We’re Not Broke and the Clinton Surpluses Destroyed the US Economy

By Stephanie Kelton, Associate Professor of Economics at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives.

Two of our nation’s most influential progressive journalists — Slate’s Matt Yglesias and Business Insider’s Joe Weisenthal —  just took on two powerful economic myths.

1. The Myth that The US Government is Out of Money

2. The Myth that A Government Surplus is  a Sign of Fiscal Responsibility

It’s hard to imagine a more empowering message.  As word spreads, elected officials in both parties will lose their primary excuse for inaction on on a whole range of neglected and underfunded programs.  “I’d love to help, but I’m all tapped out,” simply won’t sell.

Nor will the desperate calls for “shared sacrifice” and “entitlement reform” in the name of fiscal responsibility.

A very big thank you to these men, who will undoubtedly suffer the slings and arrows of many of their progressive followers, who have long considered the Clinton surpluses the crowning achievement of modern Democratic governance.

* * *

Lambert here: This short post is an interesting inflection point, and also demonstrates the principle that praise is one important way to speed the uptake and propagation of new ideas (a principle that purist ankle-biters like moi too often forget).

Yglesias once more mainstreams the MMT principle that no nation that is sovereign in its own currency can “run out of money,” writing:

but the US government has the ability to create US currency in unlimited quantities. It hasn’t run out of money and won’t ever run out of money. It would be nice for people to understand this point separately from controversies over whether public sector programs are wise or just. In principle, the US government could print up or borrow a ton of money, hand it to state governments, and then have all the money used to cut taxes rather than to finance programs.

And Weisenthal shows the power of MMT analytical tools as well. Scott Fulwiler tweeted: “Broader point is recognition of sectoral balances approach rather than household budget/deficit [boo!] analogy to govt’s fiscal position.”. Weisenthal’s article has an equation in it, so MEGO, but here again is his article, and a mainstream critique, which also uses MMT analytical tools. Two adversaries both in paradigm? That’s what we’d like to see!

Again, the point is not that Yglesias or Weisenthal conform in detail to MMT as its proponents practice it, but rather to show how MMT concepts are being picked up by the mainstream. Just in time for the Grand Bargain debate! If readers can spot any other examples of this process “in the wild,” please leave them in comments.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. TK421

    I agree with what is said in those articles, but what I’m wondering now is: what is the optimum course for the federal government? Should it run deficits for a few years then surpluses for a few years? Should it spend every dollar it takes in?

    What should have been done?

      1. Winston

        Wrong! That’s as bad as the neoliberals saying you should always run a surplus.

        The budget deficit/surplus should be an outcome of other factors such as private sector saving and exports vs. imports, and not a target.

        If a monetary sovereign ran a current account surplus and also a budget deficit, for example, then it’s likely they’d suffer from inflation.

        1. Hugh

          Interest is a siphon that bleeds money away from the 99% to the 1%. To balance this out, you need to either do away with interest, or the government has to tax the benefit of interest away from the rich, or it has to run deficits (without debt) to put the money lost back in the hands of the 99%. This problem is independent of economic upturns or downturns.

          1. BertS

            Interest is the life blood of savers.

            If savers are in the 1%, what you need to find is a “tax and spend” democrat that believes in steeply progressive tax rates.

            If savers are not in the 1% – they could use the money.

            Believe me.

          2. F. Beard

            In that case I would like to steal some interest from my bank … BertS

            A way to do banking ethically is for a bank to use its own common stock as money. Then its money recipients would automatically share in the profits of the bank.

          3. TK421

            “To balance this out, you need to either do away with interest”

            Has Yves or anyone else her ever written about non-interest economics, such as interest/inflation-free money? I’d be very interested in a discussion of that.

        2. F. Beard

          If a monetary sovereign ran a current account surplus and also a budget deficit, for example, then it’s likely they’d suffer from inflation. Winston

          The inflation would mostly fall on foreigners (assuming the deficit spending was evenly divided among a country’s citizens). Shall the US Government tax to protect the purchasing power of foreigners?

          But I did say the deficits might vary in size so some years they would be small to allow the economy to catch up.

      2. billwilson

        Really? Canada ran surpluses for 15 straight years (or there abouts) and as punishment has come out of the financial crisis in far better shape than most – even despite being located next door to the heart of the crisis.

        1. Expat

          You believe that? That’s just like believing Canada is a proponent of peace-keeping. What really happened is that Canada’s Goldman-Sachs run central bank intervened quietly and early. Every mortgage was guaranteed. Maybe if the Fed had done the same, $29 trillion would not have gone up in smoke.

          1. Roland

            Canada’s real estate market is about to seriously deflate. There has been a reckless lending unconditionally guaranteed by a reckless government. The cost to taxpayers to bail out the banks is going to be enormous, which in turn will lead to a drastic gutting of the Canadian welfare state.

          2. F. Beard

            The cost to taxpayers to bail out the banks is going to be enormous,

            Haha! But they can use those 15(?) years of budget surpluses, can’t they? Unless the bits got lost in the computer or unless moths ate the physical currency? /sarc

            So it appears that Canadians borrowed money so their government could destroy it via taxation? So the debt remains but not the means to repay it?

      3. Samuel Conner

        Re: “A monetary sovereign should always run a deficit though that deficit might vary in size.”

        The deficit is a tool, not a goal or end in itself. It might be better to say that “the sovereign should pursue a fiscal policy that serves the broad public interest, focusing on real economy outcomes rather than the details of the public sector balance”. An example of such a policy is the MMT Job Guarantee or Employer of Last Resort concept. The size of the deficit should not be a consideration. This idea, of focusing on real outcomes that affect people rather than worrying about the numerical value of the public sector balance, goes back to Abba Lerner’s “functional finance” approach. And, as has been noted, when there is a current account surplus, there may not even need to be a public sector deficit for there to be full employment and other desirable public goods fully funded. The deficit is a tool, not a goal.

        Deficits can fund bad things too, such as unnecessary wars or spending policies that exacerbate inequality. Intelligent policy matters as much as the quantity of the deficit.

        1. F. Beard

          And, as has been noted, when there is a current account surplus, there may not even need to be a public sector deficit for there to be full employment and other desirable public goods fully funded. Samuel Conner

          Where are foreigners going to get the money to continually buy (for example) US goods? You are assuming, aren’t you, that the banks extend credit to them? How’s that model working in Europe for Germany?

        2. F. Beard

          Deficits can fund bad things too, such as unnecessary wars or spending policies that exacerbate inequality. Samuel Conner

          True but that need not be. A “Social Dividend” of equal but varying amounts (depending on price inflation in the government’s money) to every citizen should be harmless.

  2. F. Beard

    In principle, the US government could print up or borrow a ton of money, hand it to state governments, and then have all the money used to cut taxes rather than to finance programs. Matt Yglesias

    1) Pu-lease! Borrowing by a monetary sovereign like the US is “corporate welfare” according to Professor Bill Mitchell.

    2) If the new money was given to the population, it would fix everyone from the bottom up, including state and local government.

    3) Many folks hate increasing the size of the Federal Government. But a universal bailout only requires Federal money. How many folks objected to GW Bush’s stimulus checks? Just Skippy and MLTPB?

    1. Skippy

      America is broke, but, not for the destitution of key stroke virtual accountancy under the auspices of sovereign nomenclature.

