If you’ve been reading or watching the news, then you know that the US hit its self-imposed debt ceiling limit of $31.381 trillion on Thursday, January 19. It’s a pity it didn’t happen on February 2, because Groundhog Day is pretty much the perfect way to mark the occasion. Here we go again!
Thank you Dr. Kelton. When this came up again a week or so ago, I said to myself something like ... well the US is a currency producing nation... what is this nonsense. But, I’m no expert.... and here you are saying exactly... ok, approximately what I thought about it. Thank you for your work! You are one of my heroes!!!
Aren't there limits to how much money a government may issue without grossly devaluing the currency through hyperinflation? Thanks to MMT, I understand that a "balanced budget" is definitely not the limit, and that the national debt ceiling is a rather meaningless number in terms of the government's ability to spend money. But then, what is the limit on how much money the government can spend, and how do we move the national conversation to this real spending limit?
I also understand that there may not be a singular limit, but merely a range of options that will lead to different outcomes for the economy, and that some of those outcomes may be more preferable than others based on your politics.
For instance, if you have a lot of money, you may want less government spending so that your giant pile of money matters more. If you make your living off of government contracts, you would definitely want more spending.
Do you happen to have any references or suggested reading for how the government should decide how much to spend in any given year, what the government should spend it on, and how to make the spending more effective and efficient?
I'm sorry that is a lot of questions, and I do appreciate your posts.
Sajid - The limit on government spending is determined by the availability of real resources for sale in its currency. If there are no unused resources available, such as unemployed workers or unused industrial capacity, then further government spending (or further private sector spending) can cause inflation (not hyperinflation). In other words, when spending exceeds the capacity of the economy to provide real resources you will get some inflation.
Our recent inflation, which is falling monthly now, was caused by a lack of resources due to the supply chain problems due to COVID. Now that those problems have mostly been resolved, inflation is falling. There were other factors, of course, but that was a major one.
Another major cause of current inflation has been major companies raising their prices far more than the increased cost of their inputs, which has brought them enormous profits on the backs of the poor and working class who can barely afford food and fuel and their other necessities. This factor also seems to be moderating.
The value of a given giant pile of money is not affected by government spending per se. Money doesn't follow the classic supply/demand curve like physical assets do.
"Sajid - The limit on government spending is determined by the availability of real resources for sale in its currency. If there are no unused resources available, such as unemployed workers or unused industrial capacity, then further government spending (or further private sector spending) can cause inflation (not hyperinflation)."
What is a good measure for whether resources are being optimally utilized? Perhaps Congress determines that America has spare industrial capacity for infrastructure and builds a giant and expensive bridge across the Gulf of Mexico from Houston to The Everglades. Such a heavy drain on America's resources would clearly make everything else more expensive.
Do you trust Congress with the mandate to print and spend as much money as they deem necessary based on what they determine America's industrial capacity to be?
I would also like to have this trust, but in order to gain it, I would like to know who determines America's industrial capacity, how they determine it, and how they determine how to optimally use that capacity to make the future a better place.
Is there one person doing this? Does the free-market of competing political interests somehow magically work out in America's favor and we must just hope it always will?
I am sorry, but I would still like a bit more information about these topics if you have some.
The best measure of excess capacity within an economy is involuntarily unemployment. There are people willing and able to perform paid work for things that need doing yet can find no takers. Another key indicator that should leap out at you is crumbling infrastructure. China has provided us with a fantastic example of how a nation can marshal its human resources in such a way that lifts hundreds of millions out of poverty and develops its infrastructure via massive investment facilitated by government spending.
The comparison with China does not work here. A centralized plan works when you are confident that the future you are trying to achieve is the correct one, which works well when you are following. America, for better and for worse, is not following, so it could totally spend billions of dollars on suboptimal infrastructure. Moreover, just because there are people willing to work does not mean that they will automatically work in a way that benefits society and themselves. What if the military hires them to invade Canada?
I feel that there needs to be a vision for the future, a metric to determine what that vision will cost, and a way to estimate and ultimately measure what was gained from that vision. Mere GDP growth means little if it is a result of inflation.
Giving government a blank check means that they could crowd out private spending and completely dominate the economy until they crash it. I know this scenario is unlikely, but I would still like to know whether it is happening before it happens, and that means that we need some measures of whether government is spending too much and whether the money is well-spent.
Sajid - We don't do the vision thing in the US. It might get in the way of profit-making at all costs. Besides, no one, not even the Chinese can be sure that any particular vision will come to pass in the future. Too many unknowns. Nevertheless, we could do better.
Suboptimal infrastructure: Most projects are granted to the lowest bidder. Unless they are cost-plus contracts rather than fixed price, the contractor will cut corners and suboptimal will be the inevitable result.
Employers determine whether or not the work benefits society, not the workers. Your "what if" isn't relevant. The military doesn't make invasion decisions, politicians do.
Government spending does not crowd out private spending. That's an economic concept that has been shown to be false, because it's based on incorrect assumptions.
As with any economy there are no perfect measures and they are all estimates.
One good measure is whether or not we are at full employment, defined by MMT as everyone who is able and willing to work has a job paying a socially-inclusive wage. See Bill Mitchell: http://bilbo.economicoutlook.net/blog/
Statistically this means getting the unemployment and underemployment rates as close to zero as possible. According to Mitchell, that's about 1-2%, which is made up of people switching jobs, etc. That irreducible part is frictional unemployment.
The participation rate is also important. This is defined as the percentage of the noninstitutionalized population over the age of 16 who are employed or looking for work. It can be increased by finding jobs for "discouraged workers" who have stopped looking for work because they can't find anything suitable.
Your bridge across the Gulf reminds me of one proposed by a Congressman from Alaska who proposed a bridge from the mainland to a small island that was called the "Bridge to Nowhere". It never passed Congress, fortunately.
I don't trust Congress at all, but they can already spend whatever they deem necessary. However, they won't spend to increase industrial capacity except for weapons makers as they still believe that deficits are bad and need to be reduced In addition, it would take industrial planning, i.e., targeting spending to specific industries and companies. They won't do that (again other than with weapons) because that's what the Soviet Union did and Russia does and that's anathema to our government. Bad commies and all that, ya know.
Industrial capacity is determined by the Federal Reserve which reports monthly on Industrial Production and Capacity Utilization.
There are plenty of true believers who think that the free market will indeed magically bring about the best result. As we have seen over the past 40+ years, that's a myth. The most productive era in the past 100 years was the post-war period up until President Carter when top individual tax rates were 74-91% and many industries were heavily regulated. Carter started the deregulation movement by deregulating the airlines and you can see the result in the recent Southwest debacle over the holidays.
"I don't trust Congress at all, but they can already spend whatever they deem necessary. "
Have you re-written the Constitutions APPROPRIATIONS clause?
Actually, NO, Congress cannot spend unless it is authorized (IN THE BUDGET) for both spending and appropriation - which means "money" (from taxes and debt-proceeds) already in the Treasury account.
Joe - Congress is the body that authorizes both spending and appropriation. Your statement that they can't spend what they deem necessary doesn't make sense.
It has authorized the spending, AND it has authorized the appropriation of the FUNDS IN THE TREASURY - not already appropriated.
Do you read the Appropriations Bills?
They conform to the same Constitutional limitations.
Were there no Debt-Ceiling, no problem.
BUT, more important, were Congress to grant itself the money-creation powers that the Constitution permits ( see Greenbacks), then the smartest kids in the room would not be advocating for more government BORROWING - just because their banker-guru says so.
Thank you for your response, John Zelnicker. I agree that no measure is perfect and that Congress already has the power to spend what it deems necessary. However, the entire point of the American Constitution, as I understand it, is to put restrictions on the powers of the government.
Giving Congress the right to print and spend as much money as it "deems necessary" is a lot of power and a giant potential for abuse. I guess looking at unemployment and inflation numbers and making spending decisions does make more sense than an aribtrary debt ceiling. It would be nice if the US government acted as an "employer of last resort" as it makes a lot more sense to be paying people to work than not to work.
In short, I guess what you are trying to say is that Congress already has the power to spend what it wants to and the arbitrary debt ceiling does nothing to curb this power but only muddies the conversations. I am finding it difficult to disagree with this.
The quantity theory of money is shaky even within the current monetary paradigm of Debt Only and Burden to repay Only. If we integrated the new paradigm of Direct and Reciprocal Monetary Gifting strategically into the Debt On/Burden to Repay Only system...we could tremendously increase fiscal deficits which is a primary objective of MMT in order to renew America's infrastructure and fund the mega-projects necessary to confront climate change, not to mention with the primary new paradigm policy of a 50% Discount/Rebate at retail sale, double everyone's purchasing power, greatly increase demand for every enterprise's goods and services and forever macro-economically end inflation.
