Marshall Auerback: Revenue Sharing for the States – How It Works, Why We Need It and Why Nixon Liked It!

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By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Deal 2.0.

States are being cut off just at the time they most need federal assistance. Revenue sharing would be a winning strategy for the economy and for Obama.

Our policymakers continue to believe that they must first ‘get credit flowing again’ to restore output and employment. Unfortunately the reverse is the case: restoring output and employment will restore the flow of credit. Creditworthiness precedes credit.

And yet, as we get closer and closer to D-Day on the debt ceiling limit, the negotiations continue to turn on how much income the government should drain from the economy, even as private sector activity continues to stagnate. All moves to date by the Treasury and Federal Reserve have only served to shift financial assets between the public and private sectors. And that includes quantitative easing. Nothing has directly added to aggregate demand (the overall demand for goods and services).

The economy has therefore continued to deteriorate, with only the ‘automatic stabilizers’ like unemployment insurance slowly adding financial assets and income to the private sector as the counter-cyclical deficit rises. The rate of federal deficit spending now exceeds around 8% of GDP and seems to have begun moving the economy sideways, but has been insufficient to offset the impacts of the worst recession in over 70 years. Indeed, the combination of a tepid fiscal response — which appears to have been just enough to ward off a second Great Depression — and the premature fiscal withdrawal are largely to blame for the weak and teetering recovery.

Worst of all, most of the fiscal packages have been spent. That suggests that in spite of all of the cheerleading by US officialdom and the beneficiaries of this Potemkin prosperity, we will not record significant gains in employment until real output of goods and services exceeds productivity growth. Withdrawal of yet more fiscal stimulus, as the mainstream “experts” (who completely missed the Great Recession of 2008!) continue their call for further cutbacks in government spending, risks a repeat of the error that FDR made when he listened to conservative economic advisers in 1937. He slashed the budget deficit during the Great Depression — causing a renewed surge in unemployment and the extension of the depression.

The most immediate crisis, deserving attention before any other, is in the states and cities. Yet assistance to the states is being cut off at a time likely to forestall economic recovery. State and local budgets should not be cut. But how to prevent this? Here’s an idea: By recreating a revenue sharing program for the states, with a pass-through to cities, on a scale sufficient to plug the budget gaps. How much is needed? As James Galbraith has noted, the federal government’s fiscal aid to the states has hitherto only offset the job cuts imposed by falling revenues and balanced budget requirements. He therefore suggests a number of practical measures to enhance this revenue sharing:

Federalizing Medicaid may be the most effective and practical way to achieve this. The alternative is open-ended general revenue sharing: on the condition that states neither raise nor lower their tax rates, the federal government should supply the funds required to close their budget gaps and to maintain public services at baseline levels, for the duration of the crisis.

President Obama could well point out that revenue sharing has Republican lineage; it ought to be a bipartisan cause today. It was Richard Nixon who first introduced the concept. Nixon viewed the federal bureaucracy as a poor revenue manager and argued that much counter-cyclical spending should go to the states, as they are closer to people’s needs and more directly hurt by falling revenues. But instead of simply cutting taxes, as later conservatives would, he proposed a new system called revenue sharing, which redirected funds to states and municipalities. The federal government would collect taxes and local governments would spend the money. Passed after contentious debate, the State and Local Assistance Act of 1972 initially delivered $4 billion per year in matching funds to states and municipalities. The program, which distributed some $83 billion dollars before it was killed by Ronald Reagan in 1986, proved enormously popular.

It is important to remember that a sovereign government with its own currency can always financially afford such a program. By virtue of its position as issuer of the currency, the US Federal government could promote employment, output, income, and private expenditure through the expedient of revenue sharing. By contrast, US states, as users of currency, are reliant on this counter-cyclical fiscal policy to mitigate the destructive effects of economic downturns — particularly unemployment and the suffering it causes. In the words of Erik Dean, the states “cannot run budget deficits without risking credit downgrades and insolvency. Recessions typically diminish revenues for these users of the currency at the very time that their expenditures are most needed.”