      It can no longer feed, shelter, provide adequate labor opportunity in exchange for goods and services, keep its contractual promises, respect the treaty’s it has signed – both internally and abroad, too its own citizens or humanity at large.

      It is a rogue state trying to enforce its will upon a world, a conclave of despotic actors whom only intent is to suck the world dry in the name of some idiotic ideology… we are the best… we are the winners… we are exceptional! TM Gawd.

      Skippy… beardo, America and other western nations devoured a world so they could have it all. Now the bill is coming… whom would you be… gawd man… who’s feet shall you wash for your sins… eh.

      PS. entropy is a bitch.

      1. Skippy

        In summation… America has a moral problem… its deficit exceeds its financial one, what is the ink well of neoliberlaism for FFS?

      2. They didn't leave me a choice

        So, are you saying that we should preserve the old systems and the debts that come with it just because entropy? Can’t we start moving towards a more energy-conservative system AND have a just money system? Why must the sins of the obsolete generations be hung on us millenials necks? We already have to deal with the fact that baby boomers and gen x’ers wasted this planets stored wealth of energy and destroyed ecosystems just to build ponzi schemes to benefit themselves.

        Why must we suffer from continuation of bad systems as well as an ecological disaster on top of peak oil?

        1. Skippy

          I don’t know where you got that keep the “old system” from thingy.

          Skippy… entropy is applicable to information too IMO, see Shannon theory.

          1. They didn't leave me a choice

            Aren’t you basically trying to make the case that we should retain the system of government and economy in place as-is just so that we have to reap the karma of the actions of past?

            Also, entropy, do you even know what you are talking about here? Entropy is just a way of describing a law of thermodynamics. Just saying that it applies here is basically uttering a tautology, you aren’t exactly making a meaningful case for anything. Do you mean that the minuscule amount of energy humanity uses somehow increases universal entropy so much that we should stop it? I’m not sure what you’re trying to get at here.

            Also Shannon, er, do you mean his work on information science and communications technology about how much information is carried in a message and how much in can theoretically be compressed? Or something else?

          2. Skippy

            The most prevalent information, at the moment, in humanity’s state, is financial information. The computational effects of that information is included, by Shannon’s theory, the loss of bits, the reduction of structure by the 2nd law.

            Miniscule consumption of energy? What fooking planet or metrics do you apply to quantify such an assertion, the evidence is quite the opposite.

            skippy.. do you understand the ground under your feet or do you internalize every thing and yes your on the hook for your ancestors.

          3. They didn't leave me a choice

            It IS minuscule, given that at 2002 energy use (the number I could find with a bit of google fu) humanity in total used about as much energy in that entire year as earth absorbs from the sun. Humanitys energy usage is absolutely irrelevant in the larger scheme of things. Especially if we raise our view even further into the scale of galaxies. Humanitys impact on entropy, whatever it is, is utterly irrelevant.

            >The most prevalent information, at the moment, in humanity’s state, is financial information. The computational effects of that information is included, by Shannon’s theory, the loss of bits, the reduction of structure by the 2nd law.

            This is so perfectly nonsensical that I can’t even begin to parse what you are trying to say.

            And as for your last comment on being on the hook for my ancestors, yes, technically in the strict physical sense you are correct. However, my point is that there is absolutely no meaning in us thinking we should be on the hook for the obsolete social systems that surround us, nor should we think that we don’t have full authority to pick our own way. Even if that means crushing the obsolete generations still in existence to get our way. After all, why should we entertain their delusions of grandeur and play by their rules, when it has become an absolute certanity that their way is a dead end for our species?

            THEY are not the ones who have to ultimately suffer for this shortsighted rape-the-planet policy. We are on the hook for THAT. They’ll be happily resting in their graves while we eke out a reduced human existence on a desolated planet. All because the baby boomers had to have their pensions.

          4. Skippy

            You and beardo should shack up.

            Before you wander off the edge of reality you understand photon striking area ie energy.

            Skippy… the rest of it? well welcome to the reality most of the world has suffered under, why are you any better?

            BTW… thermodynamics’s is still evolving… don’t let the door hit you on your ass.

          5. They didn't leave me a choice

            Ah, good old conservative ideals, everything should be the way it’s always been because hey, we humans don’t deserve any better. Also you might want to learn you a book on physics before you start to spout off any more nonsense. And I’m supposed to be the one peddling with nonrealism. Sheesh.

            “Before you wander off the edge of reality you understand photon striking area ie energy.”, “thermodynamics’s is still evolving”, what? Do you have any clue what you are talking about, or are you just spouting bullshit out of your ass? (Bullshit enema, now that’s a weird idea…)

          6. Skippy

            Classicist? You should go back and read my comments for the last 4 years before assigning labels.

            And the rubbish after that ” Also you might want to learn you a book on physics before you start to spout off” – learn you.

            Science is a process, it does not stand still.

            My point, with in the comment you originally questioned, was, acts have consequences. I think of the world, where you seem to think of a place, a place you live.

            Skippy… good luck.

          7. They didn't leave me a choice

            >Science is a process, it does not stand still.

            Yes, but even processes have steady state elements. The laws of thermodynamics have at most been tweaked a bit in the last 100 years or so. I’m pretty sure you can find a good book that explains to you what the basic words mean that you use so carelessly. This is especially important since you seem to be constructing at least part of your world view around the stuff, but I’m not exactly convinced that you have a clue what you are talking about.

            “learn me a book” is a classic sarcastic comment thrown at people who show a shocking lack of understanding. I modified it a bit here. Should have been clear.

            >My point, with in the comment you originally questioned, was, acts have consequences. I think of the world, where you seem to think of a place, a place you live.

            What is this I don’t even. Yes, actions have consequences, duh. The second sentence, I can’t even begin to parse what you are trying to say. Is this supposed to be english? Are you just fucking around? Why the fuck would I want to go back and read your posts from the past 4 years if they are as inane, incomprehensible trash as this? Not every insane person is a genius.

          8. Skippy

            Firstly my comment had nothing to do with your foaming, save the entropy bit. And I though you understood I was applying it to information nodes, used WRT the computational nature of trading these days. Can’t wait for quantum to be applied to the military (they get the good stuff first) and then trading. BTW you do know about black box nodes (fortified high security buildings) right? If nukes are ever used, run for one of those baby’s with heaps of food.

            Per my history, use facts or keep your baseless assertions to your self. FYI yes I screw with foamers, gawd heads, ideologues, et al. Seemingly, your only problem is with my expressed concern with MMT, under the currant political environment. IE the chumps get some change and the criminals get their asses saved, keeping all their power and ill gotten gains from decades of thieving.

            Skippy… see the use of thermodynamics and Odum. I was not implying that the law would change just the view points, time/space, by the observer and not in a cosmic framing. View these trading operations with Shannons theory, if only, for fun… shezzzz.

      3. F. Beard

        It can no longer feed, shelter, provide adequate labor opportunity in exchange for goods and services, keep its contractual promises, respect the treaty’s it has signed – both internally and abroad, too its own citizens or humanity at large. Skippy

        Not true but if this artificial scarcity of money relative to debt continues then more real wealth WILL be destroyed. It’s like letting an automobile or a house sit unused – they deteriorate.

        As for those contractual promises, those are specified in nominal, not real terms, so a universal bailout would make them easier to fulfill.

        1. Skippy

          We have one world, that’s about as scarce as it comes.

