The Federal Reserve Board pays the Bureau of Engraving and Printing for the cost of printing currency and arranges and pays for the transport of the currency from the Bureau of Engraving and Printing facilities in Washington, D.C., and Fort Worth, Texas, to Federal Reserve Bank cash offices.
As the issuing authority, the Federal Reserve Board turns the pieces of paper manufactured at the Bureau of Engraving and Printing into lawful money.
OK?
The entire MMT premise - mis-labeled between 'money' and 'currency' for ultimate deception, here falls flat on its face.
The government doesn't even issue the Currency.
Let alone, be the "implied" issuer of the nation's money.
When I first started to read about MMT through articles then your book, I really wanted to go back to my university and sue for my graduate tuition for my macro courses. Everything I thought I knew (and had been told was gospel) was wrong.
I believe that the feckless Democrats had the opportunity to dispense with the debt ceiling altogether during the lame duck period after the 2022 elections. But they did nothing. It's my opinion that they would rather have the issue than the solution. It's a cudgel with which they will be able to pound on the Republicans during the next election cycle. To the Dems, that's more important than actually solving the problem.
My dear, you are out of your mind. “Their Red Ink is Our Black Ink.” “ Our debt” Are you in a “ debt” cult selling paradise to the willing. Your debt or the direct printing of cash will absolutely kill our currency. I know, it’s all an investment. Your “ gospel “ is insane.
I apologize. That said, inducing people to believe our National debt is an asset that by the touch of a keystroke we can always create more history is delusional. The quantity of money matters in that fiat currency is only as valuable as those that use it as a means of commerce deem it. Too much and it will eventually be deemed worthless. What am I missing? Help me.
I suspect you are beyond help. But here goes anyway.
There is no national debt, only national savings. That's what causes it and what it is in accounting terms.
We can easily get rid of the national debt simply by confiscating all the excess savings via taxation.
If you have $100 in a drawer and you're saving it, how does that cause inflation?
Presumably you'll happy to offer up all your savings to eliminate the national debt you so despise.
It's not the quantity of money that matters. It's the demand for transactions relative to the capacity to supply that matters - effective demand. Savings don't demand.
I got it. Nice. It’s all National savings. And then if any slacker saves a nickel Progressive leadership may confiscate all the excess savings via taxation. Why ever save. Confiscate!
It's not progressive leadership that wants to confiscate it. It's those who want a balanced budget. That's what it brings about - a depression and destruction of savings.
Progressive leadership accommodates excess savings by realising that borrowing doesn't really exist. What reactionaries call 'borrowing' is actually just a carried forward balancing item in the accounts. It occurs costlessly and automatically as a function of the way double entry bookkeeping works.
Those who get excited about it are just hard of accounting. They should be ignored.
""Progressive leadership accommodates excess savings by realising that borrowing doesn't really exist. What reactionaries call 'borrowing' is actually just a carried forward balancing item in the accounts. It occurs costlessly and automatically as a function of the way double entry bookkeeping works."
LOL. And you call Dave 'hopeless', ??
Public "Borrowing" in this country is so real that it has always EXISTED by that name - in absolutely the most-real of financial law - since 1791.
Then came along Moslerian 'funny-money' talk and with his "reserve add and drain" announcements to the monetarily-ignorant Post-Keynesians, and denied our nation's history.
Nice work, guys and girls.
Fifteen years later
Where has it gotten MMT?
A huge cadre of mis-informed 'followers' that cannot figure out what's wrong, but nobody listening where it counts, on Bernie's Budget Committee.
""There is no national debt, only national savings. That's what causes it and what it is in accounting terms.
We can easily get rid of the national debt simply by confiscating all the excess savings via taxation. ""
Wait a minute ! I thought you said there WAS NO NATIONAL DEBT.
So, what's to "get rid of" ??
LOL.
Guv collects around $3.3 TRILLION$ in TOTAL tax revenues every year,
If we Doubled that every year for the next ten years, so til 2033, then we would still NOT be able to pay our Debt Principal Due. And what about the Interest ?
This is just another MMT WAN.
In doing so, the disposable income of the Nation's taxpayers would be reduced by $3.3 TRILLION$ every year. A corresponding reduction in National Income would manifest.
What is called 'debt' isn't really debt, it's just the closing item in the books.
If there is $50 bn of 'national savings' there will be $50bn of 'balancing items'. Confiscate the $50bn and the balancing items disappear at the same time.
Watch the Dark Crystal and see what happens to the urRu when a skeksis dies. You might get it then. It's about your level.
FYI, as per Dr. Frederick Soddy - noted author on money and Physical Science Nobelist -
writing in his epic book "Wealth, Virtual Wealth and Debt" (1934) that which the $50 Bn savings initially held represents, really, is Virtual Wealth. Use it to produce goods, and you end up with Wealth. Accumulate and lend that $50 Bn, you get Debt". It's not a bookkeeping matter. It's an understanding about the relationship among economic/financial forms of monetary-economic things.
The biggest FAIL of MMT is in its approach to "modern money' through a lens focused on a Bank Corporate Balance Sheet, and it's resulting Double-Entry Bookkeeping ......as opposed to say a beginning study of either the HISTORY of Monetary SYSTEMS, or simply The Science of Money, both authored by noted Historian and National Statistician, Alexander Del Mar. The latter book includes an edifying Chapter on The Law of Money.
Alternatively, for finding some clarity of these vague and rote-learned MMT concepts being advanced here about what a DEBT is, and is not, and about what Money IS, and is not, may I suggest comprehending F.A. Mann's The Legal Aspect of Money - any edition.
I'll repeat therefrom, parenthetically - for the A Mitchell Innes fans - Legally, Debt can not BE money.
