Correct me if I'm wrong. Are you saying QE requires the government to pay interest because you are selling debt in the form of treasuries, and the Fed depositing (spending directly with key strokes) does not cost the government interest payments?
I don't think even she understands what she advocates. There is this new book that explains current monetary and fiscal situation. https://www.amazon.com/dp/B093RWX8FX
Sven obviously doesn't understand what he's read, and/or hasn't considered that her understanding might be beyond a book written for a more general audience with editors (with no expertise in economics) rejecting everything they deem too technical.
Government doesn't pay interest because it has not the means to do so. Taxpayers, or rather resident citizens pay the interest on the public debt whether the funds are taxed or borrowed.
Wrong! Gary Marshall, you really need to read the article all the way through. ZERO taxes are involved in any spending by the federal government. It just doesn't work the way a state or local government does, nor how you run your household. Everyone except the federal government is a currency USER. The federal government does not and cannot rely on taxes for its spending.
Apparently you don't understand that the federal government, the ISSUER of the US dollar, is NOT like everyone else. We all are USERS of the dollar. The Federal government has different rules and CREATES all the dollars it needs when it spends. It's a complementary role. Not only that, it NEVER uses tax receipts for any spending. That's just not how it's done.
Since you're commenting on Stephanie Kelton's Substack, you might at least get yourself educated by reading her book, The Deficit Myth, which explains all this in detail.
Please, #LearnMMT so you can understand the role of the Federal government as the monopoly issuer of the dollar. It's far more nuanced than I can explain in a single comment.
No. The Federal Government does not issue currency. That is the task of the Federal Reserve banks, who act in accordance with the needs of member banks.
Dollars as money were long in existence before the Fed's birth.
Again, you show me via the Fed's monetary operations how the Federal Government magically creates all these funds.
I have dealt with a number of MMTers before. Erroneous statements about the nature of money and Fed operations don't count as facts.
So far as spending, YES, the Federal Government CREATES the funds with an Appropriations Law. It doesn't run a negative balance because it always create the funds needed. It uses taxes to balance the ECONOMY, not the budget. All tax revenues are deleted on receipt.
All your current understanding ONLY applies to currency users, not issuers.
Show me via Federal Reserve monetary operations how the Federal Govt creates the funds needed in its account at the Fed. Show me how it magically wipes out the negative balance. Remember: it's a balance sheet.
Please do enlighten me on the mechanics of Federal Government expenditures.
If government wishes to engage in the supply of some public good, how does it obtain the resources necessary to do the job? Does it wave its magic wand and the resources appear? How does it obtain the labour and cooperation of all those firms and workers with a bank account balance of zero at the Fed?
@Gary, an essential element of MMT is the idea that issuers of fiat or modern money do not need to either tax or borrow in order to spend. In principle, they could just "print money" and as long as they don't print too much of it, too quickly, there won't be a problem. Typically, even an issuer of fiat money will sometimes tax and borrow in order to manage the inflationary impact of spending. But, spending need not always be balanced exactly by taxes and borrowing. It depends on the state of the economy. As long as aggregate demand is kept below Potential GDP, a government that issues fiat money can "print money" without causing inflation.
Today, the US Federal government chooses to follow the custom of borrowing to offset any spending not matched by tax revenues. However, that custom is a holdover from the earlier days when the US currency was on a gold-standard and the Federal government actually needed to obtain money (gold) before it could spend money. We've been off the gold-standard since Nixon. These days, Federal borrowing and taxing is done to control inflation, not to fund Federal programs.
Today, We've chosen to rely heavily on the Fed to "create" money even though economics doesn't require that we do so. In theory, Treasury could create money by spending without borrowing. But, even if it did, we'd still choose to use the Fed to some extent, since its operations are useful in controlling inflation.