These are immediate, universal (everyone participates in retail sale), empirical/mathematical, temporal universe effects. No other reform movement even comes close to creating so many beneficial effects. Why? For no other reason than that they aren't analyzing on the paradigmatic level. They, we ALL, URGENTLY need to start doing so.
We will never have a rational and effective debate about resources until we resolve the monetary paradigm. In fact resolving it will immediately free us to utilize the above mega-fiscal deficits to do what we haven't done for 50 years...confront climate change.
The clock is ticking on the disintegrative trend of human civilization and on the existential potential of unconfronted climate change. Focus on the core of the core economic problem, namely the current monetary paradigm and change it with the policy applications of the new one.
With the implementation of a Job Gty, a tax regime should be implemented so that tax rates AUTOMATICALLY kick in if monthly inflation targets are reached. These should include:
Paradigm changes are always accompanied by paradox. This is because they destroy orthodoxies. Once a 50% Discount/Rebate policy at retail sale and a universal dividend to every adult and are enacted almost all payroll taxes will be redundant and hence cancellable because inflation will have been ended permanently and no need for welfare or unemployment insurance with the dividend. A job guarantee aligns philosophically with the new paradigm of Monetary grace as in gifting and so could also be implemented. It's just another one of the objectives of MMT that the new paradigm enables.
No. The government neither ISSUES the paper nor spends 'Currency', which is the Paper and Coins tiny subset of the money supply. Have you read the Money Statutes?
Joe - You're kinda right that the government doesn't issue paper or currency. The government sends instructions (not money) to the bank of a government employee, a Social Security recipient like me, or a contractor and tells the bank to increase the balance in the target's account. Currency is sent to banks in exchange for existing reserves in the bank's Fed account.
It's obvious that you are very attached to you pet theory, so I went to your Substack to see what you have written as the The Money Apprentice, which I assume is you.
There's nothing there, just like there's nothing of substance in your comments. Mostly they're warmed-over Monetarism and I don't have the time nor the inclination to continue arguing with you.
Yellin, is TELLIN Congress that TSY can't pay its Bills that have been "authorized" and "appropriated" by Congress, simply because there's no money there.
Appropriations are spending authority - to spend the money IN the TREASURY TGA account.
There's no money there because of the illegal Debt-Limit.
So, raising the debt limit WILL result in spending the A and A money that the debt limit is blocking.
Joe - The debt limit does not mean there is no money there. It unconstitutionally blocks the issuance of that money until Congress gets over its hubris.
We've have been hearing this nonsense about "printing too much money," devaluing the US dollar and creating hyperinflation none stop for the last two years, yet the US dollar value has increased on the foreign exchange market during this same period. The US dollar is use all over the world, those countries that use US dollars (most) need to expand their dollar supply. Other countries, like the US have seen inflation rates increase which lowers the purchasing power of the currency. Increasing the money supply by 7% would just keep up with inflation over the last year alone. The US has a net trade import balance of 75 billion dollars a month. That's 75 billion dollars ever month being exported to the rest of the world to feed their US dollar needs (external balance sheet). I haven't even gotten to need to expand the money supply to allow for economic and productivity growth.
Dollars setting on balance sheets, not circulating in the economy are just numbers. Pumping dollars to people with a low propensity to consume also results in demand leakage and increases the need for net government spending (spending greater than taxes) to avoid spiraling unemployment.
Hyperinflation is not caused by "printing too much money!'' It's a supply side shock that's only happened under rare circumstances. Increasing the money supply leading to hyperinflation has got it backwards. That like saying, putting gas in my car makes me drive somewhere. During my entire lifetime (65) of living in the US I've experienced nothing but under employment in the US. Thats a lack of aggregate demand problem. The ''hyperinflation boogie man'' is neoclassical propaganda that doesn't apply to the US.
Inflation is virtually always a money supply problem. Milton Friedman taught us this decades ago as have myriad Austrian economists such as Mises, Sennholtz, Hayek, and others.
A book recommendation for all - 'The Price of Time'. It documents well the history of interest rates and money over centuries of time. The US is not unique. We have not rewritten the laws of economics just because we have held super power status for seven decades. It is foolish to believe we can just print & spend endlessly without consequence.
All of those hacks may have had something of value to contribute in a gold standard or hard currency regime. In case you hadn’t noticed, that ship sailed 50 years ago with the Nixon shock and the abandonment of Bretton Woods. Do try to keep up.
eg is right. As per usual as Keynes said: “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” Orthodoxy is the bane of every area of human endeavor and especially in economics because it is the end of actual looking at a subject.
It's "foolish to believe" anyone ever said that we can just "print and spend endlessly without consequence!" You're just parroting bs orthodoxy "propaganda, which demonstrates your lack of knowledge on the subject. The very purpose of a currency is to mobilize resources. As the real economist, John Maynard Keynes put it, "anything we can physically do, we can financially do!" Maybe that's too much for you to comprehend? Those paid liars your referencing, are just repackaging classical economics that Keynes shredded in his 1936 book "The General Theory of Employment, Interest, and Money" in 19936. After Keynes death in 1946 they were able to crawl out from under their rocks! With massive financial wealth backing they were able to purge real economics from university teaching.
Name the time that the "money supply was the cause of inflation!"
US is unique from other countries that borrow in foreign currencies, fix their currency or are currency users'. Maybe you should try educating yourself on the meaning of countries that have "monetary sovereignty. When the US Federal Reserve increases interest rates, countries who borrow in US dollars see their domestic currency go "down" and the cost of borrowing US dollars go "up," crippling their economy. They don't "issue US dollars," "the US does!" The US does not "borrow" in foreign currencies or "fix it's exchange rate." Big difference.
Neither are we, but we're also not advocates for creating debt unnecessarily like the "national debt".
And besides, the REAL problem as Steve Keen has shown is ever rising PRIVATE and corporate debt NOT government "debt". The latter is just a side show. Please get with the real program for the real resolution of the real problem.
The dollar index spiked because the US led the way on interest rates. As rates rise worldwide, the dollar will weaken. It has weakened from its highs already. Relative to other currencies the dollar has remained strong but that advantage has been offset by 8% broad inflation and double digit good inflation. A strong dollar matters little to the young mother paying $6 for butter & eggs.
Nice to see you on MSNBC. Would be great if you could get on Fox and the mainstream broadcast networks. I think we often under estimate the intelligence of viewers. Fox viewers will appreciate your description of how the military, ag subsidies, and the border wall are paid for. ;) Your explanations, analogies and cool demeanor are 👍👍👍 and a lot people will get it.
The politicians (left and right) will only stop misrepresenting the “debt” when the fear mongering no longer works.
Unfortunately, it's just those two hosts on MSNBC who seem to be willing to help inform the public and help break the myth on the most important topic currently facing the US. The weekly primetime hosts on MSMBC just keep referring to Federal government ''debt'' as if it's the same as household debt. This is making it hard to get the left wingers of the edge of the cliff, much less the right wingers.
Federal Government Debt, payable ONLY in US money, that can only be accumulated for debt payments by taxation (revenue/income) is exactly like household debt.
NOBODY pays their taxes with "currency".
Everyone pays their taxes with private bank credit. (Central Bank stuff)
Everyone.
Another MMT canard fails.
BOTH government and Households are USERS of the money system.
Its the paradigm of Debt Only that is indeed at the root of the problem. Nearly everything you have posted here now is unfortunately stuck in that problematic paradigm. Free your mind. It's an enlightening experience.
You would think after the 2008 GFC and the COVID pandemic we would know who the currency issuer is. After the largest financial institutions in the US (world) became insolvent during the GFC who created the US dollars to save the banks? The idea that the US Federal Reserve bank is not an arm of the US Government is an orthodoxy canard. This is problem with building a model based on the desired out come and working backwards attempting to justify the desired outcome.
So when Alan Greenspan told the US congress, "there's nothing preventing the US government from creating as much money as it wants" he was wrong?
The 18 years Fed Chair, under oath, specifically said "the US Government!"
For any discussion about liberating the public from the unpayable debt 'generated' by the private banker Members of the Fed conglomerate, the only solution worthy of consideration is a wholesale systemic and institutional reform to the nature of our national money.
From Private Debt. To Public Asset, or public equity.
However they did Greenbacks.
Easily do-able.
Pass Kucinich's NEED Act and guess what?
MMT becomes prescient.
The government DOES create and issue all the money. Which is what people THINK they hear when the Dr. Kelton and company all say that "The government is the monopoly issuer of the currency.". (MMT says "currency" [paper and coins] People hear "money" - the means of exchange).