Because Money is the only thing that can pay/satisfy or settle a debt.
Neil, glad to debate you on any of this ? On MMT ??
In what sense do you consider the so-called national debt, or more precisely the federal debt, not an asset of the private, non-federal sector? Is it not a form of private savings after all? I can't think of any good reason why such a private sector asset as a treasury security should also be accounted as a Treasury asset by crediting it to the Treasury General Account. How is it any different than a bank CD, a liability of the Fed in this case, rather than the bank, and an asset of the security owner? As for the inflationary effect, are treasuries not US dollars sidelined and out of circulation? Please discuss.
MMT's almost ultimate goal is more private financial assets.
They love private gain and public debt, as did Mosler the (fixed-income Securities) Banker before them.
But since the word 'progressive' implies progress for ..... the people ..... and not for the already wealthy bankers, MMT is the biggest promoter of MORE wealth and income disparity - behind the facade of a prosperous Post-Keynesianism.
Only systemic and institutional reform to the nation's monetary system - with Government empowered to directly issue debt-free money via new spending - can anything like the MMT's prosperity mythology ever 'get real.
Hi David, it is indeed challenging to get your head around the idea that creating more and more of something (in this case a sovereign currency) won't make it less valuable, after all, it seems like basic supply and demand. It requires understanding a currency is not backed by some finite thing (of course, they used to be under the gold standard, but we abandoned that 50 years ago), rather, it represents the cumulative value of all the resources in an economy.
I'm far from an expert in this, but I calculated the US money supply grew at a compounded annual growth rate of 7.5% between 1980-2020, meaning it more than doubled every 10 years. Yet if you chart the value of the US dollar index (DXY) against it, the DXY has effectively gone sideways in a relatively narrow channel, so no debasement (unfortunately I can't include charts otherwise I'd show you).
Similarly, you can run a chart of the US money supply vs inflation over the 20 years to 2021 and rebase them both to 100. In the seven years leading up to the GFC they ran reasonably close, but then post-GFC the money supply took off. By 2021, the money supply was just over 1000 but the CPI is about 150. To me, is showed there is no close relationship between the two at all.
"Similarly, you can run a chart of the US money supply vs inflation over the 20 years to 2021 and rebase them both to 100. In the seven years leading up to the GFC they ran reasonably close, but then post-GFC the money supply took off. By 2021, the money supply was just over 1000 but the CPI is about 150. To me, is showed there is no close relationship between the two at all."
This is what drew my attention to the paucity of classical monetary theory (and my graduate macro econ courses) in its ability to describe and predict reality. I have since read several papers on the disconnect between money supply and inflation. They are, for all intents and purposes, not related.
The only way that increasing interest rates has an impact on inflation is through crushing economic activity mostly at the expense of national wage income. The front lines for the 'fight against inflation' are the lines for the soup kitchen consisting of unemployed workers.
I would suggest that if we and every other country banished inflation to the dust bin of history with the policy of a 50% Discount/Rebate at retail sale and the rest of the new paradigm's policy program that we could create treasuries or simply distribute the money needed to fund the government and truly free the individual and it wouldn't make any significant difference. Inflation is the biggest bugaboo in the economy and the money system. Resolve that problem and all of the orthodoxies and problems of the current paradigm attending it become egg on the face of those who failed to analyze on the paradigmatic level. So with Ptolemy, so with the paradigm of Debt Only and its accumulated problems.
This is probably one of your best articles I've gotten to read. As mentioned, old habits die hard but this is a habit that must be broken no matter how long it takes. Sadly, we as Americans have aided in the deficit myth ourselves along with economists and politicians, believing that our nation will go broke that taxes pay for everything. I used to think this myself. I used to cheer Democrats who lowered the deficit and got angry at Republicans for adding to it. I was an economics major and yes I'm human enough to admit that I wish that MMT was taught to me then. The Deficit Myth has been a game changer for me and has changed my outlook on how our monetary system should work. Its long overdue that we need to stop looking at government debt as a household budget and look at is the non-government surplus.
The Deficit Myth of Dr Kelton and MMT, generally speaking, is that the only way you can fund the deficit is by more public debt.
That's the Myth of the Deficit.
Not very Post-Keynesian of them all.
Every P-K leader I know of advocated deficit funding to promote/finance the needs of the Public Sector, either by Printing the Money (Seigniorage Gain to Treasury) OR Increased Public Debt.
Why have they ignored the public money creation option for all these years?
When I opened up my browser this morning and saw Tankersley’s article, I groaned. "I have to write yet another post (for our MMT Google Group) about the New York Times not getting the federal 'deficit' right." I left the article open in my browser, putting off the inevitable. Fortunately Stephanie Kelton has saved me from this chore!
When the government sells bonds in return for money, the government takes spendable money out of the system and replaces it with money that cannot be spent into the economy. So there is a difference between money and bonds. As long as MMT people like yourself try to sell the fiction that there is no difference between money and bonds, you will fail to gain credibility. You do know why the government sold bonds in WW II, don't you?
The truth is it doesn't really matter all that much if we turn new money into bonds because our national "debt" has been rising since forever...and nothing disastrous or sinister has occurred as a result. Having said this it would probably be better if we didn't give the banks the opportunity to amass huge treasury holdings as it is just a guaranteed stream of guaranteed income for them.
The money used to buy the bonds, at least by individuals, is simply money invested as opposed to money available to purchase things. This is a somewhat true but not truly significant or operant way that current free market theory can claim that treasury debt is a way to prevent inflation. But like all old orthodoxies the policies of the new paradigm destroy such flimsy theoretics and find much better and effective ways of resolving problems like implementing beneficial price and asset deflation with a 50% Discount/Rebate policy at retail sale. (Whew! Everytime I write that problem solving, total inversion of temporal universe reality via an application of complete conceptual opposition to the old/current paradigm it almost takes my breath away!)
but not truly significant or operant way that current free market theory can claim that treasury debt is a way to prevent inflation.