As an example, consider Hurricane Katrina. True, the rescue package was marred by incompetence, but how was New Orleans able to rebuild, given the underlying financial condition of the state of Louisiana? Simple, as David McWilliams noted in today’s UK paper, “The Independent”:

The United States cavalry rode in to save New Orleans and the State of Louisiana. The President declared a state of emergency, Treasury wrote the cheques and the Federal Reserve credited Louisiana’s accounts. They then spent those dollars on cleaning up the city. So the central bank credited the account of the State of Louisiana because emergency economic conditions meant the State needed it. The State issued no bonds; there were no IOUs, except that the deficit of the US rose. There was no effect on inflation.

Yes, we have recovered from the worst of the crisis. But it is delusional to believe that economic recovery can really get underway until we have added something close to 10 million jobs. The current level of job growth will not see us get anywhere near that target for at least another 3-4 years. Indeed, in the absence of revenue sharing, we are likely to see more attacks on workers of the kind that has characterized recent budget battles in Wisconsin and Michigan. Wall Street crashed their pensions and created the fiscal crisis now afflicting the states. But this administration is still caught in the grips of that failed economic paradigm. If President Obama were to fight for revenue sharing, he would develop tens of thousands of local government allies. He would also have a very powerful issue with which to fight the next election, as well as a winning economic argument.

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  1. F. Beard

    I have no problem with revenue sharing though the ideal solution would be for the States to issue their own currency which was only legal tender for government debts, taxes and fees, not private ones.

  2. F. Beard

    It is important to remember that a sovereign government with its own currency can always financially afford such a program. Marshall Auerback

    True but borrowing by the US government, even from its pet bank the Fed, tragically confuses this fact.

    I know that borrowing is used to remove the government’s money from circulation if needed but the direct, honest thing to do would be to simply tax it out of circulation.

  3. Jim Haygood

    ‘The federal government would collect taxes and local governments would spend the money.’

    Yay! Free money! That’s what everyone thought at the time — Model Cities and all that. Ever since, the federal government has been seen as an inexhaustible fount of financing. Thus its current dismal financial straits.

    A more serious objection is that revenue sharing massacres federalism. Until Amendment XVII was passed in the dire ‘progressive’ year of 1913, the then 48 states had a veto over federal expenditure via their Senators, who were appointed by the state legislatures. There was no such thing as ‘unfunded mandates’ (including the millstone of Medicare) before then.

    Revenue sharing inverts the constitutional order, with the central (actually it’s no longer ‘federal’) government dictating the priorities to the states and people.

    One particularly hateful example is the annual ‘Click It or Ticket’ campaign. First the fedgov forced states (by threatening to withhold federal transportation funding) to adopt ‘primary enforcement’ of seatbelt laws — meaning it’s an offense you can be stopped for. Now federal funds subsidize sinister checkpoints, where armed highwaymen stop you in the night, shine flashlights into your vehicle, and hand out tickets if someone isn’t belted in.

    Much like Chinese families being forced to pay for the bullet used to execute a condemned prisoner in the back of the head, Americans through federal revenue sharing are compelled to pay for their own oppression.

    1. David Wright

      Your analogy, doesn’t work. The one ‘evil’ state enforces seat belt laws to save lives, your other ‘evil’ state executes citizens. Yes the ‘evil’ state in both case acts, but the acts are polar opposites not similar as you propose.

    2. financial matters

      There are two edges to that sword and Medicaid is not a bad example.. Eligibility requirements vary widely among states which is one thing that the health reform bill tried to address and the reason that states on the meager side of the coin or that want to decry Obamacare at any cost are calling foul…

      Many groups of people are covered by Medicaid. Even within these groups, though, certain requirements must be met. These may include your age, whether you are pregnant, disabled, blind, or aged; your income and resources (like bank accounts, real property, or other items that can be sold for cash); and whether you are a U.S. citizen or a lawfully admitted immigrant. The rules for counting your income and resources vary from state to state and from group to group. There are special rules for those who live in nursing homes and for disabled children living at home.


      I thought this was a good example…

      “”The agreements most disappointing omission was its failure to seize an opportunity presented by the new federal health reform law to bring $1.4 billion in new money to Minnesota in the next three years.