          “You shall not pollute the land in which you live… you shall not defile the land in which you live, in which I also dwell.” Numbers 35:33-34.


          Skippy… I smell a lot of fear these days, all the “I”s are finding out, they have no future, someone stole it and they think, it was ours to begin with, we only lent it out. Its all about power distribution, always has, always will be, its a human thingy. MMT does not address this political fact and until it is, we will repeat.

          1. F. Beard

            ‘If anyone kills a person, the murderer shall be put to death at the evidence of witnesses, but no person shall be put to death on the testimony of one witness. Moreover, you shall not take ransom for the life of a murderer who is guilty of death, but he shall surely be put to death. You shall not take ransom for him who has fled to his city of refuge, that he may return to live in the land before the death of the priest. So you shall not pollute the land in which you are; for blood pollutes the land and no expiation can be made for the land for the blood that is shed on it, except by the blood of him who shed it. You shall not defile the land in which you live, in the midst of which I dwell; for I the Lord am dwelling in the midst of the sons of Israel.’” Numbers 35:30-34 New American Standard Bible (NASB)

            The passage above refers to murderers and those guilty of manslaughter (unintentional killing). “Pollution” is used in a figurative sense.

            Of course pollution is not good. When have I ever said it was? OTOH, WW III would cause quite a lot of pollution so since Great Depression I was a (the?) major cause of WW II we should end this Depression, no?

          2. F. Beard

            that is, wealth equality. MLTPB

            You’re entitled to what was stolen from you but equality? Do you really think you’re equal to Skippy?

          3. Skippy

            Keil and Delitzsch Biblical Commentary on the Old Testament

            And He has done yet more. He has brought them into a fruitful and well-cultivated land. כּרמל, fruitful fields, the opposite of wilderness, Jeremiah 4:26; Isaiah 29:17. To eat up its fruit and its good; cf. the enumeration of the fruits and useful products of the land of Canaan, Deuteronomy 8:7-9. And this rich and splendid land the ungrateful people have defiled by their sins and vices (cf. Leviticus 18:24), and idolatry (cf. Ezekiel 36:18); and the heritage of Jahveh they have thus made an abomination, an object of horror. The land of Canaan is called “my heritage,” the especial domain of Jahveh, inasmuch as, being the Lord of the earth, He is the possessor of the land and has given it to the Israelites for a possession, yet dwells in the midst of it as its real lord, Numbers 25:34. – In Jeremiah 2:8 the complaint briefly given in Jeremiah 2:6 is expanded by an account of the conduct of the higher classes, those who gave its tone to the spirit of the people. The priests, whom God had chosen to be the ministers of His sanctuary, asked not after Him, i.e., sought neither Him nor His sanctuary. They who occupy themselves with the law, who administer the law: these too are the priests as teachers of the law (Micah 3:11), who should instruct the people as to the Lord’s claims on them and commandments (Leviticus 10:11; Deuteronomy 33:10). They knew not Jahveh, i.e., they took no note of Him, did not seek to discover what His will and just claims were, so as to instruct the people therein, and press them to keep the law. The shepherds are the civil authorities, princes and kings (cf. Jeremiah 23:1.): those who by their lives set the example to the people, fell away from the Lord; and the prophets, who should have preached God’s word, prophesied בּבּעל, by Baal, i.e., inspired by Baal. Baal is here a generic name for all false gods; cf. Jeremiah 23:13. ,לא those who profit not, are the Baals as unreal gods; cf. Isaiah 44:9; 1 Samuel 12:21. The utterances as to the various ranks form a climax, as Hitz. rightly remarks. The ministers of public worship manifested no desire towards me; those learned in the law took no knowledge of me, of my will, of the contents of the book of the law; the civil powers went the length of rising up against my law; and the prophets fairly fell away to false gods, took inspiration from Baal, the incarnation of the lying spirit.


            Skip here… heaps of perspectives… eh.

            Skippy… The GD did not cause the WWII. The acts of a few in search of wealth caused both. Seek not, but, the wealth of your lord beardo, is not everything else transitory, as its your immortal soul that will be housed in either one of two locations?

          4. Skippy

            Sorry beardo but, both the GD and WWI&II were scraps between the Global 1%. Just look at today, the government is beholden to 350 billionaires in country and global private concerns. From the advancing police state, rescinding of social contracts, diminishment of even the thread bare voting process, incressing destruction of the environment for short term profit, etc, etc.

            I’ve provided plenty of links with facts to back my statements up. You offer the bible, religious based sites, the odd MSM or wiki.

            Skippy… You believe in X, to you, thats all that matters and like your religious based science, the bible is truth, its all reverse engineering back to gawd thingo, its self evedent… well your not arguing a case… your proclaiming divine truthiness… barf.

  3. Up the Ante

    Is it Poverty of Spirit or the Ascendancy of the Ferengi Insurgency ?

    Yglesias writing:

    “but the US government has the ability to create US currency in unlimited quantities. It hasn’t run out of money and won’t ever run out of money. .. In principle, the US government could print up or borrow a ton of money, hand it to state governments, and then have all the money used to cut taxes rather than to finance programs. ”

    There seems inconveniently to be more to the picture. See below.

    “It would be nice for people to understand this point separately from controversies over whether public sector programs are wise or just. ”

    We’ll try, Matt, and the sovereign currency govts. will try, too, and will also try and explain to us, themselves, and each other why hard times are visiting, why they’re possible, if they should be possible, and of course who’s nominated to explain it away. Thanks.


    1. Up the Ante

      And, Matt ? I just had a revelation, an epiphany mini that I feel to share with you.

      I just realized that all the incidents of police brutality are really evidence of compensation rage, rage that their employers would deprive the police of freedom from expense, and social rage that the govt. would similarly deprive the citizenry.

      Clarity in absurdity in the sovereign currency state.

      /further sarc

      1. BertS

        Yup. And don’t forget the post office. Those guys can get dangerous!

        Then there is the student loan thing. How dumb is that when you could just print up a trillion and give it to colleges directly! I mean, let the kids find the school on their own – they’re supposed to be smart. They don’t need some address printed on a check to find the place!

        1. Up the Ante

          Very good. Bert, we have achieved a consensus. Govt. as the bringer of problems rather than possessed of any sort of beneficence.


  4. craazyman

    I don’t understand why we need to print money when everything nowadays is computerized. Why waste the trees or the paper? On the other hand, if we printed $100 dollar bills we wouldn’t need as many as if they were all $1s. You might think we’d need 1/100th as many, but no. We’d still need $1s for change, when you went out to lunch. There must be a way to figure this out in advance using advanced mathematics.

    1. ambrit

      Dear craazyman;
      The guys and girls who actually print the money seem to do a pretty good job. They must have some formula to determine what demoninations and how much of each to print. Besides, they need all those circulated, degraded bills to bring back and burn to run the printing plant!

    2. BertS

      I don’t know about you craazy, but if the gov doesn’t print money soon, I’m gonna do it myself.

      Good point about computers and saving some trees. Think instead of printing up some hundreds (and some ones for lunch, change, tips, and paying taxes) I might be better off just hacking my checking account and make some changes there? I got a debit card already. If I could just increase my balance, the stupid thing wouldn’t run out on me all the time?

      More I think about it, I bet that’s the way that Steph chick at the university does it!