===== /quote =====
What on earth does this word salad mean? What free market theory are you talking about? How do you come to the conclusion that something is not operant?
She didn't say there was no difference. She said one wasn't more inflationary than the other. Good to see you haven't changed and still think you know more than everyone else all while having basic problems of interpretation.
I wish you would reply to my comments. When people say that bonds are like money, they really mean that bonds are like money in some respects. I may be unusual, but that kind of thinking gets me wondering that if something is like money in some respects, but it is not money, then in what respects is it different from money. Surely you and Stephanie Kelton know the difference. Why pretend there is no answer to the question about what is the difference. The curious get suspicious when we detect a refusal to address all the aspects.. Some of us are able to think for ourselves and fill in the parts some MMT proponents refuse to admit.
This refusal on the part of some MMT proponents saddens me, because there are honest answers from MMT that could address these issues. Honest answers are more convincing to me than are evasions.
Contemplate the word relevance, the intention to communicate the OPERANT/MOST IMPORTANT aspects of whatever is under discussion, and avoid committing what is meant in the following wisdom verse: "Ye blind guides, which strain at a gnat, and swallow a camel."
In other words you would rather ignore my remarks rather than address them. I don't know why my remarks should be so scary that you are afraid to address them. My remarks were important enough that you had to disparage their relevance.
Not correct. I answered your concern about the nitpick regarding the spelling out of the definitions of money which I believe has already been explained as: money is money readily free to be spent while bonds are investments of money and so they are at least once removed from money in hand.
Money IS the correct subject to analyze, the current operant concept/paradigm of new money is Debt as in Burden to Repay ONLY, and the new paradigm is Direct and Reciprocal Monetary Gifting.
Please analyze on that because the applications of the new paradigm, specifically the 50% Discount/Rebate policy at retail sale which is the very temporal universe expression of the new paradigm, destroy/make irrelevant virtually all of the orthodoxies, complexities and deepest problems of the old paradigm.
Time savings accounts at fed is not the same as spending! Spending is what could "possibly" cause inflation, not savings. Today the fed pays interest on Bank reserves. As Stephanie pointed out, she is not advocating one way or the other, but if it gets us past all this "Federal Debt" nonsense that would be better than all this drama.
WW2 bonds was just one way of decreasing demand (spending) in a "supply constrained" environment, such as during WW2. In Keynes book "How to pay for the War," I don't recall the word "Bonds" being mentioned. The question Keynes struggling with the UK government on, was rather to make "savings" a requirement or voluntary. In Keynes calculation he did not believe that voluntary savings would remove enough demand to prevent inflation based on his calculations of Wartime consumable consumer production. The US congress also used Keynes basic guidelines after entering the WW2 but choose to use War Bonds and Freedom Bonds as one way of decreasing demand (spending) "During War" (supply constrained). UK used savings accounts. The US choose bonds, the US bonds sold during WW2 were specifically designed to be long term bonds (10 year) reaching maturity after the war. Today most G-bonds purchased are "short or medium term" (2 to 10 years) bonds. When you take money out of, you're diversified managed IRA you will be taking bonds out many before meeting their maturity and full yield. Interest paid on the bonds converted back to its more liquid form will depend on the interest rate being paid at the time of withdraw in the bond auction market.
Regardless of what type of interest paying "time savings accounts" at the fed (US treasury or reserve interest accounts) they of in themself do not change spending. As of 2008 interest rates are set by voting members of the fed (as pointed out in the letter). These two things "do not affect" banks' ability to make loans. I don't see how these two things will change public saving rate. On the other hand, changing interest rates may increasing or decrease spending.
Over the last 2 decades the inflation experienced in the US has come as a result of abusive market behavior (not demand exceeding supply). Due to supply disruptions from COVID for the first-time sense WW2 the US has seen inflation come as a result of demand out stripping supply. There are others factors like Ukraine war (oil prices), change in what people consume and increased abusive market behavior this has led to an increased inflation.
Now we see the old "quantity theory of money" pulled out from under the rock and the entire conversation revolves around "too much money" causing inflation....."the government printed too much money!" "Can't do this it will cause inflation," "can't do that it will cause inflation."
During my entire adult life (65) the US has suffered from lack of aggregate demand, resulting in high unemployment and underemployment!..... Hardly a "too much money chasing too few goods story." Just more of the same manufactured problems using a straw man argument where there is no problem.
Thanks, Stephanie Kelton for all your hard work fighting the good fight. Future generations will read about you like we do Keynes now.
I wonder what MMT says about Triffin's dilemma (first posited in the early '60's), which says that a country that has the global reserve currency (i.e. the USA) MUST supply enough currency abroad to sustain global economic growth. This came to a head in the early '70's when Nixon ended settlement of trade imbalances in gold, since too much gold was leaving the country, as Triffin would have predicted. Since then, the same thing has been happening in dollars, also as Triffin predicted. The global economy depends on a growing supply of dollars via structural U.S. trade deficits. Isn't a corollary of Triffin's dilemma that structural U.S. government deficits are also necessary, insofar as trade deficits are financed by U.S. government debt. Without sufficient debt issuance from domestic government spending deficits--and interest payments to induce countries to hold that debt--how will enough bonds exist to enable a rising level of global trade in dollars?