      That much was available for moving 100,000 of the state’s poorest citizens from state-funded health care programs to Medicaid, a 43-year old program financed with a 50-50 state-federal match. The move had much to recommend it: the creation or preservation of 21,000 private-sector health care jobs; improved access to health care services for a needy population; a reduction in the uncompensated care costs that are often passed on to people with private insurance, and an ability to apply cost-containment strategies to a bigger share of the health care market.

      To make the switch to Medicaid, Minnesota’s costs for the affected population would have increased $188 million over three years.

      The offer ought to have been seen as too good to pass up. But in the words of one gubernatorial candidate this would imply “opting into Obamacare” “”

    3. Rodger Malcolm Mitchell

      Auerback’s suggestion is excellent, although I have one quibble. He said, “The federal government would collect taxes and local governments would spend the money.”

      This gives the false impression that federal taxes pay for federal spending, when in fact, federal taxes pay for nothing, and federal spending is not supported by any taxes. If federal taxes fell to $0 or rose to $100 trillion, neither event would affect by even one dollar, the federal government’s ability to spend.

      Auerback knows this, so I suspect he merely was trying to avoid a digressive argument with all those who believe federal taxes and federal borrowing support federal spending.

      Rodger Malcolm Mitchell

    4. Binky Bear

      Histrionic thinking is a symptom of many disorders in the DSM-IV. That’s the first thought.
      Second, clearly the facts are not as Mr. H. states. In point of fact, the reason for the current Federal budget problems are clearly the unfunded Medicare Part D, irrational tax cuts, and the foolish inability of Congress to defund the military industrial government contracting cartel. Why should Lockheed, for example, provide military aircraft, naval vessels, guided missiles and welfare processing services? Why should Halliburton be using foreign nationals to perform what were military functions for four to one thousand times the cost of an enlisted soldier?

      1. attempter

        The problem here is your view of Congress as “foolish” (not to mention “unable” – how exactly do you figure it’s “unable” to do whatever it wants to do?).

        If you understood the nature of kleptocracy and the way corporatism works, your questions about Lockheed and Halliburton, and every other big corporation propped up only by corporate welfare, would answer themselves.

        Keep repeating this phrase: It’s not a bug, it’s a feature.

  4. Cedric Regula

    Could work in theory, I guess. But where is the federal government going to get revenue? It’s not like they can sell stuff?

    1. Ralph Musgrave

      Cedric, Auerback answered your question when he said “a sovereign government with its own currency can always financially afford such a program. By virtue of its position as issuer of the currency…”. In other words where a country produces its own currency, it can create or “print” any amount of that currency any time it wants, and it should do so where there is excess unemployment. The only reason for not doing so is that excess inflation might ensue.

      With the unused capacity that exists in the US at the moment in the form of very high unemployment levels, I doubt that money printing would cause excess inflation, but of course money printing should always be done with care.

          1. Cedric Regula

            This made me curious about this “money” thingy, so I looked it up in wiki. Found this:

            “The Shekel referred to an ancient unit of weight and currency. The first usage of the term came from Mesopotamia circa 3000 BC. and referred to a specific mass of barley which related other values in a metric such as silver, bronze, copper etc. A barley/shekel was originally both a unit of currency and a unit of weight, just as the British Pound was originally a unit denominating a one pound mass of silver.”

            So you’re saying we’ve gone off the barley standard?

            Auerback is a hedge fund manager, so I guess he would know.

    2. Rodger Malcolm Mitchell


      The federal government creates dollars ad hoc, simply by crediting the bank accounts of its creditors. For example, if you receive Social Security benefits, once a month you awaken to discover your checking account has a higher balance than it did the day before.

      How did this happen? The federal government simply “told” your bank to raise the balance. No dollars came out of any vault in Washington. There was no “source” for the money. The government said, “Increase his account,” and your bank did it.

      This process has no limit. The government as easily could have said, “Increase his account by $100 trillion,” and the bank would have done that, too.

      Money is not physical. It is just an accounting notation, and the accounting is controlled by the federal government. That is the magic of Monetary Sovereignty.

      Rodger Malcolm Mitchell

      1. Cedric Regula

        Well, now that I know that, I’m going to rite my congressman and bitch about the crappy job he/she is doing and he/she let the government screw me out of my $100 trillon.