When people say MMT advocates government financing spending by 'printing money' they're not referring to literal printing presses or physical banknotes. They're referring to the creation of new base money. They will not be swayed by the response that we're not making new cash we're crediting accounts at the fed. Whether a keyboard is used to issue new reserves or new cash is printed at the mint, it will be described using the phrase 'printing money'. We can't disavow 'printing money' because it is being used to describe the principle of expenditure that involves creating new money and spending it. We imagine we would be disavowing a specific outdated process for issuing money, whereas they would interpret it as a fundamental disavowal of governments creating money from nothing, which is where all money comes from and in the long run can't be avoided.
The correct rebuttal isnt to go after the phrase 'printing money': when we say the money is actually created by keystrokes it comes accross as though we are using technicalities and jargon to disguise opinions we felt might be shameful (that governments creating money from thin air isn't only routine, it is where all money comes from originally). If we insist that MMT does not support 'printing money' it implies acknowledgment that issuing new money is fundamentally wrong. We shouldn't be tackling critics by saying that we're not printing money. Instead we should be combatting the principle being advocated that spending by creating money rather than taxing it is inherently distructive. Rather than disavowing printing money (which sounds like we're disavowing issuing it), we should emphasize that all money had to be 'created' at some point, that borrowing, by creating government liabilities is a form of 'printing money', that all deficits involve issuing/printing new money that flows to the private sector and that to avoid doing so on principle is dangerous and deflationary. We should challenge the idea that issuing/printing money leads to inflation in an economy with unemployed resources, and point out that the hyperinflation they fear isn't the outcome of 'money printing', it's follows a collapse of the tax system.
As I understand it MMT has no reason to object to printing money any more so than it objects to crediting deposits held at the fed. Rather if one takes the functional finance stance, the view that MMT holds on 'printing money' depends on whether there is sufficient demand in the economy that all goods produced find a buyer (indicated by inflation) or whether it is operating below capcity (indicated by constant or falling prices, unemployment and unsold inventory). If deficits are necessary and they can be achieved by keystrokes at the fed, printing cash or issuing bonds, objecting specifically to the act of printing is a red herring that fails to address the fundamental criticism: the argument should be over the principle of issuing money, not the mechanism by which it happens.
By focusing on repudiating 'printing money', we concede by implication all the intellectual baggage behind the objection to creating money from nothing. A listener would assume we agreed that money creation should or (in the long run) could be avoided, or that the process that leads to money creation (expenditure beyond tax revenue) is reckless and unsustainable (when the reverse is true). If we overtly reject 'printing' it will be assumed we are doing so for the same reasons as our critics: that governments issuing money would lead to high levels of inflation. One fundamental error they make is that when we issue liabilities if they are called treasuries we call it 'borrowing' but when we call them 'cash' we call it 'printing', when we call them reserves we are 'crediting' when all these are examples of issuing money. Anyone MMT gained favour with by the repudiation of 'printing money' would be under the misapprehension that we are repudiating 'creating money', and that we agree with the arguments usually given for avoiding money issuance. Rather than mask our beliefs to sound more sensible we ought to make it clear that 'printing money' is the reason we have money, and that a variant of printing money has been the policy of almost every modern government.
Objecting to 'printing', a phrase people interpret it to mean creating money from scratch obscures numerous fundamental truths about MMT: that all government deficits are financed by creating money from scratch, that in the long run governments must create money first if they intend to tax it, that much as with a printing press, all money is issued from nothing. Most significantly, people are wary of duplicitous intellectuals and looking for reasons to discredit MMT. When people hear us object to the term 'printing' on the basis that we don't use actual printing presses to create base money, we look disingenuous.
Correct me if I'm wrong. Are you saying QE requires the government to pay interest because you are selling debt in the form of treasuries, and the Fed depositing (spending directly with key strokes) does not cost the government interest payments?
I would like to know the answer too.
