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Imposing a budget ceiling or debt limit on the federal government is irrational and unrealistic. Progressive economists know that government "debt" or "spending" is actually an investment in the national economy. Government investments grow the economy and provide for the welfare of its citizens. Conservatives act as if the federal government must follow the budgeting practices of a household, business, city or state; i.e., obtain money before they can spend it. The government, however, is the creator of the money that these other entities must budget.

Because our federal government creates money for its citizens to use, it follows that there should be no arbitrary limit on the government's money-issuing capacity. The needs of the nation and its citizens are dynamic. The notion of debt limits arises from thinking from the obsolete gold-standard era. With a national government wedded to stockpiles of gold as the basis of its money, it's obvious that the nation will reach a point where its needs will outpace its supply of gold. The gold stockpile is static; there is a limited amount of gold in the world, while the needs of people are unlimited.

Why are human needs dynamic? Because the population constantly grows in size, and its needs grow faster than its size. For each human, more agricultural space is needed, more housing space, more educational facilities, more consumer goods. The relation between population and "human infrastructure" requirements is nonlinear. Also, the need for more environmental damage mitigation grows rapidly.

In addition, times of disasters such as severe storms or earthquakes require unexpected expenditures of money to replace destroyed infrastructure and care for injured people.

Human needs are dynamic also because humans are living, growing beings whose needs increase with time: as they grow, their food needs increase, as usually do their health and medicinal needs.
Not all their needs can be provided by the private sector; governments at all levels need to step in with support that cannot be operated at a profit for businesses. And support must be ongoing and keyed to expansion as needs increase. And it cannot be frivolously withdrawn or downgraded at the whims of private operators.

Because human needs are fluid, are dynamic, a static means of representing them such as budget limits or gold standard limits is inappropriate and will result in gradual degradation of human living conditions, dissatisfaction, societal deterioration and revolution. To draw an analogy, the situation is like a runner on a course, a dynamic being, who is about to pass his assistant waiting to hand him a bottle of water. He grabs the bottle on the run, but his treacherous assistant has instead handed him a bottle chained to the ground. He is instantly jerked off balance, falls and is injured. He may arise and try to continue running, but his efforts are severely set back.

The curtailment of the runner’s actions is like the Congress putting a limit on government spending. In practice, the limit is eventually raised until it is reached again and there is another disruption of needed government spending, so there is a stop-and-go quality to it that interrupts the steady flow of vital activity such as research into life-saving or Earth-preserving projects or distribution of relief to the needy.

The US and much of the world have been using fiat money for many years. With the fiat money system, a government can actually create as many acknowledgments of social relationships [aka units of money] as it needs to, while under the gold standard a government's spending must be limited to the value of gold in its coffers. It should be obvious that the gold-standard arrangement is irrational for various reasons including that it doesn't permit expansion of an economy to accommodate an ever-growing population.

To those who hold to a limiting gold standard type of economy, other beliefs arise from their unworkable paradigm:  1) if the world’s money is limited in quantity, all of the world’s money is owned already by people and by other entities such as corporations and governments. 2) No new money should be created unless new backup sources of precious metals are discovered. 3) If new money without new backup were created, the value of all money would lessen because there would be relatively less backup to support the greater money supply. 4) If all the world’s money were spread around equally to every living person, each person would have only a small amount, and my wealth would decrease and the opportunity for me to become wealthier would be greatly diminished. 5) In order for me to become wealthier, some other person or persons must become poorer. 6) There is no cure for poverty—there will always be poor people—because an equal distribution of all the world’s money is impractical.

The banksters, corporatists and other controllers of the world’s money are not stupid, but what they possess in intelligence may be short-circuited by their greed and lack of empathy with the common man. They likely know the facts of fiat money but they continue to display a gold-standard, limited-money attitude that results in maintaining and fostering wealth inequality. By misrepresenting the nature of money and the mechanics of money distribution, they clutch onto power, ownership and control of the world’s economic system.

The psychology of these manipulators and the nature of their operations are complex and would require at least several diaries to address. For now, the main point of this diary is to call attention to the disparity between our static, mathematicalized money system that lends itself to perversion and fraud, and the dynamic nature of human needs.

A first step in addressing these ills is to understand the nature of money. Fiat money exists because the essence of money is the acknowledgment of a social relationship between a buyer and a seller, between a money creator and a money user. Such relationships can happen to an infinite extent, while a supposed metallic basis for money creates an artificial limit which stymies the welfare and progress of the human race.

Originally posted to Money and Public Purpose on Tue Nov 12, 2013 at 09:00 AM PST.

Also republished by Community Spotlight.

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Comment Preferences

  •  Tip Jar (35+ / 0-)


    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 12, 2013 at 09:00:13 AM PST

  •  The only real issue on the total debt (3+ / 0-)

    in the cost of servicing the interest. If interest rates start to climb the interest cost will start crowding out other expenditures that we favor.

    "let's talk about that"

    by VClib on Tue Nov 12, 2013 at 09:32:13 AM PST

    •  Yes, but . . . (14+ / 0-)

      That's the constraint that even many progressives do not realize is artificial.

      Please think about this question before worrying about federal government debt:  Why does the government need to borrow money when it makes the money in the first place?

      Hint:  It doesn't.  That too is a relic of the gold standard, non-fiat currency mentality.  Government borrowing is in reality a subsidy to the wealthy -- it provides them a safe place to keep their wealth.  We could have a financial system with no public debt.  

      Now it is true that most economists believe that if the government creates too much money too fast, it will cause undesirable levels of inflation.  That may or may not actually be true, but even if it is, we are nowhere near that point.  We have too little spending, not too much.  There is still less demand than productive capacity.  As long as that's the case, inflation is unlikely.

      "[W]e shall see the reign of witches pass over . . . and the people, recovering their true spirit, restore their government to its true principles." Jefferson

      by RenMin on Tue Nov 12, 2013 at 10:34:33 AM PST

      [ Parent ]

    •  And not only can the deficit be directly ... (5+ / 0-)

      ... monetized if the government chooses to ...

      ... but the interest rate is also subject to monetary policy ~ if we do not choose to create a high interest rate, we will not have to pay a high interest rate.

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Tue Nov 12, 2013 at 02:01:03 PM PST

      [ Parent ]

    •  "if interest rates start to climb" (3+ / 0-)

      Of course by this you must mean, "if the Fed CHOOSES to raise interest rates."  The interest rate on T-bonds is not determined by the market, it is CHOSEN by the Fed via its management of the number of reserves on its balance sheet.

      MMT = Reality

      "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

      by Auburn Parks on Tue Nov 12, 2013 at 03:22:15 PM PST

      [ Parent ]

    •  Dissent, of course (0+ / 0-)

      Hi VC !

      So pleased to see you weigh in with the usual content.

      Further research material, in case you're interested in thinking Outside the Box :)

      http://neweconomicperspectives.org/...

      http://rooseveltinstitute.org/...

      “Vote for the party closest to you, but work for the movement you love.” ~ Thom Hartmann 6/12/13

      by ozsea1 on Wed Nov 13, 2013 at 12:37:13 PM PST

      [ Parent ]

  •  When you have an irrational governing body you (1+ / 0-)
    Recommended by:
    No one gets out alive

    need irrational safeguards to protect against it

    •  But (2+ / 0-)
      Recommended by:
      psyched, happy camper

      the irrational debt limit doesn't protect us against bad outcomes created by the irrational governing body. That's why we've now had high unemployment for the past 5 years, and why, for most of people, "The Long Depression" (otherwise known as The Great Recession) has never ended.

      •  5 yrs 4 months U6 has been over 10% (1+ / 0-)
        Recommended by:
        Letsgetitdone

        .................expect us......................... FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

        by Roger Fox on Tue Nov 12, 2013 at 05:29:48 PM PST

        [ Parent ]

        •  Real Trend Disemployment = (2+ / 0-)
          Recommended by:
          Roger Fox, psyched
          "Real Trend Unemployment + involuntary part time workers seasonally adjusted = 21.508 million + 8.050 million = 29.558 million, up 1.003 million

          29.558 million / 165.075 million = 17.9%, up 0.6%"

          From here. In my view the definitive analysis and measurement of the extent of the problem.
          •  I havent seen that. seasonal & P/T (0+ / 0-)

            workers can really skew the numbers, and then add folks who have just given up.

            Alex, can I have infrastructure spending for 6% of GDP......

            ( tv show Jeopardy reference)

            .................expect us......................... FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

            by Roger Fox on Tue Nov 12, 2013 at 06:30:22 PM PST

            [ Parent ]

  •  it may be unreasonable, but it's not irrational (1+ / 0-)
    Recommended by:
    slothlax

    the way it functions is as a separations of powers provision.  The practical power to control monetary policy lies with the treasury or an independent agency (the fed), but the power to set priorities lies with Congress.

    The argument that it should rise automatically with approvals of new spending is a good one, but there is an argument it should be effectively a line of credit, that is, the Treasury could borrow more money than it needs in the short run, when rates are low, so it doesn't have to borrow more later.  

    Difficult, difficult, lemon difficult.

    by Loge on Tue Nov 12, 2013 at 11:38:08 AM PST

    •  Consider this statement (9+ / 0-)

      by our own Kossack Letsgetitdone:

      the bond markets don’t control the interest rates paid by the government on debt. The central bank does. If the central bank sets the overnight rate for reserves near zero, which it can always do, and the Treasury Department issues nothing but short-term debt at 3 months and under, then the Treasury can offer securities at a rate near zero, and keep the rates there whatever the debt-to-GDP ratio is, and even if that ratio is growing faster than GDP. This isn’t just theory. Japan is the test case for it.
      http://www.dailykos.com/...

      As various MMT people have said numerous times, though I can't find a quote from an expert right off, since the gov't can create its own money, it doesn't really have to borrow it from others except that Congress has required it to do so in order that big investors have a safe place to store their millions and earn some interest. It's another way for the rich investor to get richer without risk.
      .
      .


      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 12, 2013 at 12:27:20 PM PST

      [ Parent ]

      •  i don't see how that rebuts anything i said. (1+ / 0-)
        Recommended by:
        slothlax

        and if the argument depends on accepting modern monetary theory and it's accompanying just-so stories, it is neither irrational nor unreasonable not to go along.  Maybe MMT turns out to be right, but the debt limit predates it.  If the government were simply interested in printing lots of money, the debt ceiling isn't even much of an obstacle.

        Difficult, difficult, lemon difficult.

        by Loge on Tue Nov 12, 2013 at 12:48:48 PM PST

        [ Parent ]

        •  The debt limit is insane on its face ... (8+ / 0-)

          ... it is the Congress threatening to deny the Executive the "power" to execute the spending dictated by Congressional action.

          Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

          by BruceMcF on Tue Nov 12, 2013 at 02:04:46 PM PST

          [ Parent ]

          •  Yep... (3+ / 0-)
            Recommended by:
            xanthippe2, alice kleeman, ozsea1

            The MMT and other fiat money arguments are interesting and important for a lot of reasons, but have little to do with the debt limit being insane.

            The debt limit is insane because Congress creates a budget and passes appropriations and tax legislation for a certain amount of spending and a certain amount of revenue.  These laws results in a deficit.  Congress passes another law that the Treasury issue debt in the amount of any deficit spending. No conflict at this point.  Then, Congress makes another law that tells the Treasury that it can't issue debt past a certain amount for the deficits that Congress passed and that amount is less than the amount needed to cover the deficits that Congress has passed.  Now we have Congress passing laws that conflict with each other.