If all of the above is close to correct, it would mean that US government debt is actually necessary to keep the global economy growing. It's not about US fiscal irresponsibility at all, but for the math of a system that extends beyond our borders. US government debt can thus be seen as the necessary lubricant of the global economic system. The fact that much of this debt adds to demand for imports (e.g income from transfer payments, e.g. Social Security) just helps the global economy all the more (possibly hurting domestic workers, however, who lose jobs abroad). This is not about which entity creates the debt instruments (Fed or Treasury) but that there MUST be a spending deficit by the government having reserve currency status (USA).
And who benefits from these structural trade deficits? Well, those who invest in production abroad and seek dollar returns. And who is hurt? US workers who lose jobs to foreign competition, also as Triffin predicted. If this logic is correct, U.S. fiscal deficits are needed to enable global wealth holders (e.g. Wall Street) to get a dollar return on their foreign investments from sales to U.S. consumers. If the U.S. government started balancing its budget what would happen to the global economy according to MMT?
One alternative to this system is the one proposed by Keynes--the reserve currency should be a basket of currencies. This might require all countries to move toward import-export balance. It might help U.S. workers, and disadvantage U.S. capital. What would MMT say about this alternative, and how would it work?
Inflation was the predictable result of the Fed's massive M2 expansion. I predicted it to you nearly three years ago. If Uncle Sam could just write checks, pay off all bond holders, and end weekly Treasury auctions, why don't they do it? I'm thinking Beijing & Tokyo might object since the dollars they would receive would be functionally worthless. MMT and its variants have been tried from time to time for centuries. The end result is always the same and it is not positive.
I am all in with MMT and have been for years. I don't see why T-securities sales should be credited to the TGA in the first place. It seems to me that the TGA is merely an accounting of dollars spent by the treasury and dollars destroyed by the Treasury through taxing and its various other methods, not a federal checking account as the Federal Reserve and others say it is. T-securities do not seem to destroy previously created dollars, they just temporarily drain reserves. So why are they credited to the TGA and not to separate securities accounts? Not crediting T-securities sales to the TGA would, of course, cause the TGA to go negative, but who cares? It is not a checking account after all.
The first argument to be won is the consolidated government. Mainstream theory is about treating the Treasury as *separate and distinct* from the Federal Reserve and requiring the Treasury to operate in Fed dollars by selling Treasury liabilities in exchange for them.
To mainstream the Fed is outside the government sector. It is outside the Treasury's 'currency area'.
Mainstream want a floating exchange rate between Treasury and the Fed (government and the central bank in the round) and a fixed exchange rate with the rest of the world. MMT sees the internal exchange rates between institutions as fixed, with the float pushed out to the borders of the currency area.
This battle is about whether the country operates with the Treasury's money, or some nebulous 'international money' that the Treasury has to obtain.
Stephanie, Outstanding effin' post! It's amazing how you can in fewer than 1500 words surgically skewer the conventional wisdom on money mechanics. I know how much time and effort it takes to bang out one's thoughts on a keyboard, and I, for one, appreciate it.
And yes, Peter Coy's column had a whiff of patronizing condescension: "In case you're wondering, I'm familiar with MMT. I just think it's bullshit." I exchange emails with Peter from time to time. He's a smart guy with a sharp sense of humor. I called him out on that column because he's better than that.
In addition to you, Stephanie, another one of my heroes is Randy Wray. His new book, "Making Money Work For Us," is simply brilliant...and brilliantly simple. In his entertaining Chapter 6 Randy discusses the need for creating new "memes" that might help people to more easily understand the (often counter-intuitive) insights of MMT. So here's one. Suppose federal positive "net spending" is like gaining weight. About 2/3's of Americans are either overweight or obese (no body shaming intended). How is this possible? I taught English in the People's Republic of China in 1983-84, during which the Chinese economic juggernaut was in its infancy. I didn't see many overweight Chinese. In fact, the greeting, "Ni hen Pang!" (you're very fat) was meant as a compliment. The speaker was acknowledging the fact that this person appeared to be doing very well (or maybe they were just being polite). Back in those days it was hard to get "pang" on a diet of rice and pickled bai cai (white cabbage).
So many Americans are over their ideal weight because America produces an abundance of food (some might say "empty calories"). Americans may gain weight, but no one is suggesting that we pass a law forcing overweight folks to "pay back" their calories! The American agricultural industry is perfectly capable of supplying the extra calories that appear to make people happy. The gov't doesn't want those calories back in order to feed other people. If it ever tried to do so, we'd have a second American Revolution on our hands.
So here's the point. Just as too much positive "net spending" by the federal gov't can create economic problems (namely, runaway inflation), too much weight gain can create health problems. So it's advisable to monitor both "net spending" and weight gain. Now this is important: the amount of weight gain that Kareem Abdul Jabbar can accommodate is surely far greater than what, say, Danny Devito can ever hope to take on. Think of Kareem as the United States and Devito as, oh I don't know, Peru.
Dear reader, if you think this analogy has merit and--more important--if you think you can "flesh it out" more clearly (pun intended), please reply to this comment.
I agree with the article. As to the self-imposed requirement for the Treasury to sell securities in an amount equal to the yearly fiscal "deficit," is this contained in a specific statute? Back in the 1800s when there was an occasional deficit, did the government sell securities?
James, thanks.
Can we?
Since CURRENCY is a legal term defined in the money Statutes, it represents only maybe 5 percent of the nation's money supply (Paper and Coins).
So, even IF the government actually issued and gained from that issuance ...... not much there..
But, in reality, NOOOO, the government does NOT issue the currency. LOL.
https://www.uscurrency.gov/life-cycle/journey-circulation
Step 4
Issuance
The Federal Reserve Board pays the Bureau of Engraving and Printing for the cost of printing currency and arranges and pays for the transport of the currency from the Bureau of Engraving and Printing facilities in Washington, D.C., and Fort Worth, Texas, to Federal Reserve Bank cash offices.