I don't think even she understands what she advocates. There is this new book that explains current monetary and fiscal situation. https://www.amazon.com/dp/B093RWX8FX
No, she's not arguing that. The argument she made is that with or without QE the govt pays the interest since with QE the Fed pays interest and reduces profits remitted to govt in kind. She and I explained it all here in 2013. http://neweconomicperspectives.org/2013/12/krugman-helicopters-consolidation.html
Sven obviously doesn't understand what he's read, and/or hasn't considered that her understanding might be beyond a book written for a more general audience with editors (with no expertise in economics) rejecting everything they deem too technical.
Also, the book Sven links to is based on a 1st semester-level understanding of "the money supply." I'm guessing it's Sven that didn't understand.
Government doesn't pay interest because it has not the means to do so. Taxpayers, or rather resident citizens pay the interest on the public debt whether the funds are taxed or borrowed.
Wrong! Gary Marshall, you really need to read the article all the way through. ZERO taxes are involved in any spending by the federal government. It just doesn't work the way a state or local government does, nor how you run your household. Everyone except the federal government is a currency USER. The federal government does not and cannot rely on taxes for its spending.
I see. So everyone else has to have funds in their account in order to spend except the Federal Govt????
It runs a negative balance in its account at the Fed for an eternity???
The Federal Govt buys goods and services just like everyone else. And its accounts function just like everyone else's.
Apparently you don't understand that the federal government, the ISSUER of the US dollar, is NOT like everyone else. We all are USERS of the dollar. The Federal government has different rules and CREATES all the dollars it needs when it spends. It's a complementary role. Not only that, it NEVER uses tax receipts for any spending. That's just not how it's done.
Since you're commenting on Stephanie Kelton's Substack, you might at least get yourself educated by reading her book, The Deficit Myth, which explains all this in detail.
Please, #LearnMMT so you can understand the role of the Federal government as the monopoly issuer of the dollar. It's far more nuanced than I can explain in a single comment.
No. The Federal Government does not issue currency. That is the task of the Federal Reserve banks, who act in accordance with the needs of member banks.
Dollars as money were long in existence before the Fed's birth.
Again, you show me via the Fed's monetary operations how the Federal Government magically creates all these funds.
I have dealt with a number of MMTers before. Erroneous statements about the nature of money and Fed operations don't count as facts.
So far as spending, YES, the Federal Government CREATES the funds with an Appropriations Law. It doesn't run a negative balance because it always create the funds needed. It uses taxes to balance the ECONOMY, not the budget. All tax revenues are deleted on receipt.
All your current understanding ONLY applies to currency users, not issuers.
Show me via Federal Reserve monetary operations how the Federal Govt creates the funds needed in its account at the Fed. Show me how it magically wipes out the negative balance. Remember: it's a balance sheet.
Please do enlighten me on the mechanics of Federal Government expenditures.
If government wishes to engage in the supply of some public good, how does it obtain the resources necessary to do the job? Does it wave its magic wand and the resources appear? How does it obtain the labour and cooperation of all those firms and workers with a bank account balance of zero at the Fed?
@Gary, an essential element of MMT is the idea that issuers of fiat or modern money do not need to either tax or borrow in order to spend. In principle, they could just "print money" and as long as they don't print too much of it, too quickly, there won't be a problem. Typically, even an issuer of fiat money will sometimes tax and borrow in order to manage the inflationary impact of spending. But, spending need not always be balanced exactly by taxes and borrowing. It depends on the state of the economy. As long as aggregate demand is kept below Potential GDP, a government that issues fiat money can "print money" without causing inflation.
Today, the US Federal government chooses to follow the custom of borrowing to offset any spending not matched by tax revenues. However, that custom is a holdover from the earlier days when the US currency was on a gold-standard and the Federal government actually needed to obtain money (gold) before it could spend money. We've been off the gold-standard since Nixon. These days, Federal borrowing and taxing is done to control inflation, not to fund Federal programs.