Once that's in the can, we can move on to considering all those Post-Keynesian proposals for betterment - UBI v. Job Guarantee ?>, etc..
Besides, Title V of the Kucinich Bill already exists as a List of potential social betterment funding.
I assume you're referring to the trillion dollar coin. It's a goofy idea, but apparently it would be legal--so go ahead and do it. But take that Trillion dollars and hire an army of IRS auditors to go after the top 1%. Hit the GOP where it hurts. Normally, there's no such thing as federal tax "revenue." As soon as those tax receipts are deposited into the Treasury's account at the Fed, the money is credited against deficit spending already incurred and it simply disappears.
But these are not normal times. If Congress prohibits the Treasury/Fed from issuing any new money, then tax receipts may actually have to be spent (I'm not sure it's even legal for the Treasury to spend the same dollar twice, but we'll find out). In any event, Democrats have to devise a strategy that punishes Republicans for being assholes.
I hate it too. But, it forces the issue from the back to the front burner even for a short time...doesn't it.
I've read your book, 3 of Randal Wray's, Warrens of course, along with 4 others (including the job guarantee issue), and listen to the MMT podcast almost daily. With Christian and Patricia I'm triing to get smarter all the time. I'm passionate about econ was my minor a very long time ago. Your willingness to be the "face" of MMT regularly is what gets you the most respect from me. I know it must be very hard, to be attacked without the decency to be more informed on the issue. Go Stephanie go. I even have some ideas on marketing for it.
What MMT and other reform movements lack is an easily seen and directly experienced IMMEDIATE benefit to everyone. The old saw that people vote their pocket books is so true. So what if we implemented a $1000/mo. universal dividend for everyone 18 and older for life and paired that with a 50% Discount/Rebate policy at retail sale which would guarantee everyone $2000/mo. worth of purchasing power. That beats hell out of the one or two-off $1200 COVID Monetary Gifting checks. SHHHHH! Don't even whisper those words...they might become an idea that not even Finance can resist.
Inflation? When you can buy $3.06/gal. gas at Sam's club for $1.53 and buy a $60k Tesla for $30k...where's the inflation there? And if any commercial agent tries to inflate just hit them with a 100% tax rate on any revenue they get from inflating their prices. When EVERYBODY just got a 100% increase in their purchasing power with the policies of the new paradigm they're not going to look sanquinly on anti-social CEO's that immediately try to erode it. Think about it.
It is such a stupid conversation, but if the GOP House wants to play silly bugger then propose cuts to spending that only impact their disticts. The tune would change in a hurry.
While the Republicans are, typically, playing with fire here, at times like this I have to find the Democrats guilty of political nonfeasance. When they had majorities in both houses, why did they not attempt to abolish the debt limit once and for all? Instead, they leave themselves (and the country) in the position of having to seek an increase in the debt limit every couple of years, which just enables the Republicans to weaponize the issue against the Dems.
Stephanie, I wish you would clearly state that the National Debt is actually an accumulation of all the expenditures by the federal government less the taxes it has brought in since the date when we started keeping track of these expenditures and taxes. So all the things that make up the federal government's "Red" are the U.S. taxpayers' "Black". We taxpayers enjoy the benefits of the federal government's spending on child care, hiring IRS agents to bring in millions of taxes owed by multibillionaires who avoid paying taxes through complicated schemes, etc.
The debt limit crisis presents an existential threat to our democracy. The GOP House has no real power--any ridiculous legislation they pass (and they don't care about passing legislation) will never get by the Senate. And even if it did, President Biden would veto it. But...but...but...when it comes to the debt limit the white nationalist GOP has enormous power.
Janet Yellen's estimate of June 5 as being the drop dead date for paying bills is laden with irony. On June 6 we celebrate D-Day, when democracy made the final push to defeat fascism. On June 5, Republicans (the party of election denial) will launch their fascist assault on democracy and attempt to accomplish what they couldn't achieve on Jan. 6. And they'll probably try to expunge "Juneteenth" from the list of national holidays.
Is Congress still Congress if its members aren't being paid? Is the President still the President if he's no longer on the payroll? In "The Godfather," Michael Corleone visited his father in the hospital only to find that his father's protection detail had vanished. Realizing his father was about to be murdered, Michael kept his cool and saved his father. What happens in the 2nd week in June when members of Congress show up for work and realize there are no Capitol police officers around to protect them? And nuts like MTG walk through the door carrying AR-15's?
Trump has gone out of his way to caution Republicans not to screw around with social security and Medicare (he didn't mention Medicaid--I wonder why). Every smart fascist knows you have to take care of the people who support you. As this crisis limps along week after week, remind yourself that Republicans don't want a solution--they want to burn the house down. The Showdown at the OK Corral is coming. Buckle up.
I'm not singling you out here, in fact I'm calling out all of the other cutting edge economists like Warren Mosler, Steve Keen, Michael Hudson, et al for not having daily news conferences shouting with their hair on fire that this is a titanic NON-ISSUE that the deluded and/or terminally demagogic are going to use to create chaos...when it doesn't need to happen. That needs to happen regardless.
But I am puzzled that all of you and the others above are failing to recognize that you all are missing the way to put this nonsense away FOREVER by uping your analysis to the paradigmatic level which will change the current monopolistic paradigm for the creation and distribution of new money, namely Debt Only to Direct and Reciprocal Monetary Gifting via a program of strategically beneficial and efficacious policies.
All of your analyses are valid and potentially beneficial, that deserves praise...but they're only reforms and so don't COMPLETE the necessary action which is to implement a paradigm/ENTIRE pattern change...because historically everything adapts to a new paradigm...not the other way around. For example, Keynesianism was a very good reform, but what happened? Thats right it got morphed into the neo-classical synthesis...because it was only a good reform. But did we ever go back to nomadic hunting and gathering after we realized agriculture, homesteading andurbanization were a better way to survive and thrive? No.
We don't have the convenience of a lot of time to cogitate about whether or not we should analyze and swiftly form the mass movement necessary to implement the new paradigm. Look around and see the signs of social and political disintegration that are coalescing as well as the looming existential problem of climate change. I'm sure you're concerned about these problems.
Paradigms/operant applied concepts and paradigm changes are not mysterious, mystical things. They are historical phenomena that can be analyzed so as to decipher the new concept that applied will result in all of the beneficial effects of same. In my book I have tried to cover the socio-economic, political, ecological and cultural policies needed in a new paradigm program, but I welcome any additional input.
I would be happy to send you a copy of the evolving book currently posted on Amazon for analysis and/or further elaboration. For god sake, something must happen to resolve the converging crises we are facing.
Peter, love ya but I only send big influencers free copies of my book. Others should just buy it...its less than Stephanie's book. :) And if you can't afford it its even worth borrowing to get as you'll have bragging rights on having been one of the first to recognize the new paradigm, and in reading it also have genuine hope in an almost terminally cynical world that we can actually resolve our deepest economic problems and even survive climate change.
Ha! I can relate! But if you're one of the first few who recognize the core of the core economic problem we face and how to solve it you can be extremely happy and proud of that fact...especially if you pass the insights along.
Section 4 of the 14th Amendment, "The validity of the public debt of the United States, authorized by law ... shall not be questioned" should be the beginning and end of the discussion. Biden can say "Stopping payments violates the Constitution. I am not permitted to do that."
Republicans have the burden of bringing the matter to Court, where they will lose, even with this Supreme Court.
The Debt Limit could, I think, be a useful exercise if Congress was interested in a sensible top-down evaluation of our national spending priorities given the current state of the economy. But such exercises are not conducted in neat, orderly Congressional hearings televised on C-Span (unfortunately) but partisan political theatre on Fox and MSNBC. But maybe that's better than not discussing it at all?
I think even you, Stephanie, would agree that deficits begin to matter during times of rising inflation (according to your wonderful book The Deficit Myth). Fiscal deficits may not matter so much for today's specific flavor of inflation (e.g., as a mostly supply-side rather than demand side problem) assuming you agree with that. Maybe this is a "teaching moment" for explaining when deficits do matter and when they don't in periods of inflation. The Debt Limit is as good a time as any to have that discussion, it seems to me. The threat of default or a government shutdown? Well, that's all part of the theatre: we've been there before, and we always emerge OK. During the last big shutdown under Gingrich, non-essential Federal employees were furloughed for few days, but they got their back pay in full. The public was not amused, but we quickly returned to normal.
Should Biden "negotiate" when Team R is using default as a "gun" pointed at his head? No. That's not a negotiation, it's taking the economy hostage for a ransom (forced budget cuts). But my hope is that the American people will gain a sense of legitimacy around its government's spending after this media fracas is over.
IMHO, I think economists should make austerity (budget cuts) as a tool for fighting inflation the issue, not the debt ceiling or the threat of default. That's confusing the policy substance with the theatrics.