As the issuing authority, the Federal Reserve Board turns the pieces of paper manufactured at the Bureau of Engraving and Printing into lawful money.
OK?
The entire MMT premise - mis-labeled between 'money' and 'currency' for ultimate deception, here falls flat on its face.
The government doesn't even issue the Currency.
Let alone, be the "implied" issuer of the nation's money.
The Money Apprentice
When I first started to read about MMT through articles then your book, I really wanted to go back to my university and sue for my graduate tuition for my macro courses. Everything I thought I knew (and had been told was gospel) was wrong.
So, keep doing what you are doing!!
I believe that the feckless Democrats had the opportunity to dispense with the debt ceiling altogether during the lame duck period after the 2022 elections. But they did nothing. It's my opinion that they would rather have the issue than the solution. It's a cudgel with which they will be able to pound on the Republicans during the next election cycle. To the Dems, that's more important than actually solving the problem.
My dear, you are out of your mind. “Their Red Ink is Our Black Ink.” “ Our debt” Are you in a “ debt” cult selling paradise to the willing. Your debt or the direct printing of cash will absolutely kill our currency. I know, it’s all an investment. Your “ gospel “ is insane.
Because you said so, apparently. So glad I don't waste my life writing stupid, hateful comments on sites I don't like. How pathetic that would be.
I apologize. That said, inducing people to believe our National debt is an asset that by the touch of a keystroke we can always create more history is delusional. The quantity of money matters in that fiat currency is only as valuable as those that use it as a means of commerce deem it. Too much and it will eventually be deemed worthless. What am I missing? Help me.
I suspect you are beyond help. But here goes anyway.
There is no national debt, only national savings. That's what causes it and what it is in accounting terms.
We can easily get rid of the national debt simply by confiscating all the excess savings via taxation.
If you have $100 in a drawer and you're saving it, how does that cause inflation?
Presumably you'll happy to offer up all your savings to eliminate the national debt you so despise.
It's not the quantity of money that matters. It's the demand for transactions relative to the capacity to supply that matters - effective demand. Savings don't demand.
I got it. Nice. It’s all National savings. And then if any slacker saves a nickel Progressive leadership may confiscate all the excess savings via taxation. Why ever save. Confiscate!
I was right with the beyond hope then.
It's not progressive leadership that wants to confiscate it. It's those who want a balanced budget. That's what it brings about - a depression and destruction of savings.
Progressive leadership accommodates excess savings by realising that borrowing doesn't really exist. What reactionaries call 'borrowing' is actually just a carried forward balancing item in the accounts. It occurs costlessly and automatically as a function of the way double entry bookkeeping works.
Those who get excited about it are just hard of accounting. They should be ignored.
""Progressive leadership accommodates excess savings by realising that borrowing doesn't really exist. What reactionaries call 'borrowing' is actually just a carried forward balancing item in the accounts. It occurs costlessly and automatically as a function of the way double entry bookkeeping works."
LOL. And you call Dave 'hopeless', ??
Public "Borrowing" in this country is so real that it has always EXISTED by that name - in absolutely the most-real of financial law - since 1791.
Then came along Moslerian 'funny-money' talk and with his "reserve add and drain" announcements to the monetarily-ignorant Post-Keynesians, and denied our nation's history.
Nice work, guys and girls.
Fifteen years later
Where has it gotten MMT?
A huge cadre of mis-informed 'followers' that cannot figure out what's wrong, but nobody listening where it counts, on Bernie's Budget Committee.
MMT Fail.
The Money Apprentice
""There is no national debt, only national savings. That's what causes it and what it is in accounting terms.
We can easily get rid of the national debt simply by confiscating all the excess savings via taxation. ""
Wait a minute ! I thought you said there WAS NO NATIONAL DEBT.
So, what's to "get rid of" ??
LOL.
Guv collects around $3.3 TRILLION$ in TOTAL tax revenues every year,
If we Doubled that every year for the next ten years, so til 2033, then we would still NOT be able to pay our Debt Principal Due. And what about the Interest ?
This is just another MMT WAN.
In doing so, the disposable income of the Nation's taxpayers would be reduced by $3.3 TRILLION$ every year. A corresponding reduction in National Income would manifest.
The Money Apprentice
For every asset there is a balancing figure.
What is called 'debt' isn't really debt, it's just the closing item in the books.
If there is $50 bn of 'national savings' there will be $50bn of 'balancing items'. Confiscate the $50bn and the balancing items disappear at the same time.
Watch the Dark Crystal and see what happens to the urRu when a skeksis dies. You might get it then. It's about your level.
Almost too squishy for words, Neil.
FYI, as per Dr. Frederick Soddy - noted author on money and Physical Science Nobelist -
writing in his epic book "Wealth, Virtual Wealth and Debt" (1934) that which the $50 Bn savings initially held represents, really, is Virtual Wealth. Use it to produce goods, and you end up with Wealth. Accumulate and lend that $50 Bn, you get Debt". It's not a bookkeeping matter. It's an understanding about the relationship among economic/financial forms of monetary-economic things.
The biggest FAIL of MMT is in its approach to "modern money' through a lens focused on a Bank Corporate Balance Sheet, and it's resulting Double-Entry Bookkeeping ......as opposed to say a beginning study of either the HISTORY of Monetary SYSTEMS, or simply The Science of Money, both authored by noted Historian and National Statistician, Alexander Del Mar. The latter book includes an edifying Chapter on The Law of Money.
Alternatively, for finding some clarity of these vague and rote-learned MMT concepts being advanced here about what a DEBT is, and is not, and about what Money IS, and is not, may I suggest comprehending F.A. Mann's The Legal Aspect of Money - any edition.