            Debt limit hostage taking should really be called impeachment hostage taking.  Because hitting the debt limit really is about forcing the Executive to break some law, or finding a technically legal work around that might still justify impeachment (i.e. Platinum Coin Seigniorage).

          •  Exactly! Bruce nt (1+ / 0-)
            Recommended by:
            psyched
        •  What you said (3+ / 0-)

          seems a correct description of the system as it is believed to function. MMT seeks to improve the system to better provide for the public purpose. Money is part of an accounting system that does not always relate accurately to the behaviors of people and their needs.

          Governments should promote the basic needs of their citizens--life, liberty and the pursuit of happiness--and freedom of speech and worship and freedom from want and fear. It seems to me that we should begin with these needs and freedoms and work from there, tailoring our economic system to best address them rather than starting with the system as a given, especially since the man-made system has many elements unchanged since primitive times.

          The system obviously isn't working well or we would not be witnessing such wealth inequality, suffering and societal discontent. There should be economic stability without booms and depressions. I believe that MMT has moved closest to a system that could best rectify these problems.
          -----
          You wrote:

          Maybe MMT turns out to be right, but the debt limit predates it.
          No doubt the debt limit predates it, but that is no reason not to modify it. The use of shells and feathers as money predates the use of debit cards, but it was fortunately recognized that older is not necessarily better.
          .
          .


          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 12, 2013 at 02:09:46 PM PST

          [ Parent ]

          •  that's a different set of arguments, entirely, (1+ / 0-)
            Recommended by:
            slothlax

            and doesn't say much about MMT's "descriptive" claims and how they might apply in circumstances other than liquidity traps.  You can argue for something being "better" without alternative points of view being unreasonable or irrational.  And it's not clear the debt ceiling itself is an obstacle to the very broad goals you lay out, as much as the consequences of treating it as inflexible.  Put another way, I'm not sure with whom you are supposed to be arguing.

            Difficult, difficult, lemon difficult.

            by Loge on Tue Nov 12, 2013 at 02:22:24 PM PST

            [ Parent ]

          •  The Four Freedoms (2+ / 0-)
            Recommended by:
            psyched, jm214
            ". . . and freedom of speech and worship and freedom from want and fear."
            Achieving them is a pretty good definition of "public purpose."
        •  The debt limit (8+ / 0-)

          also predates the Government ending the gold standard. So, it's certainly reasonable to point out that the underlying reason for having the debt limit, namely that gold standard Governments can run out of money if they float too much debt, doesn't apply to Governments issuing currencies that have no "backing" in a commodity at all.

          As far as MMT "just-so stories" are concerned, deficit hawk/austerian accounts of why the Government is running out of money, SS is becoming insolvent, Medicare will go broke, our children will have to pay back the public debt, and the market vigilantes will raise the interest rates on Treasuries to insupportable levels if deficit spending continues to occur are the real "just so stories." MMT views, on the contrary, are descriptions of reality -- the reality that the deficit hawks and deficit doves alike, don't want to face because they'd have to admit that their brand of fiscal policy is obsolete.

          •  Bullshit (0+ / 0-)

            I appreciate the dialogue, but I must interject. While the fiat monetary system is not based in a tangible commodity like gold, it is based in a less tangible commodity called confidence. The government can claim it will pay its obligations all it wants, if people don't believe the government the promises are worth shit

            There is truth on all sides. The question is how much.

            by slothlax on Tue Nov 12, 2013 at 09:55:13 PM PST

            [ Parent ]

            •  Tangible means (1+ / 0-)
              Recommended by:
              ozsea1

              real physical reality--not involving choice. Confidence is all about choice and fairies! If one chooses to put fairies in front of reality, that most definitely is a choice not a reality! You love an ideology and that's a fact because you're choosing the ideology over reality. That's all well and good, but don't pretend that the reality of MMT has no basis simply because you choose to reject the foundational facts of your choice.

            •  Sorry, but (1+ / 0-)
              Recommended by:
              ozsea1

              its value is not just based on confidence in the utility of the dollar. It's also based on dollar worship, government's power to compel people to pay taxes using the dollar, and the strength and diversity of the economy underlying the dollar. These are conditions. But they are not commodities to be bought and sold in a marketplace. In fact, these conditions must underpin a currency before there can be effective marketplaces of any appreciable size.

      •  Thanks for the link (3+ / 0-)
        Recommended by:
        psyched, Calamity Jean, walkshills

        Ed.

        But even in the present situation, the Treasury can create the money it needs to avoid issuing debt when it deficit spends. That money is in the form of coins. And platinum coins created by the Mint can have arbitrary face value, so the Treasury, like the Fed, can create unlimited money, if it so chooses. However no matter how much money it creates it cannot spend it unless Congress appropriates spending. That is the real limitation on Treasury additions to the private economy.

      •  The central bank can only control short term rates (1+ / 0-)
        Recommended by:
        slothlax

        Long term rates on government debt are determined by inflation expectations.

        And if the the Treasury department only issued short-term debt because current rates were low I might suggest we fire them all right now.   Any sudden increase in rates would cause a huge amount of debt to be rolled over at ever increasing rates quarter after quarter.    Current government spending could be derailed quickly as our interest rate obligations would rise a lot if the Fed saw runaway inflation and a huge need to increase short term rates.  

        Quick, this board needs an Economist!

        And note, monetary boards also can't control short term rates if investors think you are going broke as a country .  Look at the 5-6-7 overnight yields for the European PIGS this summer.

        •  You're mistaken (2+ / 0-)
          Recommended by:
          ozsea1, jellyyork

          First, Treasury short-term debt instruments need have interest rates only a little higher than the interest on reserves (IOR) being paid by the Fed. If that rate is near zero, short-term Treasuries will be close to that level.

          As far as rolling over a huge amount of debt every quarter that happens now. Take a look at the Daily Treasury Statement at the end of a month some time, you'll see huge amounts getting rolled over every month, yet interest rates don't rise.

          Using Europe as an example to prove your point doesn't work. Because the European nations are users of the currency rather than issuers of it. That means the individual nations can go broke. That drives the interest rates up in response to market psychology factors. That can't happen in fiat sovereign nations with the ability to collude with their central banks to drive those interest rates down towards zero.

          Compare the Japanese case with Greece. How is it that the Japanese can have a debt to GDP ratio over 200% and interest rates near zero, while the Greeks are a basket case with a lower debt-to-GDP ratio? In the case of Greece, the PIIGS, and all nations in the Eurozone, the bond markets control interest rates. Here, the Government (including the Fed) controls the rates.

          •  Hmm. (0+ / 0-)

            1) Average maturity of Treasury Debt has averaged about 60 months over the past few years.

            2) The Japanese have a huge personal savings rate, much higher than Greece.

            3) And well yes, governements generally control short term rates, i was giving an extreme example with Greece, Portugal, etc.   The rates are high not because of default risk, not "users of currency".   The European PIGS all have the same currency-the Euro, much of which is the source of the problem.

            You need to consult an Economist.

    •  What a minute ... (4+ / 0-)

      ... how does the Congress denying the Executive the freedom to spend the money that the Congress has authorized and appropriated act as a separation of powers?

      That's what is quite insane.

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Tue Nov 12, 2013 at 02:03:26 PM PST

      [ Parent ]

      •  that's not raising it, not it existing. (1+ / 0-)
        Recommended by:
        Letsgetitdone

        technically, congress can and does authorize programs to be paid for in other ways.

        Difficult, difficult, lemon difficult.

        by Loge on Tue Nov 12, 2013 at 02:17:00 PM PST

        [ Parent ]

        •  That's true (1+ / 0-)
          Recommended by:
          psyched

          In addition, the Executive can get around it in a number of ways. See the series ending here.

        •  It "existing" implies a standing threat ... (1+ / 0-)
          Recommended by:
          psyched

          ... to deny the Executive the authority to perform the actions that Congress in other acts may require it to perform.

          Now, as written, there are work-arounds (work-arounds that the present administration has been reluctant to put to use), but that is just because the legislative language was not written with those work-arounds in mind.

          Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

          by BruceMcF on Wed Nov 13, 2013 at 09:27:51 AM PST

          [ Parent ]

          •  It puts the Exceutive in a bind... (0+ / 0-)

            As I described in a post above, it puts the Executive branch in the binds of either breaking some law passe dby Congress or doing something technically legal but maybe against Congressional intent.  Either of which can be used to justify impeachment.

            I think the current Republican House has decided it is happy with either using the debt limit to stage a coup, tanking the economy, or impeachment if the Executive tries to work around under a legal technicality or not.  The last two overlap since the Executive not making Congressionally appropriated payments seems like it counts as breaking the law and could be used for impeachment.  House Republicans are probably drooling about it, forgetting the fact that impeachment would never happen in the Senate.

    •  No, (5+ / 0-)

      it is irrational, from a policy viewpoint, if not from a politics viewpoint. If the debt limit is repealed, then spending will still be constrained by Congressional Appropriations. The real function of the debt ceiling is to allow Congressional Republicans to hold up Democrats to agree to cuts in spending that the Republicans had not the guts to vote against in the first place. With the debt ceiling in place the Republicans can cut spending without voting against specific programs. That's what they like. They don't want to go on record as voting against SS, Medicare, and Medicaid. Instead, they want to go on record as opposing further borrowing.

      •  If that's so, it's perfectly rational, (2+ / 0-)
        Recommended by:
        slothlax, zoomzzz

        just undesirable.  And that only applies to a debt ceiling that remains static, which the GOP already blinked over not raising.  

        The proposed end-arounds are legally and practically unconvincing, but I'm not going to dissuade you of your singular issue.  The arguments sort of hang together, but they require everyone to ignore optics and buy into a very theoretical view of monetary policy that has never been tested or applied.

        Difficult, difficult, lemon difficult.

        by Loge on Tue Nov 12, 2013 at 06:34:29 PM PST

        [ Parent ]

        •  Rational if the goal is impeachment... (1+ / 0-)
          Recommended by:
          psyched

          Passing 3 conflicting sets of laws is not rational.  Ie.  appropriations and revenue laws, laws to issue debt in the amount of the difference between appropriations and revenue, and a requirement to not issue more debt than a certain amount.

          Basically, it creates a situation where the Executive has to break a law or use a technically legal work around that they still might consider impeachable.

          If the plan is not to impeach the Executive for breaking a law, then creating conflicting laws is irrational.

        •  Well, I'm (0+ / 0-)

          glad you they "sort of hang together." But since they do you have to ask yourself whether "optics" and fear of a new way of doing things are more important things to hang your hat on than a solution to the political problem posed by "we're running out of money," and its consequences in terms of an increasing number of Americans living in economic misery, health insecurity and little hope for the future.

          My view is that it's best to forget about the optics, clutch the family jewels as tight as you can and do what promises to have best short-term and long-term effects. And btw, the optics won't be as bad as you think. See here.

          •  you seem to be setting up a false choice (0+ / 0-)

            between austerity and coin seignorage.  I wouldn't describe the problem as "running out of money."

            by 'sort of hangs together,' what i meant is that the theory talks to itself but not outside of it.  It purports to model how poeple will react to a policy change based on how it says people should react -- according to its own premises.  MMT is tautological on a deep level, and i'm not convinced it adequately differentiates nominal and real prices and wages.   as such, the more you link to some self-published kindle book, the less i'm inclined to buy it.  The odds that one such text has every answer to a complex world are very low, and you're not the anti-intellectual one?  Turn your gaze inward.