      1. Stan Musical

        A tip: I’ve heard if you add some zeros to the end of your balance it’s a lot better than putting them in front. Who woulda thunk?

  5. Rob

    I don’t agree with the whole MMT scenario,but I think they are on the right track.I think the MMT world view is formed better by the adherents of the American monetary institutes views.this is enemerated in the NEED act ,a bill put forth by Dennis kucinich as HR 2990.
    the idea of a monetary system differing from the one we have now,where our money supply is created as debts,by a private group/ federal reserve and all the other people who create bonds and derivatives and all the other things that infuse their way into the money supply via account balances on companies books,who all created something out of nothing,,is a good one.
    This would be the best thing we as a people could do to screw the banking elite,and their economist shills.everyone in the normal economy would experience capitalism,just as they do now. The only difference would be at the upper echelon of money creation.everyone else could use that money,know its value and trade and earn accordingly.without an artificial value assign,like gold or any other thing… This is just fiat currency,given its value by the current holdings into a new system, that will be less inclined to the boom bust cycles.guided and directed by the treasury and congress.,as the founders intended.
    What Clinton did,didn’t matter.he was operating in the current system.all these other paradigm implications don’t absolve him of creating this recession with his deregulation and fed policies and pre9/11 planning and his war on freedom…he had the benefit of the soviet fire sale on the worlds economy……
    in the new paradigm , debts aren’t bad because they are the result of the people’s business being done.and whatever is GOOD for the people,is worth spending for….this obviously doesn’t include wars or occupations or imperialism or corporate welfare to industries who do us harm or create America’s enemies.this means that when we the people of this country have a civic obligation, for our good.for our posterity and prosperity, running a debt ,is ok.and prudence still matters… Blowing money for the hell of it ,isn’t what this is all about.there can be restraints..to keep the system from being unwieldy nobody is saying just print a ton of money.right now,there is a money supply. From this point forward the growth of that money supply needs to be checked to keep up with population growth .(there are other checks,but population growth seems to make sense to me)
    And when the debt isn’t a debt owed to a private bank, then surpluses are an edifice of the public good that could have been further helped..
    this isn’t just an idea,it has a plan that is already drawn up…. I think there needs to be real discussion of the American monetary institutes version of this… Read the need act…..to see details of the switchover.how it can be implemented….what it could do… What the meaning of a new paradigm could be….who says this can’t be the American century?
    The MMT models to me just don’t seem to be as well thought out.

    1. Darren Kenworthy

      All currency is created and sustained by “fiat” in that it’s usefulness is a function of force and faith. Remember, however, that currency acts as a demand on real goods and services. If the material substrate is inadequate to the demands placed on it by the currency economy, the currency economy will fail.

      1. Skippy


        Skippy… all human activity requires materials, fiat by its self cannot fill a void by its virtuality, it has no mass, only the influence it projects via its human origins (mental platitudes). The reconciliation of these two states, one physical and the other metaphysical (desire) are at odds. One has a longer history than the other. I wonder which will assert undeniable mass in the end?

          1. BertS

            no no. You inflate out of it. When we change to the next legal tender currency – like Hershey’s Kisses or something sounder than the old one your loan is in.

            Lots of models in South America to follow: peso1… peso2… peso3..real …etc…

          2. Skippy

            Lets be clear… leverage against the finite resources of this planet is folly. By extension of commodity backed exchange or fiat, its only got one tank of gas thingy.

            Skippy… snorting fat lines is indicative of an addiction problem.

          3. F. Beard

            By extension of commodity backed exchange or fiat, its only got one tank of gas thingy. Skippy

            True but the repayment of credit causes that credit to be destroyed. So a ban on further credit creation (100% reserve requirement) would allow a vast amount of debt to be paid off with new fiat without increasing the money supply – the new money would simply back reserves 100%.

        1. WorldisMorphing

          That is the unresolved issue with MMT. It ignores the economic rent the U.S. is exerting on the rest of the world by being the reserve currency. It is blind to material constraints, it’s blind to the broke third world country that says:
          **We will print money to finance infrastructure as we have noticed paved roads and sturdy concrete ports provide great services…could you give us a couple of caterpillars and some petro-dollars to buy the fuel. Here’s a trillion Zimbabwean whatever..–
          **U.S. responds: Here’s 3 gallon of diesel and 6 shovels.

          On the other hand, I realize that government spending need in no way to be “financed” in a fiat system. That part of MMT is true and useful. If done without excess, there is no need to have an inflation freak out.
          Still, I wonder what repercussions it has on exchange rates.
          I presume MMT’ers would argue that exchange rate would still be governed by market mechanism…but like another guy wrote (and I’m paraphrasing here): The Arabs would not be fond of MMT ;)

          Makes one consider that we may have in fact a oil backed currency system more than anything else…

          1. Skippy

            Yeah, that’s pretty much as I view it too. After gold it was oil – energy backed. Now that the depletion of that commodity is on the horizon EROI and the move to Natgas which is widely available across the globe (hard to enforce ones will upon thingy), its time for a new game.

            I also think that MMT is better suited to the kinds of number totals being applied these days ie derivatives et al. At the end of the day though, its what we do and why we do it, that will create humanity future. I’m not encouraged, as much of the last two hundred years has been on the back of exploitation.

            Skippy… Hay at least we have some cool tunes to play whilst watching it all…. Avalon….


            PS. why do I think of Yves when I listen to this song?

          2. Skippy

            Yeah, that’s pretty much as I view it too. After gold it was oil – energy backed. Now that the depletion of that commodity is on the horizon EROI and the move to Natgas which is widely available across the globe (hard to enforce ones will upon thingy), its time for a new game.

            I also think that MMT is better suited to the kinds of number totals being applied these days ie derivatives et al. At the end of the day though, its what we do and why we do it, that will create humanity future. I’m not encouraged, as much of the last two hundred years has been on the back of exploitation.

            Skippy… Hay at least we have some cool tunes to play whilst watching it all…. Avalon….


            PS. why do I think of Yves when I listen to this song?

    2. Bev

      Allow me to provide a link to the American Monetary Institute’s upcoming Conference:


      Announcing the 8th Annual AMI Monetary Reform Conference
      at University Center in downtown Chicago,
      Sept. 20-23, 2012

      Register by phone at (224) 805-2200

      The American Monetary Institute proudly announces its 8th annual Monetary Reform Conference in Chicago. Our conferences launched the modern grass roots movement for U.S. monetary reform and thereby World reform. You are invited to attend this important meeting in beautiful downtown Chicago. Our money system clearly needs a serious overhaul to secure economic justice, peace and prosperity as we enter the 3rd Millennium. True reform, not mere regulation, is necessary to move humanity away from a World dominated by fraud, warfare and ugliness and toward a World of justice and beauty. You can avoid discouragement and join with us in this adventure to achieve positive money results for America and the world.

      Don’t be discouraged because the villians who created the present crisis, have manipulated governments to bail them out. The media, which has made such “errors” possible, and the economic theories behind banker activities already stand accused in the public mind.

      Main Themes of the Conference: Implementing Monetary Reform now!

      The Conference examines the essential elements of monetary reform needed to place time on the side of justice. We focus on Congressman Dennis Kucinich’s National Emergency Employment Defense Act (NEED, HR 2990), introduced into Congress on September 21, 2011, which contains the necessary provisions to achieve real and lasting monetary reform.