I'll repeat therefrom, parenthetically - for the A Mitchell Innes fans - Legally, Debt can not BE money.
Because Money is the only thing that can pay/satisfy or settle a debt.
Neil, glad to debate you on any of this ? On MMT ??
Let me know. Here or via email.
The Money Apprentice
In what sense do you consider the so-called national debt, or more precisely the federal debt, not an asset of the private, non-federal sector? Is it not a form of private savings after all? I can't think of any good reason why such a private sector asset as a treasury security should also be accounted as a Treasury asset by crediting it to the Treasury General Account. How is it any different than a bank CD, a liability of the Fed in this case, rather than the bank, and an asset of the security owner? As for the inflationary effect, are treasuries not US dollars sidelined and out of circulation? Please discuss.
Jim,
MMT's almost ultimate goal is more private financial assets.
They love private gain and public debt, as did Mosler the (fixed-income Securities) Banker before them.
But since the word 'progressive' implies progress for ..... the people ..... and not for the already wealthy bankers, MMT is the biggest promoter of MORE wealth and income disparity - behind the facade of a prosperous Post-Keynesianism.
Only systemic and institutional reform to the nation's monetary system - with Government empowered to directly issue debt-free money via new spending - can anything like the MMT's prosperity mythology ever 'get real.
Just saying.
The Money Apprentice
Hi David, it is indeed challenging to get your head around the idea that creating more and more of something (in this case a sovereign currency) won't make it less valuable, after all, it seems like basic supply and demand. It requires understanding a currency is not backed by some finite thing (of course, they used to be under the gold standard, but we abandoned that 50 years ago), rather, it represents the cumulative value of all the resources in an economy.
I'm far from an expert in this, but I calculated the US money supply grew at a compounded annual growth rate of 7.5% between 1980-2020, meaning it more than doubled every 10 years. Yet if you chart the value of the US dollar index (DXY) against it, the DXY has effectively gone sideways in a relatively narrow channel, so no debasement (unfortunately I can't include charts otherwise I'd show you).
Similarly, you can run a chart of the US money supply vs inflation over the 20 years to 2021 and rebase them both to 100. In the seven years leading up to the GFC they ran reasonably close, but then post-GFC the money supply took off. By 2021, the money supply was just over 1000 but the CPI is about 150. To me, is showed there is no close relationship between the two at all.
I hope this helps clarify some things for you.
"Similarly, you can run a chart of the US money supply vs inflation over the 20 years to 2021 and rebase them both to 100. In the seven years leading up to the GFC they ran reasonably close, but then post-GFC the money supply took off. By 2021, the money supply was just over 1000 but the CPI is about 150. To me, is showed there is no close relationship between the two at all."
This is what drew my attention to the paucity of classical monetary theory (and my graduate macro econ courses) in its ability to describe and predict reality. I have since read several papers on the disconnect between money supply and inflation. They are, for all intents and purposes, not related.
The only way that increasing interest rates has an impact on inflation is through crushing economic activity mostly at the expense of national wage income. The front lines for the 'fight against inflation' are the lines for the soup kitchen consisting of unemployed workers.
I would suggest that if we and every other country banished inflation to the dust bin of history with the policy of a 50% Discount/Rebate at retail sale and the rest of the new paradigm's policy program that we could create treasuries or simply distribute the money needed to fund the government and truly free the individual and it wouldn't make any significant difference. Inflation is the biggest bugaboo in the economy and the money system. Resolve that problem and all of the orthodoxies and problems of the current paradigm attending it become egg on the face of those who failed to analyze on the paradigmatic level. So with Ptolemy, so with the paradigm of Debt Only and its accumulated problems.
This is probably one of your best articles I've gotten to read. As mentioned, old habits die hard but this is a habit that must be broken no matter how long it takes. Sadly, we as Americans have aided in the deficit myth ourselves along with economists and politicians, believing that our nation will go broke that taxes pay for everything. I used to think this myself. I used to cheer Democrats who lowered the deficit and got angry at Republicans for adding to it. I was an economics major and yes I'm human enough to admit that I wish that MMT was taught to me then. The Deficit Myth has been a game changer for me and has changed my outlook on how our monetary system should work. Its long overdue that we need to stop looking at government debt as a household budget and look at is the non-government surplus.
Mike,
Did you ever find any "proof" of your newfound money wisdom?
How do you know?
Can you share that?
Thanks.
The Money Apprentice
The Deficit Myth by Stephanie Kelton
The Deficit Myth of Dr Kelton and MMT, generally speaking, is that the only way you can fund the deficit is by more public debt.
That's the Myth of the Deficit.
Not very Post-Keynesian of them all.
Every P-K leader I know of advocated deficit funding to promote/finance the needs of the Public Sector, either by Printing the Money (Seigniorage Gain to Treasury) OR Increased Public Debt.
Why have they ignored the public money creation option for all these years?
Banker Mosler ??
Just saying.
The Money Apprentice.,
Is there any way to release this article?
When I opened up my browser this morning and saw Tankersley’s article, I groaned. "I have to write yet another post (for our MMT Google Group) about the New York Times not getting the federal 'deficit' right." I left the article open in my browser, putting off the inevitable. Fortunately Stephanie Kelton has saved me from this chore!
When the government sells bonds in return for money, the government takes spendable money out of the system and replaces it with money that cannot be spent into the economy. So there is a difference between money and bonds. As long as MMT people like yourself try to sell the fiction that there is no difference between money and bonds, you will fail to gain credibility. You do know why the government sold bonds in WW II, don't you?
The truth is it doesn't really matter all that much if we turn new money into bonds because our national "debt" has been rising since forever...and nothing disastrous or sinister has occurred as a result. Having said this it would probably be better if we didn't give the banks the opportunity to amass huge treasury holdings as it is just a guaranteed stream of guaranteed income for them.