            Difficult, difficult, lemon difficult.

            by Loge on Wed Nov 13, 2013 at 12:25:05 PM PST

            [ Parent ]

            •  Well, first (2+ / 0-)
              Recommended by:
              psyched, ozsea1

              the President has decsribed the problem as "running out of money." The various groups funded by Peter G. Peterson call it "running out of money." The tea party calls it "running out of money." And even Bernie Sanders thinks we have a debt problem that could cause us to run out of money. So, that description of the problem isn't mine. It's the common understanding of a lot of people.

              Second, I'm not going to stop linking to my book. It's been very well reviewed by those who've read it. (no reviews from my family or close friends btw.) And whether self-published or not, it is the most comprehensive treatment of PCS and HVPCS done so far.

              Third, I didn't "model" how people would react to use of the coin unless you use the term "model" in the broadest possible way. What I did do in the book, was to consider the arguments of others about likely reactions to using platinum coins, offered my own critique of their conjectures and then argued for conjectures of my own. It's a political argument much more than a "model." If you disagree with it, then let's see you quote from it and argue against it rather than just delivering pejorative labels in an attempt to discredit it.

              Fourth, the MMT distinction we're talking about here is between real wealth and nominal wealth, not between real prices and wages and nominal prices and wages. As far as I know the MMT view on the latter distinction is pretty much the same as that of other economists. For that matter, the distinction between real and nominal wealth is pretty standard in economics. If I recall correctly, I first encountered it in my first course in economics in undergraduate school in 1958, in Paul Samuelson's text.

              Bottom line you're argument is empty of content from beginning to end, delivering a generalized set of charges unsupported by any details from either my book or MMT.

              •  Is that your book? (0+ / 0-)

                you describe it as some sort of corroborating authority which it isn't.  Point 3 is what I said it was.  And, no, I won't be printing $9.95 to quote your shit back to you.  It's Lysenko applied to monetary policy -- the means must justify the ends.

                Difficult, difficult, lemon difficult.

                by Loge on Wed Nov 13, 2013 at 03:42:23 PM PST

                [ Parent ]

          •  This makes much more sense (1+ / 0-)
            Recommended by:
            Alice in Florida

            http://krugman.blogs.nytimes.com/...

            When people expect inflation, they become reluctant to hold cash, which drive prices up and means that the government has to print more money to extract a given amount of real resources, which means higher inflation, etc.. Do the math, and it becomes clear that any attempt to extract too much from seigniorage — more than a few percent of GDP, probably — leads to an infinite upward spiral in inflation. In effect, the currency is destroyed. This would not happen, even with the same deficit, if the government can still sell bonds.
            This isn't really hypothetical, either, as we can look at what happens when countries can't sell bonds and print money, what happens.

            Difficult, difficult, lemon difficult.

            by Loge on Wed Nov 13, 2013 at 12:31:00 PM PST

            [ Parent ]

            •  Oh yeah Dr. K's famous MMT critique (2+ / 0-)
              Recommended by:
              psyched, ozsea1

              absolutely blasted apart in the comments on his blog post, if anyone cares to read them. Also, there are any number of MMT posts that show that Paul's the one who hasn't done his math. Here are a few:

              http://www.correntewire.com/... (Note links in this one)

              http://mikenormaneconomics.blogspot.com/... (A post about all the PK critique posts)

              http://www.correntewire.com/...

              Paul's view of MMT claims is based on the idea that there is an Intertemporal Governmental Budgetary Constraint (IGBC) we must be concerned about. There was an extensive discussion of his claims at the end of March 2011 and in April 2011 at many sites, and the IGBC idea didn't, in my view, survive the criticism very well. Here's oone post refuting it,and another eliciting a very long comment thread, that pretty much dispatched the IGBC claim. (Note my own comments on that thread.

              Other elements accounting for Paul's view is that he evidently believes in the money multiplier, and also in the ISLM model, a model that its own inventor repudiated. Here's the definitive piece taking down Paul's views on these matters by Scott Fullwiler.

              The specific argument in the Krugman post you cite is that assuming that the economy has recovered, and in the hypothetical case that Government appropriations are 27% of GDP and tax revenues are at 17% of GDP then he says:

              "And consider what happens in that case under two scenarios. In the first, investors believe that the government will eventually raise revenue and/or cut spending, and are willing to lend enough to cover the deficit. In the second, for whatever reason, investors refuse to buy US bonds."

              The second case poses no problem, say the MMTers, or at least no worse problem than the first: the US government can simply issue money, crediting it to banks, to pay its bills."

              Actually, MMTers don't often say that. What they say is that investors will never refuse to buy US bonds as longs as they're holding bank reserves, because the interest on the bonds offered will always be higher than the interest on reserves. So, we don't grant the premise of this scenario. But let's go further with Paul's argument:
              "But what happens next?

              We’re assuming that there are lending opportunities out there, so the banks won’t leave their newly acquired reserves sitting idle; they’ll convert them into currency, which they lend to individuals.

              Here Paul shows that he doesn't understand the banking system at all. The banks can't convert their reserves to currency because those reserves are locked up at the Fed in their reserve accounts. They can order some vault cash if they need it, but that doesn't fundamentally change the picture that the reserves are "locked up" at the Fed and can only be used in the interbank overnight market to balance reserve requirements.

              Paul also doesn't understand that banks don't lend out their currency or reserves. When they lend they actually they actually create demand deposits in their customer's accounts. Those deposits are bank liabilities, and the corresponding new bank assets are the notes they get in return for the demand deposits.

              So, the point here is that the loans the bank will make have nothing to do with the excess reserves produced by creating money without issuing corresponding debt. They're only a function of whether the customers are credit worthy enough so that the banks are willing to make loans. So, the impact of the deficit spending has nothing to do with whether seigniorage is used or debt is used to perform the deficit spending. Any inflationary impact will be solely due to the deficit spending itself however it is funded. Moving on:

              So the government indeed ends up financing itself by printing money, getting the private sector to accept pieces of green paper in return for goods and services. And I think the MMTers agree that this would lead to inflation; I’m not clear on whether they realize that a deficit financed by money issue is more inflationary than a deficit financed by bond issue."

              For it is. And in my hypothetical example, it would be quite likely that the money-financed deficit would lead to hyperinflation.

              Paul is wrong here again. First, MMters agree that if deficit spending is too high then that would cause demand pull inflation. But second, they would not agree that a deficit financed by seigniorage is more inflationary than a deficit financed by bond issuance. The reason is that the reserves produced in customer accounts by deficit spending after seigniorage aren't as inflationary as the bonds in security accounts, because the bonds can be leveraged in private sector loans multiple times whereas reserves cannot be.

              As for a 10% of GDP deficit being inflationary or not, much less hyper-inflationary, one cannot tell about this from Paul's example with its 10% deficit. The reason is that the amount of any deficit one needs for full employment is related to the savings and trade desires of the private sector. For example, if in Paul's scenario, the private sector saved 6% of GDP and imported enough that the economy had a trade deficit of 4%, then a 10% deficit would not be inflationary at all, since that size deficit would be needed to offset the aggregate demand leakages to savings and trade in that year.

              In fact, if we had those savings and that trade balance and we tried to force a deficit less than 10 % by raising taxes or cutting spending then we would be thwarting any economic recovery driving toward full employment. Or, if we already had full employment and tried to force a 3% budget deficit, there's a good possibility that we would have a recession, unless the private sector compensated by increasing its indebtedness, which then would prevent the 6% savings from being realized.

              Scott Fullwiler's post linked to above makes clear Paul's lack of understanding of how the banks work, the fallacy of the money multiplier, and also the falsity of the ISLM that Paul relies in for his hyper-inflation bogeyman.

              Next,

              The point is that there are limits to the amount of real resources that you can extract through seigniorage. When people expect inflation, they become reluctant to hold cash, which drive prices up and means that the government has to print more money to extract a given amount of real resources, which means higher inflation, etc.. Do the math, and it becomes clear that any attempt to extract too much from seigniorage — more than a few percent of GDP, probably — leads to an infinite upward spiral in inflation. In effect, the currency is destroyed. This would not happen, even with the same deficit, if the government can still sell bonds.
              This is mis-stated. MMTers hold that there are limits to the amount of real resources you can extract through deficit spending, because if you do too much of it, you will create demand-pull inflation. So, MMTers don't support that, and we are for very vigorous measures to manage or eliminate deficits, depending on what's necessary once full employment is reached. But we believe that doing this has nothing to do with whether seigniorage or debt financing is used for the deficit spending involved. And it also has nothing to with the size of the deficit per se. Instead, it's dependent on the relationship of deficit spending to the private sector balance and the trade balance. A deficit of proper size is a deficit that equals the sum of the demand leakages from savings and trade, assuming the deficit spending is associated with an appropriate fiscal multiplier. It doesn't matter whether the deficit is a few percent of GDP or more than a percent of GDP or whether its 10 or 15% of GDP. What matters is how that deficit compares with the other two balances in the SFB model. This statement of Paul's:
              "Do the math, and it becomes clear that any attempt to extract too much from seigniorage — more than a few percent of GDP, probably — leads to an infinite upward spiral in inflation"
              is flat out wrong. First, because the matter has nothing to do with using seigniorage, and second, because the statement that deficit spending enabled by seigniorage of more than 3% leads to that infinite upward spiral is just false. Again, how much you can deficit spend without inflation, depends on all the balances not the Government balance taken by itself. As a macroeconomist Paul ought to know that; but it appears that the Nobel winner has no clothes.

              Finally, I'd be remiss if I didn't mention that Paul seems to be moving slowly toward MMT over time. In January of 2013, he supported using the Trillion Dollar Coin, denying that it would present an inflation problem. More recently, he's taken the MMT position on China and Treasury Bonds. And even in the post cited by you above he accepts the MMT view on solvency, even though he pretends it is not the MMT view:

              To wit:

              "And while it may literally be true that a government with its own currency can’t go bankrupt, it can destroy that currency if it loses fiscal credibility."
              Yes, folks. This is the MMT view, expressed ad infinitum at all the major MMT sites at The next new Deal, at Naked Capitalism, at The Huffington Post. You name it. Whenever a major MMT figure discusses the solvency question, they will also acknowledge that Governments with fiat currencies can't go broke, but they can cause inflation and even hyper-inflation if they deficit spend too much. So, the real issue is not solvency. It's what is too much deficit spending? I've said something about that earlier.
              •  Well, he says there's no conflict (0+ / 0-)

                when in a liquidity trap.  Makes sense, but moot insofar as the platinum coin isn't obviously legal for the purposes to be used, as it's an obvious unintended result of a commemoratives bill, for one, nor is it a serious political possibility.  (A political consensus in support of using it would already accept the necessity of paying debts which moots the very crisis its meant to solve.)

                I didn't see much in there other than restating what Paul (first name basis, huh?) already says you say.  You're already a step behind, and making outlandish claims about not understanding the banking system because of at most a disagreement about implications of regulatory change makes you lose credibility.  It's like arguing thetans with a scientologist.  It also fails to address the role of expectations in driving macroeconomic change, which goes back to the point it's based on how people should react according to its own theory, not anything empirical.  It'd be irresponsible to model policy change on that.  It's an interesting hypothesis, but treating it as fact is a religious, not an economic claim, at least as you model the argument.  It's telling that the argument primarily rests on countering legitimacy, with the math critique scattered a bit and without ay validation by any "Pharisee" economists.

                In the short run, by all means run deficits.  I don't know why we need some reconceptualization of economic theory to get to similar results, much less regard that as some sort of necessity.  At best, you have a testable hypothesis, that printing money would have the same impact as issuing bonds.  You don't have revealation.