The Deficit Myth is truly a must read and its a must that we understand that a household budget and a government budget is just not the same thing. Sadly, we as Americans help to spread the false myth about the nations finances, the credit card nonsense, we can't live beyond our means. If anything, the debt ceiling has to be abolished because its being used as a political football as to limit how much income that can go into the economy. That is just plain unacceptable. Our pathetic politicians never cease to amaze me here, especially Republicans.
FYI - Mastercard and Visa do not lend money. They are the rails behind the actual card issuing banks that do the lending through cards branded either Visa or Mastercard.
Neither Bankcard issuer lends money. Only BankCredit.
Only Credit.
Same with ALL the commercial banks.
They issue central-bank based bank-credit.
But you're right about the Credit Cards being a back-room adjunct to the other lending done - of course at the highest interest rates ..........because the people need the credit to eat.
it's time to get rid of the debt ceiling. It's just a political bludgeon that helps politicians avoid facing constituents and explaining the actual ideology they hold to when they try to cut money from the budget. The public has to stop accepting the reason "we can't afford it" every time something is put on the block.
Correct. The debt ceiling and the national "debt" are complete side shows. The problem is PRIVATE individual and corporate debt.
When you end inflation forever with the policies of the new monetary paradigm you open the door to also rationally consider every other legitimate economic factor and necessity posted here.
If Congress has passed laws requiring spending, limiting the amount of tax the IRS can recover and limiting the amount of bonds, notes and bills the Treasury can issue, then the balance has to end up as a carried forward item at the Federal Reserve as a matter of accounting.
In other words any power the Fed thinks it has to say 'no' to a Treasury order to pay either never existed in the first place, or has been repealed under the doctrine of implied repeal.
Why bother with gimmicks. Go straight to the heart of the matter - the Fed is the agent of Treasury. It is their job to do as they are told. MMT people should be pushing that, not workarounds.
That avoids the issue argument and the discount argument with The Coin and the 'lets issue bonds at a reverse discount' approach.
I may have misunderstood some of what you are saying and I apologize for that. Indeed, the FED is the hand maiden of the private banks whose paradigm of Debt Only enforces the current law that money be changed into Debt via treasuries. But that doesn't have to be if we understand the new paradigm concept and how to best implement it as I have posted here.
Again, create the platform for a mass movement for the policy program of the new paradigm and utilize it to herd the entirety of the political apparatus toward the sanity of same. Thats how we CHANGE THE LAW.
The Fed is Paying Agent of Treasury. Which means when Treasury issues a Congress instructed order to pay, the Fed has to make the payment. Then it has to make the entries in the Fed's book to accommodate that payment - in all circumstances and at all times.
What we need is a judgment that says the Fed has no lawful capacity to say 'no' to a Treasury payment order. Everybody is presuming the Fed can say no to Congress. Why?
The easiest way to do that is to read section 15(1) of the Federal Reserve Act with an implied "(past, present or future)" after "any part thereof".
"They are simply not allowed to issue a payment order against a Zero ($) 0 balance."
Then that restriction either doesn't exist in law (there is no such restriction in bank accounting) or has been repealed by the budget setting process. Hence implied repeal.
I gave you how the law can be read so the payment order applies in all cases. The Fed has no legal power to refuse that payment.
There is no such thing as 'no money'. Money is a promise, not a bag of coins. The Fed can just make the relevant accounting entries in its books.
Confusory. Hyperbole. and false claims for "functional-equivalence" try to fill the information void where zero facts actually exist to support a rather vacuous statement..
Like this gem.
" There is no such thing as 'no money'. Money is a promise, not a bag of coins. The Fed can just make the relevant accounting entries in its books."
Gawd.
Let's be real. A zero or negative account balance in the TGA means that no balance can be advanced to payment. Period.
Get Warren to get one of his friends AT TREASURY to say otherwise .....on the "make the payment" Order, or from the Fed that it CAN make the payment with a negative TGA balance...... because NEITHER has ever said so, and both have often denied it.
Didn't Eric Tymoigne and Wray correct this myth ?(2013)
And besides, how long can you ignore BOTH the Constitutional prohibition against zero-funds Appropriations, as well as the language I provided - from EVERY Appropriation Bill that passes.
"funds in the Treasury Account (TGA) NOT PREVIOUSLY APPROPRIATED."
Bureau of Fiscal Service - TREASURY FINANCIAL MANUAL(TFM)
Chapter 1500
Description Of Accounts Relating To Financial Operations
" Fiscal Service and OMB classify transactions within fund groups by categorically assigning numeric or alphanumeric account/symbols (or combinations thereof). Fiscal Service assigns account symbols to entities after considering the government’s relationship to the accounts, the source of the receipts, and the availability of the funds for expenditure.""
Did you miss that part, Neil ?
The progress towards actual payment - REQUIRES PRIOR CONSIDERATION by Treasury on the availability of funds (money) for expenditure.
Memes is what you got with MMT, not truth.
So, just like I said, as you quoted -
"They are simply not allowed to issue a payment order against a Zero ($) 0 balance."
So, Neil please take your time and validate with experience or facts to add any credibility to your statement abut 'no money'..
Know why?
Because all of the account balances at TGA are denominated in the currency unit of the sovereign, making them 'monetary' things; or money in the parlance of the people.
Thank you Dr. Kelton. When this came up again a week or so ago, I said to myself something like ... well the US is a currency producing nation... what is this nonsense. But, I’m no expert.... and here you are saying exactly... ok, approximately what I thought about it. Thank you for your work! You are one of my heroes!!!
Aren't there limits to how much money a government may issue without grossly devaluing the currency through hyperinflation? Thanks to MMT, I understand that a "balanced budget" is definitely not the limit, and that the national debt ceiling is a rather meaningless number in terms of the government's ability to spend money. But then, what is the limit on how much money the government can spend, and how do we move the national conversation to this real spending limit?
I also understand that there may not be a singular limit, but merely a range of options that will lead to different outcomes for the economy, and that some of those outcomes may be more preferable than others based on your politics.
For instance, if you have a lot of money, you may want less government spending so that your giant pile of money matters more. If you make your living off of government contracts, you would definitely want more spending.
Do you happen to have any references or suggested reading for how the government should decide how much to spend in any given year, what the government should spend it on, and how to make the spending more effective and efficient?
I'm sorry that is a lot of questions, and I do appreciate your posts.
Might start with Kelton’s book? The Deficit Myth is very accessible .
Sajid - The limit on government spending is determined by the availability of real resources for sale in its currency. If there are no unused resources available, such as unemployed workers or unused industrial capacity, then further government spending (or further private sector spending) can cause inflation (not hyperinflation). In other words, when spending exceeds the capacity of the economy to provide real resources you will get some inflation.
Our recent inflation, which is falling monthly now, was caused by a lack of resources due to the supply chain problems due to COVID. Now that those problems have mostly been resolved, inflation is falling. There were other factors, of course, but that was a major one.
Another major cause of current inflation has been major companies raising their prices far more than the increased cost of their inputs, which has brought them enormous profits on the backs of the poor and working class who can barely afford food and fuel and their other necessities. This factor also seems to be moderating.
The value of a given giant pile of money is not affected by government spending per se. Money doesn't follow the classic supply/demand curve like physical assets do.
"Sajid - The limit on government spending is determined by the availability of real resources for sale in its currency. If there are no unused resources available, such as unemployed workers or unused industrial capacity, then further government spending (or further private sector spending) can cause inflation (not hyperinflation)."
What is a good measure for whether resources are being optimally utilized? Perhaps Congress determines that America has spare industrial capacity for infrastructure and builds a giant and expensive bridge across the Gulf of Mexico from Houston to The Everglades. Such a heavy drain on America's resources would clearly make everything else more expensive.
Do you trust Congress with the mandate to print and spend as much money as they deem necessary based on what they determine America's industrial capacity to be?
I would also like to have this trust, but in order to gain it, I would like to know who determines America's industrial capacity, how they determine it, and how they determine how to optimally use that capacity to make the future a better place.
Is there one person doing this? Does the free-market of competing political interests somehow magically work out in America's favor and we must just hope it always will?
I am sorry, but I would still like a bit more information about these topics if you have some.
The best measure of excess capacity within an economy is involuntarily unemployment. There are people willing and able to perform paid work for things that need doing yet can find no takers. Another key indicator that should leap out at you is crumbling infrastructure. China has provided us with a fantastic example of how a nation can marshal its human resources in such a way that lifts hundreds of millions out of poverty and develops its infrastructure via massive investment facilitated by government spending.