        I’m going demand payment in barley too. I don’t care if Obama did go off the barley standard. I’ll bet Auerback has his whole hedge fund in barley futures contracts. So I know someone must be growing the stuff. I mean, real money doesn’t grow on trees anymore, does it?

          1. Cedric Regula

            Ya, I’ve been wondering where our land rent went. I’ll mention that to my congressman or women too. Soon as I can figure out who that is. It’s been hard to keep track around here lately. They’ve been shooting them.

  5. Paul Tioxon

    Hm. where would Pres Obama, as cerebral a guy as we have ever had in the WH get the intellectual justification for his current state of fiscal capitulation to austerity. Well, Jim Haywood seems to not be a fan of state revenue sharing. Perhaps as a liberty loving freeman, he just does not like the concept of renvenuers in general. They finance dastardly TREE O’clock road block that Bob Marley railed against in his classic “Natty Dread” album, depicting jack boot oppression coming down on his face on a daily basis.

    Furthermore, our culture suggests that there is at least some darkness amidst of the smothering light of reason. Our doppleganger, THE MERCATUS CENTER, has a fine section of research devoted to just the topic at hand. The states and the sorely lacking FISCAL FEDERALISM that is just choking us all in bathtub personal dependency at the hands of the tax cartel. Apparently, we are forced under pain of criminal prosecution at the hand of the state to be taxed by the centralized nation state bureaucracy, who then forces state and municipal governments to drink from the cup of abomination.

    To sum up in their own words:

    “This lack of meaningful interstate competition has a negative effect on taxpayers. As programs become more centralized, state authorities must increasingly comply with procedures and regulations set forth by Washington. These homogeneous procedures and regulations often ignore the needs of local taxpayers. In effect, the states and the federal government act as a tax cartel, charging higher taxes for lower quality services that do not address the unique needs of communities.

    In theory, fiscal federalism is a great tool that holds state and local governments accountable for their policy actions. In practice, it hardly exists. The increasing scope of federal programs and grants has largely eroded its impact on policy decisions by state and local government to the point that tax considerations become almost irrelevant in people’s decisions about where to live.

    We should mourn the death of fiscal federalism. While fiscal competition between states gives an incentive to policymakers to keep taxes, regulations, and other intrusions modest by fear of losing taxpayers to another tax jurisdiction, homogenized, top-down policy removes the constraints on the states to fight to keep its residents.

    Instead of competing for residents, states are competing for central government funding and privileges. Such activity breeds wasteful spending and rent-seeking, which are drains on the welfare of American society.7”

    So there you have it. if we try to normalize state and local spending using some baseline of public service funding as the standard of funding, during a crisis, how will we know Texas from Pennsylvania, how will I decide to abandon the economically ethnic cleansing taxation of NJ for the paradise of the Louisiana Bayou, tax haven to all, how can we tell God’s country from the den of iniquity on the East and West coasts, if they all share in tax revenue.

    Apparently, the creation of a homogeneous continental nation, with no internal trade barriers, a uniform commercial code, and one big national market for almost everything so a decision in Seattle is a direct comparison to a decision in South Carolina, in the case of building a state of the art airline plant, is now the shackles of slavery where we are literally being forced to belt ourselves into a hurtling death trap, heading over a cliff of fiscal apocalypse without the choice of throwing ourselves our of the door just in time to save ourselves from a fiery crash on the rocks of unfunded mandates.

    1. Externality

      Centralizing funding inevitably results in the centralization of social policy. Once the federal government gets states addicted to federal money, it starts adding condition after condition.

      Some examples: Non-recognition of same-sex relationships, a drinking age of 21, continuing the disastrous War on Drugs, policies that discriminate against transgenders women, various politically popular (but often medically unwise) policies relating to with HIV. States that choose not to comply stand to lose federal funding.

      States that refused to raise their drinking age to 21, and prosecute violators, lost 5% (now 10%) of their federal transportation funding. Many states (and colleges) question the wisdom of the policy, but are unable to lose scarce highway funds.

      When California voters were debating whether to legalize marijuana, the feds threatened to cut off a wide range of federal funds, including those going to contractors based in the state.