                Difficult, difficult, lemon difficult.

                by Loge on Wed Nov 13, 2013 at 09:14:41 PM PST

                [ Parent ]

                •  We need (1+ / 0-)
                  Recommended by:
                  psyched

                  a reconceptualization because deficit doves like Paul would cut back deficit spending much before it needs to be cutback and still leave millions who want a full-time job unable to get it. He'd worry about passing Medicare for All and using deficit spending to fund it. He'd always be concerned about how we pay for things. He'd plan for contextless deficit reduction. That is, he wants a larger deficit now, but he'd endorse a plan prescribing cutbacks in 2 or 3 years so we could improve the debt-to-GDP ratio. MMTers would do nothing like these things. They'd work from savings and import desires and anticipated sectoral balances in those categories and then let the deficit float. This would be true whether or not the funding mechanism was debt or seigniorage-based.

                  As for calling my claim that Paul doesn't understand the banking system "outlandish." I linked to Scott Fullwiler's article on this topic. I don't see you trying to discuss or refute Fullwiler's argument, which is a pretty comprehensive deconstruction of the degree of Paul's understanding. In my own comment I referred to the bankruptcy of the money multiplier and Paul's direct bank statement suggesting that banks lend out cash converted from excess reserves. That alone shows that he doesn't understand the banking system since he doesn't know that loan fund (demand deposits) are created, as the expression goes, "out of thin air" and are not reserve constrained.

                  Also your view on this:

                  Makes sense, but moot insofar as the platinum coin isn't obviously legal for the purposes to be used, as it's an obvious unintended result of a commemoratives bill, for one, nor is it a serious political possibility.  (A political consensus in support of using it would already accept the necessity of paying debts which moots the very crisis its meant to solve.)
                  is just a restatement of your earlier views on platinum coins and the political reactions to them. There are people who agree with you, of course, but the weight of opinion about the legality platinum coins both among journalists and lawyers is that its use would be legal. Many of those who think it would be legal do share with you the view that it would be politically unacceptable. But I've considered this argument in my book and in other places in great detail. I think the claim of political unacceptability is based on an elite-centered analysis, and that when one broadens their view to consider how people would react to the idea of filling the public purse, and then using the money to pay off the national debt as it falls due, and then one visualizes a campaign of persuasion proceeding along with substantial and gradual repayment of the debt; it is pretty plain that the using the coin would be accepted over a pretty short period of time.

                  The idea that there needs to be a political consensus before we use the coin is silly. The very point of using the coin is that the President can decide by himself to use it, fill the public purse with the seigniorage from it, and then use the reserves created to avoid issuing more debt, either to avoid going over the debt limit or to repay outstanding debt without having to roll it over. It was never claimed by me or other advocates of the coin that there would be anything but a political firestorm over using the coin. What I've argued however, is that if the President had a $60 T coin minted and used the seigniorage to pay off the national, then the storm would change to kudos by election time. In short, the claim is that the consensus on the coin would be achieved after the fact, not before it, and not with the immediate support of the Congress or even the people at large.

                  Anyway, all the above is made clear in my book, which you refuse to read because I link to it so much. Well, ignorance is frequently a choice, and I guess you've made it yours.

                  •  yeah, i just didn't see how the banking system (0+ / 0-)

                    stuff was particularly responsive to the argument about how printing money would affect the willingness of people to hold money.  It's the same disconnect between MMT talking about how people should react, if the underlying premises were correct, versus how they might actually.  And why do I care more or less about the argument because it's Scott Fullwilder?  And I did explain why it was outlandish - because it jumps from a limited data point to an extreme and implausible conclusion.  Perhaps you think aobut the banking system differently; perhaps you're misunderstanding "Paul's" arugment.  I don't know, and I don't care.

                    Nevertheless, I'd have conceptualized it a little differently -- it's very hard to tell when money is being printed for sensible deficit purposes and when it's doing it because it lacks a better option.  Certainly, we'd agree that in the short run and a perfect world is conducive to running deficits.  but if printing the coin errs, it errs extremely badly.

                    i refuse to read it because i have 5 books piling up.  I kinda sorta feel like i've read it by now.  Actually, i refuse to pay for it, in money or time, is more the issue. Give me a copy, and I'll consider it.

                    Difficult, difficult, lemon difficult.

                    by Loge on Thu Nov 14, 2013 at 12:37:27 PM PST

                    [ Parent ]

  •  Why do we have any taxes if we can create money? (1+ / 0-)
    Recommended by:
    slothlax

    Obviously, the debt far exceeds our tax capacity. Why can't we just stop collecting taxes and rely on "the acknowledgment of a social relationship between a buyer and a seller, between a money creator and a money user?"

    “Well, when the president does it, that means it is not illegal.” Richard Nixon, 1977.

    by Kvetchnrelease on Tue Nov 12, 2013 at 02:40:59 PM PST

    •  Taxes serve 3 functions in our modern economy (4+ / 0-)

      1) To regulate aggregate demand and thus inflation.  If the Govt just created the $3+ trillion in spending that it does every year we MAY get too high an inflation rate (depending on savings desires, NET imports, and productivity increases).

      2) To imbue a baseline value for our fiat currency.  Some argue that state and local taxes would be sufficient to serve this foundational purpose.  I agree with this position.

      3) To direct a social agenda of public purpose.  We tax things that we want less of.  Want less financial speculation, tax it.  want less pollution, tax it.  Want less inequality, tax it.  Want a different trade balance, tax imports.  And so on.

      MMT = Reality

      "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

      by Auburn Parks on Tue Nov 12, 2013 at 03:28:50 PM PST

      [ Parent ]

      •  We want less income is the reason it is taxed? (2+ / 0-)
        Recommended by:
        jm214, slothlax

        Is aggregate demand a function of chartalism?

        “Well, when the president does it, that means it is not illegal.” Richard Nixon, 1977.

        by Kvetchnrelease on Tue Nov 12, 2013 at 04:07:21 PM PST

        [ Parent ]

        •  Not sure (1+ / 0-)
          Recommended by:
          psyched

          what you mean by this question. MMT is a theory which includes a descriptive account of current practices. It doesn't itself create aggregate demand. On the other hand, MMT-based fiscal policies certainly can either increase or decrease aggregate demand depending on what needs to be done.

        •  We want taxes because we need the private (3+ / 0-)

          sector to spend less than it could with no federal taxes. How much less potential spending power is a matter for discussion and investigation. IMO its unlikely that a 22% of GDP NET contribution to the money supply each year would NOT unwanted upward pressure on the inflation rate. And believe me, I am one of the biggest inflation doves you could ever talk to.

          So with that as our foundation, we need to answer three questions:

          1) What is an inflation rate we can live with if it means more economic equality, full employment, and increased investment in education, infrastructure and science?  As long as wages kept pace, I could live with a 3-5% baseline inflation rate.

          2) Given private sector and global economic conditions, what is the level of net contribution to the money supply via the Govt deficit that will accomplish are above goals?

          3) Theoretically, the level of Govt spending necessary to meet the goals stated in point #1 has a tax level that will coincide with maximum public purpose.  For example, if it takes Govt spending of 30% of GDP to accomplish the public goals we set for that spending, what is the tax level that is required to maintain the desired inflation rate?  Will it require 10% of GDP taxes and a 20% deficit? Or a 20% tax rate and a 10% deficit?

          In reality, it could be either.  It all depends on the private and international economic conditions.  Hell, even a 5% deficit may be too large at times (if we foolishly allow large private debt bubbles).

          MMT = Reality

          "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

          by Auburn Parks on Tue Nov 12, 2013 at 05:12:12 PM PST

          [ Parent ]

          •  A thought I have had in this respect... (1+ / 0-)
            Recommended by:
            Letsgetitdone

            It would also help that any increase in the deficit be directed towards pursuits that increase productivity and thus the amount of goods and services available over "helicopter drops" that would just tend to increase demand.  This would mitigate some inflationary pressures.

            In addition, there is the issue of resource constraints.  I am thinking in terms of the environmental issues created by making more stuff.  This has bothered me.  Especially, since we are becoming better able to make more stuff with less labor.  How do we have full employment without making too much stuff and causing great environmental harm?  My  thought is that we make a transition to more of a knowledge/leisure society.  What do people really need and want?  Once you satisfy food, clothing, and shelter, I think the next thing is happiness.  I think there are a lot of things that can make people happy with relatively little resource inputs, but they also tend to be labor intensive as well. The arts both classical and popular are a good example.  A good meal at a restaurant compared to a meal in home is probably not much more resource intensive but is labor intensive and a nice social activity.  Reading, education, and research are both jobs and leisure activities.  And, aside from certain types of big science (which I think are worth it) not terribly resource intensive either.

            So, my prescription for the economy of the future is less work, more pay, and more activities for people to enjoy with that pay, but less stuff.  I for one can spend hours playing video games. Somewhat energy intensive, and not great for my health but happiness but takes just a little energy to make another digital copy for me.

            I generally find energy to be less of a limit than others.  The sun delivers about 100x as much energy as humans currently use.  We just need to start using it.

      •  The fact that taxes influence demand (1+ / 0-)
        Recommended by:
        slothlax

        for things taxes is not a good argument that such is purpose of taxation, any more than saying that because the price of goods influences demand, the purpose of prices are to regulate demand. That may be part of an argument about determining price levels, but it is not an argument that says what price itself is.

        •  You can't buy things with money you don't have. (2+ / 0-)
          Recommended by:
          No one gets out alive, ozsea1

          Taxes reduce the amount of money that you have and therefore that you can spend.  The Govt can most likely not create the amount of money necessary to pay for all the things we collectively we Govt to do, without offsetting at least some private sector purchasing power through taxation.  This is a basic logical tautology.

          MMT = Reality

          "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

          by Auburn Parks on Tue Nov 12, 2013 at 05:14:53 PM PST

          [ Parent ]

          •  Impeccable logic (1+ / 0-)
            Recommended by:
            slothlax

            but beside the point. Taxes obviously reduce the amount of money you have to buy stuff. That does not establish that the point of taxes is to keep you from buying stuff. The reduction of your purchasing power is a collateral result.

            •  I see what you're saying. You think that the Govt (3+ / 0-)

              must tax you in order to get its own fiat money tokens to spend. The constitution disagrees with you:

              Article 1 section 8:
              "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;"
              http://www.usconstitution.net/...

              The current Fed chairman: (@ 30 secs)
              http://www.youtube.com/...

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

              http://econproph.com/...

              The St. Louis Fed:
              http://neweconomicperspectives.org/...

              The former Deputy Treasury Secretary Frank Newman:
              http://vimeo.com/...

              Former Chair of the NY Fed Beardsley Ruml (PDF):
              http://www.constitution.org/...

              Former Chairman of the Federal reserve Marriner Eccles:
              http://monetaryrealism.com/...

              And on And on And on.

              I think its pretty safe to say that taxes aren't necessary to fund Federal Govt aka the dollar sovereign's spending.  And if we don't tax for that, we obviously tax for the reasons that we have written above and many times in many different places.

              MMT = Reality

              MMT = Reality

              "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

              by Auburn Parks on Tue Nov 12, 2013 at 05:54:57 PM PST

              [ Parent ]

              •  Once again (3+ / 0-)

                Well, that was an entertaining tour, if not exactly instructive. Even more am I convinced that these people are idiots. They look at their central banking system and fiat currency and, like Nietzsche's last men, they announce that they have invented happiness. And they blink.

                Manufacturing currency and giving it a value are not the same thing as creating wealth, and the Constitution says nothing like that.

