As I understand things, much of this debt is caused by steep reductions in capital gains taxes, corporate taxes, and individual taxes on wealth over the past 40 years. And that much of the pearl clutching over the deficit is about maintaining these tax cuts by distracting people with the size of the deficit. The people screaming loudest never talk about restoring steep progressive taxation based on wealth as a full or partial solution to reduce the deficit. Despite the progressive taxation from roughly the 1930s through the 1970s being part of a mostly deficit-free economy. I'd be curious to hear your thoughts on taxation and re-taxation as it relates to the deficit and MMT.
My understanding is that the deficit is a mix of things including using deficits to pay for several wars instead of raising taxes, which along with a draft had been the historical way the US waged war. And certainly taxpayers paid for a lot of profits on lots of weapons used in those wars, in the form of deficits.
Before the Vietnam War the USA was a net exporter, or at least had balanced terms of trade, which helps explain why the domestic fiscal deficit was pretty low. It had nothing to do with bond issue. The external balance has since been dominated by expenditures on foreign military bases and whatnot. But still, there is zero need to issue bonds or hike taxes to "pay for" that, since the military costs are already paid for when the accounts are marked up. The bonds are post hoc interest rate maintenance. The taxes are for creating fiscal space so that real resources are not getting bid up in price.
During WW2 the US ran historically "high" deficits! Due to the low supply of consumables and high employment levels due to production being retooled for War supplies worker were encouraged to postpone consumption as a means of inflation control till after the war. The purchased War and Freedom bonds. Yes, a progressive tax system along with other tools like rationing and price controls where all used to control inflation in a "just way." In Keynes's "How To Pay For The War" one of the concerns was the effect on the economy when "savings" (Bonds in the US) started be spent back into the economy(inflation). The point is, that it was the federal government deficits during the War that not only allowed but was likely necessary to run balanced spending and taxes at the federal level following the War.
Deficit hawks need to answer 3 lines of inquiry. 1) Do your own US dollars free and clear (in the form of treasury bonds, CD's or cash stuffed in your mattress)? If so, where did those dollars come from? 2) What would happen if the US gov't embarked on a 10 year program to eliminate the "national debt" by running annual $3 trillion surpluses over the next decade? 3) Why on earth does the Treasury/Federal Reserve sell bonds in the 1st place?
Answers: 1) Since "bank money" is created when banks issue loans, and all loans are simultaneously assets and liabilities for both the bank and borrower that sum to zero, the only way you could own this kind of money is if you robbed a bank. US dollars don't grow on trees! But they are created out of thin air by the federal gov't, and when the gov't spends more of these dollars than it collects in taxes, this creates a "deficit." And that's where your dollars come from. Where else could they come from? So be careful what you criticize. Deficits are the source of our FINANCIAL WEALTH.
2) If the gov't started to collect $3 trillion each year of this "thin air" money that you and other deficit hawks mistakenly rail against, by year 3 of this program you would have to sell your living room furniture to pay your taxes. Treating our accumulated deficits as if it's a "debt" is idiotic and a massively destructive way to think about things. Paying down our accumulated deficits only serves to make us poorer.
3) Warren Mosler pointed out almost 30 years ago that the Fed doesn't sell bonds to "borrow" money (it's an absurd concept that the gov't would ever have to borrow money it can create at will--we're not talking gold doubloons here), but rather to remove excess currency reserves from the banking system to maintain the Fed's target interest rate. If the Fed didn't do this, every bank in the system would be flush with cash and would never have a reason to borrow in the overnight market to settle accounts--and the target interest rate would plunge to zero. But for over a decade now banks can legally offer "Interest On Reserves." As long as these deposits are fully insured by the full faith and surety of the US gov't, what is the practical difference between this system and selling bonds? The Fed will set the interest rate on these IOR's (because it can!), and then bond traders will have to go out and get themselves a real job.
That's another argument for minting the trillion dollar coin. Money is the ability to command goods and services. We have the capacity to do so many things but use the lack of money as our excuse not to. This whole deficit scare thing is just about people who like things being crappy and hate the idea of things getting better.
Given the impact on U.K. pension funds this week it would be best not to issue bonds at all. If everybody just held demand or time deposits then we wouldn’t need repo markets and we’d have no liquidity squeezes requiring central bank intervention.
The face value and the market value of the national debt are 2 different things. Since 2019 the TOTAL MARKET value of all the Federal debt has FALLEN despite the trillions on new debt issued, such has been the impact of the rise in rates on the stock of existing debt. Before the cycle is over, there are literally trillions of dollars worth of federal debt that will be monetised if the Fed's want to keep the financial institutions that comprise the financial system solvent.
When T bills are returned for "green dollars" does that effect the federal "net spending balance sheet" (national debt)? Does the "national debt" reflect the T bills held by the non-government sector or the total net spending by the federal government? It would seem to me that T bills being exchanged back for green dollars and not being recorded as lowering the federal debt seems to dispel the nonsense about T Bills sales funding federal debt (borrowing).
As I understand things, much of this debt is caused by steep reductions in capital gains taxes, corporate taxes, and individual taxes on wealth over the past 40 years. And that much of the pearl clutching over the deficit is about maintaining these tax cuts by distracting people with the size of the deficit. The people screaming loudest never talk about restoring steep progressive taxation based on wealth as a full or partial solution to reduce the deficit. Despite the progressive taxation from roughly the 1930s through the 1970s being part of a mostly deficit-free economy. I'd be curious to hear your thoughts on taxation and re-taxation as it relates to the deficit and MMT.