      LGBTs can be married under state law, but their marriage will not be recognized for tax purposes or programs that are partially or fully-funded by the federal government (e.g., Medicaid, Social Security). States that decide otherwise risk losing all their funding for the program. LGBTs windup married for some purposes but, under DOMA, single for programs that receive any federal funding.

      This approach ultimately undermines support for state and local governments, and the criminal justice system, as citizens are forced to watch “their” community enforce laws and social norms that reflect the Beltway Consensus, not local values.

  6. Rodger Malcolm Mitchell

    ” . . .if they all share in tax revenue.”

    If you’re talking about federal taxes, no one can “share” in it, since federal taxes are destroyed upon receipt. Federal taxes pay for nothing and are used by no one, not even the federal government. They simply disappear from existence.

    When the federal government spends, it creates dollars ad hoc, and this spending is not in any way constrained by taxes.

    State and local taxes, by contrast, are used by the taxing bodies for spending, as unlike the federal government, the states are not Monetarily Sovereign.

    Rodger Malcolm Mitchell

    1. Susan Truxes

      what on earth are you saying Rodger, “they simply disappear” (tax revenues) – will you please explain why this is so

      1. F. Beard

        I’ll put in my oar too.

        Consider a movie theater that issues tickets. The tickets are printed, sold to the public for money and then destroyed as they are collected. Notice that the movie theater could have (in principle) simply directly bought goods and services with those tickets such as popcorn for the popcorn machines and service from its workers and not exchanged them for money at all. Thus movie tickets are a form of private money.

        Government money is similar. The government spends “tickets” (money) that allow people to pay their taxes. The money is created as it is spent and destroyed as it is collected in taxes.

      2. Cedric Regula

        Well, if we did still have a barley standard, we could figure out how to piss the money down the drain ourselves, and we wouldn’t need a government.

        1. roger erickson

          That’s the myth. Reality is this:

          “Highest cost in any complex system is the cost of coordination.” Walter Shewhart
          (also evolution, thermodynamics, reverse-entropy)

          ergo: Highest return is always return-on-coordination.

          Reality is that dynamic context has weeded out all other currency standards, including the gold std, and left groups with our current “return-on-coordination” standard.

  7. joebhed

    Based on the historic fact that the states(Colonies) gae up the right to create and regulate the value of the nation’s currency in return for the promises of a well-managed federation, it seems laudable, almost compelling, that the federal government share the benifits of its money creation powers.
    Such a plan asd Marshall floats here has actually been legislatively proposed by Congressman Dennis Kucinich in his National Emergency Employment Defense(NEED) Act of 2010.

    (a) IN GENERAL.—Each year, the Monetary Authority shall instruct the Secretary to disperse grants over a 12-month period to the States equal to 25 percent of the money created under this title in the prior year. In the first year the amount of such grants shall be 25 percent of the anticipated money creation in that first year.

    Of course there is a premise here, one that is contained in the balance of the NEED Act, and which I am not sure that Marshall would support. It is that the government restore its sovereign right to create the nation’s money.

    With a typical $14 Trillion economy and 3 percent potential growth in GDP, the government would be issuing some $420 Billion in new monies, of which $105 Billions would go directly to the states.

    Every year.

    It’s more than revenue sharing.
    It’s the democratization of the national economy.

  8. Hugh

    So if pigs would just start taking pilot lessons and if Obama would just stop acting like the kleptocrat he is, he might actually roll up this kleptocracy. Not. Going. To. Happen.

    State budgets have been a disaster for a few years now. They got some, though insufficient, federal aid through the original stimulus. Now even that is gone.

    Even if we used conventional political frames, that is we forget for a moment that Obama is a kleptocrat, he still remains considerably further to the right than Nixon. While it is worthwhile to point out, again, that state and local government need aid, it is pointless for us to go through this pantomine thinking that corporatist Democrats and Republicans have any interest in extending such help.

    1. F. Beard

      While it is worthwhile to point out, again, that state and local government need aid, it is pointless for us to go through this pantomine thinking that corporatist Democrats and Republicans have any interest in extending such help. Hugh

      Maybe not. Maybe they are just ignorant.

      But even if the R & D’s are just willing corporate tools, let’s remove their intellectual fig-leafs.