                The U.S. can never become insolvent in the technical sense that it can insist that debts owed it be paid in its currency. But it cannot insist that Saudi Arabia accept its dollars for their oil. In that view, it can absolutely become insolvent.

                For the rest, nothing new. The Beardsley Rumi (which is old, 1946) is a perfect example, claiming that (magically?) the fact of non-convertibility added to  a new understanding of central banking frees national governments from any constraint on issuing currency. How, precisely, this miracle happens, he does not specify. [Just out of curiosity, are you also recommending that all corporate taxes be abolished, which is the real aim of his article?]

                What he does say is that taxation is insufficient to fund government (odd, since he also claims that no funding takes place) so borrowing must be added. What, precisely, is borrowed, remains mysterious. Actually, on this view, it is entirely unclear why there would be any pretense of borrowing, as opposed to simply printing of money and handing it out.

                Mr. Eccles is also entertaining, saying that "Money is created by debt—either private or public debt." So, what is owed, debt, is money, which then creates money. Money is created by creating money (or maybe it's just that money is created by money—this sort of nonsense is hard to pin down).

                At any rate, through all this you and these others have done a find job of explaining how it is that money gets issued. But you imagine that this is the same thing as explaining what money is, which it does not.

                So, I think it's pretty safe to say that taxes are absolutely necessary to fund the federal government, and that we tax first and foremost in order to transfer wealth from taxpayer to Treasury, in order that Treasury can buy stuff.

                MMT = Fantasy

                •  Thats some interesting mythology. (2+ / 0-)
                  Recommended by:
                  psyched, happy camper

                  From a logic 101 perspective.  If is impossible for the creator of any token to receive that token (in taxes) before it has issued that token (spent it).  This is not very hard to understand.  Yes, the Govt uses it money to move real goods and services from the private sector and mobilize them for public purpose.  Is that somehow supposed to be a criticism of MMT?  Money is a medium of exchange and store of value, it is financial wealth.  Financial wealth is nothing more than claims of real wealth.  Again, what is your point?  Are you saying that we need smaller deficits?  Larger deficits?  more taxes? less taxes?  Honestly, what point are you even trying to make?  

                  Look, someone has to make the money.  Certainly you accept that there is more money in the economy today than there was in 1972, where do you think it came from?

                  Hint: bank lending and deficit spending by the federal Govt

                  MMT = Reality

                  "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

                  by Auburn Parks on Tue Nov 12, 2013 at 07:01:07 PM PST

                  [ Parent ]

                  •  You're the one with the agenda, (2+ / 0-)
                    Recommended by:
                    thestructureguy, slothlax

                    making the claim that there ought to be no debt limits. My only argument is that the premises on which you ask that are fundamentally flawed. You also, via assertions such as "[It] is impossible for the creator of any token to receive that token (in taxes) before it has issued that token (spent it)" show that you don't understand the difference between temporal and logical chains of causes. The token is manufactured to facilitate the exchange of wealth that already exists, to represent wealth that already exists—it does not create the wealth, it merely substitutes for it in transactions

                    I understand perfectly where money comes from and how, via steady inflation (caused/controlled by central banks), prices rise and the amount of money in circulation with it. But you believe that we can simply pour as many more dollar bills into circulation as there are wishes on what to spend it, no problem. One of the many jokes here is that this is essentially another version of supply side economics: with all this free money, we should simply abolish taxes, personal, corporate and capital gains, and live out of our printing press. This is what I call pure fantasy.

                    MMT = a wingnut view of economics

                    •  Nice straw man: (2+ / 0-)
                      Recommended by:
                      happy camper, psyched

                      " by central banks), prices rise and the amount of money in circulation with it. But you believe that we can simply pour as many more dollar bills into circulation as there are wishes on what to spend it, no problem. One of the many jokes here is that this is essentially another version of supply side economics:"

                      MMT only says to create enough money to maintain full employment.  The fact that you don't know that isn't a sleight against MMT, its evidence of your ignorance about the subject matter.

                      MMT = Reality

                      "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

                      by Auburn Parks on Wed Nov 13, 2013 at 05:25:48 AM PST

                      [ Parent ]

                      •  Straw man? (0+ / 0-)

                        You see straw men where there are none, just as you see coherence where none exists.

                        If MMT says to create enough money only to maintain full employment, then it does so as a rule of prudence in order to prevent inflation, the exact same prudence that any intelligent central banker ought to possess. This is in no way a principle unique to or explanatory of MMT. MMT just might qualify as a description of current practice in wealthy fiat currency economies, but it clearly has nothing to say about how an economy comes to exist, how value is created in the first place, or what are the real mainsprings of an economy. For all this, it substitutes technocratic blather and pseudo social-scientific jargon. I see why you cheer for tautology—you are perfectly at home in a circular, self-validated world. Heaven help you if reality ever pokes through and you need to do something real, such as, say, explain scrip to Phillippino typhoon victims.

                        MMT = Cloud Cuckoo Land

                        •  You will not find any Nobel Prize winning (1+ / 0-)
                          Recommended by:
                          hmi

                          Economists speaking well of MMT.

                          MMT is outside the consensus of professional economists to a greater extent than climate change deniers are outside professional climate scientists.

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

                          by nextstep on Thu Nov 14, 2013 at 09:19:03 AM PST

                          [ Parent ]

                      •  Interesting and fascinating exchange (1+ / 0-)
                        Recommended by:
                        psyched

                        will make great evening commute reading.

                        “Vote for the party closest to you, but work for the movement you love.” ~ Thom Hartmann 6/12/13

                        by ozsea1 on Wed Nov 13, 2013 at 12:56:56 PM PST

                        [ Parent ]

                      •  To expand... (3+ / 0-)
                        Recommended by:
                        psyched, ozsea1, Letsgetitdone

                        MMT says that the supply of money is not a constraint on government spending when a country is sovereign in its currency, since it has an infinite supply of that currency.  Which validates a set of Keynesian postulates from Abba Lerner called the rules of functional finance which predate modern MMT.

                           1) The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes.
                            2) By borrowing money when it wishes to raise the rate of interest and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain that rate of interest that induces the optimum amount of investment.
                            3) If either of the first two rules conflicts with principles of 'sound finance' or of balancing the budget, or of limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2.
                        So, the external constraint on a sovereign government's deficits is the products and services available for purchase which is pretty closely tied to the productive capacity of the country.  Exceeding this creates inflation and probably other signs that something is wrong. The internal constraint is of course the legislative body which decides what the government should spend it money on and passes budgets and appropriations and tax laws to execute those decisions.  I guess what MMT tells us is which constraints are choices and which are imposed.

                        What happens with this is that when a non-sociopath learns which constraints are imposed and which are choices, it is hard not to have moral outrage against our political class for making choices that increase the suffering of the American people for no good reason.  There is no good reason that there be 17% un/under-employment. There is no good reason to cut food stamps.  No good reason to not have universal single payer health care. No good reason for crumbling infrastructure.  At best it is abject cruelty driven by ignorance.  At worst it is knowingly cruel.

                •  Disagreement? (2+ / 0-)
                  Recommended by:
                  psyched, ozsea1

                  Evidently, you think you disagree with MMT about this:

                  Manufacturing currency and giving it a value are not the same thing as creating wealth, and the Constitution says nothing like that.
                  I'm hear to tell you that you don't. MMT economists always make the distinctions between financial assets and real wealth.

                  But the point is that US debt instruments and US money are both denominated in dollars, not in real wealth; and the US can never run of out of dollars unless it chooses to do that since it is the creator of dollars whether we're talking about coins, currency, or reserves.

                  Of course, it's true that the Saudis could one day decide that they don't want any more dollars and could refuse to sell us any more oil in return for them. If they did that however, they would greatly reduce the value of the dollars they are already holding in international exchanges and they wouldn't be able to use them to buy the same amount of real wealth they can buy today.So, it's doubtful they'll do that overnight. If it's done it will happen very gradually over a period of years giving us plenty of time to adjust.

                  In addition, you might consider that the Saudis rely on the United States to defend them against foreign threats and also, if necessary from domestic instability. They are an authoritarian regime we prop up in various ways. They are dependent on us for military goods, spare parts, intelligence, training, medical advances, and many other things.

                  They also won't want to damage the status of the dollar as the reserve currency. Why not? Because the US's ability to fight foreign wars is partly dependent on the dollar as the reserve currency. If the Saudis decide to torpedo that, then the next time they want US military assistance to help them out when they get into trouble, they know that it will be much more expensive to do so, and that therefore we are much less likely to intervene.

                  For all these reasons and one more, the Saudis won't stop supplying us with oil. That one more is that if they did that, how long do you think it would take us to impose oil rationing here and embark on emergency measures to replace oil in our economy with alternative energy sources. Not long, I think. Especially since implementing a project like that would create full employment here in double-quick time.

              •  Nice list (1+ / 0-)
                Recommended by:
                psyched

                Auburn. You should just blog that!!!

  •  at the very least...it only seems logical to me (5+ / 0-)

    that whenever Congress passes a budget that said budget include a provision that it includes "whatever debt increase is necessary to pay for the things contained in said budget."

    Why someone decided that it was a good idea to have a budget and then a separate debt ceiling to pay for all of the things contained in that budget...is beyond me. It was an idiotic idea to begin with.

    Our nation's debt is a direct reflection of our nation's budget, so there really is no good reason to separate the too, least of all even have an artificially created "debt ceiling" to begin with.

  •  Well done, psyched! (2+ / 0-)
    Recommended by:
    bluezen, psyched

    Very good explanation. I have tried to explain this to  "family budget" insisters, to no avail. They invariably go nuts when I say print money.

    The trouble ain't that there is too many fools, but that the lightning ain't distributed right. Mark Twain

    by BlueMississippi on Tue Nov 12, 2013 at 04:03:08 PM PST

    •  Don't say (2+ / 0-)
      Recommended by:
      psyched, BlueMississippi

      "print money." Say "coin money," to pay back the national debt. Maybe they'll like that better.

      •  Will try but don't think it will help. (0+ / 0-)

        They don't get the idea that money is just a more convenient way to exchange goods or services. You can't eat it and you can't take it with you. They are stuck on the family budget idea. I think that radio guy, Dave Ramsey, has a lot to do with their ideas. This diary separates the family budget from running our govt.

        The trouble ain't that there is too many fools, but that the lightning ain't distributed right. Mark Twain

        by BlueMississippi on Tue Nov 12, 2013 at 08:06:46 PM PST

        [ Parent ]

  •  There's just good or bad economics (1+ / 0-)
    Recommended by:
    Kvetchnrelease

    and if this is Progressive economics, it's got problems, starting from the confusion between currency and wealth, terming them both, "money."

    Currency is the stuff that gets printed, and yes, you can print it 'til you run out of paper and ink. No problem—until you go to use it.

    At that point, currency (being itself valueless paper) must represent some underlying wealth. That wealth can be anything from gold, to land, to pure trust that there are many other people who will accept the paper in order to relinquish title to owned goods. But in that case, it is the owned goods that are the eventual source of the value of the currency. Those goods (which could include labor) are tradable stores of value, whose value can be represented by the currency. If there is nothing to represent, the currency is worthless (as has happened to fiat currencies from time to time historically).

    Government issues currency, but does not create value. The only source of value it has available are tax revenues along with property it possesses as a result. It cannot, therefore, "invest in the national economy." All it can do is borrow from those who hold wealth and spend it. It can on its citizens' behalf, spend on projects which will eventually bring benefit to those citizens, which may in turn create additional revenue to tax, but the source, again, of the wealth is those that create value and the surplus that enables productive investment.

