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Wally Grigo's avatar

"The problem is that the private sector cannot be the source of its own net financial surplus." For me, this is the startling, slap-upside-the-head insight of MMT! When the next so-called econ expert appears on TV, I'm hoping for the following exchange:

"So it's your opinion as a member of the Council of Economic Advisers that the gov't should be paying down our national debt."

"The gov't has to balance its books just the way every American household must. So, yes."

"Tell me, do you have U.S. dollars in a checking or savings account--or stuffed in your mattress--that you own free and clear?"

"Yes, of course I do--I mean, not in my mattress...."

"So you don't have any outstanding bank loans?"

"Well, I have a mortgage, but the equity in my house would take care of any default."

"And you haven't robbed a bank lately?"

"I'm an economist, not a thief!"

"OK...so where did those dollars come from?"

"What do you mean? I earned them."

"Well, yeah, but if you didn't rob a bank and you don't have an outstanding bank loan, then those dollars can't be "bank money."

"No, it's my money!"

"You're not a counterfeiter, are you?"

"Certainly not!"

"Good. Here's my point. Banks create money when they issue loans. But banks have a nasty habit of wanting to get paid back in full--plus interest. So all of the "bank money" circulating throughout the economy is spoken for. Every loan is simultaneously an asset and a liability for both the bank and the borrower. The whole shooting match sums to zero. There's no way you can own "bank money" free and clear."

'Well, yes, I suppose that's true."

"And I assume you didn't go in your backyard and pick the fruit off your Benjamin Tree?"

"Look, we all know, hopefully, that U.S. dollars don't grow on trees."

"Exactly. So where did your U.S. dollars come from? I see you look a bit flustered, so let me continue. Unlike a bank, which must follow strict rules or lose its charter, the federal gov't not only issues our currency but doesn't actually care about being repaid in full. That's why the pre-pandemic "national debt" was about $28 trillion! And guess what? It was one of the greatest achievements in the annals of human history. The U.S. Treasury/Federal Reserve had been able to pump $28 trillion in deficit spending (most of it since WWII) into the world economy while keeping interest rates and inflation rates absurdly low. And that's where the U.S. dollars in your personal bank account came from--federal deficit spending. And look, the money itself is no big deal. But just as banks have a nasty habit of wanting to get repaid, workers have a nasty habit of wanting to be paid for their work. And injecting this much currency into the economy (the pre-pandemic inflation rate told us it wasn't TOO MUCH) allowed our economy to reap the benefits of incredible innovation and worker productivity. And it made millions of Americans more financially secure, including you."

"OK, OK, you make valid points. But look at inflation now! Haven't the national debt chickens come home to roost?"

"There you go, again. We'll talk about that next time. But for now, just remember where the U.S. dollars for those "Hamilton" tickets you bought last month came from."

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Peter Paul Santa Ana's avatar

Kelton you so totally rock! I prefer prefer the Godly answer for tax understanding, “Give back to Caesar what belongs to Caesar....”. Thanks all you smart people. Keep the Faith and an open mind.

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