Just reduce payments to Red states to the level of tax dollars sent to the Feds. Those states don't believe in anything the Feds do anyway. They have been riding for free on the Blue states $$ for decades.
Many of the largest food and energy producers are blue states. California, Minnesota, Washington for example.
And lets be real here. If we hypothetically chopped up the USA into two weirdly non-contiguous countries, blue and red states (or three if you shove all the swing states somewhere). The red state country would suffer immensely. The blue state country would merely import whatever they needed with their vast wealth disparity, and it would probably further erode the brain drain of red states where now everyone with a college degree would be even further incentivized to immigrate to the blue states.
This would be great, if they followed your prescription to the letter. And we get the added benefit of near eliminating what is effectively a fiscal stimulus program for people with money, regressively distributed to people the more money they have.
I think the bigger problem is, in practice, another Trump presidency will come with another round of deep cuts to social programs (ones that most Americans aren't familiar with). In my occupation, I get to deal with a lot of nonprofits, which mostly do the critical work on the ground to support the most disadvantaged individuals and communities. They have all been through Trump 1.0, and they know what the outlook is for their organizations after the elections. A lot of them with major projects in the pipeline are already planning for delays and scaling back of their projects, due to the now uncertainty around federal funding that they were relying on in their projections.
Do all of US need a Department Of Dumb Government Efficiency (DODGE)? Is this just another U$A way to Make American Government Attack (MAGA) all of US?
U$A DODGE is a grift to steal money from all of US, for the very few of U$.
Stop issuing ANY federal bonds and simply print the money for all future federal spending.
Two steps further:
Print enough money to pay off the interest and principle of all callable government bonds (not sure how many federal bonds are callable—that might be mostly muni’s).
“But muh inflation!” Some might say.
Response:
There’s no difference to the money supply between the government selling $100 in long term bonds to finance spending vs printing $100 in Federal Reserve Notes to finance spending.
They are the EXACT SAME THING…except government bonds pay rich people hundreds of billions a year to hold them.
So they aren’t the same thing—printing currency is cheaper for the government long term and more fair.
Simply printing money and distributing it willy nilly was probably why the North won the civil war, thats true, but the even better way to do it is to distribute it with a discount/rebate policy at retail sale. That way you increase everyone's purchasing power by 100% you end any possibility of inflation.
Well, we have to be careful to match money supply growth with productivity growth.
The problem we had during Covid was we both distributed new money (not a lot, but enough) AND shut down production.
So we had inflation, and the monetary hawks ran with that and blamed it on “muh stimmies”.
No, it wasn’t “muh stimmies” that caused inflation—it was shutting down half the fucking planet’s production for YEARS that caused shortages and price increases.
It’s amazing inflation was “only” 25% or so over those couple of years. It just shows how much excess capacity is in our system.
Besides economists being unaware of the present and new monetary paradigms they also believe in the misnomer and delusion of "free" market theoretics. Such thinking isn't free at all, but rather is merely alternately goosed and strangled monetary chaos. That is, there are no/no effective and enforceable monetary and economic barriers within which human and systemic freedom can actually exist. Freedom is not chaos and vice versa.
You want abundant FREE-FLOWINGNESS with ethics and truly integrative policies that universally benefit not just ham-handedly punish while never resolving problems.
Start by confronting the present dominating and destabilizing monetary paradigm, integrate the new paradigm of Gifting strategically and intelligently into the Debt Only system and get real about crafting theory that has actual, beneficial and ethical barriers...and a hell of a lot more freedom and abundant freeflowingness within them.
Step one contradicts itself. You "print money" by adding a zero, I. E increasing money on one hand and debt on the other. You can't have only one of it in our current fiat money system.
Why do you still contradict yourself? You say "currency is debt", yet somehow a bill does not equal debt. Also do you know that there is an auction for us treasuries? If you give out debt with "no interest" the banks won't pay the full amount, but less such that they get the interest they want. You can't just print non-interest bearing treasuties
A $100 Ben Franklin is a zero interest debt instrument. There’s no “auction” for a $100 Franklin…it’s worth $100 by virtue of legal tender laws.
If the government purchases something from you, or pays you a salary, it can pay you will a stack of $100s without any involvement of treasuries or treasury auctions. The only “issues” are logistics of moving around bundles of paper.