    With or without a gold standard, the size of government debt is constrained by how others view the value of the currency. The strawman here is to act as though the only alternative to the view presented is some version of the gold standard, or that any understanding that posits underlying value is its equivalent.

    This conceit of money as "acknowledgments of social relationships," is mystifying mumbo-jumbo that turns money into the equivalent of my brother-in-law, apparently. But I'll bite—how, exactly, is a Chinese bank buying T-bills the creation of anything helpfully understood as a social relationship? What relationship? For that matter, what society?

    •  I would like to see you start a business (3+ / 0-)
      Recommended by:
      psyched, happy camper, ozsea1

      with which you started to "create wealth" aka real goods and services, without first getting the valueless currency with which you had to get to make the initial capital investment to start your business.

      The old "money isn't wealth" and therefore Govt creating money cant create value meme is a completely baseless and fantastical version of reality.  Our society's medium of exchange, the US dollar, is by definition a wealth creating exercise. The ease and uniformity of transactions makes commerce more efficient than ever with today's digital payments and 24hr access & control over our "money". This is all made possible by the monetary system that we have created for ourselves.  So if we've created this wonderful system that runs on there being enough worthless currency to buy all of the real wealth aka real goods and services that we are capable of producing at full employment plus our imports........and we are capable of creating as much of the "worthless currency" as we like...........would we stupidly keep the supply of "worthless currency" below what is required for optimum public purpose and real wealth creation?

      MMT = Reality

      "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

      by Auburn Parks on Tue Nov 12, 2013 at 05:28:19 PM PST

      [ Parent ]

      •  Chickens and eggs (0+ / 0-)

        We're not starting an economy from scratch. But if we were, we would first likely barter and then eventually move to use of money. But the money would be created as a measure of already-existing value. For that matter, I can right now use my own labor and brains to create wealth using a local barter system here in Brooklyn, no currency required.https://www.imsbarter.com/...

        I've never run across a "definition" that the USD somehow itself "creates" wealth. Where, exactly, is this definition? Available from the U.S. Treasury? Something every economist knows? Something you made up?

        The monetary system does all sorts of excellent things, but it does not in the first instance create wealth out of...what? Thin air? Paper and ink? As I said, we can surely create as much currency as we like, but there are real-world constraints on the amount that we can put into circulation.

        •  It creates wealth in the most primitive method (0+ / 0-)

          possible:  people who have USD can pay their taxes and don't get their land and other property confiscated.  That creates a market for dollars so people can pay their property taxes, and creates a definition of wealth based on how much currency one has.

          Of course, the USD didn't start off this way, but the European currencies did.  By the time we got around to minting our own money the concept of currency was already established.

          And we love to wear a badge, a uniform / And we love to fly a flag But I won't...let others live in hell / As we divide against each other And we fight amongst ourselves

          by ban48 on Tue Nov 12, 2013 at 06:00:54 PM PST

          [ Parent ]

        •  The US dollar is the means by which 99% of all (2+ / 0-)
          Recommended by:
          psyched, ozsea1

          the wealth in the USA has ben created.  These are not complicated issues, your deep misunderstanding means you should really rethink some of you views on reality.  Yes of course there are real world constraints on money creation.  That real world constraint is effectively inflation, which every MMT understands and has talked about ad nauseum.  

          Money is a critical part of wealth creation, and the Govt has monopoly authority over our money, all of this is obvious.  

           Three main factors of our modern national economy are deflationary: productivity increases, the trade deficit (those US dollars are leaving the country, so they can't be used to bid up domestic prices), and savings (if you have $1 million, and you never spend any of it, there's no way for that money to bid up prices).  After all, inflation is the ratio of money SPENT to goods and services for sale.  Imagine an economy of two people that produces 10 apples a year.  And there are $10 in the economy.  The price level is 10 apples / $10.  Now lets say that productivity increases allow these two to produce 20 apples.  If the amount of money stays the same, we have deflation: 20 apples / $10.  If the money supply grows in an equal amount with productivity, inflation is zero: 20 apples / $20.  If the money supply grows faster than the production of goods and services, we get inflation: 20 apples / $25 dollars.  So creating money does not by itself guarantee inflation, its a ratio.

          MMT = Reality

          "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

          by Auburn Parks on Tue Nov 12, 2013 at 06:01:16 PM PST

          [ Parent ]

          •  Ya know (0+ / 0-)

            I wrote a lengthy response which this effing website ate:

            ERROR!

            If this error doesn't make sense to you, please submit this error message to the helpdesk.

            Can't call method "parent_id" on an undefined value at /www/dk4-perl/current/lib/ScoopDK/Utility/Comments.pm line 42.

            But rather than attempt to recreate it, I think I will just leave you to your fantasy. Clearly, you will insist that the monetary system we have now magically sustains itself by turtles on top of rabbits on top of elephants. I disagree, and will now bother you no more.

            MMT = pure fantasy

            •  Thanks for displaying your ignorance. (2+ / 0-)
              Recommended by:
              psyched, ozsea1

              If MMT is pure fantasy, then you should very quickly and easily be able to show why its so absurd.  Just like it took me all of 5 min to respond to your POV and point out where it is intellectually and factually flawed, and provide the counter evidence against your claim, it should take you a similar short period of time to disprove what we are saying if its as crazy as you imply.  Good try though.

              MMT = Reality

              "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

              by Auburn Parks on Tue Nov 12, 2013 at 06:53:58 PM PST

              [ Parent ]

              •  And thanks for displaying your naivete (0+ / 0-)

                and for that nifty collection of semi-relevant assertions.
                BTW: are you also plumping for the entire abolition of corporate tax, which was the point of one of them?

                In a nutshell: MMT mistakes the creation of currency for the creation of wealth on no grounds whatsoever besides, "This is the way we've been making dollar bills for awhile and so far we haven't hit a brick wall." It believes that because USD fiat currency is now accepted, it will always be accepted. It mistakes money, the token, for the thing of which it is a token. It thinks that debt is the creation of money, which amounts to the wonderfully enlightening, "Money is the creation of money." It is, in a word, absurd. And all the crap you threw against the wall via that collection of links slid off without sticking, as there was barely a thing of substance to it.

                MMT is the fantasy that something can be had for nothing, simply because a nation owns a printing press. It smacks of Rousseau's Second Discourse, where he traces the foundation of civil society to the fellow who fenced off a plot of land, announced "This is mine" —and found people foolish enough to believe him. I'm happy that you have found some fools of your own.

                No point in wasting either of our future 5 minutes. You stay happy inside your tautological, self-validating universe.

                •  Thank you. I do much prefer to build my (2+ / 0-)
                  Recommended by:
                  psyched, ozsea1

                  foundation of reality, as I perceive it, on simple tautologies. Everything else gets built off of that which we know is true.  You can deny it all you want, we all understand perfectly well that money is a claim on real wealth.  And the more money that is there circulating, the more real wealth that can be created to try and capture the money.  People will always want money, and the state will always dictate the unit of account in which it accepts its liabilities in exchange for tax credits.  There's no sense denying this simple tautological truth.  On the other hand, any time you wish to offload some of your worthless currency, I'd be glad to take it off your hands.

                  MMT = Reality

                  "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

                  by Auburn Parks on Tue Nov 12, 2013 at 07:44:51 PM PST

                  [ Parent ]

                  •  Deliberately dense? (0+ / 0-)

                    There are useful and useless tautologies. Yours are the latter, the kind that pretend to be clarifications, but are merely spinning in circles without being able to define terms so as to build those foundations.

                    If money is a claim on real wealth, then there must be something different from money that is real wealth. Please now explain what real wealth is, since you now admit that money is, in fact, not real wealth.

                    As ever, you have the cart before the horse, holding that real wealth (whatever that might be) is created in order to obtain money because, apparently, people want money, and not real wealth. More absurdity. People don't want money, they want what money can buy. Money is merely, as they say, the medium of exchange.

                    Certainly the state dictates the unit of account and takes its own currency for tax liabilities. That very fact has helped sink fiat currencies in the past, as wily entrepreneurs used inflated currency to pay taxes. You should immediately review the history of John Law, French fiat currency and the Mississippi Bubble. It will prove instructive.

                    •  In today's economy, you need claims on resources (2+ / 0-)
                      Recommended by:
                      psyched, ozsea1

                      with which to acquire the goods necessary to start a business with which to create real goods and services.  This stuff is not complicated.  What are you continuing to argue about?

                      MMT = Reality

                      "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

                      by Auburn Parks on Wed Nov 13, 2013 at 05:20:21 AM PST

                      [ Parent ]

                      •  By "claims on resources" (0+ / 0-)

                        you mean, "money." So yes, people need money (or labor, or intellectual capital) to start a business. Two of those are resources; one might be called a claim on resources. Any of them can qualify as surplus available to form capital. The money comes once the capital is created, not the other way around. This stuff is not complicated. Why do you insist on hiding behind useess jargon?

                        This is not even Econ 101, more like 7th grade social studies. Instead of the obvious, try answering the question. What is "real wealth" and how does it differ from money?

                  •  Tautologies (1+ / 0-)
                    Recommended by:
                    psyched

                    are not reality, Auburn. They are linguistic constructs of human beings.

                    The sector financial balances model isn't true because it's a tautology. It's true because when that tautology is applied to the real world certain consequences can be predicted that do fit reality as we construct it, independent of the SFB equation itself. For example, we know that if the Government forces a balanced budget, that the result will be less (private sector savings,  + Current account deficit) or an increase in private sector debt. We can test for those things and see if reality accords with our expectations. That makes SFB more than a tautology. It may start that way; but once it is interpreted, it becomes part of an empirical theory.

                    •  Joe, tautologies are also used in propositional (1+ / 0-)
                      Recommended by:
                      psyched

                      logic.  This is the way in which I'm using the word.  Tautology is not just a "linguistic construct".  That is only one was to use that word.  

                      What are the baseline truths that define our reality?  MMT lays out a number of them for the economy and monetary system. I think thats wonderful and its what led me to become a MMTer.

                      MMT = Reality

                      "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

                      by Auburn Parks on Wed Nov 13, 2013 at 05:18:46 AM PST

                      [ Parent ]

                      •  Propositional Logic (1+ / 0-)
                        Recommended by:
                        psyched

                        is linguistic in nature.  Frege, Russell, Whitehead, Wittgenstein, and Carnap repeatedly showed that many years ago.

                        •  Sure, depending on the level of abstraction (1+ / 0-)
                          Recommended by:
                          psyched

                          we are talking about, every concept, logical formation etc is nothing but linguistic in nature.  I am talking specifically about the simplest logic with which we can make observations about the world.  Gravity, evolution, MMT, spending = income etc.

                          MMT = Reality

                          "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

                          by Auburn Parks on Wed Nov 13, 2013 at 03:38:36 PM PST

                          [ Parent ]

                  •  You need to define your terms (1+ / 0-)
                    Recommended by:
                    psyched

                    You seem to be limiting 'value' to transaction-based, which is why you cannot recognize the value of a government creating a water distribution and waste treatment system.  And, what is your definition of 'wealth'?

                    Money doesn't create wealth, and printing money doesn't increase wealth.  But printing money does redistribute it from those hoarding it.  Considering there is $32T being hoarded in Caribbean bank accounts, I see no problem printing more money.  And believe what you want (most people do), but printing more money is not necessarily inflationary, especially when over $1T per year is being sucked out of the global economy and into Caribbean accounts...

