It's a tautology. And it is not the Fed but the Treasury which really does the NFA creation, by government spending. Treasury bond issuance and Fed operations are generally just monetary operations that screw around with interest rates, the price of one government liability, one government debt in terms of another.  In essence, this NFA, which increases by deficit spending, and in sum is the National Debt, is the base money supply that the private sector, banks, leverage to create the "money supply" - although MMT academics don't talk too much in those terms.


                Academic MMTers are well aware of the problems you are talking about and in agreement, mostly with you on the dangers. E.g. There is already far too much American money in circulation. Yes - far too much private-debt money, shadow banking, derivatives, etc in this age of "Money Manager Capitalism". This is not at all the same thing as saying "too much NFA / government debt" - which as clonal emphasizes above, should hardly ever be something to concern oneself with.

                The basic point is that modern mainstream textbook academic economics since the 70s is shit, perpetrated by charlatans pretending to use mathematics they do not understand. It gets everything wrong, everything backwards, in a way that even the most bastardized textbooks of the 60s, say, did not.  So MMT starts with the beginning, always the best place, and emphasize the underlying simplicity that the mainstream gets completely wrong, brainwashing people into absurd, psychotic beliefs - not the worst being that money creation is automatically inflationary. But you then must proceed carefully and slowly to put everything in its proper place and distinguish the real dangers from the "bogies", the imaginary hobgoblins.

                One can even understand your "confiscatory taxation" as being an MMT proposal - because the real taxation is government spending, when labor, say for a JG, is confiscated for government money, government debt, government promises.  The government should just confiscate enough labor to have full employment.  MMT academics do favor lowering wealth inequality etc, are basically all lefties. But the main point, the hard part of changing the world is in understanding it first.

              •  Wrong again (1+ / 0-)
                Recommended by:
      •  The fundamental problem (6+ / 0-)

        is the natural growth function.  Where that function is stable -- the situation in a country protected from the direct ravages of war, plague, and natural disaster -- then all growth proceeds as a function of existing capital.  Those who have, increase what they have as a geometric function of their existing wealth.  The rich get richer.  The big get bigger.  The firstborn chick gets the worm.  And without some kind of intervention, that growth function effectively siphons all the wealth of the nation to those who got there "fustest with the mostest".

        This growth function is directly contrary to the interests of the majority, as it will always plunder the wealth of the many to enrich the few.  One of the functions of government, the executive managerial arm of society as a whole, is to control such natural processes to the betterment of everyone.  SOCIETIES THAT FAIL TO DO THIS, IN THE LONG TERM FAIL TO SURVIVE.

        Excessive accumulation of "unfairness" renders the majority of the population unwilling to support the state, leading to apathy and passive-aggressive corruption, withdrawal, and self-interest.  People will not contribute voluntarily to the support of a state which they see as serving only their social competitors, and will exercise their ingenuity to avoid the state's powers of compulsion.  The result is a growing inability of the state to exercise its powers without force, and a growing inability to control sufficient resources to utilize that force.  As the state decays, the individuals and associations who accumulated the majority of wealth and power by the growth mechanism gradually take on the powers of the state by necessity, becoming de facto governments within their own defined spheres, even as the central government may maintain a surface appearance of power as a "paper tiger" until circumstances force an obvious failure of these appearances.

        We have already begun the initial steps of this degradation with the honest beliefs of rural right-wingers that the government is in the hands of class, social, and national enemies.  Consider all those petitions to secede recorded after the election.  Obama didn't cause that.  Forty years of Republican domination and the loss of wealth and opportunity for the working classes actually caused it.  But the result is a rejection of a government which has failed a large and growing segment of our society.

  •  Math IS hard. (1+ / 0-)
    Recommended by:

    Too hard for the proponents of NMT, I'm afraid.

    To put the torture behind us is, inevitably, to put it in front of us.

    by UntimelyRippd on Sun Nov 18, 2012 at 07:42:38 PM PST

    •  NMT? I've never heard of it. I have heard of MMT (2+ / 0-)
      Recommended by:
      whoknu, psyched
      •  You eat what you like, I'll eat what I like. (0+ / 0-)

        Labeling yourselves "Modern" is part of a propaganda campaign that is rooted in your smug sense of intellectual superiority.