      MMT must be expounded till people understand it. However, that theory is only 1/2 the solution. We need genuine private currencies too as a check and balance on government spending.

  9. F. Beard

    @Rodger Malcolm Mitchell & joebhed,

    Thanks for pounding the drum on sovereign money creation.

    1. Rodger Malcolm Mitchell

      F. Beard,

      I’ve been pounding that drum for almost 15 years. See: Monetary Sovereignty. What continues to amaze me is that such a straightforward, easily understood concept somehow is not widely understood. In fact, it makes people angry, despite the fact it would benefit them.

      Rodger Malcolm Mitchell

      1. F. Beard

        I’ve been pounding that drum for almost 15 years. Rodger Malcolm Mitchell

        I’m a newcomer. It wasn’t until I read Stephens Zarlenga’s “The Lost Science of Money” and understood Matthew 22:16-22 that I saw the necessity for sovereign money creation.

        See: Monetary Sovereignty. Rodger Malcolm Mitchell

        I tried. The link does not work.

        What continues to amaze me is that such a straightforward, easily understood concept somehow is not widely understood. Rodger Malcolm Mitchell

        It’s complicated. As a libertarian of long standing I can tell you that the other side has some valid points too.

        In fact, it makes people angry, despite the fact it would benefit them. Rodger Malcolm Mitchell

        You can undercut your opponents by allowing them liberty in private money creation. The government could still spend at will but their chief objection, the “stealth inflation tax” would be abolished. Isn’t that fair in any case?

        1. Rodger Malcolm Mitchell

          The link is

          Inflation is kept very close to what the government wishes it to be. Other than that, there is no connection between federal deficit spending and inflation, which actually is caused by oil prices. (See: And no, inflation does not cause oil prices. The price of oil is determined, not by the market or by supply and demand, but rather by OPEC and the oil companies. In the latest Senate hearing, the oil companies admitted it.

          Rodger Malcolm Mitchell

          1. F. Beard

            Inflation is kept very close to what the government wishes it to be. Rodger Malcolm Mitchell

            Measuring price inflation is an art, not a science. Thus money management is an art not a science. Thus we should not have a government enforced monopoly money supply for private debts. One-size does not fit all. How could it?

            The government should content itself to issue money that is legal tender for government debts only, taxes and fees, not private ones.

            Isn’t that obvious on its face? The private sector could still CHOOSE to use government money for all debts if it was well managed so what is the problem?

            If folks will not agree to separate government and private money supplies then the debate is in danger of devolving to golden fiat vs paper fiat.

        2. Rodger Malcolm Mitchell

          Mr. Beard

          You said, “The government should content itself to issue money that is legal tender for government debts only, taxes and fees, not private ones.”

          I may print up a few million Mitchell-bucks and buy your house. Not enough? Would you settle for a few billion? Just name your price. But don’t quote dollars; those are only for government debts. :)

          Rodger Malcolm Mitchell

          1. F. Beard

            But don’t quote dollars; those are only for government debts. :) Rodger Malcolm Mitchell

            We could agree to transact in dollars if we wished but we should not be forced to do so via legal tender laws and any other impediment to private currencies such as the capital gains tax.

            Common stock and store coupons are two private money forms that might be readily accepted by many people.

  10. Straßencafé Lebenskünstler

    True, the rescue package was marred by incompetence,

    ~~Marshall Auerback~

    You bet your bottom greenback, Auerback! Incompetence and then some. Add in corruption, siphon-off, malfeasance, and a long list of mob activities.

    Should Federales stop already? Just quit it? Quit flopping things up?

    This year my state taxes were 3 times bigger than my IRS taxes. Does that tell you something? No? What about this :

    Shouldn’t states each pay to Federales for value received? Value of protection from our foreign enemies? When state governments collect most of taxes because they can personally witness income then why shouldn’t they pay to Feds? Can anyone figure a way to resurrect 40th President? Could we rig a Virtual President Reagan just before elections? Let’s work on it.