                    And we love to wear a badge, a uniform / And we love to fly a flag But I won't...let others live in hell / As we divide against each other And we fight amongst ourselves

                    by ban48 on Wed Nov 13, 2013 at 03:45:29 AM PST

                    [ Parent ]

                •  Nope (3+ / 0-)
                  Recommended by:
                  psyched, thestructureguy, ozsea1

                  MMT doesn't say this:

                  "MMT mistakes the creation of currency for the creation of wealth . . . " If you think it does then please quote one of the leading MMTers to that effect. That is, if you've read MMT at all, and aren't just sounding off based on pure ignorance.

                •  I think you have misread MMT (2+ / 0-)
                  Recommended by:
                  psyched, Letsgetitdone
                  MMT mistakes the creation of currency for the creation of wealth on no grounds whatsoever besides, "This is the way we've been making dollar bills for awhile and so far we haven't hit a brick wall."
                  Actually, MMT is very careful about differentiating between real wealth and financial wealth.
                  It believes that because USD fiat currency is now accepted, it will always be accepted. It mistakes money, the token, for the thing of which it is a token.
                  Actually, MMT is based on the very fact that money is a token, it is just means of keeping score.  It then asks if that is all money is what gives it value such that some one is willing to trade their real goods and labor for this token.  And, they answer with the government only accepts that token for redemption of tax and fee obligations.  It is circular because the only thing that creates that tax obligation is the enforcement powers of the government to imprison you or confiscate your real wealth as well as your financial wealth to enforce that tax obligation.  And, the only source of that token to satisfy a tax obligation is the government. Thus, the government is able to martial real goods and services for the public good by creating a tax denominated in the IOUs it uses to pay for those real goods and services.  

                  Yes, it is circular, until you try to figure out an alternative.  If the government taxed in terms of the goods and services only the people providing those goods and services would get taxed, and that would probably create a situation where they would have a hard time trading for things they need to live.  Or, the government could take some portion of the things every person makes and try to barter them around until it somehow ends up with what is actually needed.

                  It is much easier to impose a tax on everyone denominated in government IOUs, then pay those IOUs to everyone who provides goods and services.  Then, all the people who don't provide goods and services will accept those IOUs in exchange for their goods and services, so they can pay their taxes.  Since, everyone accepts the IOUs we can save them in banks.  We can let banks create additional IOUs via loans.  Commerce goes smoother.  We also now have a market in currency for real goods, so what the government pays has some basis in reality.

                  MMT also does not postulate that a currency will always be accepted.  One critical point is that a government always has sufficient currency to buy anything for sale in that currency.  Although, you don't often see the corollary to that in that the government can't buy stuff not for sale in its own currency.  So, a government being stupid and trying to buy up more than the productive capacity of things for sale in that currency will cause inflation.  Sufficient inflation and there will actually be fewer things for sale for the currency because no one is willing to hold the currency.  So, a government wants to hit the sweet spot of spending and taxing just enough to absorb any excess productive capacity not used by the private sector, which in modern times can be considered up to full employment.

                  Countries that need to import oil run into this problem since oil is sold in dollars.  Oil is not for sale in their currency, so they have to get it from somewhere. There are only a few ways for a country to get dollars.  Run a trade surplus with the US.  Run a trade surplus with another country that has a US trade surplus and trade their currency for dollars (could require a chain of surpluses but the principal stands).  Borrow dollars via dollar denominated debt.  Aid from the US.  Borrowing is interesting because it involves betting on a country having a trade surplus at some future date that can get it US dollars to pay the debt.  This is the true value of the dollar as the world reserve currency and oil trade denominated in dollars.  It allows the US to put an obligation on other countries to now or in the future export their real wealth to the US in exchange for dollars, so they can buy oil now.

                  Resource constraints and how a modern economy could be engineered to minimize that problem is a whole 'nother lengthy thought process, and I am tired.

            •  I'm sorry (2+ / 0-)
              Recommended by:
              psyched, ozsea1

              But I'm afraid that when it comes to financial assets it's turtles all the way down. That's the consequence of having a fiat currency, a floating exchange rate, and no debts in currencies not our own. The point is that as long as we need that fiat money, we're going to use it to buy and sell real wealth, and even to provide a proxy measurement for it. Also, we will always need it as long as not having it to pay taxes with results in arrest, prosecution, and imprisonment. The value of fiat money is based on Max Weber's three kinds of authority: coercion, utility in exchange, and charismatic appeal. US money has all three of these. The third basis is quasi-religious. Our rich people worship money. That's why they can never get enough it!

        •  Or, to your point: Yes you can! Yes you can set (1+ / 0-)
          Recommended by:
          psyched

          up a barter system and be so successful that you can declare "Dollars have no value to me! That cookie jar of money in my cupboard I just keep around for kicks!"

          Then the IRS might come knocking on your door and state dryly "What you call barter we call 'a non-cash transaction', all of which must be declared at cash value.  We've subpoena'd the website and have printed out a listing all of the goods you bartered away and have determined their market value and have thus determined both your income and your income taxes.  Pay now plus late filing fines or go to jail."

          Now that cookie jar of money is of intense value to you.  Imagine all that value created by a knock on the door!

          Of course, me-thinks you already know this.

          And we love to wear a badge, a uniform / And we love to fly a flag But I won't...let others live in hell / As we divide against each other And we fight amongst ourselves

          by ban48 on Tue Nov 12, 2013 at 06:28:40 PM PST

          [ Parent ]

    •  Wow, that is so narrow minded. (2+ / 0-)
      Recommended by:
      jm214, Calamity Jean

      So a government building a water treatment plant and water distribution network, as well as a sanitation network and a waste treatment plant has not created 'value'?  You seem to confuse 'value' with private profit.  I think alot of people living without indoor plumbing or sanitation would find great value in what their government just created.

      And we love to wear a badge, a uniform / And we love to fly a flag But I won't...let others live in hell / As we divide against each other And we fight amongst ourselves

      by ban48 on Tue Nov 12, 2013 at 05:44:25 PM PST

      [ Parent ]

  •  The comments here follow the usual (0+ / 0-)

    pattern on this subject. Their are two important discussions going on. One is about whether the government can create is own money without having to borrow it and pay interest on the principal. The other is what kind of government institutions we would need in order to take advantage of the new paradigm.

    Because these two conversations get mixed together confusion reigns. The best thing to do is just imagine a world in which the current government institutions do not exist and then imagine how we would structure new ones.

    Too many people, practically everyone who jumps into these discussions, try to place printed money (not borrowed) into the current system, and that does not work very well. In fact it is sort of like putting a corvette engine into a covered wagon. You have lots more horsepower, but no transmission.

    Replace the covered wagon with a new vehicle, and the rest will be the transformation of mankind.

    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 Tue Nov 12, 2013 at 05:17:19 PM PST

    •  One place where you go wrong is..... (1+ / 0-)
      Recommended by:
      psyched

      we already don't borrow money.  T-bonds are not borrowing.  From a pure accounting POV:

      Person A buys a T-bond:
      Bank deposit -1000
      Securities account +1000

      Person A's Bank:
      Bank deposit liability -1000
      Bank reserves -1000

      Treasury General Account +1000
      Securities liability +1000

      Person A's net worth stayed the same
      Treasury got a +1000 credit

      So when Treasury spends that +1000:
      Treasury General Account -1000

      Person B's bank deposit +1000
      Person B's Bank's reserves account +1000

      Now that +1000 is in the economy.  So if the Govt had to borrow your money, then please tell me; Where is the corresponding debit?  Person A's securities account is never debited when Treasury deficit spends.  T-bonds are indeed liabilities just like any bank liability.  The Govt owes you the money that you have previously earned and deposited at the Fed into a securities account.  Certainly TSY never uses your money for anything.  Just like banks dont debit anyone's bank account when they make new loans.  These are the 2 processes by which money is created in our modern economy.  So that's not really debatable.

      As far as the institutions needed to implement the reality of our system and not the mythology economy the mainstream talks about, well thats a good question.  We look forward to your diary on the subject so we can post it here at the money and public purpose group blog.  We'd be very glad to hear what you have to say on the matter.

      MMT = Reality

      "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

      by Auburn Parks on Tue Nov 12, 2013 at 06:50:26 PM PST

      [ Parent ]

      •  Naah, you are off base... (0+ / 0-)

        I am not saying that I think that we borrow money, I am saying, and I said it very clearly, that the conversation on this diary and other similar diaries is that we do borrow. In addition the conversation here and elsewhere always tries to use printed money (not borrowed) in the current system of financial institutions. I am not venturing my own opinion in either situation.

        But I do offer an opinion when i say that we should imagine an entirely new financial system without the current set of institutions and their interrelationships.

        By the way, those who, like you, also worship the god of MMT, constantly make the mistake of trying to jigger the current system, they, like you, like try to win arguments with those who support the current system, and you, and they, get nowhere. If you want to accomplish something besides just writing long comments telling others they are wrong, then you will have to change your approach.

        So, to make it simple, MMT will never carry the day so long as you MMT'ers insist on shoehorning your theories into the current set of institutions. Get creative, invent a new economic system, argue for its benefits, talk to the public in general, not to other economists and other MMT'ers. But designing a new economic system takes real work, real creativity, so you don't do it. It is much easier to shoot from the lip, finish your beer and go to sleep--but tomorrow will be another day and you will not have advanced the ball one inch.

        Try to keep up, okay?

        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 Tue Nov 12, 2013 at 07:31:07 PM PST

        [ Parent ]

        •  That was all a complete non-sequitur to my (2+ / 0-)
          Recommended by:
          psyched, ozsea1

          comment.  I simply gave you the accounting breakdown of the current system with our existing financial rules and institutions.  So I'm not really sure how to respond to your comment about MMTers shoehorning our opinions into the matter.  MMT only describes the system as it currently is.  I haven't yet commented in this thread about how I think the system should be, only how it is.  You are free to deny reality for yourself.

          MMT = Reality

          "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

          by Auburn Parks on Tue Nov 12, 2013 at 07:38:54 PM PST

          [ Parent ]

          •  MMT is not reality. It is an idea for a different (2+ / 0-)
            Recommended by:
            psyched, Kvetchnrelease

            way of doing things. Until you and your few like thinkers actually change your tactics from egoistic self-indulgence to nuts and bolts hard work, you will never make MMT a reality.

            By the way, MMT is a new name for a very old idea. I first heard of it in 1949, and it was not new then. And the reason it did not catch on then is the same reason that it will not catch on now. The current crop of MMT'ers is trying to sell the idea the wrong way to the wrong potential buyers. You seem to be obsessed with the idea of being right in a technical sense rather than getting something done. You guys and gals just don't seem to get it. Nothing happens in this world until somebody sells something to somebody else. You have to sell MMT. But you seem to want to prove how much smarter you are than everyone else. What a load of crap.

            But the need to change our current economic system is strong, and there are others who are ready to take up the struggle. When that happens, and it will be easy to see, please be helpful and just keep your mouth shut.

            Try to keep up, okay?

            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 Tue Nov 12, 2013 at 07:54:40 PM PST

            [ Parent ]

            •  MMT describes the system that we already have (1+ / 0-)
              Recommended by:
              psyched

              no reason to change anything about it to make MMT true.  Deny the obvious all you like.

              MMT = Reality

              "The Earth is my country and Science my religion" Christiaan Huygens. Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

              by Auburn Parks on Wed Nov 13, 2013 at 05:22:21 AM PST

              [ Parent ]

        •  What do you mean (2+ / 0-)
          Recommended by:
          psyched, ozsea1

          by "a new economic system?" And why do you think that MMT would not apply to it?