The comparison with China does not work here. A centralized plan works when you are confident that the future you are trying to achieve is the correct one, which works well when you are following. America, for better and for worse, is not following, so it could totally spend billions of dollars on suboptimal infrastructure. Moreover, just because there are people willing to work does not mean that they will automatically work in a way that benefits society and themselves. What if the military hires them to invade Canada?
I feel that there needs to be a vision for the future, a metric to determine what that vision will cost, and a way to estimate and ultimately measure what was gained from that vision. Mere GDP growth means little if it is a result of inflation.
Giving government a blank check means that they could crowd out private spending and completely dominate the economy until they crash it. I know this scenario is unlikely, but I would still like to know whether it is happening before it happens, and that means that we need some measures of whether government is spending too much and whether the money is well-spent.
Sajid - We don't do the vision thing in the US. It might get in the way of profit-making at all costs. Besides, no one, not even the Chinese can be sure that any particular vision will come to pass in the future. Too many unknowns. Nevertheless, we could do better.
Suboptimal infrastructure: Most projects are granted to the lowest bidder. Unless they are cost-plus contracts rather than fixed price, the contractor will cut corners and suboptimal will be the inevitable result.
Employers determine whether or not the work benefits society, not the workers. Your "what if" isn't relevant. The military doesn't make invasion decisions, politicians do.
Government spending does not crowd out private spending. That's an economic concept that has been shown to be false, because it's based on incorrect assumptions.
Amazing. This is ALL true.
But it has nothing to do with MMT.
What's the "theory" about money ....... you know, the monetary theory ?
Leave out the currency, a separate, matter.
And leave out all the great Post-Keynesian policies.
Waddaya got ?
The Money Apprentice.
As with any economy there are no perfect measures and they are all estimates.
One good measure is whether or not we are at full employment, defined by MMT as everyone who is able and willing to work has a job paying a socially-inclusive wage. See Bill Mitchell: http://bilbo.economicoutlook.net/blog/
Statistically this means getting the unemployment and underemployment rates as close to zero as possible. According to Mitchell, that's about 1-2%, which is made up of people switching jobs, etc. That irreducible part is frictional unemployment.
The participation rate is also important. This is defined as the percentage of the noninstitutionalized population over the age of 16 who are employed or looking for work. It can be increased by finding jobs for "discouraged workers" who have stopped looking for work because they can't find anything suitable.
Your bridge across the Gulf reminds me of one proposed by a Congressman from Alaska who proposed a bridge from the mainland to a small island that was called the "Bridge to Nowhere". It never passed Congress, fortunately.
I don't trust Congress at all, but they can already spend whatever they deem necessary. However, they won't spend to increase industrial capacity except for weapons makers as they still believe that deficits are bad and need to be reduced In addition, it would take industrial planning, i.e., targeting spending to specific industries and companies. They won't do that (again other than with weapons) because that's what the Soviet Union did and Russia does and that's anathema to our government. Bad commies and all that, ya know.
Industrial capacity is determined by the Federal Reserve which reports monthly on Industrial Production and Capacity Utilization.
There are plenty of true believers who think that the free market will indeed magically bring about the best result. As we have seen over the past 40+ years, that's a myth. The most productive era in the past 100 years was the post-war period up until President Carter when top individual tax rates were 74-91% and many industries were heavily regulated. Carter started the deregulation movement by deregulating the airlines and you can see the result in the recent Southwest debacle over the holidays.
"I don't trust Congress at all, but they can already spend whatever they deem necessary. "
Have you re-written the Constitutions APPROPRIATIONS clause?
Actually, NO, Congress cannot spend unless it is authorized (IN THE BUDGET) for both spending and appropriation - which means "money" (from taxes and debt-proceeds) already in the Treasury account.
Just saying.
The Money Apprentice
Joe - Congress is the body that authorizes both spending and appropriation. Your statement that they can't spend what they deem necessary doesn't make sense.
John,
Congress does it all.
It has authorized the spending, AND it has authorized the appropriation of the FUNDS IN THE TREASURY - not already appropriated.
Do you read the Appropriations Bills?
They conform to the same Constitutional limitations.
Were there no Debt-Ceiling, no problem.
BUT, more important, were Congress to grant itself the money-creation powers that the Constitution permits ( see Greenbacks), then the smartest kids in the room would not be advocating for more government BORROWING - just because their banker-guru says so.
Thanks.
The Money Apprentice.
Thank you for your response, John Zelnicker. I agree that no measure is perfect and that Congress already has the power to spend what it deems necessary. However, the entire point of the American Constitution, as I understand it, is to put restrictions on the powers of the government.
Giving Congress the right to print and spend as much money as it "deems necessary" is a lot of power and a giant potential for abuse. I guess looking at unemployment and inflation numbers and making spending decisions does make more sense than an aribtrary debt ceiling. It would be nice if the US government acted as an "employer of last resort" as it makes a lot more sense to be paying people to work than not to work.
In short, I guess what you are trying to say is that Congress already has the power to spend what it wants to and the arbitrary debt ceiling does nothing to curb this power but only muddies the conversations. I am finding it difficult to disagree with this.
See Prof. Kelton's latest post that was published since your comment:
https://stephaniekelton.substack.com/p/these-are-the-times-that-try-mens
Sajid,
The quantity theory of money is shaky even within the current monetary paradigm of Debt Only and Burden to repay Only. If we integrated the new paradigm of Direct and Reciprocal Monetary Gifting strategically into the Debt On/Burden to Repay Only system...we could tremendously increase fiscal deficits which is a primary objective of MMT in order to renew America's infrastructure and fund the mega-projects necessary to confront climate change, not to mention with the primary new paradigm policy of a 50% Discount/Rebate at retail sale, double everyone's purchasing power, greatly increase demand for every enterprise's goods and services and forever macro-economically end inflation.
These are immediate, universal (everyone participates in retail sale), empirical/mathematical, temporal universe effects. No other reform movement even comes close to creating so many beneficial effects. Why? For no other reason than that they aren't analyzing on the paradigmatic level. They, we ALL, URGENTLY need to start doing so.
We will never have a rational and effective debate about resources until we resolve the monetary paradigm. In fact resolving it will immediately free us to utilize the above mega-fiscal deficits to do what we haven't done for 50 years...confront climate change.
The clock is ticking on the disintegrative trend of human civilization and on the existential potential of unconfronted climate change. Focus on the core of the core economic problem, namely the current monetary paradigm and change it with the policy applications of the new one.
With the implementation of a Job Gty, a tax regime should be implemented so that tax rates AUTOMATICALLY kick in if monthly inflation targets are reached. These should include:
a) Income Taxes,
b) Sales/VAT Taxes
c) Asset Value (or Wealth) Taxes
That'll cool things off pronto.
Paradigm changes are always accompanied by paradox. This is because they destroy orthodoxies. Once a 50% Discount/Rebate policy at retail sale and a universal dividend to every adult and are enacted almost all payroll taxes will be redundant and hence cancellable because inflation will have been ended permanently and no need for welfare or unemployment insurance with the dividend. A job guarantee aligns philosophically with the new paradigm of Monetary grace as in gifting and so could also be implemented. It's just another one of the objectives of MMT that the new paradigm enables.
No. The government neither ISSUES the paper nor spends 'Currency', which is the Paper and Coins tiny subset of the money supply. Have you read the Money Statutes?
It's all a Moslerian/ MMT canard.
The Money Apprentice
Joe - You're kinda right that the government doesn't issue paper or currency. The government sends instructions (not money) to the bank of a government employee, a Social Security recipient like me, or a contractor and tells the bank to increase the balance in the target's account. Currency is sent to banks in exchange for existing reserves in the bank's Fed account.
It's obvious that you are very attached to you pet theory, so I went to your Substack to see what you have written as the The Money Apprentice, which I assume is you.
There's nothing there, just like there's nothing of substance in your comments. Mostly they're warmed-over Monetarism and I don't have the time nor the inclination to continue arguing with you.
Wishing you the best, stay safe.
Lifting the ceiling doesn't result in any new spending, it just lets the gov't continue on as normal
mmmmmmmm......
Yellin, is TELLIN Congress that TSY can't pay its Bills that have been "authorized" and "appropriated" by Congress, simply because there's no money there.
Appropriations are spending authority - to spend the money IN the TREASURY TGA account.
There's no money there because of the illegal Debt-Limit.
So, raising the debt limit WILL result in spending the A and A money that the debt limit is blocking.
The Money Apprentice
Joe - The debt limit does not mean there is no money there. It unconstitutionally blocks the issuance of that money until Congress gets over its hubris.
um, John.
Thanks, but I know what the debt limit means.
And totally agree that it unconstitutionally blocks the issuance of more DEBT - but not more money. That's absurd on its face.