        Of course, it's also hilarious anachronistic -- nobody calls anything "Modern" anymore -- suggesting that you are, in fact, a bunch of Noobs masquerading as Kewl Kids. "Modern". Please. You might as well call it "Avant-garde Monetary Theory". Just remember to wear your black turtlenecks.

        Whatever. I prefer to think of it as "New Monetary Theory". Not that there's much new about it, and I find your orchestrated sorties into the blogosphere to be tiresome beyond measure.

        To put the torture behind us is, inevitably, to put it in front of us.

        by UntimelyRippd on Mon Nov 19, 2012 at 07:59:29 PM PST

        [ Parent ]

        •  How MMT got its name (2+ / 0-)
          Recommended by:
          clonal antibody, jellyyork

          There was no nefarious scheme to misrepresent this movement in economics. This link is the best one i can find rather quickly to relate how Modern Money Theory was named:

          Randall Wray, from that link:

          I tended to call our approach the State Money approach in the early years; perhaps I also used the term Chartalist. That derived from
          the work of Knapp, who was followed by Keynes in his Treatise on Money (1930). This has usually been misinterpreted, following Schumpeter, as a “legal tender law” approach—a position clearly
          rejected by Knapp and Keynes. Both Keynes and Schumpeter knew that it had to be more than legal tender laws. But that is a matter for another time.

          Later, our approach was given the name “neo-Chartalist”—which I think was supposed to be somehow derogatory. After several of us moved to UMKC, it began to be called “the Kansas City approach”.

          That of course was misleading because our sister center was in Newcastle under Bill Mitchell’s direction, and it also ignored the work of Charles Goodhart in the UK; by that time there were already many other people working on the approach, spread around the country and even around the world.

          In any event, somehow it got the name Modern Money Theory. We think the first time those exact words were used might have been in a comment to Bill’s blog in 2007; if anyone can find that comment or a previous use, please send it along. It also looks like Bill used the term “modern monetary theory” in an academic paper in 2008.

          And "modern" means not "avant-garde" but what has existed the past 4000 years:
          My 1998 book was entitled “Understanding Modern Money”. When I was writing the book, it had a much more boring working title, and I asked Mat Forstater and Warren to help think of something catchier. We threw around a lot of ideas and rejected all of them. I had in the manuscript the quote I love from Keynes that argues that the State names the money of account and chooses what can answer to that name, and has done so “for some four thousand years at least”. And so I chose to use the term “modern money” to apply only to monetary systems that have existed for the past “four thousand years at least”. Whatever type of money that might have existed before that, we cannot be sure. But for the past 4000 years, at least, we have had State Money—that is, Modern Money. From whence came the book title.

          For the first time in human history, we possess both the means for destroying all life on Earth or realizing a paradise on the planet--Michio Kaku.

          by psyched on Tue Nov 20, 2012 at 01:56:50 PM PST

          [ Parent ]

          •  Good Lord, read what you're responding to, (0+ / 0-)

            and read what you're writing.

            I didn't assert that "Modern" and "avant-garde" meant the same thing -- I was asserting that what is at play here is intellectual faddism.

            And your blockquotes are hardly rebuttals, given that the second in no way demonstrates that Bill Mitchell's use of the phrase had anything to do with Randall Wray's -- or if it did, that Mitchell himself understood Wray's rather pointless semantic nicety: Pointless, because nobody would ever suppose that the theory applied to any other sort of money. Indeed, given Wray's dubious definition, Milton Friedman's theories would all equally be "Modern Money Theory", rendering the appellation effectively meaningless.

            What is wrong with you people? You're like a fricking cult. You only have about 4 responses to criticism, and you take turns doling them out while the rest of you do the whole finger-snapping thing to show your approval. I cannot bear the vapidity of it all, dressed up in jargon and complicated semantics that falsely imply some sort of deep and original thinking.

            To put the torture behind us is, inevitably, to put it in front of us.

            by UntimelyRippd on Wed Nov 21, 2012 at 03:51:49 PM PST

            [ Parent ]

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