And how is this 100$ created? It is printed by the fed. But it will only leave the possession of the fed if the institution that wants the 100 dollar bill sends 100 dollars in return (electronically).
I.e. a bank would decrease their balance at the fed by 100 dollars for getting the bill.
Now, for the bank to be able to have 100 dollars electronically they needed to get a balance first. And all balances at the fed are created by debt on the other end.
Just read on money creation. It is not too hard to understand.
The Fed doesn’t print $100 bills. The Bureau of Engraving and Printing—part of the Treasury Department—prints actual cash.
The President could order of the Bureau of Engraving and Printing to print trillions in $100 Franklins if he wanted.
While the BEP currently delivers newly printed cash to the federal reserve system, it doesn’t have to. It could directly provide that money to creditors/vendors/citizens.
That cash is legal tender and the government could simply hand that cash over to suppliers, pensioners, etc.
There’d be logistical challenges to moving and securing physical cash, but it comes with the benefit of not having to pay interest.
Treasury bond=paper money. They are the same thing, but with different names.Issuing treasury bond=printing money=inflation. Inflation in the United States is caused by the issuance of treasury bond. At the same time, the fact that issuing treasury bond will lead to inflation also proves that treasury bond=paper money.One issuance of paper money will only result in one inflation, not two.Printing new money to repay old treasury bond=printing one new $100 to replace two old $50=the total amount of money has not increased=0 inflation.On the contrary, the payment of interest also comes from printing money. Issuing interest bearing treasury bond=more printing money=more inflation. So issuing treasury bond is worse than printing money.
Cutting the interest rate (not to zero as that might destroy the market for treasuries altogether) could cut the budget somewhat, but what if congress simply instructed the FED to rebate every dollar of a 50% discount policy for evereything at retail sale. That would immediately double everyone's purchasing power and implement BENEFICIAL price and asset deflation. Holy reversal of temporal universe realities, that would be a paradigm change in a single policy!!!
A 100% raise in purchasing power would still not cause hyperinflation. Why? Because if a grocery chain increased their prices by say 25% (in the name of fallacious "free" market theory) but just one of its competitors didn't raise its prices at all...just how much market share would the greedy chain lose to their competitor. And of course what you'll also want to do is slap a 100% tax on any "greedflation" or other dodgy cost increase anyone might want to slip in there along with a policy that the second time anyone tries to game the new system they lose their 50% Discount/Rebate privileges for a perior of time. Finally, including gas, food, new home prices and rent even with the "sticks" policy I've suggested if there's still a monthly increase in prices of say 4% you just index that inflation to the retail discount so 54%.
Its funny, DOGE to me is a grift for guys like Elon Musk who along with his rich buddies will get their generous tax breaks while they'll look to implement austerity for the working poor to so call "pay for" those breaks. Like this article mentions, the more simplistic way of cutting 2 trillion would be to reduce those regressive int payments that benefit the rich. Cutting rates to zero would be huge and could eventually free up dollars to benefit the working class.
Musk remains a spoiled rich boy of privilege who got his start with his already rich parents in apartheid South Africa. He’s no engineer or brilliant anything! DOGE and this incompetent administration will fail and perhaps get voted out as a result but I don’t have much faith in my American voters.
MMTers should join the political environs. I’m a geopolitical strategist who believes effective macroeconomic MMT thinking will bring a winning national election. I recommend the MMT community join me and others to urge Jon Stewart, The Daily Show to run…he could be the American Obi Won to be “…our only hope.” He interviewed Kelton and would champion this winning platform foundation. Get in the ring and let’s fight the good fight!
I thoroughly appreciate the reality check to cutting spending and the hardships that will ensue. Medical personnel for VA is, by far, employs the most federal workers - is that really what we want? Or cuts at homeland and endure unimaginable lines at security checks? However, who is going to buy these below market interest bearing treasuries? It's a nice thought, but not realistic. Cutting coupon is just going to load more onto the back end and larger payments needed at maturity.
This article puts more thought to the topic of cutting the $2 trillion than either Vivek/Elon have thought about it. Their goal is to dismantle our government regardless of outcome, the $2 trillion amount was chosen to make rhetoric noise.