Again, Constitutionally.
Because, since Greenbacks, there has no legislation empowering money-issuance BY THE GOVERNMENT.
So, no more borrowing - because borrowing = DEBT.
The alternative is NOT PAYING the Bills, or NOT PAYING the interest, which is also Constitutionally ring-fenced.
I say, what EVERY Post-Keynesian in the room always said, til Mosler came along.
Either PRINT THE MONEY, or Borrow it.
My opinion on that ---
https://www.youtube.com/watch?v=2HRt6sSXpOQ
The Money Apprentice
We've have been hearing this nonsense about "printing too much money," devaluing the US dollar and creating hyperinflation none stop for the last two years, yet the US dollar value has increased on the foreign exchange market during this same period. The US dollar is use all over the world, those countries that use US dollars (most) need to expand their dollar supply. Other countries, like the US have seen inflation rates increase which lowers the purchasing power of the currency. Increasing the money supply by 7% would just keep up with inflation over the last year alone. The US has a net trade import balance of 75 billion dollars a month. That's 75 billion dollars ever month being exported to the rest of the world to feed their US dollar needs (external balance sheet). I haven't even gotten to need to expand the money supply to allow for economic and productivity growth.
Dollars setting on balance sheets, not circulating in the economy are just numbers. Pumping dollars to people with a low propensity to consume also results in demand leakage and increases the need for net government spending (spending greater than taxes) to avoid spiraling unemployment.
Hyperinflation is not caused by "printing too much money!'' It's a supply side shock that's only happened under rare circumstances. Increasing the money supply leading to hyperinflation has got it backwards. That like saying, putting gas in my car makes me drive somewhere. During my entire lifetime (65) of living in the US I've experienced nothing but under employment in the US. Thats a lack of aggregate demand problem. The ''hyperinflation boogie man'' is neoclassical propaganda that doesn't apply to the US.
Inflation is virtually always a money supply problem. Milton Friedman taught us this decades ago as have myriad Austrian economists such as Mises, Sennholtz, Hayek, and others.
A book recommendation for all - 'The Price of Time'. It documents well the history of interest rates and money over centuries of time. The US is not unique. We have not rewritten the laws of economics just because we have held super power status for seven decades. It is foolish to believe we can just print & spend endlessly without consequence.
All of those hacks may have had something of value to contribute in a gold standard or hard currency regime. In case you hadn’t noticed, that ship sailed 50 years ago with the Nixon shock and the abandonment of Bretton Woods. Do try to keep up.
Great Society and war spending forced Nixon on the gold standard. Ending it has not been good for the US.
eg is right. As per usual as Keynes said: “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” Orthodoxy is the bane of every area of human endeavor and especially in economics because it is the end of actual looking at a subject.
Actually, I thought Uncle Miltie said inflation was always a monetary phenomena.
Monetary phenomena CAN BE a Money/Goods imbalance from too much money or too few GOODS.
Can you say unlawful (Money and Goods) SANCTIONS??
Sanctions, by governments, make complete chaos of the notion of national economic freedom. It ain't your country anymore.
Inflation caused by sanctions and too few goods will ALWAYS manifest in monetary terms.
Praise for Uncle Miltie's conclusion.
I prefer Von Mises definitions on inflation.
Theory of Money and Credit ..... pg. 126.
The Money Apprentice.
Money supply is a monetary problem. Government spending is a fiscal problem.
Disproven orthodoxy. Please look and re-think.
It's "foolish to believe" anyone ever said that we can just "print and spend endlessly without consequence!" You're just parroting bs orthodoxy "propaganda, which demonstrates your lack of knowledge on the subject. The very purpose of a currency is to mobilize resources. As the real economist, John Maynard Keynes put it, "anything we can physically do, we can financially do!" Maybe that's too much for you to comprehend? Those paid liars your referencing, are just repackaging classical economics that Keynes shredded in his 1936 book "The General Theory of Employment, Interest, and Money" in 19936. After Keynes death in 1946 they were able to crawl out from under their rocks! With massive financial wealth backing they were able to purge real economics from university teaching.
Name the time that the "money supply was the cause of inflation!"
US is unique from other countries that borrow in foreign currencies, fix their currency or are currency users'. Maybe you should try educating yourself on the meaning of countries that have "monetary sovereignty. When the US Federal Reserve increases interest rates, countries who borrow in US dollars see their domestic currency go "down" and the cost of borrowing US dollars go "up," crippling their economy. They don't "issue US dollars," "the US does!" The US does not "borrow" in foreign currencies or "fix it's exchange rate." Big difference.
Keynes would be aghast at what the US government and the Fed are doing. Keynes was not a proponent of ever-rising debt.
Neither are we, but we're also not advocates for creating debt unnecessarily like the "national debt".
And besides, the REAL problem as Steve Keen has shown is ever rising PRIVATE and corporate debt NOT government "debt". The latter is just a side show. Please get with the real program for the real resolution of the real problem.
The dollar index spiked because the US led the way on interest rates. As rates rise worldwide, the dollar will weaken. It has weakened from its highs already. Relative to other currencies the dollar has remained strong but that advantage has been offset by 8% broad inflation and double digit good inflation. A strong dollar matters little to the young mother paying $6 for butter & eggs.
Nice to see you on MSNBC. Would be great if you could get on Fox and the mainstream broadcast networks. I think we often under estimate the intelligence of viewers. Fox viewers will appreciate your description of how the military, ag subsidies, and the border wall are paid for. ;) Your explanations, analogies and cool demeanor are 👍👍👍 and a lot people will get it.
The politicians (left and right) will only stop misrepresenting the “debt” when the fear mongering no longer works.
Unfortunately, it's just those two hosts on MSNBC who seem to be willing to help inform the public and help break the myth on the most important topic currently facing the US. The weekly primetime hosts on MSMBC just keep referring to Federal government ''debt'' as if it's the same as household debt. This is making it hard to get the left wingers of the edge of the cliff, much less the right wingers.
hmmmmm....
Federal Government Debt, payable ONLY in US money, that can only be accumulated for debt payments by taxation (revenue/income) is exactly like household debt.
NOBODY pays their taxes with "currency".
Everyone pays their taxes with private bank credit. (Central Bank stuff)
Everyone.
Another MMT canard fails.
BOTH government and Households are USERS of the money system.
That's why We all BORROW.
Get it?
The Money Apprentice.
Its the paradigm of Debt Only that is indeed at the root of the problem. Nearly everything you have posted here now is unfortunately stuck in that problematic paradigm. Free your mind. It's an enlightening experience.
You would think after the 2008 GFC and the COVID pandemic we would know who the currency issuer is. After the largest financial institutions in the US (world) became insolvent during the GFC who created the US dollars to save the banks? The idea that the US Federal Reserve bank is not an arm of the US Government is an orthodoxy canard. This is problem with building a model based on the desired out come and working backwards attempting to justify the desired outcome.
So when Alan Greenspan told the US congress, "there's nothing preventing the US government from creating as much money as it wants" he was wrong?
The 18 years Fed Chair, under oath, specifically said "the US Government!"
Rick,
For any discussion about liberating the public from the unpayable debt 'generated' by the private banker Members of the Fed conglomerate, the only solution worthy of consideration is a wholesale systemic and institutional reform to the nature of our national money.
From Private Debt. To Public Asset, or public equity.
However they did Greenbacks.
Easily do-able.
Pass Kucinich's NEED Act and guess what?
MMT becomes prescient.
The government DOES create and issue all the money. Which is what people THINK they hear when the Dr. Kelton and company all say that "The government is the monopoly issuer of the currency.". (MMT says "currency" [paper and coins] People hear "money" - the means of exchange).
Once that's in the can, we can move on to considering all those Post-Keynesian proposals for betterment - UBI v. Job Guarantee ?>, etc..
Besides, Title V of the Kucinich Bill already exists as a List of potential social betterment funding.
Tell me what's NOT on there.
Thanks
The Money Apprentice
Mint the coin, if reason doesn’t prevail.
I assume you're referring to the trillion dollar coin. It's a goofy idea, but apparently it would be legal--so go ahead and do it. But take that Trillion dollars and hire an army of IRS auditors to go after the top 1%. Hit the GOP where it hurts. Normally, there's no such thing as federal tax "revenue." As soon as those tax receipts are deposited into the Treasury's account at the Fed, the money is credited against deficit spending already incurred and it simply disappears.
But these are not normal times. If Congress prohibits the Treasury/Fed from issuing any new money, then tax receipts may actually have to be spent (I'm not sure it's even legal for the Treasury to spend the same dollar twice, but we'll find out). In any event, Democrats have to devise a strategy that punishes Republicans for being assholes.