The money used to buy the bonds, at least by individuals, is simply money invested as opposed to money available to purchase things. This is a somewhat true but not truly significant or operant way that current free market theory can claim that treasury debt is a way to prevent inflation. But like all old orthodoxies the policies of the new paradigm destroy such flimsy theoretics and find much better and effective ways of resolving problems like implementing beneficial price and asset deflation with a 50% Discount/Rebate policy at retail sale. (Whew! Everytime I write that problem solving, total inversion of temporal universe reality via an application of complete conceptual opposition to the old/current paradigm it almost takes my breath away!)
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but not truly significant or operant way that current free market theory can claim that treasury debt is a way to prevent inflation.
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What on earth does this word salad mean? What free market theory are you talking about? How do you come to the conclusion that something is not operant?
She didn't say there was no difference. She said one wasn't more inflationary than the other. Good to see you haven't changed and still think you know more than everyone else all while having basic problems of interpretation.
I wish you would reply to my comments. When people say that bonds are like money, they really mean that bonds are like money in some respects. I may be unusual, but that kind of thinking gets me wondering that if something is like money in some respects, but it is not money, then in what respects is it different from money. Surely you and Stephanie Kelton know the difference. Why pretend there is no answer to the question about what is the difference. The curious get suspicious when we detect a refusal to address all the aspects.. Some of us are able to think for ourselves and fill in the parts some MMT proponents refuse to admit.
This refusal on the part of some MMT proponents saddens me, because there are honest answers from MMT that could address these issues. Honest answers are more convincing to me than are evasions.
Contemplate the word relevance, the intention to communicate the OPERANT/MOST IMPORTANT aspects of whatever is under discussion, and avoid committing what is meant in the following wisdom verse: "Ye blind guides, which strain at a gnat, and swallow a camel."
In other words you would rather ignore my remarks rather than address them. I don't know why my remarks should be so scary that you are afraid to address them. My remarks were important enough that you had to disparage their relevance.
Not correct. I answered your concern about the nitpick regarding the spelling out of the definitions of money which I believe has already been explained as: money is money readily free to be spent while bonds are investments of money and so they are at least once removed from money in hand.
Money IS the correct subject to analyze, the current operant concept/paradigm of new money is Debt as in Burden to Repay ONLY, and the new paradigm is Direct and Reciprocal Monetary Gifting.
Please analyze on that because the applications of the new paradigm, specifically the 50% Discount/Rebate policy at retail sale which is the very temporal universe expression of the new paradigm, destroy/make irrelevant virtually all of the orthodoxies, complexities and deepest problems of the old paradigm.
One is more inflationary than the other. Selling bonds during WW II was really one part of controlling inflation.
Time savings accounts at fed is not the same as spending! Spending is what could "possibly" cause inflation, not savings. Today the fed pays interest on Bank reserves. As Stephanie pointed out, she is not advocating one way or the other, but if it gets us past all this "Federal Debt" nonsense that would be better than all this drama.
WW2 bonds was just one way of decreasing demand (spending) in a "supply constrained" environment, such as during WW2. In Keynes book "How to pay for the War," I don't recall the word "Bonds" being mentioned. The question Keynes struggling with the UK government on, was rather to make "savings" a requirement or voluntary. In Keynes calculation he did not believe that voluntary savings would remove enough demand to prevent inflation based on his calculations of Wartime consumable consumer production. The US congress also used Keynes basic guidelines after entering the WW2 but choose to use War Bonds and Freedom Bonds as one way of decreasing demand (spending) "During War" (supply constrained). UK used savings accounts. The US choose bonds, the US bonds sold during WW2 were specifically designed to be long term bonds (10 year) reaching maturity after the war. Today most G-bonds purchased are "short or medium term" (2 to 10 years) bonds. When you take money out of, you're diversified managed IRA you will be taking bonds out many before meeting their maturity and full yield. Interest paid on the bonds converted back to its more liquid form will depend on the interest rate being paid at the time of withdraw in the bond auction market.
Regardless of what type of interest paying "time savings accounts" at the fed (US treasury or reserve interest accounts) they of in themself do not change spending. As of 2008 interest rates are set by voting members of the fed (as pointed out in the letter). These two things "do not affect" banks' ability to make loans. I don't see how these two things will change public saving rate. On the other hand, changing interest rates may increasing or decrease spending.
Over the last 2 decades the inflation experienced in the US has come as a result of abusive market behavior (not demand exceeding supply). Due to supply disruptions from COVID for the first-time sense WW2 the US has seen inflation come as a result of demand out stripping supply. There are others factors like Ukraine war (oil prices), change in what people consume and increased abusive market behavior this has led to an increased inflation.
Now we see the old "quantity theory of money" pulled out from under the rock and the entire conversation revolves around "too much money" causing inflation....."the government printed too much money!" "Can't do this it will cause inflation," "can't do that it will cause inflation."
During my entire adult life (65) the US has suffered from lack of aggregate demand, resulting in high unemployment and underemployment!..... Hardly a "too much money chasing too few goods story." Just more of the same manufactured problems using a straw man argument where there is no problem.
Thanks, Stephanie Kelton for all your hard work fighting the good fight. Future generations will read about you like we do Keynes now.
I wonder what MMT says about Triffin's dilemma (first posited in the early '60's), which says that a country that has the global reserve currency (i.e. the USA) MUST supply enough currency abroad to sustain global economic growth. This came to a head in the early '70's when Nixon ended settlement of trade imbalances in gold, since too much gold was leaving the country, as Triffin would have predicted. Since then, the same thing has been happening in dollars, also as Triffin predicted. The global economy depends on a growing supply of dollars via structural U.S. trade deficits. Isn't a corollary of Triffin's dilemma that structural U.S. government deficits are also necessary, insofar as trade deficits are financed by U.S. government debt. Without sufficient debt issuance from domestic government spending deficits--and interest payments to induce countries to hold that debt--how will enough bonds exist to enable a rising level of global trade in dollars?