Mosler makes the excellent point that interest payments amount to an "income subsidy" for people who don't really need the money. But here's the rub. We want a moderate amount of inflation combined with a moderate interest rate, since this is what makes a consumption economy work. If inflation dips below zero, we risk plunging ourselves into a deflationary spiral. Why buy something today if it's going to be cheaper tomorrow?
People want to be confident that their nest egg isn't going to be eroded over time by even moderate inflation. That's the whole point of inflation protected bonds. But why should multi-millionaires/billionaires need that protection?
What if the gov't adopted a policy of paying an inflation adjusted interest rate on a maximum of ,say, $1 million in savings? After that, you're on your own. Zero interest on your accumulated fortune. If you want a return on your money, then start your own business, buy real estate, invest in the stock market, etc.
The nation's accumulated deficits (erroneously called our "national debt"--calling it a "float" would be more accurate) are, after all, the source of our FINANCIAL wealth. You don't have a Benjamin Tree in your backyard. And if you didn't rob a bank, and you're not a counterfeiter, where else could those U.S. dollars in your bank account have possibly come from? Banks have a nasty habit of insisting that their loans are repaid in full. So it can't be "bank money" in your savings account--unless you've borrowed money and have no intention of repaying the bank. But the federal gov't doesn't have a problem running deficits--within reason. For decades the gov't has been telling Americans that it really doesn't want to tax all its money back. The U.S. gov't wants its citizens to accumulate at least a little bit of wealth. Demanding that the gov't that provided this wealth must then make additional interest payments on its largesse is a case of biting the hand that feeds you.
Ultra libertarian wealth, like Musk and Thiel through his avatars (Vance and Vivek), rage against public sovereignty curbing their desire for total power. Of course we could eliminate the UBI banks and billionaires receive as tribute and of course they will never agree to it. But people with that much wealth never cared about the money. They care only for total power.
We will never see them do the right thing by the public because they have contempt for all of us. Their goal is to create a nation as a permanent underclass. And they’re happy to destroy the government and the dollar in order to do so. The dog wants to blow up the car it just caught.
This assumes the market is willing to buy all those short-term notes at par, or that the Fed is buying them and monetizing the debt. What happens if the gov can't sell at par and must discount the notes to give purchasers a higher yield?
This is an excellent analysis using interest the gov't must pay to cut the budget or reduce spending. It is way too intellectual and rational for Musk and Ramaswami duo as heads of their fake dept, DOGE. They can recommend all they want to Herr tRump because the incompetent, unqualified dept and agency secretaries are going to slash and burn their own divisions in the interest of 'deconstructing the administrative state' and reduce govt spending in those areas.
And their chairperson, Margerie Taylor Greene, is not known for her skills with getting things done. So their recommendations through her to congress are dead on arrival.
Prof Kelton, please review the new regimes' other econ policy proposals like tariffs etc.
Would also love for you to revisit the Social Security fund that is constantly threatened and how to solve those issues.
P.S. If Margerie is so concerned about waste in gov't, maybe she should give back the $183,000 she received for her business loan.
Wouldn't cutting the interest payments on US bonds be equivalent to a partial default? How would the credit markets react? Why would anyone ever buy a US bond again?
The Federal Reserve printed 37 trillion dollars to buy back all the debts, which was repayment, not default. After that, it issued dollars to pay the deficit and no longer issued Treasury bonds.
I'm not sure you understand how government bonds work.
The mean duration of US debt is around 5 years, if the administration suddenly decides it won't offer any coupon on future borrowing, that will not affect the coupon payable on all historic borrowing.
Moreover, the government doesn't pay a coupon out of the goodness of its heart, it pays a coupon to attract people to lend them money in the first place. The only way to finance below market borrowing is to get the Fed to buy the bonds, which is simply debasement of the currency and will have all have the standard inflationary effects. There is no free lunch.
Just reduce payments to Red states to the level of tax dollars sent to the Feds. Those states don't believe in anything the Feds do anyway. They have been riding for free on the Blue states $$ for decades.
Just have the red states stop shipping food and energy to the blue cities, since blue cities don’t believe in anything the red states do.
Many of the largest food and energy producers are blue states. California, Minnesota, Washington for example.