    3. MRW


      MMT’er Michael Hudson was Kucinich’s economic advisor.

      “Hudson served as Chief Economic Advisor for Dennis Kucinich’s 2008 presidential campaign and holds the same position in Kucinich’s Congressional campaign.”

    4. Susan the other

      To Rob above and Lambert: A few days ago the U of Chicago announced it was going to release a study on the destructive effects of debt (private debt) on the economy. It sounded very Steve Keen. And the comment by one reader here was that Kucinich’s plan was backed by “Chicago.” There needs to be a coming together of Keen’s insistence that debt must be forgiven or paid down by the government in order for us to go forward (because the burden is so great it will destroy our economy if we do not) with Kuchinich’s plan for our commonwealth, our “money commons.” Under which plans (both) credit creation is put back in its cage.

  6. kris

    Ms Kelton writes the crappiest crap on this honorable blog.
    The Gov can create debt money for sure, but can the Gov create the stuff to be purchase by this debt money?

    And of course, MMT answer is a cruel “yes” which would mean the Gov ends up owning the means of production, formerly known as communism.


    1. scraping_by

      Yes, but currently, it’s the government using its printing press powers to prop up the insolvent banking sector.

      I don’t see any control of the insolvent banking sector moving over to the government. Indeed, with lackeys like Barry and Att Gen Holder, it’s the other way around.

      Is your communism rule by the 1%? Or are we great unwashed somehow controlling things through subtle and hidden pathways? There’s no middle ground these days…

    2. MRW

      You call this logical?

      The Gov can create debt money for sure, but can the Gov create the stuff to be purchase by this debt money? And of course, MMT answer is a cruel “yes”…

      Nowhere, not anywhere, in any MMT writing is this stated. The government spends to create both the currency and the goods and services that the private sector produces. If you want to b**ch about communism/socialism where the manager of a Siberian nickel factory would get sent home to get a good night’s sleep after discovered destroying factory output through fraud and neglect, consider the pass we gave the 1% bankers in 2008.

      “Ms Kelton writes the crappiest crap on this honorable blog.” She’s one of the clearest writers on here. So is the private equity series guy, Namea (spelling?), whose articles here are currently informing both Ezra Klein–who needs an education–and Taibbi.

  7. Trader

    > Yglesias once more mainstreams the MMT principle that no
    > nation that is sovereign in its own currency can “run out
    > of money,”

    Governments can’t run out of money, but if they print enough of it, their citizens will.

    Nations, by definition, are sovereign in their own currency. It is their choice to use or not use another nation’s currency.

    Even moderate inflation rates harm individuals’ and companies’ abilties to make good economic decisions over the long term.

    1. scraping_by

      At present, we have hyperinflation. It’s just confined to the equity markets, the commodities markets, and the derivatives markets.

      Oh, and real estate (home prices) are still elevated past the demand/supply point.

      Little evidence that daily life is more than slightly touched by the tidal wave of electronic dollars flowing out of central banking.

      1. MRW

        At present, we have hyperinflation.

        Do you have the slightest clue what hyperinflation is? ot are you watching too many Newsmax videos with those two guys who want you to buy their book?

        Hyperinflation occurs when inflation is at 50% per month.

        Zimbabwe (former breadbasket Rhodesia) had hyperinflation. Robert Mugabe (leader) took the farms away from the white farmers who knew how to farm and gave them to his black buddies who didn’t. The food supply dwindled to the point where the cost of food soared. There was too little food for the population. The price of yams and meat, say, increased 50% each month. That’s hyperinflation. Germany had it with bread in 1923.

        We have deflation. Big difference.

  8. JGordon

    I have a much better new idea that should be considered by everyone: the entire study of economics is phoney-baloney mumbo jumbo and anyone who has anything to say about any of it should be viewed with the same kind of skepticism that rational people view psychics and astrologers with.

    The fact that our particular society bases the distribution of resources available to us based on this crap is pretty good evidence that we’re in for a big collapse.

    1. BertS

      I bet we have a constant 2% general inflation rate and 6.5% unemployment rate thru the entire collapse too. Then the Fed and the BLS take a bow just before the lights go out.

    2. scraping_by

      As our esteemed hostess has pointed out, it’s a case of physics envy, where the social scientists want to make the same hard and fast predictions of natural scientists.

      Economics, like any social study, (yes, that means I’m old and out of it), has a collection of rules of thumb, none of which can work universally in the real world like the hard and fast theories of hard science.

      In the real world, it’s hard numbers when you can, rules of thumb when you have to.

  9. scraping_by

    Oh, and a big thanks to UMKC for harboring the last bastion of good sense and decency in the economic world. Perhaps, the last stand of the real world in the nation’s public life.

    Go, Kangaroos!!!

  10. indio007

    Even is the US couldn’t issue money it still isn’t broke. Just take a look at the CAFR from the Treasury. For some strange reason they are intentionally making the cash accounting ledger appear broke using accounting gimmicks. Such as counting future pension, Medicare, Medicaid payments as a cash outlay that happens today. Why would they not use accrual accounting for that? They use accrual accounting for other things.

    This is the fleecing of America. I swear they are trying to see just how ignorant the average person is.

    1. ForReal?

      In that case, asked and answered. Although, in “we the people’s” defense, understanding the advanced accounting tom-foolery being practiced today is not exactly intuitive.

  11. JustJokes

    Wow, great idea. Just print $17 trillion to cover the deficit. Just buy back those govt bonds we use to finance the debt with more printed mone and wipe out the deficit. Gosh wonder why Bernanke hasn’t thought of that?

    Until this weird Euro zone, all nations for the last few thousand years were sovereigns with the ability to print money,

    Ever heard of runaway inflation, you know, where you go buy milk one week and it’s $5 and you go the next and it’s $50 and then the other week it’s $500, and so that $30k you had saved is enough for a year of milk and cookies,…. That’s why the FED has an inflation target of 2% and doesn’t want to exceed 4%.. Right now we have Deflation, prices dropping in sectors due to slow consumption, so he’s been able to buy securities with some of that printed cash… But even so, as one commenter mentioned, the stock market is bubbling up, hopefully not too much… By all accounts, the 70s stagflation wasn’t fun…

    1. BertS

      Just saw a chart where we had 1000% education inflation since the late 70s. That was twice the rate we had for medical!

      So take the 2% general inflation rate (ex food & gas of course)with a grain of salt. In fact, the index may be based on a grain of salt.

    2. MRW

      By all accounts, the 70s stagflation wasn’t fun…

      But it was caused by the rapid rise of the price of oil then, which soared to over $52/barrel on the spot market.

    3. jonboinAR

      “… by all accounts the 1970’s stagflation wasn’t fun…”

      Let me tell you, it was a heck of a lot more fun than this 8.-something, stag-unemployment business we have going now.

  12. JustJokes

    Correction, $17 trillion to cover the Natl. Debt…

    Here’ the thing I REALLY don’t understand. Some of the investment banks were leveraged 35 to 1… Ie for $100,000 in real capital, let’s say your deposit, they loaned out $3,500,000… What a business! Anyway, isn’t that a form of printing and inflation? Sounds like it. Where do those extra real bills come from as you pay back the loan? How does that get put into the economy originally?

    1. BertS

      It’s complicated. It helps if you don’t think of it as money when it comes to investment banks. Just think of it as promises between crooks.