If all of the above is close to correct, it would mean that US government debt is actually necessary to keep the global economy growing. It's not about US fiscal irresponsibility at all, but for the math of a system that extends beyond our borders. US government debt can thus be seen as the necessary lubricant of the global economic system. The fact that much of this debt adds to demand for imports (e.g income from transfer payments, e.g. Social Security) just helps the global economy all the more (possibly hurting domestic workers, however, who lose jobs abroad). This is not about which entity creates the debt instruments (Fed or Treasury) but that there MUST be a spending deficit by the government having reserve currency status (USA).
And who benefits from these structural trade deficits? Well, those who invest in production abroad and seek dollar returns. And who is hurt? US workers who lose jobs to foreign competition, also as Triffin predicted. If this logic is correct, U.S. fiscal deficits are needed to enable global wealth holders (e.g. Wall Street) to get a dollar return on their foreign investments from sales to U.S. consumers. If the U.S. government started balancing its budget what would happen to the global economy according to MMT?
One alternative to this system is the one proposed by Keynes--the reserve currency should be a basket of currencies. This might require all countries to move toward import-export balance. It might help U.S. workers, and disadvantage U.S. capital. What would MMT say about this alternative, and how would it work?
Inflation was the predictable result of the Fed's massive M2 expansion. I predicted it to you nearly three years ago. If Uncle Sam could just write checks, pay off all bond holders, and end weekly Treasury auctions, why don't they do it? I'm thinking Beijing & Tokyo might object since the dollars they would receive would be functionally worthless. MMT and its variants have been tried from time to time for centuries. The end result is always the same and it is not positive.
Ooh rah Stephanie Kelton! Keep up the good fight for all the right reasons. I’m grateful to you.
I am all in with MMT and have been for years. I don't see why T-securities sales should be credited to the TGA in the first place. It seems to me that the TGA is merely an accounting of dollars spent by the treasury and dollars destroyed by the Treasury through taxing and its various other methods, not a federal checking account as the Federal Reserve and others say it is. T-securities do not seem to destroy previously created dollars, they just temporarily drain reserves. So why are they credited to the TGA and not to separate securities accounts? Not crediting T-securities sales to the TGA would, of course, cause the TGA to go negative, but who cares? It is not a checking account after all.
The first argument to be won is the consolidated government. Mainstream theory is about treating the Treasury as *separate and distinct* from the Federal Reserve and requiring the Treasury to operate in Fed dollars by selling Treasury liabilities in exchange for them.
To mainstream the Fed is outside the government sector. It is outside the Treasury's 'currency area'.
Mainstream want a floating exchange rate between Treasury and the Fed (government and the central bank in the round) and a fixed exchange rate with the rest of the world. MMT sees the internal exchange rates between institutions as fixed, with the float pushed out to the borders of the currency area.
This battle is about whether the country operates with the Treasury's money, or some nebulous 'international money' that the Treasury has to obtain.
Stephanie, Outstanding effin' post! It's amazing how you can in fewer than 1500 words surgically skewer the conventional wisdom on money mechanics. I know how much time and effort it takes to bang out one's thoughts on a keyboard, and I, for one, appreciate it.
And yes, Peter Coy's column had a whiff of patronizing condescension: "In case you're wondering, I'm familiar with MMT. I just think it's bullshit." I exchange emails with Peter from time to time. He's a smart guy with a sharp sense of humor. I called him out on that column because he's better than that.
In addition to you, Stephanie, another one of my heroes is Randy Wray. His new book, "Making Money Work For Us," is simply brilliant...and brilliantly simple. In his entertaining Chapter 6 Randy discusses the need for creating new "memes" that might help people to more easily understand the (often counter-intuitive) insights of MMT. So here's one. Suppose federal positive "net spending" is like gaining weight. About 2/3's of Americans are either overweight or obese (no body shaming intended). How is this possible? I taught English in the People's Republic of China in 1983-84, during which the Chinese economic juggernaut was in its infancy. I didn't see many overweight Chinese. In fact, the greeting, "Ni hen Pang!" (you're very fat) was meant as a compliment. The speaker was acknowledging the fact that this person appeared to be doing very well (or maybe they were just being polite). Back in those days it was hard to get "pang" on a diet of rice and pickled bai cai (white cabbage).
So many Americans are over their ideal weight because America produces an abundance of food (some might say "empty calories"). Americans may gain weight, but no one is suggesting that we pass a law forcing overweight folks to "pay back" their calories! The American agricultural industry is perfectly capable of supplying the extra calories that appear to make people happy. The gov't doesn't want those calories back in order to feed other people. If it ever tried to do so, we'd have a second American Revolution on our hands.
So here's the point. Just as too much positive "net spending" by the federal gov't can create economic problems (namely, runaway inflation), too much weight gain can create health problems. So it's advisable to monitor both "net spending" and weight gain. Now this is important: the amount of weight gain that Kareem Abdul Jabbar can accommodate is surely far greater than what, say, Danny Devito can ever hope to take on. Think of Kareem as the United States and Devito as, oh I don't know, Peru.
Dear reader, if you think this analogy has merit and--more important--if you think you can "flesh it out" more clearly (pun intended), please reply to this comment.
I agree with the article. As to the self-imposed requirement for the Treasury to sell securities in an amount equal to the yearly fiscal "deficit," is this contained in a specific statute? Back in the 1800s when there was an occasional deficit, did the government sell securities?