And lets be real here. If we hypothetically chopped up the USA into two weirdly non-contiguous countries, blue and red states (or three if you shove all the swing states somewhere). The red state country would suffer immensely. The blue state country would merely import whatever they needed with their vast wealth disparity, and it would probably further erode the brain drain of red states where now everyone with a college degree would be even further incentivized to immigrate to the blue states.
There are no blue states—there are blue counties and cities.
The agricultural and mining parts of “blue states” are solidly red.
Blue cities in the US would be trivially easy to blockage in the event of a civil war.
This would be great, if they followed your prescription to the letter. And we get the added benefit of near eliminating what is effectively a fiscal stimulus program for people with money, regressively distributed to people the more money they have.
I think the bigger problem is, in practice, another Trump presidency will come with another round of deep cuts to social programs (ones that most Americans aren't familiar with). In my occupation, I get to deal with a lot of nonprofits, which mostly do the critical work on the ground to support the most disadvantaged individuals and communities. They have all been through Trump 1.0, and they know what the outlook is for their organizations after the elections. A lot of them with major projects in the pipeline are already planning for delays and scaling back of their projects, due to the now uncertainty around federal funding that they were relying on in their projections.
Do all of US need a Department Of Dumb Government Efficiency (DODGE)? Is this just another U$A way to Make American Government Attack (MAGA) all of US?
U$A DODGE is a grift to steal money from all of US, for the very few of U$.
Take it one step further:
Stop issuing ANY federal bonds and simply print the money for all future federal spending.
Two steps further:
Print enough money to pay off the interest and principle of all callable government bonds (not sure how many federal bonds are callable—that might be mostly muni’s).
“But muh inflation!” Some might say.
Response:
There’s no difference to the money supply between the government selling $100 in long term bonds to finance spending vs printing $100 in Federal Reserve Notes to finance spending.
They are the EXACT SAME THING…except government bonds pay rich people hundreds of billions a year to hold them.
So they aren’t the same thing—printing currency is cheaper for the government long term and more fair.
Simply printing money and distributing it willy nilly was probably why the North won the civil war, thats true, but the even better way to do it is to distribute it with a discount/rebate policy at retail sale. That way you increase everyone's purchasing power by 100% you end any possibility of inflation.
Well, we have to be careful to match money supply growth with productivity growth.
The problem we had during Covid was we both distributed new money (not a lot, but enough) AND shut down production.
So we had inflation, and the monetary hawks ran with that and blamed it on “muh stimmies”.
No, it wasn’t “muh stimmies” that caused inflation—it was shutting down half the fucking planet’s production for YEARS that caused shortages and price increases.
It’s amazing inflation was “only” 25% or so over those couple of years. It just shows how much excess capacity is in our system.
Besides economists being unaware of the present and new monetary paradigms they also believe in the misnomer and delusion of "free" market theoretics. Such thinking isn't free at all, but rather is merely alternately goosed and strangled monetary chaos. That is, there are no/no effective and enforceable monetary and economic barriers within which human and systemic freedom can actually exist. Freedom is not chaos and vice versa.
You want abundant FREE-FLOWINGNESS with ethics and truly integrative policies that universally benefit not just ham-handedly punish while never resolving problems.
Start by confronting the present dominating and destabilizing monetary paradigm, integrate the new paradigm of Gifting strategically and intelligently into the Debt Only system and get real about crafting theory that has actual, beneficial and ethical barriers...and a hell of a lot more freedom and abundant freeflowingness within them.
Step one contradicts itself. You "print money" by adding a zero, I. E increasing money on one hand and debt on the other. You can't have only one of it in our current fiat money system.
Currency is debt—those dollar bills are Federal Reserve “Notes”.
And yet, no one thinks of a $100 bill as government “debt”.
They do think of an interest bearing 5 year treasury note as debt, though.
So the answer is to print non-interesting bearing FRNs. No more interest in the debt.
Why do you still contradict yourself? You say "currency is debt", yet somehow a bill does not equal debt. Also do you know that there is an auction for us treasuries? If you give out debt with "no interest" the banks won't pay the full amount, but less such that they get the interest they want. You can't just print non-interest bearing treasuties
A $100 Ben Franklin is a zero interest debt instrument. There’s no “auction” for a $100 Franklin…it’s worth $100 by virtue of legal tender laws.