    2. ForReal?

      They don’t come from anywhere (necessarily). The debt “revolves” to someone else (although the loaded gun analogy is particularly apt here as well). Hence the constant references to debt-based capitalism as the original ponzi scheme, and the concept of who’s left standing “when the music stops;” i.e., when the confidence game has run its course and everyone wants payment in cold, hard, cash. The “money supply,” can, by definition, NEVER be enough to pay off all current debt in cash, since that cash simply doesn’t exist. Whatever it is you call what we’re currently practicing these days, it’s best description is probably the old tried and true “smoke and mirrors.”

  13. Tall Tom

    This is one of the most insane ideas that I have ever read. Just create whatever currency you need out of thin air? What about the results?

    If Government is borrowing currency, that is what running a deficit budget means after all, then there is a limited supply left over for the Private Sector to borrow from…unless more currency is created. Whatever is left over from that limited supply is filtered to the private sector for borrowing and expansion of production. It is this production of Goods and Services which create the revenue stream for a Government through Taxation.

    If there is not enough currency for the Government to borrow then what is suggested is that the currency supply be inflated to make certain that those funds exist, so that a Government can continue to crete Deficit Budgets?

    Well the Monetary inflation, currency inflation, only leads to Price Inflation. When the currency supply is inflated at a rate over that of the rate of the increase of the Finite Supply of Goods and Services then…THERE IS MORE CURRENCY DEMANDING THOSE LIMITED SUPPLIES of GOODS and SERVICES. Thus the Prices for those Goods and Services are bid up. That is called PRICE INFLATION.

    Price inflation invariably leads to a lack of faith of value in a currency, a confidence crisis. The confidence crises invariably leads to the collapse of an economy through the total destruction of the currency’s usefulness as MONEY. That is what this article promotes? That is insanity. When I use the word, “invariably” I write meaning WITHOUT ANY VARIATION WHATSOEVER.

    Look at Weimar Republic Germany of the early 1920’s as an example of financing Government through the Deficit spending throughout the years of World War I. That is the evidential outcome of running contiual deficit budgets. Currency destruction and Financial Depression is the Historical result of adopting inflationary Monetary policy. There are so many examples, other than the Weimar Republic Hyperinflation, that it would take years to write about them. Yet the end result is the same.

    I witnessed, I LIVED THROUGH, the brink of the Destruction of the United States Dollar because of the Double Digit Price Inflation back in 1979. I remember the lack of confidence in the currency at that time. We were borrowing money at interest rates lower than that of the inflation rate in order to buy up as many hard goods as we could possibly acquire. We were hoarding durables. Many others were doing the very same thing. Store shelves emptied quickly. Money velocity was very high. This HAPPENED in the United States. That is a result of this type of nightmarish Monetary policy. No one had confidence in the US Dollar. The economy under President Jimmy Carter turned out to be a train wreck.

    Thank God FED Chief Paul Volcker came in with his interest rate policy on Oct 6, 1979, and saved the day. He let the interest rates float to real rates instead of continuing the depression of interest rates. That was the second most important day in the Financial History of the 20th Century United States. The interest rates soared to 21%…well above the Inflation Rate. The destruction of the US Dollar was quashed with that one heroic move. It was painful. Many became unemployed. But it saved us from the abyss, from oblivion.

    Now I wonder for what am I thanking God for. The delay?

    We do not have that luxury today. If interest rates were to reach just the rate of Monetary inflation the financial reprecussions would be horrendous. The financing costs of United States Debt would DOUBLE. This would take down the economy and the Government. Actually we are insolvent and it is over.

    So go on ahead and spew your nonsense as I acquire Gold to protect me from the nightmare ahead.

    Tall Tom
    I Cor 13

      1. Tall Tom

        I did read the post. Two “Progressive” economists are claiming that the United states is not broke. (WE ARE BROKE).

        And they claim that Government Surplus is a sign of Fiscal Irresponsibility. (GOVERNMENT DEFICITS ARE FISCALLY IRRESPONSIBLE AND LEAD TO CURRENCY DESTRUCTION.)

        I refuted the two arguments in my post.

        1. Wrong

          You confuse asking and then answering your own questions with “refute”.

          Slow down, read carefully, then try again.

    1. Hugh

      It is unsurprising that you would mention gold at the end of your comment. Your whole post is based on a gold standard view of the world. The thing is that the US went completely off the gold standard in 1971.

      We have had a fiat currency for 40 years now, and it does not operate in any way like a gold standard currency. Look at it this way, Bush gave trillion dollar tax cuts to the rich. He waged trillion dollar wars. With the 2008 meltdown, Bernanke, both Bush and Obama’s man at the Fed, ran multi-trillion dollar bailouts. Now if your gold standard view was correct, we should be experiencing seven different kinds of inflation, but we aren’t. The overall pattern remains deflationary. Yes, there are stock and commodities bubbles, but this has been a fairly deliberate policy of Bernanke via the ZIRP, not a consequence of the bailouts.

      Most of us have been indoctrinated with gold standard thinking so that it is difficult to conceive of anything else. The ideas of MMT, and as I always preface I am not an MMTer, come across initially as crazy and counterintuitive. This is made worse by the fact that its practitioners are terrible at explaining their own theory. But most of what they have to say about how a fiat currency works is correct. Again we already see this. When the powers that be want wars, tax cuts, and bailouts, that is the things they want, the money is always there. It is only when it comes to the rest of us that they invoke gold standard thinking, shed crocodile tears, and tell us that the money isn’t there for what we need. This is the argument of scarcity in the midst of plenty, and I don’t buy it.

      I prefer my own resources approach to all this. I say forget money for a moment. Rather ask the question do you think that we as a society have the resources, the people, the skills, the physical wherewithal to build a society with a job that pays a living wage for anyone who wants it, good housing, education, healthcare, and retirements for all. I think we do. So then it becomes how to allocate the resources so that we can build this society together. Government distributes society’s resources by spending, taxing, and regulation. Money is simply the medium through which these distributions and redistributions are effected.

      Look at this way and you can begin to see why taxing does not pay for spending. They are just different ways of distributing access to resources. Taxing takes access to resources from group A. Spending sends access to resources to some other group or groups. It is the mix that counts. It is not one for one. They don’t have to equal as long as the resources go where they are needed. Inflation is possible in this perspective. It is an indicator of an overcommitment of access to resources and that spending, taxation, and regulation need adjusting.

      But again the fundamental question we should be asking ourselves is what kind of a society do we want and how do we get there. Money is not some primordial matter of the universe. It is not some god before whom we all must bow down. It is just the medium we use to get us where we want to be going. Given how many Americans think the country is on the wrong track, it’s pretty clear that where we are headed is not where most of us want to go.

    2. MRW

      @Tall Tom,

      This is one of the most insane ideas that I have ever read. Just create whatever currency you need out of thin air? What about the results?

      Then you need to read some more, because you don’t get it. You don’t know how the monetary system works and has worked domestically since 1934 and internationally since 1971. Both dates when we went off the gold standard here and globally.

      The results? We won WWII as a result. Read “Keep From ALL Thoughtful Men.”

      Pull these up:

      TAXES FOR REVENUE ARE OBSOLETE, by Beardsley Ruml,
      Chairman of Federal Reserve Bank of New York, 1946

      Richard L Owen, Former Chairman, Committee on Banking and Currency, United States Senate explains how going off the gold standard works to Congress:
      National Economy and the Banking System of the United States — An Exposition of the Principles of Modern Monetary Science in Their Relation to the National Economy and the Banking System of the United States”
      76th Congress, 1st Session, Senate Document 23, Sent to Government Printing Office, January 24, 1939
      Read page 68 for starters.