    Let’s look further up the pipe, Dreamer! Should Genuine Americans be taxed during the depths of severe unemployment, an offshoot of guaranteeing the salaries of well connected-high-rollers? Should our economy and our multiplier effect be slowed to a grinding halt by taxation at this critical moment? Now let me get this straight, Shooter? When federales need cash they sell bonds to Chinese but tax RA, Real Americans. Right? Should they instead be taxing Chinese, but selling bonds to RA, bonds that pay lucrative interest? Should our rulers stop with the income tax but slap a fat import duty on our rampart trade deficit? Oh! No! Our rulers would then loose lot of political contributions that come in under the table. Could taxpayers easily match the bribes that foreigners are now paying?

    Think about it

    1. roger erickson

      Straßencafé Lebenskünstler

      Your frustration is understandable. Yet for sovereign currency, we’ve scaled beyond the dynamic capabilities of the gold std, and must embrace the RESPONSIBILITIES of adequately regulating the “return-on-coordination” standard.

      You’re seeing the learning curve, but there’s still no going back.

      Bottom line is that any sovereign state is best served by a sovereign, fully fiat currency. The euro, by contrast, is a disaster unfolding.

  11. Rodger Malcolm Mitchell

    “. . . why shouldn’t they pay to Feds?

    Because the federal government is Monetarily Sovereign (, and the states are not.

    “Should our economy and our multiplier effect be slowed to a grinding halt by taxation at this critical moment?”

    No. Nor should it be slowed by cuts in federal spending, which have the same effect as tax increases.

    ” When federales need cash they sell bonds to Chinese . . .”

    Up to 1971 that was true. Today, it no longer is. In fact, today there is no financial reason to sell bonds to anyone. The federal government creates money ad hoc. The unanswered question: Why would a nation with the unlimited ability to create its sovereign currency borrow the currency it previously created?

    Rodger Malcolm Mitchell

    1. F. Beard

      The unanswered question: Why would a nation with the unlimited ability to create its sovereign currency borrow the currency it previously created? Rodger Malcolm Mitchell


      It should not.

        1. F. Beard

          I agree. Let’s stop borrowing forever and payoff the national debt as it comes due with new debt free fiat.

  12. Max424

    My state, New York state, should back up to the Fed discount window, and stay there, until the Fed agrees to give New York a piece (just a piece!) of those multi-hundred billion dollar interest free loans routinely passed out by the Fed out to the CIFCC (the Conglomeration of International Financial Crime Conglomerates).

    Last I checked, you are a part of the United States, New York; so park your fat ass right up against the discount window, and don’t move! No loans, no sovereign US fiat currency, passes through the window, until it is agreed that a relatively trivial, multi-billion dollar interest free loan, goes to you first.

    A courageous, non-violent, fat ass discount window blockage, carried out by the Empire State. I tell ya, that would shake things up; wake some people up.

    1. Cedric Regula

      Personally I think you guys should be disgourged of all the state income tax collected from Wall Street, and the monies be distributed among the other 49 states.

      Sure it’s dirty money, but why can’t all of us have some?

      1. Max424

        Once we (New York) park our fat ass in front of the Fed’s discount window, anything can happen.

        Hell, we could demand 800 billion interest free dollars, or the same amount of interest free dollars the Fed handed out to Goldman Sachs in 2010, and then we could divvy up the money and distribute it to all the other needy states.

        Hey, I’m all for sharing. As a New Yorker, I would be proud if my once great but collapsing state had an opportunity to embrace the role of national Santa Clause.

        1. Cedric Regula

          Ya ok. Sounds good.

          But I was kind of wondering if the Fed will want us to pay it back. I mean a trillion sounds like a lot of money, even at 0% interest. That’s how this debt-money things works, I hear.

          Then do you think they will just send it to the state capitols as usual, then we watch a pothole on our street magically appear and disappear, and we all call it even? Except for the trillion we have to give back to the Fed, I mean.

          Just asking, because this high finance stuff does seem to get complicated sometimes.

          But anything sounds better than borrowing from the Chinese, Arabs, and that cheapskate, Bill Gross!

          1. Max424

            Anything sounds better than loaning our fiat currency to the TBTF banks at zero percent, especially considering they take that free money and then loan it back to us at anywhere from three percent to twenty percent.

            Creating and then supporting an unnecessary and dangerously destructive middleman, and then greasing him — to the tune of many trillions — is a foolish and obscenely wasteful way to use your nation’s most valuable resource (money), in my opinion.