If the government purchases something from you, or pays you a salary, it can pay you will a stack of $100s without any involvement of treasuries or treasury auctions. The only “issues” are logistics of moving around bundles of paper.
And how is this 100$ created? It is printed by the fed. But it will only leave the possession of the fed if the institution that wants the 100 dollar bill sends 100 dollars in return (electronically).
I.e. a bank would decrease their balance at the fed by 100 dollars for getting the bill.
Now, for the bank to be able to have 100 dollars electronically they needed to get a balance first. And all balances at the fed are created by debt on the other end.
Just read on money creation. It is not too hard to understand.
The Fed doesn’t print $100 bills. The Bureau of Engraving and Printing—part of the Treasury Department—prints actual cash.
The President could order of the Bureau of Engraving and Printing to print trillions in $100 Franklins if he wanted.
While the BEP currently delivers newly printed cash to the federal reserve system, it doesn’t have to. It could directly provide that money to creditors/vendors/citizens.
That cash is legal tender and the government could simply hand that cash over to suppliers, pensioners, etc.
There’d be logistical challenges to moving and securing physical cash, but it comes with the benefit of not having to pay interest.
Treasury bond=paper money. They are the same thing, but with different names.Issuing treasury bond=printing money=inflation. Inflation in the United States is caused by the issuance of treasury bond. At the same time, the fact that issuing treasury bond will lead to inflation also proves that treasury bond=paper money.One issuance of paper money will only result in one inflation, not two.Printing new money to repay old treasury bond=printing one new $100 to replace two old $50=the total amount of money has not increased=0 inflation.On the contrary, the payment of interest also comes from printing money. Issuing interest bearing treasury bond=more printing money=more inflation. So issuing treasury bond is worse than printing money.
Cutting the interest rate (not to zero as that might destroy the market for treasuries altogether) could cut the budget somewhat, but what if congress simply instructed the FED to rebate every dollar of a 50% discount policy for evereything at retail sale. That would immediately double everyone's purchasing power and implement BENEFICIAL price and asset deflation. Holy reversal of temporal universe realities, that would be a paradigm change in a single policy!!!
A 100% raise in purchasing power would still not cause hyperinflation. Why? Because if a grocery chain increased their prices by say 25% (in the name of fallacious "free" market theory) but just one of its competitors didn't raise its prices at all...just how much market share would the greedy chain lose to their competitor. And of course what you'll also want to do is slap a 100% tax on any "greedflation" or other dodgy cost increase anyone might want to slip in there along with a policy that the second time anyone tries to game the new system they lose their 50% Discount/Rebate privileges for a perior of time. Finally, including gas, food, new home prices and rent even with the "sticks" policy I've suggested if there's still a monthly increase in prices of say 4% you just index that inflation to the retail discount so 54%.
What would the effect be on the exchange rate(s) and the imports and exports?
Where else are they going to sell their stuff?
Its funny, DOGE to me is a grift for guys like Elon Musk who along with his rich buddies will get their generous tax breaks while they'll look to implement austerity for the working poor to so call "pay for" those breaks. Like this article mentions, the more simplistic way of cutting 2 trillion would be to reduce those regressive int payments that benefit the rich. Cutting rates to zero would be huge and could eventually free up dollars to benefit the working class.
Musk remains a spoiled rich boy of privilege who got his start with his already rich parents in apartheid South Africa. He’s no engineer or brilliant anything! DOGE and this incompetent administration will fail and perhaps get voted out as a result but I don’t have much faith in my American voters.
MMTers should join the political environs. I’m a geopolitical strategist who believes effective macroeconomic MMT thinking will bring a winning national election. I recommend the MMT community join me and others to urge Jon Stewart, The Daily Show to run…he could be the American Obi Won to be “…our only hope.” He interviewed Kelton and would champion this winning platform foundation. Get in the ring and let’s fight the good fight!
I thoroughly appreciate the reality check to cutting spending and the hardships that will ensue. Medical personnel for VA is, by far, employs the most federal workers - is that really what we want? Or cuts at homeland and endure unimaginable lines at security checks? However, who is going to buy these below market interest bearing treasuries? It's a nice thought, but not realistic. Cutting coupon is just going to load more onto the back end and larger payments needed at maturity.