""..... the trillion dollar coin. It's a goofy idea, but apparently it would be legal--so go ahead and do it.""
Apparently legal, because of the Diehl-MMT hype.
But not in reality.
The authority of the Treasury to mint/issue Coins of any kind are limited in T 31, SubChapter 5112
under a.) - (denominations) to max out at gold commemorative coins of $50.
THAT is the total of the SecTreas's 'discretion' on minting and issuing coins.
It's a bit removed from Diehl's vacuous claim, and Congress said so during consideration.
The intent was to issue smaller coins.
Make them more democratic.
The Trillion Dollar Coin - another AIN'T of MMT.
The Money Apprentice.
I hate it too. But, it forces the issue from the back to the front burner even for a short time...doesn't it.
I've read your book, 3 of Randal Wray's, Warrens of course, along with 4 others (including the job guarantee issue), and listen to the MMT podcast almost daily. With Christian and Patricia I'm triing to get smarter all the time. I'm passionate about econ was my minor a very long time ago. Your willingness to be the "face" of MMT regularly is what gets you the most respect from me. I know it must be very hard, to be attacked without the decency to be more informed on the issue. Go Stephanie go. I even have some ideas on marketing for it.
What MMT and other reform movements lack is an easily seen and directly experienced IMMEDIATE benefit to everyone. The old saw that people vote their pocket books is so true. So what if we implemented a $1000/mo. universal dividend for everyone 18 and older for life and paired that with a 50% Discount/Rebate policy at retail sale which would guarantee everyone $2000/mo. worth of purchasing power. That beats hell out of the one or two-off $1200 COVID Monetary Gifting checks. SHHHHH! Don't even whisper those words...they might become an idea that not even Finance can resist.
Inflation? When you can buy $3.06/gal. gas at Sam's club for $1.53 and buy a $60k Tesla for $30k...where's the inflation there? And if any commercial agent tries to inflate just hit them with a 100% tax rate on any revenue they get from inflating their prices. When EVERYBODY just got a 100% increase in their purchasing power with the policies of the new paradigm they're not going to look sanquinly on anti-social CEO's that immediately try to erode it. Think about it.
Suggested Readings
The History of Monetary Systems.
The Science of Money (Include "The Law of Money" Chapter.
Money Crimes
All by Alexander Del Mar.
The Role of Money - Dr. Frederick Soddy.
The book written for the USERS of the money system.
by the Scientist who started Ecological economics
Thanks.
The Money Apprentice
It is such a stupid conversation, but if the GOP House wants to play silly bugger then propose cuts to spending that only impact their disticts. The tune would change in a hurry.
While the Republicans are, typically, playing with fire here, at times like this I have to find the Democrats guilty of political nonfeasance. When they had majorities in both houses, why did they not attempt to abolish the debt limit once and for all? Instead, they leave themselves (and the country) in the position of having to seek an increase in the debt limit every couple of years, which just enables the Republicans to weaponize the issue against the Dems.
Stephanie, I wish you would clearly state that the National Debt is actually an accumulation of all the expenditures by the federal government less the taxes it has brought in since the date when we started keeping track of these expenditures and taxes. So all the things that make up the federal government's "Red" are the U.S. taxpayers' "Black". We taxpayers enjoy the benefits of the federal government's spending on child care, hiring IRS agents to bring in millions of taxes owed by multibillionaires who avoid paying taxes through complicated schemes, etc.
Betty.
Apologies for bursting that Moslerian Canard.
But why do you think that the Debt - which MUST be paid by taxes - which is what makes it a debt to taxpayers - is a good thing?
You still have to pay for all that stuff.... and sooner than you think.
The debt ceiling is an unlawful threat to society.
But, unlike MMT's claims.
It makes one think about alternatives for financing the deficit.
With money.
And in repayng the Debt.
With money.
Because. You know.
Article 1, Section 8, Clause 5.
And GREENBACKS.
It's OUR money system.
The Money Apprentice
The debt limit crisis presents an existential threat to our democracy. The GOP House has no real power--any ridiculous legislation they pass (and they don't care about passing legislation) will never get by the Senate. And even if it did, President Biden would veto it. But...but...but...when it comes to the debt limit the white nationalist GOP has enormous power.
Janet Yellen's estimate of June 5 as being the drop dead date for paying bills is laden with irony. On June 6 we celebrate D-Day, when democracy made the final push to defeat fascism. On June 5, Republicans (the party of election denial) will launch their fascist assault on democracy and attempt to accomplish what they couldn't achieve on Jan. 6. And they'll probably try to expunge "Juneteenth" from the list of national holidays.
Is Congress still Congress if its members aren't being paid? Is the President still the President if he's no longer on the payroll? In "The Godfather," Michael Corleone visited his father in the hospital only to find that his father's protection detail had vanished. Realizing his father was about to be murdered, Michael kept his cool and saved his father. What happens in the 2nd week in June when members of Congress show up for work and realize there are no Capitol police officers around to protect them? And nuts like MTG walk through the door carrying AR-15's?
Trump has gone out of his way to caution Republicans not to screw around with social security and Medicare (he didn't mention Medicaid--I wonder why). Every smart fascist knows you have to take care of the people who support you. As this crisis limps along week after week, remind yourself that Republicans don't want a solution--they want to burn the house down. The Showdown at the OK Corral is coming. Buckle up.
I'm not singling you out here, in fact I'm calling out all of the other cutting edge economists like Warren Mosler, Steve Keen, Michael Hudson, et al for not having daily news conferences shouting with their hair on fire that this is a titanic NON-ISSUE that the deluded and/or terminally demagogic are going to use to create chaos...when it doesn't need to happen. That needs to happen regardless.
But I am puzzled that all of you and the others above are failing to recognize that you all are missing the way to put this nonsense away FOREVER by uping your analysis to the paradigmatic level which will change the current monopolistic paradigm for the creation and distribution of new money, namely Debt Only to Direct and Reciprocal Monetary Gifting via a program of strategically beneficial and efficacious policies.
All of your analyses are valid and potentially beneficial, that deserves praise...but they're only reforms and so don't COMPLETE the necessary action which is to implement a paradigm/ENTIRE pattern change...because historically everything adapts to a new paradigm...not the other way around. For example, Keynesianism was a very good reform, but what happened? Thats right it got morphed into the neo-classical synthesis...because it was only a good reform. But did we ever go back to nomadic hunting and gathering after we realized agriculture, homesteading andurbanization were a better way to survive and thrive? No.
We don't have the convenience of a lot of time to cogitate about whether or not we should analyze and swiftly form the mass movement necessary to implement the new paradigm. Look around and see the signs of social and political disintegration that are coalescing as well as the looming existential problem of climate change. I'm sure you're concerned about these problems.
Paradigms/operant applied concepts and paradigm changes are not mysterious, mystical things. They are historical phenomena that can be analyzed so as to decipher the new concept that applied will result in all of the beneficial effects of same. In my book I have tried to cover the socio-economic, political, ecological and cultural policies needed in a new paradigm program, but I welcome any additional input.
I would be happy to send you a copy of the evolving book currently posted on Amazon for analysis and/or further elaboration. For god sake, something must happen to resolve the converging crises we are facing.
I’ll take a copy of your book Steve.
Peter, love ya but I only send big influencers free copies of my book. Others should just buy it...its less than Stephanie's book. :) And if you can't afford it its even worth borrowing to get as you'll have bragging rights on having been one of the first to recognize the new paradigm, and in reading it also have genuine hope in an almost terminally cynical world that we can actually resolve our deepest economic problems and even survive climate change.
Superb. I shall have to purchase your book and I look forward to the read. I’m not even an influencer with my wife and kids...just the money bags.
Ha! I can relate! But if you're one of the first few who recognize the core of the core economic problem we face and how to solve it you can be extremely happy and proud of that fact...especially if you pass the insights along.
You don’t need to mint the coin. Numerous grounds are listed in this excellent article by Robert Hockett
Stop the Charade: The Federal Budget Is Its Own ‘Debt-Ceiling’ (https://www.forbes.com/sites/rhockett/2023/01/19/stop-the-charade-the-federal-budget-is-its-own-debt-ceiling/?sh=45602b4b7bc9)
Section 4 of the 14th Amendment, "The validity of the public debt of the United States, authorized by law ... shall not be questioned" should be the beginning and end of the discussion. Biden can say "Stopping payments violates the Constitution. I am not permitted to do that."
Republicans have the burden of bringing the matter to Court, where they will lose, even with this Supreme Court.
Sorry, why is the debt-ceiling the Republican's problem ??
No Problem !
No Money.
The Libertarian Dream.
No, it's the People's problem.
It's Our Congress' problem.
Republicans are un-burdened.
But, the deficit ??