  13. MyLessThanPrimeBeef

    Forget private sector saving.

    Spend the money. Focus on private sector money, rather than private sector saving.

    Now, money printed is almost always money in private sector (forget the foreingers and shrinkage for a moment). There is no need for the gov’t to hoard when as a sovereign, it can always print more.

    Just print more money.

    Just do it.

  14. ep3

    You ain’t gonna get Barack “Hoover” Obama to vear anywhere near anything other than what wall street wants done. Actually, he don’t care what’s done as long as it means he gets re-elected and his name is put on some sort of monument.

  15. lj

    the only problem I see with this piece is that by supporting the states Obama would also prop up the republican governors, who took control of the majority of the states in the last election.

    He won’t win their support, even if he funnels money to the states, because many were strict idealogues. So, yes, he needs to do something about the economy, but the recent attacks on labor in michigan, ohio and wisconson HELP his re-election campaign. It turns labor union members, many of whom voted republican historically, into democrats (at least for the next election), which is what Obama needs.

    Improving the situation at the state level is not what Obama needs. It would allow people to believe that it is the governor’s policies and not the federal government that was improving the state’s economic situation.

    And he tried to funnel money to states directly via the super train public works project, which many republican governors, even those in states with dire economic situations, like Ohio, stupidly rejected.

  16. roger erickson

    Actually, are these the key points?

    Deflate speculators, not population capabilities.
    Deflate paper profits, not threshold output.
    Deflate reckless abandon, not distributed decision-making.
    Float coordination, not unemployment & national security.
    Align Public Purpose, not misdirected hoarding.
    Inflate Operational Coherence, not net discord.
    Above all, achieve these by earlier & deeper practice and training at population-wide coordination, until that becomes the default reflex – the first habit to appear & last to leave under duress.

  17. roger erickson

    First off, we’ve been on a fully fiat currency regime for 80+ years. Some trivially obvious corollaries follow:

    1) “wealth” is held in productivity & capabilities & Output, & the biggest return is always “return-on-coordination” [fiat currency just denominates these real-value products/services]

    2) a fiat currency supply is therefore no different from a “number supply” to write in ledgers, it’s not convertible-upon-demand to anything except the transactions it denominates

    3) therefore, currency can NOT, by any logical definition, be “revenue” to the monopoly issuer; quit calling it revenue, and call it an adequate currency supply instead

    4) a Treasury distributing an adequate currency supply is no different from distributing mandatory education, clean water, transportation, etc, etc; quit calling it “revenue” sharing
    (there’s no “revenue” involved in fully fiat currency, and so there’s nothing to share; only a denomination metric to distribute)

    5) what the US electorate really wants is incentives for people to actual produce regional contributions to a national Output; to do that, it expects people to
    a] exert themselves to diverse efforts, and
    b] artfully coordinate local output into transaction patterns,
    c] which are greater than the sum of their parts
    To do so, people need to lower the cost of denominating all these distributed transactions, so that the overhead of distributed decision-making continually drops.

    6) We can’t scale up population & economy without continuously lowering the cost of distributed decision-making

    7) We denominate transactions & decisions with fully fiat currency.

    8) So, for God’s sake, always give citizens enough currency to utilize in REAL transactions.

    Bankers should be paid less than librarians. Making fiat currency scarce and banker incomes high is massively counterproductive. It’s a simple, self-imposed protection racket to create shortages of sovereign, fiat currency. Real asset allocation counts, return on real coordination counts. Pushing numbers around to track that real coordination is a coincidental & trivial cost, and should be treated as such.

    No bankers are needed to execute quantum or nuclear physics.

    No bankers are needed to drive complex chemical reactions.

    No bankers are needed to organize intracellular biology.

    No bankers are needed to scale up multicellular organisms.

    No bankers are needed to organize humans into tribes.

    And now, no bankers are needed to organize complex market economies.

    Quit listening to banker parasites. They perform an absolutely trivial task, and the entire profession can now be replaced with an Android phone, a spreadsheet kept at the Treasury/IRS and a personal spreadsheet. They have become the problem, not a solution to any remaining problem. Physical currency & records tracking are now trivial tasks that should receive appropriate salaries.

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