Today, We've chosen to rely heavily on the Fed to "create" money even though economics doesn't require that we do so. In theory, Treasury could create money by spending without borrowing. But, even if it did, we'd still choose to use the Fed to some extent, since its operations are useful in controlling inflation.
Stephanie, it would be very helpful to reply to some of these comments from an MMT perspective.
When people say MMT advocates government financing spending by 'printing money' they're not referring to literal printing presses or physical banknotes. They're referring to the creation of new base money. They will not be swayed by the response that we're not making new cash we're crediting accounts at the fed. Whether a keyboard is used to issue new reserves or new cash is printed at the mint, it will be described using the phrase 'printing money'. We can't disavow 'printing money' because it is being used to describe the principle of expenditure that involves creating new money and spending it. We imagine we would be disavowing a specific outdated process for issuing money, whereas they would interpret it as a fundamental disavowal of governments creating money from nothing, which is where all money comes from and in the long run can't be avoided.
The correct rebuttal isnt to go after the phrase 'printing money': when we say the money is actually created by keystrokes it comes accross as though we are using technicalities and jargon to disguise opinions we felt might be shameful (that governments creating money from thin air isn't only routine, it is where all money comes from originally). If we insist that MMT does not support 'printing money' it implies acknowledgment that issuing new money is fundamentally wrong. We shouldn't be tackling critics by saying that we're not printing money. Instead we should be combatting the principle being advocated that spending by creating money rather than taxing it is inherently distructive. Rather than disavowing printing money (which sounds like we're disavowing issuing it), we should emphasize that all money had to be 'created' at some point, that borrowing, by creating government liabilities is a form of 'printing money', that all deficits involve issuing/printing new money that flows to the private sector and that to avoid doing so on principle is dangerous and deflationary. We should challenge the idea that issuing/printing money leads to inflation in an economy with unemployed resources, and point out that the hyperinflation they fear isn't the outcome of 'money printing', it's follows a collapse of the tax system.
As I understand it MMT has no reason to object to printing money any more so than it objects to crediting deposits held at the fed. Rather if one takes the functional finance stance, the view that MMT holds on 'printing money' depends on whether there is sufficient demand in the economy that all goods produced find a buyer (indicated by inflation) or whether it is operating below capcity (indicated by constant or falling prices, unemployment and unsold inventory). If deficits are necessary and they can be achieved by keystrokes at the fed, printing cash or issuing bonds, objecting specifically to the act of printing is a red herring that fails to address the fundamental criticism: the argument should be over the principle of issuing money, not the mechanism by which it happens.
By focusing on repudiating 'printing money', we concede by implication all the intellectual baggage behind the objection to creating money from nothing. A listener would assume we agreed that money creation should or (in the long run) could be avoided, or that the process that leads to money creation (expenditure beyond tax revenue) is reckless and unsustainable (when the reverse is true). If we overtly reject 'printing' it will be assumed we are doing so for the same reasons as our critics: that governments issuing money would lead to high levels of inflation. One fundamental error they make is that when we issue liabilities if they are called treasuries we call it 'borrowing' but when we call them 'cash' we call it 'printing', when we call them reserves we are 'crediting' when all these are examples of issuing money. Anyone MMT gained favour with by the repudiation of 'printing money' would be under the misapprehension that we are repudiating 'creating money', and that we agree with the arguments usually given for avoiding money issuance. Rather than mask our beliefs to sound more sensible we ought to make it clear that 'printing money' is the reason we have money, and that a variant of printing money has been the policy of almost every modern government.
Objecting to 'printing', a phrase people interpret it to mean creating money from scratch obscures numerous fundamental truths about MMT: that all government deficits are financed by creating money from scratch, that in the long run governments must create money first if they intend to tax it, that much as with a printing press, all money is issued from nothing. Most significantly, people are wary of duplicitous intellectuals and looking for reasons to discredit MMT. When people hear us object to the term 'printing' on the basis that we don't use actual printing presses to create base money, we look disingenuous.