    3. ForReal?

      1. Government has no need whatsoever to borrow its own currency. End the Fed immediately(!) and empower the Treasury to issue its own – interest free.

      2. What good are shiny metals of no intrinsic value? Can you eat them to generate heat and energy for your person? Can you readily chemically convert them to heat or energy to do productive work? Are they useful in anyway at all in a basic survival situation? Then why should we accept the notion that they will somehow have “universal value as a long term store of wealth.” Purely based on past social convention and the idea of scarcity? Not good enough.

      3. Money as debt is THE PROBLEM from which all monetary issues spring. Get rid of that and all the rest evaporate like the morning dew. Money is just money, it’s not freaking magic. It’s merely an agreed upon social convention to facilitate the exchange of goods and services. Print more into existence when there’s not enough (like now, at least for most of us), and tax it right on back out again when there’s too much. It’s actually not rocket science, although the wizard’s of debt enslavement would have you believe that it is.

      1. ForReal?

        4. Money as gold would also lead to the exact same problem we have now – scarcity of money and impoverishment. The relatively fixed gold money supply would soon be cornered by the more cunning (to be kind) of us, who would then develop some sort of elaborate scheme, just like now, to lend it back to us or otherwise force onerous payment on us on their terms. Money as gold? Meet the new boss, same as the old boss.

    4. F. Beard

      I don’t think you understand credit creation else you would realize that a ban on further credit creation would allow a vast (~ $7 trillion in the case of the US) amount of new fiat to be given to the population WITHOUT increasing the money supply. Why? Because that new money would replace the phony money that the banks create – so-called “credit.”

      Keep reading your Bible. Here’s some verses for you:

      They will fling their silver into the streets and their gold will become an abhorrent thing; their silver and their gold will not be able to deliver them in the day of the wrath of the LORD. They cannot satisfy their appetite nor can they fill their stomachs, for their iniquity has become an occasion of stumbling. Ezekiel 7:19

  14. JustJokes

    Yeah, on education, I paid my way through college in the 80s on a part time job with no problem and no debt at the end of it… I guess inflation is weird, it pops up in different areas, not uniformly as I might have imagined..

    1. Tall Tom

      Inflation/Deflation are Relative. It depends upon perspective. Think of two concentric circles. Imagine yourself on the outside of the inner cirlce. Now imagine that inner circle contracting, deflating, while the outer circle is constant. Understand that you cannot see the circle which you are on and what it is actually doing. The outer circle would appear as if it is expanding…inflating when it is actually not. It is actually the inner circle contracting…deflating.

      Likewise put yourself on the inside of the outer circle and inflate its size. The Inner circle held as a constant, from that perspective, would appear as if it is contracting although it is the outer circle which is inflating.

      This describes how you can see inflation and deflation at the very same time. It is a matter of perspective. they are relative.

      Personally I prefer STABILITY so that these distortions do not present themselves as problems. Of course stability provides a foundation for true economic growth.

      Others, however, may disagree and prefer the inflation/deflation paradigm. In that way they can steal from you because they know that most are not able to think in this fashion.

      1. adwon

        Price stability is deflation by another name unless you have a declining economy (in which case you really have bigger problems).

        Your concerns over inflation in the current environment are bizarre. You correctly identify inflation as too much money chasing too few goods. You don’t see that this is not our current problem at all. Our problem is a lack of money allocation and poor velocity. Worrying about inflation in this situation is like worrying about having the flu while suffering from multiple gunshot wounds. Let the flu take care of itself for the time being.

        1. Tall Tom

          While Monetary Deflation is not desirable in an Economy Price Deflation, in a stable economy, is actually desirable.

          Here are Two Examples for you to consider…

          The computer which I am using to compose this response is a good example. Forty years ago there were computers with the same computing power which I have available today at my fingertips. The problem was affordability. Not withstanding that they needed to be housed in large building with large electrical demands for air conditioning, the costs of construction and maintenance were something which I could not presently budget at my income level.

          I do not know how old you are but there was a time where the cost of a 19 inch Color TV was worth 1/20th of the price of a 4 Bedroom 2000+ sq.ft. house and 1/5th of the price of a Brand New Automobile. That was a pretty expensive TV Set. I was lucky that I came from an advantaged family and we afforded these luxuries.

          Today prices for that have dropped appreciably to where large LED sets are 1/100th the price of a home and 1/20th the price of a Brand New Car.

          Suppose that the price for computing power was stable and did not deflate. I would not be sitting in my bedroom writing this response to you.

          Suppose that price for the linear Diagonal measurement for the size of a screen of a TV set remained stable and did not deflate. How many 60″ LED set would be sold? Not many.

          Thus Price Deflation is desirable for these two examples. I cannot think of any example, other than MONEY itself, where all commodities…including Homes and Automobiles, should not deflate in price in a healthy, stable economy. Price Deflation, without a corresponding Monetary Deflation, is a direct result of increased productivity as there is a plethora of supply to meet the demand. Thus prices decline and the society reaps the rewards of increased productivity.

          To address your second point about inflation…

          I previously wrote in my response that Inflation/Deflation is a Relative phenomenoa. The reason that one can experience both inflation and deflation in the same economic environment is due to one’s frame of reference.

          So I am not too concerned with Price Deflation as I see it as desirable and a result of a productive society. I am a protagonist of Monetary Stability as it provides a foundation for Honest Economic Growth. And the Inflation/Deflation paradigm is just created for those in power to have a method on how to steal your wealth.

          Thus I am concerned with Monetary Inflation without a corresponding increase in productivity. That serves to erode the value of the currency, causing a confidence crisis, which, in turn causes a currency destruction and subsequent economic collapse.

    2. MRW

      It’s not inflation, it’s privatization of what was formerly the ‘public good’ that is the culprit.

  15. Hugh

    While Clinton budget surpluses weren’t healthy for the economy, I never considered them of a size or of sufficient duration to tank it.

    The off-budget “official” surpluses were

    1998 $69.3 billion
    1999 $125.6 billion
    2000 $236.2 billion
    and 2001 $128.2 billion, the spillover year into the Bush Administration

    My impression is that the Clinton surpluses were largely the result of the dot com bubble and good employment numbers. The bubble burst and the 2001 recession hit employment. Then too there were the Bush tax cuts whose benefits went overwhelmingly to the rich. And the effects of 9/11. So even though by 2002 the government was again running deficits, these were not “good” deficits.

    Along these lines, if you look at the on-budget deficits, that is without the contribution from the Social Security surpluses, there were only two years of budget surplus:

    1999 $1.9 billion
    2000 $86.4 billion

    Compare these to the figures above and you see that most of the Clinton budget surpluses came from the Social Security surpluses, that is as a result of good job creation. But what you can also see in how these SS surpluses were used in budgetting is that we always were nothing more than a regressive backdoor tax on middle and working class Americans.

    As I said, not a healthy use of our nation’s resources, but in the kleptocracy we are in, we need to understand, it is not just surplus or deficit, but where the money comes from and where it goes.