Totally unchecked (and totally unnecessary) war profiteering almost certainly plays a role, no?
My understanding is that the deficit is a mix of things including using deficits to pay for several wars instead of raising taxes, which along with a draft had been the historical way the US waged war. And certainly taxpayers paid for a lot of profits on lots of weapons used in those wars, in the form of deficits.
Before the Vietnam War the USA was a net exporter, or at least had balanced terms of trade, which helps explain why the domestic fiscal deficit was pretty low. It had nothing to do with bond issue. The external balance has since been dominated by expenditures on foreign military bases and whatnot. But still, there is zero need to issue bonds or hike taxes to "pay for" that, since the military costs are already paid for when the accounts are marked up. The bonds are post hoc interest rate maintenance. The taxes are for creating fiscal space so that real resources are not getting bid up in price.
During WW2 the US ran historically "high" deficits! Due to the low supply of consumables and high employment levels due to production being retooled for War supplies worker were encouraged to postpone consumption as a means of inflation control till after the war. The purchased War and Freedom bonds. Yes, a progressive tax system along with other tools like rationing and price controls where all used to control inflation in a "just way." In Keynes's "How To Pay For The War" one of the concerns was the effect on the economy when "savings" (Bonds in the US) started be spent back into the economy(inflation). The point is, that it was the federal government deficits during the War that not only allowed but was likely necessary to run balanced spending and taxes at the federal level following the War.
Deficit hawks need to answer 3 lines of inquiry. 1) Do your own US dollars free and clear (in the form of treasury bonds, CD's or cash stuffed in your mattress)? If so, where did those dollars come from? 2) What would happen if the US gov't embarked on a 10 year program to eliminate the "national debt" by running annual $3 trillion surpluses over the next decade? 3) Why on earth does the Treasury/Federal Reserve sell bonds in the 1st place?
Answers: 1) Since "bank money" is created when banks issue loans, and all loans are simultaneously assets and liabilities for both the bank and borrower that sum to zero, the only way you could own this kind of money is if you robbed a bank. US dollars don't grow on trees! But they are created out of thin air by the federal gov't, and when the gov't spends more of these dollars than it collects in taxes, this creates a "deficit." And that's where your dollars come from. Where else could they come from? So be careful what you criticize. Deficits are the source of our FINANCIAL WEALTH.
2) If the gov't started to collect $3 trillion each year of this "thin air" money that you and other deficit hawks mistakenly rail against, by year 3 of this program you would have to sell your living room furniture to pay your taxes. Treating our accumulated deficits as if it's a "debt" is idiotic and a massively destructive way to think about things. Paying down our accumulated deficits only serves to make us poorer.
3) Warren Mosler pointed out almost 30 years ago that the Fed doesn't sell bonds to "borrow" money (it's an absurd concept that the gov't would ever have to borrow money it can create at will--we're not talking gold doubloons here), but rather to remove excess currency reserves from the banking system to maintain the Fed's target interest rate. If the Fed didn't do this, every bank in the system would be flush with cash and would never have a reason to borrow in the overnight market to settle accounts--and the target interest rate would plunge to zero. But for over a decade now banks can legally offer "Interest On Reserves." As long as these deposits are fully insured by the full faith and surety of the US gov't, what is the practical difference between this system and selling bonds? The Fed will set the interest rate on these IOR's (because it can!), and then bond traders will have to go out and get themselves a real job.
That's another argument for minting the trillion dollar coin. Money is the ability to command goods and services. We have the capacity to do so many things but use the lack of money as our excuse not to. This whole deficit scare thing is just about people who like things being crappy and hate the idea of things getting better.
CNN video
https://www.cnn.com/2022/10/04/economy/us-national-debt-31-trillion
Wow, please push your agent to book a seat on Morning Joe, or at least send Mika a copy of Deficit Myth. https://youtu.be/ZJ99j29G9C8
The 8-part "Modern Money & Public Purpose" conference on YouTube (Part 6 w/Fullwiler is linked) is a master class, highly recommended.
Given the impact on U.K. pension funds this week it would be best not to issue bonds at all. If everybody just held demand or time deposits then we wouldn’t need repo markets and we’d have no liquidity squeezes requiring central bank intervention.
It’s just money changing at the temple.
The face value and the market value of the national debt are 2 different things. Since 2019 the TOTAL MARKET value of all the Federal debt has FALLEN despite the trillions on new debt issued, such has been the impact of the rise in rates on the stock of existing debt. Before the cycle is over, there are literally trillions of dollars worth of federal debt that will be monetised if the Fed's want to keep the financial institutions that comprise the financial system solvent.
The major problem of our exorbitant debt is who benefits from it. It's certainly not We the People.
When T bills are returned for "green dollars" does that effect the federal "net spending balance sheet" (national debt)? Does the "national debt" reflect the T bills held by the non-government sector or the total net spending by the federal government? It would seem to me that T bills being exchanged back for green dollars and not being recorded as lowering the federal debt seems to dispel the nonsense about T Bills sales funding federal debt (borrowing).
Yooo I remember Collin he was cool but he always left campus to go smoke at the soccer field