This article puts more thought to the topic of cutting the $2 trillion than either Vivek/Elon have thought about it. Their goal is to dismantle our government regardless of outcome, the $2 trillion amount was chosen to make rhetoric noise.
Mosler makes the excellent point that interest payments amount to an "income subsidy" for people who don't really need the money. But here's the rub. We want a moderate amount of inflation combined with a moderate interest rate, since this is what makes a consumption economy work. If inflation dips below zero, we risk plunging ourselves into a deflationary spiral. Why buy something today if it's going to be cheaper tomorrow?
People want to be confident that their nest egg isn't going to be eroded over time by even moderate inflation. That's the whole point of inflation protected bonds. But why should multi-millionaires/billionaires need that protection?
What if the gov't adopted a policy of paying an inflation adjusted interest rate on a maximum of ,say, $1 million in savings? After that, you're on your own. Zero interest on your accumulated fortune. If you want a return on your money, then start your own business, buy real estate, invest in the stock market, etc.
The nation's accumulated deficits (erroneously called our "national debt"--calling it a "float" would be more accurate) are, after all, the source of our FINANCIAL wealth. You don't have a Benjamin Tree in your backyard. And if you didn't rob a bank, and you're not a counterfeiter, where else could those U.S. dollars in your bank account have possibly come from? Banks have a nasty habit of insisting that their loans are repaid in full. So it can't be "bank money" in your savings account--unless you've borrowed money and have no intention of repaying the bank. But the federal gov't doesn't have a problem running deficits--within reason. For decades the gov't has been telling Americans that it really doesn't want to tax all its money back. The U.S. gov't wants its citizens to accumulate at least a little bit of wealth. Demanding that the gov't that provided this wealth must then make additional interest payments on its largesse is a case of biting the hand that feeds you.
Ultra libertarian wealth, like Musk and Thiel through his avatars (Vance and Vivek), rage against public sovereignty curbing their desire for total power. Of course we could eliminate the UBI banks and billionaires receive as tribute and of course they will never agree to it. But people with that much wealth never cared about the money. They care only for total power.
We will never see them do the right thing by the public because they have contempt for all of us. Their goal is to create a nation as a permanent underclass. And they’re happy to destroy the government and the dollar in order to do so. The dog wants to blow up the car it just caught.
You're correct about the libertarian mindset. Read my reply to perelandra99 above.
This assumes the market is willing to buy all those short-term notes at par, or that the Fed is buying them and monetizing the debt. What happens if the gov can't sell at par and must discount the notes to give purchasers a higher yield?
This is an excellent analysis using interest the gov't must pay to cut the budget or reduce spending. It is way too intellectual and rational for Musk and Ramaswami duo as heads of their fake dept, DOGE. They can recommend all they want to Herr tRump because the incompetent, unqualified dept and agency secretaries are going to slash and burn their own divisions in the interest of 'deconstructing the administrative state' and reduce govt spending in those areas.
And their chairperson, Margerie Taylor Greene, is not known for her skills with getting things done. So their recommendations through her to congress are dead on arrival.
Prof Kelton, please review the new regimes' other econ policy proposals like tariffs etc.
Would also love for you to revisit the Social Security fund that is constantly threatened and how to solve those issues.
P.S. If Margerie is so concerned about waste in gov't, maybe she should give back the $183,000 she received for her business loan.
Wouldn't cutting the interest payments on US bonds be equivalent to a partial default? How would the credit markets react? Why would anyone ever buy a US bond again?
The Federal Reserve printed 37 trillion dollars to buy back all the debts, which was repayment, not default. After that, it issued dollars to pay the deficit and no longer issued Treasury bonds.
I'm not sure you understand how government bonds work.
The mean duration of US debt is around 5 years, if the administration suddenly decides it won't offer any coupon on future borrowing, that will not affect the coupon payable on all historic borrowing.
Moreover, the government doesn't pay a coupon out of the goodness of its heart, it pays a coupon to attract people to lend them money in the first place. The only way to finance below market borrowing is to get the Fed to buy the bonds, which is simply debasement of the currency and will have all have the standard inflationary effects. There is no free lunch.