          And why do you think that MMTers who state a preference for the Fed to be folded into the Treasury Department, for no more debt instruments to be issued, for State Revenue Sharing, for entitlements funded out of general revenues, for nationalizing the banks, and for Job Guarantees at a living wage with great fringe benefits, aren't advocating for a new economic system, ending neo-liberalism?

          Also, why do you think MMTers are "shoehorning your theories into the current set of institutions"?

          Do you think that the Sector Financial Balances Model, or MMT views on fiat currency would not apply to "a new economic system?"

          •  I am sorry to have offended you, but (2+ / 0-)
            Recommended by:
            psyched, ozsea1

            yes, I do think that what you and the other MMT'ers describe is not a new economic system. It is simply a retrofit onto a system that does not work.

            You and I had an exchange a long time ago about the need for MMT'ers to find an effective way to carry their message to the People, and you have tried to do just that. I bought your book and thought it was well done, and I was very hopeful that it would produce a change in the public dialogue about MMT, but, as far as I can tell, it has not. I am sure you have much better information than I do about the sales of your book, and I hope that it is a huge success, but I don't see any evidence of it. I think that your efforts have been better and more on target than those of the more prominent MMT leaders.

            But I think, for whatever it is worth, that the battle is being lost. We have a great opportunity now because the People have focused their attention on economic matters more than any time since the end of WWII. If we squander our chance now we may not get another one for decades, and that time, when it comes, will be due to the economic dislocations of global warming, which will greatly reduce our corrective options. Now is the hour.

            I bought your book and I have read it more than once, and I have no quarrel with what it said. I learned much from it. But, in my opinion it was not aimed at the People. And, even it were, and even if the People fell in love with it, your book offers no realistic way to get from where we are to where we want to go. For, as you know, not only our economic system is broken. Our governmental system is broken and it does not respond to the Will of the People.

            Just telling the People what is wrong and what, in our opinion, is right will not, cannot, produce change.

            As I think I told you in another exchange, I am readying my own book, which I have worked on for years. It addresses these problems and proposes a way to get where we want to go. But it is just one old man's effort and it will most likely get nowhere. But we have to try don't we?

            So, I try by telling you and others what I think, and I mostly receive bitter attacks for it. I make everyone angry. Why do I continue? Because I spent thirty years of my working life moving large enterprises to make changes in their way of doing things, and every time I did it, I was bitterly attacked. Bitter, personal attacks are one leading indicator that one's ideas may have value.

            I have watched Professor Shelton (?) on several of her television appearances. She has always been with other "experts" in the field to discuss the current economic mess. She never says anything to capture the People's imagination. It is almost as if she were not there. I have bought the books of the other leaders of the MMT movement, and they are far from barn-burners. They are too tied to the current system, they are too technical, they are dull, they offer no transforming future. Nothing happens in this world until somebody sells something to somebody else. We have to sell MMT, and for starters we need to get rid of that name.

            There are two sets of eternal questions that engage humankind. One set is the philosopher's set: Where did I come from? Where am I going? What should I do while I am here? This set of questions is embraced by ideologues and dominates our dialog. We have everyone telling us what we should do, including the MMT experts. But there is no process for assessing our options. The discussion is one ideology against another, be they economic or religious.

            The other set is the engineer's set: Where do we stand? How did we get here? Where do we want to go? How do we get there from here?

            We are very lucky at this moment because the People have a very good feel for "Where we stand." Their understanding is getting sharper and sharper. Your book and others have told us a little about how we got here, but it could be done better. But, there is no clear picture about where we want to go. There is no picture that says, "This is what American will look like, if we just do the right things." And without a firm, embraceable picture of where they are going, the People will not embrace anybody's plan for how to get there. And the "How do we get there" plan has to be complete, step-by-step with tasks identified and assignments made. It has to be a plan. When you are trying to make a change like this, you make the plan and then you sell it. You can't wait for others to make the plan because they never will. If you are on the forefront, as you, letsgetitdone, clearly are, then you may very well be alone.

            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 Wed Nov 13, 2013 at 06:38:25 AM PST

            [ Parent ]

            •  Thanks, (2+ / 0-)
              Recommended by:
              psyched, ozsea1

              Hestal. You didn't offend me. I just wanted clarification on where you're coming from. My book hasn't sold a lot of copies. In fact, I've given away a lot more copies than it sold, but I'm glad it's out there, because one never knows when it may catch fire.

              Meanwhile, I'll look forward to your book in hopes that it can do a better job of communicating with people than mine did. I agree that MMTers haven't fired the imagination here yet. But Warren Mosler has had great success in Italy, and MMT ideas seem to spreading rapidly there.

              The rest of us will keep trying here. Our main problem is breaking through mass media screens. The primary narratives carried there just shut ours out.

  •  All money is fiat money. Gold has no 'inherent' (1+ / 0-)
    Recommended by:
    jm214

    value any more than silver, lead, milk, or the special paper we print bills with.  Gold had trade value between rome and the china & india, but so did silver.  That was mostly because the eastern realms just loved loved loved to make gold and silver temple adornments, and the west had nothing else they were interested in.

    It was also difficult to forge gold coins due to the scarcity of the metal, but our current paper money is more difficult to forge.  Prior to gold many other forms of currency existed, but most of them would appear as junk to us today.

    If gold truly represented wealth, then the Incan empire would have conquered Spain, but that did not happen now, did it? The entire 'fiat' argument is an empty argument espoused by those that wish to control the money supply for their own benefit.

    And we love to wear a badge, a uniform / And we love to fly a flag But I won't...let others live in hell / As we divide against each other And we fight amongst ourselves

    by ban48 on Tue Nov 12, 2013 at 05:37:18 PM PST

  •  I guess there is such a thing as "the economy," th (0+ / 0-)

    at whole set of relations and interactions and transactions. Maybe the problem is that "we" have several groups claiming ownership of the thing, and each of them has a different operating and owner's manual and of course both different shop/repair manuals and at least several dozen sets of tools, each to a different scale and size. A 7/16" SAE wrench will usually fit an 11 mm nut or bolt, and a few others are close (14 mm and 9/16", for example.) But when you add a bunch more tools with different referent measures, and try to apply some torque, all you are likely to do is round off, or twist off, the fastenings that hold it all together.

    "Is that all there is?" Peggy Lee.

    by jm214 on Tue Nov 12, 2013 at 06:10:25 PM PST

  •  Huh? No one is moving towards hard money (0+ / 0-)

    The Federal Reserve has grown its balance sheet to over $2.5 Trillion in assets and associated bank reserves.   These reserves, along with currency, are labeled the monetary base and the source of liquidity creation.  We are far, far from gold based system, much farther than ever before in our history.  Now some wingnuts may be calling for hard money, but that is not what we have and it is not what Yellen or any other world bankers are planning.  I see no evidence of any credible banker who believes in the gold standard.  We are flooding the system with liquidity.  

    Your essay also confuses fiscal policy and monetary policy.  In the US, we simply cannot print money to pay our bills.  The Fed has to buy a Treasury bond and the proceeds put into banks reserves accounts to create money .  And if we don't have enough money to pay our new bills, someone must buy a new bill that is issued to finance a deficit.  If no one is willing to do this at decent interest rates, government's ability to create stimulus IS limited.  If investors are bothered by the huge Fed reserve accumulation-bond buying- and potential inflation, government's ability to create stimulus IS limited.

    And lets' cut to the real issue with debt limit.  In simple terms.

    The real decision is how much the gov't is going to spend and how much it is going to collect in taxes.  Once Congress has made the decisions, if spending exceeds taxes they need to borrow more.   The idea of holding a separate vote on borrowing -as if it was separate from taxing and spending -serves only one purpose and that IS to allow the minority party to grandstand as if they are doing something about the deficit.  Republicans are simply not acting like grown-ups.  Like children, they are playing the fear game and blame game instead of making a budget.  

    This gold standard hard money stuff is for the history books.   That is not what is happening now.

    •  Hard money stuff is happening now (1+ / 0-)
      Recommended by:
      ozsea1

      because the Republicans and most of the Dems in Congress are telling everyone in earshot that we don't have enough money to do X and Y. If they say it, they will make it happen. It isn't just that the Repubs are not acting like grownups. It isn't only some wingnuts. They are controlling the purse strings and if they keep them tightly closed, the outcome is the same as if we had run out of hard currency.

      The President is doing the same thing. The gold standard's ghost is still around, influencing the US budget.

      The platinum coin can legally be used to make an end run around this problem but the President and his advisers don't want to go this route. Don't expect any thinking outside the box from the White House.
      .
      .


      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 12, 2013 at 08:52:23 PM PST

      [ Parent ]

    •  This: (1+ / 0-)
      Recommended by:
      psyched
      "Your essay also confuses fiscal policy and monetary policy.  In the US, we simply cannot print money to pay our bills.  The Fed has to buy a Treasury bond and the proceeds put into banks reserves accounts to create money .  And if we don't have enough money to pay our new bills, someone must buy a new bill that is issued to finance a deficit.  If no one is willing to do this at decent interest rates, government's ability to create stimulus IS limited.  If investors are bothered by the huge Fed reserve accumulation-bond buying- and potential inflation, government's ability to create stimulus IS limited."
      is inaccurate. the Treasury can order the US Mint to coin money, which when deposited in the Mint's account at the Fed ets credited for its face value. The difference between the credited face value and the cost of producing the coins is seigniorage (the Mint's profit from the deposit transaction at the Fed). The Treasury can sweep the seigniorage into the Treasury General Account where it can be used for spending and for debt repayment.

      Even today the Treasury acquires billions of dollars every year in seigniorage and places it in its spending account. However, Treasury is barely scratching the surface of its seigniorage power. As Federal Law now states, the Treasury has the authority to have the Mint create platinum coins whose face value is determined by the Secretary. That face value can be anything including a face value in the many trillions of dollars. When the Mint deposits such a coin at the Fed, the Fed, as the Treasury's sole legal banking agent would have to credit the face value of the coin to the Mint's account. The Treasury could then use the seigniorage to stop issuing debt instruments for deficit spending, pay off old debt instruments as they fall due and cover any new deficit spending appropriated by Congress.

      This power has never been used. But it does exist, and the failure to use it is due to a choice not to a legal constraint. See here for an extensive treatment.

  •  Franklin Mint to offer Platinum Coin seigniorage (0+ / 0-)

    Platinum Coin Seigniorage (PCS) commemorative coin price is ten times spot price of 1/10 of an ounce of platinum and is based on premise that your money is just paper.

    History: PCS was a gift of insanity from the people of Numismatic Neverland to the people of the United States and is a universal symbol of legalism and despair.

    The coins obverse was designed by followers of Chartalism and pictures a ship sailing over a debt ceiling. The reverse has a scene of a family with their belongings on a curb with a sign reading "willing to work for yuan." Behind them can be seen The Statue of Liberty with the words GIVE ME YOUR TIRED, YOUR POOR, YOUR HUDDLED MASSES YEARNING TO BREATHE FREE.

    PCS is a symbol of patriotic pride, liberty and freedom for all who promoted her. It is a monumental coin portraying the federal reserve escaping the chains of tyrannical monetarism which lie at her feet. Held aloft is a flaming torch, representing MMT's promise of prosperity and a tablet on which is inscribed in roman numerals, the date the United States contemplated PCS, January 14, 2013. Seven rays of a spiked crown jet out into the sky symbolizing the seven seas and continents upon which PCS would reek havoc.

    “Well, when the president does it, that means it is not illegal.” Richard Nixon, 1977.

    by Kvetchnrelease on Wed Nov 13, 2013 at 05:56:24 AM PST

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