Why is the Fed paying a hugely increased burden for Interest on Reserves(IOR).
From the taxpayers balance at the Fed directly to the Fed Banks.
Nice work if you can get it.
The Money Apprentice
The Debt Limit could, I think, be a useful exercise if Congress was interested in a sensible top-down evaluation of our national spending priorities given the current state of the economy. But such exercises are not conducted in neat, orderly Congressional hearings televised on C-Span (unfortunately) but partisan political theatre on Fox and MSNBC. But maybe that's better than not discussing it at all?
I think even you, Stephanie, would agree that deficits begin to matter during times of rising inflation (according to your wonderful book The Deficit Myth). Fiscal deficits may not matter so much for today's specific flavor of inflation (e.g., as a mostly supply-side rather than demand side problem) assuming you agree with that. Maybe this is a "teaching moment" for explaining when deficits do matter and when they don't in periods of inflation. The Debt Limit is as good a time as any to have that discussion, it seems to me. The threat of default or a government shutdown? Well, that's all part of the theatre: we've been there before, and we always emerge OK. During the last big shutdown under Gingrich, non-essential Federal employees were furloughed for few days, but they got their back pay in full. The public was not amused, but we quickly returned to normal.
Should Biden "negotiate" when Team R is using default as a "gun" pointed at his head? No. That's not a negotiation, it's taking the economy hostage for a ransom (forced budget cuts). But my hope is that the American people will gain a sense of legitimacy around its government's spending after this media fracas is over.
IMHO, I think economists should make austerity (budget cuts) as a tool for fighting inflation the issue, not the debt ceiling or the threat of default. That's confusing the policy substance with the theatrics.
The Deficit Myth is truly a must read and its a must that we understand that a household budget and a government budget is just not the same thing. Sadly, we as Americans help to spread the false myth about the nations finances, the credit card nonsense, we can't live beyond our means. If anything, the debt ceiling has to be abolished because its being used as a political football as to limit how much income that can go into the economy. That is just plain unacceptable. Our pathetic politicians never cease to amaze me here, especially Republicans.
As I said earlier, the government "issuing the currency", even in theory, provides only a few percent of the money supply.
So, no real difference between government and personal debt.
We, and Guv, need money, as income and not capital, to pay the debts.
But the government does NOT even issue the currency.
The Fed does.
Visit either the Fed or Treasury websites and search How Does Currency Enter Circulation?
The Fed issues it directly to the Fed Banks where it becomes "debt" via collateralization.
DEBT-BASED MONEY is the problem.
The debt-ceiling, a mere distraction.
The Money Apprentice.
FYI - Mastercard and Visa do not lend money. They are the rails behind the actual card issuing banks that do the lending through cards branded either Visa or Mastercard.
Funny that.
Neither Bankcard issuer lends money. Only BankCredit.
Only Credit.
Same with ALL the commercial banks.
They issue central-bank based bank-credit.
But you're right about the Credit Cards being a back-room adjunct to the other lending done - of course at the highest interest rates ..........because the people need the credit to eat.
The Money Apprentice
it's time to get rid of the debt ceiling. It's just a political bludgeon that helps politicians avoid facing constituents and explaining the actual ideology they hold to when they try to cut money from the budget. The public has to stop accepting the reason "we can't afford it" every time something is put on the block.
Correct. The debt ceiling and the national "debt" are complete side shows. The problem is PRIVATE individual and corporate debt.
When you end inflation forever with the policies of the new monetary paradigm you open the door to also rationally consider every other legitimate economic factor and necessity posted here.
If Congress has passed laws requiring spending, limiting the amount of tax the IRS can recover and limiting the amount of bonds, notes and bills the Treasury can issue, then the balance has to end up as a carried forward item at the Federal Reserve as a matter of accounting.
In other words any power the Fed thinks it has to say 'no' to a Treasury order to pay either never existed in the first place, or has been repealed under the doctrine of implied repeal.
Why bother with gimmicks. Go straight to the heart of the matter - the Fed is the agent of Treasury. It is their job to do as they are told. MMT people should be pushing that, not workarounds.
That avoids the issue argument and the discount argument with The Coin and the 'lets issue bonds at a reverse discount' approach.
If you're not following Josh Barro's argument for 'premium bonds', here it is: https://www.joshbarro.com/p/a-boring-plan-for-managing-the-debt
Gotta laugh, Neil.
I thought the Fed-Treasury relationship was settled otherwise.
Where in the relevant accord does the Fed become something else besides the Paying Agent of the Treasury?
Where does law or regulation allow Treasury to dictate anything to the Fed beyond its Paying Agent chores?
"Agency of the Government?"
Where is that determined?
In what Act or Bill?
For the record,
Sorry, there's no implied repeal at play here.
Please explain the mechanisms you are claiming changes the law.
What we NEED is REPEAL.
Of the debt-ceiling laws.
The Money Apprentice
I may have misunderstood some of what you are saying and I apologize for that. Indeed, the FED is the hand maiden of the private banks whose paradigm of Debt Only enforces the current law that money be changed into Debt via treasuries. But that doesn't have to be if we understand the new paradigm concept and how to best implement it as I have posted here.
Again, create the platform for a mass movement for the policy program of the new paradigm and utilize it to herd the entirety of the political apparatus toward the sanity of same. Thats how we CHANGE THE LAW.
The Fed is Paying Agent of Treasury. Which means when Treasury issues a Congress instructed order to pay, the Fed has to make the payment. Then it has to make the entries in the Fed's book to accommodate that payment - in all circumstances and at all times.
What we need is a judgment that says the Fed has no lawful capacity to say 'no' to a Treasury payment order. Everybody is presuming the Fed can say no to Congress. Why?
The easiest way to do that is to read section 15(1) of the Federal Reserve Act with an implied "(past, present or future)" after "any part thereof".
Neil, thanks.
Nice try. But, Huge gaps of relevant logic.
Even paying agents can't make payments when the account balance they are paying from is ZERO ($0).
But it ain't the Fed that is hog-tied with no money in the TGA.,
It's Treasury.
They are simply not allowed to issue a payment order against a Zero ($) 0 balance.
You can check that with Treasury.
Got it?
All that Fed-Treasury hyperbole is just that. Naked MMT mythology.
In case you haven't noticed the "Global Finance emergency" news lately.
Thanks.
"They are simply not allowed to issue a payment order against a Zero ($) 0 balance."
Then that restriction either doesn't exist in law (there is no such restriction in bank accounting) or has been repealed by the budget setting process. Hence implied repeal.
I gave you how the law can be read so the payment order applies in all cases. The Fed has no legal power to refuse that payment.
There is no such thing as 'no money'. Money is a promise, not a bag of coins. The Fed can just make the relevant accounting entries in its books.
Thanks, Neil
For pointing out the substance of MMT's "Theory".
Confusory. Hyperbole. and false claims for "functional-equivalence" try to fill the information void where zero facts actually exist to support a rather vacuous statement..
Like this gem.
" There is no such thing as 'no money'. Money is a promise, not a bag of coins. The Fed can just make the relevant accounting entries in its books."
Gawd.
Let's be real. A zero or negative account balance in the TGA means that no balance can be advanced to payment. Period.
Get Warren to get one of his friends AT TREASURY to say otherwise .....on the "make the payment" Order, or from the Fed that it CAN make the payment with a negative TGA balance...... because NEITHER has ever said so, and both have often denied it.
Didn't Eric Tymoigne and Wray correct this myth ?(2013)
And besides, how long can you ignore BOTH the Constitutional prohibition against zero-funds Appropriations, as well as the language I provided - from EVERY Appropriation Bill that passes.
"funds in the Treasury Account (TGA) NOT PREVIOUSLY APPROPRIATED."
Bureau of Fiscal Service - TREASURY FINANCIAL MANUAL(TFM)
Chapter 1500
Description Of Accounts Relating To Financial Operations
" Fiscal Service and OMB classify transactions within fund groups by categorically assigning numeric or alphanumeric account/symbols (or combinations thereof). Fiscal Service assigns account symbols to entities after considering the government’s relationship to the accounts, the source of the receipts, and the availability of the funds for expenditure.""
Did you miss that part, Neil ?
The progress towards actual payment - REQUIRES PRIOR CONSIDERATION by Treasury on the availability of funds (money) for expenditure.
Memes is what you got with MMT, not truth.
So, just like I said, as you quoted -
"They are simply not allowed to issue a payment order against a Zero ($) 0 balance."
So, Neil please take your time and validate with experience or facts to add any credibility to your statement abut 'no money'..
Know why?
Because all of the account balances at TGA are denominated in the currency unit of the sovereign, making them 'monetary' things; or money in the parlance of the people.
Thanks.
The Money Apprentice