    1. BertS

      That was the con of the decade. Bush and Greenspan sold the Bush tax cuts because we had a healthy social security surplus which made the budget look like it was in surplus. Which Greenspan designed the withholding in 1984 to accomodate boomers BTW.

      The problem there is they lump the SS surplus into the budget to hide the deficit.

  16. MyLessThanPrimeBeef

    “I’d love to help, but I’m all tapped out,” simply won’t sell.

    Nor will the desperate calls for “shared sacrifice” and “entitlement reform” in the name of fiscal responsibility.


    Why won’t it sell?

    Are you selling to the wrong people?

    Yes, you are selling to the wrong.

    Have you considered selling them to the 0.01%?

    No, you have not.

    But we will not do the same as you.

    We ask the 0.01% to start sharing sacrifice.

    We will reform entitlements for 0.01%, in the name of fiscal responosibility.

    We will tell the 0.01%, No, you are not tapped out! And you will help!

      1. F. Beard

        This guy had cancer. During the operation to remove it the patient lost a lot of blood. The doctor ordered a transfusion. Nurse MLTPB said “But doctor, that new blood will feed the tumor!” The doctor replied “But we have to keep the patient alive, don’t we, while we remove the tumor?”

        1. MyLessThanPrimeBeef

          The correct diagnosis will show the problem is your arteries are all blocked.

          It’s the same analogy as a broken irrigation system. Turning up the spigot will not water the needy parts.

          Ask yourself, what happened to all the printed money? What happen to all the water? Go into the garden and investigate.

          You must go and work in the garden.

          1. F. Beard

            You must go and work in the garden. MyLessThanPrimeBeef

            That sounds like Zen Buddhism. And it’s very presumptuous of a culture that never left the Middle Ages to give advice to the West.

          2. MyLessThanPrimeBeef

            I can see that you don’t care much for Voltaire.

            But at least don’t say he was a Zen Buddhist.

    1. MyLessThanPrimeBeef

      It’s OK to say to the 0.01%, we the 99.99% are broke.

      Yes, we the 99.99% are broke.

      We need to have a talk with you 0.01%.

  17. JustJokes

    Come on Tom, gimme a break. Let’s not jump over the cliff either… Eliminate those $50k-$200k+ government pensions and let everyone get the same social security, and since the pensions aren’t being paid out right now in the middle of a recession it wouldn’t be deflationary, and take back the Bush tax cuts, end the ‘carried interest’ tax lopphole for hedge fund managers and the rest of the fraudsters, and bring the soldiers home, and a few tweaks for efficiency and that debt would start to disapear in a few blinks… We just need to pass an Amendment to end Corporate Cash from buying politicians and give them instead Free Air Time on the PUBLIC AIRWAVES, and politicians would start focusing on actually solving problems instead of on selling out everything to the highest bidder.

    1. BertS

      There’s supposed to be $20-$40 trillion in offshore tax havens too.

      If we conficste that – no more national debt and best of all – no more listening to MMT BS.

    2. Tall Tom

      We are already in free fall off of that cliff. It is the sudden stop which is the most painful.

      I find it laudable that you desire to bring the troops home…That was the boondoggle that created most of this mess…along with the Tax Cuts. Defense Spending has been way out of control.

      However I do not believe that the Government has any responsibility to provide Social Security for anyone. I will agree that Government pensions are out of control. I will also agree that the Banksters, the Fraudsters on Wall Street, and others share some of the blame. I will also agree that the Corporatists have been abusive…

      However the Government deserves most of the blame.

      Most Corporations would fail if it were not for Government contracts, Government Welfare, or Government bailouts. Stop these and the Corporations would not have enough money to buy Government.

      As for the fraudsters on Wall street…That is easy enough…PROSECUTE THEM when caught violating the laws against fraud. Our Government has seen it fit to give them a pass so there is no incentives to trade within the laws. Holder does not prosecute people like Corzine and others for massive thefts. What are the moral hazards of this?

      If we were to enact what you have suggested more than 60% of the US Economy would contract. That means a whole lot of fiscal instability that we may not ever recover from.

      People depend upon the funds from the people whom are getting those pensions. It is a lot more complicated.

      Your solutions would just bring it to the very same conclusion which I wrote previously.

      It is over. The USA is insolvent. We are going over the cliff as I write this Requiem for a once Great Nation.

      Tall Tom
      I Cor 13

      1. MRW

        @Tall Tom,

        I agree with the prosecution part. The frauds should have been prosecuted; Dr Bill Black does a masterful job of explaining it in this radio interview. He’s clear. He’s an expert in what happened. He was there.

        You need to read this book. As in now. It’s free online or you can buy it at Amazon.
        The 7 Deadly Innocent Frauds of Economic Policy

        If the book is too simplistic for you, there’s William Vickrey who wrote published this on October 5, 1996, received the Nobel Prize in Economics on October 8, 1996, and died on October 11, 1996. What a week.
        Fifteen Fatal Fallacies of Financial Fundamentalism

        1. Tall Tom

          Here is something to consider when considering Fallacies.

          There is no coherent Economic Theory. None. Abosolute no theory whatsoever.

          As a scientist I do understand what the Scientific Method is all about. That is fundamental to my core beliefs about Reality.

          A Good Theory describes an idea, a model, of Observed Reality. If the Theory does not fit the observations then it is modified to incorporate that data or DISCARDED. A good theory can be used to accurately predict future events.

          It is quantitative…measurable.

          No Economic “Theory” proposed has been capable of that.

          That is because they are not Theories at all.

          They are MISNAMED as that because they are PLANS!!!

          That is the greatest fallacy of all. It is the obfuscation of the truth about a plan by substituting the word “Theory” so that it makes it more “respectable”.

    3. citalopram

      This is wishful thinking. They’re not going to do this without a change in leadership, and that Change You Can Believe In isn’t coming.

      The same stooges will be in power four years from now (and some libertarian fascist nutters) and the American people are set to consume on.

        1. Tall Tom

          There has never been a true Communist society on this Planet. There are oligarchies masquarading as Communists.

          There are oligarchies masquarading as a Free Market society.

          Keyenisian Tehoery is not Theory.
          Marxism is not Theory.
          Free Market Capitalism is not a Theory.

          None of these economic systems have EVER existed.

          They are not theories but plans. And a Planned Economy is not Free. Thus Free Market Capitalism has never existed. There is always a Government behind it manipulating it.

  18. enouf

    Government = Corporations
    Corporations = Government

    see the difference? …right, thought so; …so, either you lay in the this bed you made and comply, or you’ll be kidnapped and caged (if we feel compassionate at the time), but first, we’ll need to administer some batons to your head, some tasers to your torso, some flashbangs to your face, and some pepper-spray to your eyes, got it!?

    Any more questions?


  19. JustJokes

    “1998 $69.3 billion
    1999 $125.6 billion
    2000 $236.2 billion
    and 2001 $128.2 billion, the spillover year into the Bush Administration”

    “Clinton surpluses were largely the result of the dot com bubble’

    Nope! The huger Bush housing bubble produced no surplusses…

    Clinton’s Surpluses…. instead of yearly Deficit we had YEARLY Surpluses, each for a YEAR’s budget, but we still had The cummulative Natl Debt from all the previous years of cummulative deficits. And that’s where those surpluses should have been applied… But Bush thought it was a much better idea to have no yearly surpluses and NOT pay down the NATL DEBT. Instead of paying down the Natl Debt, he decided ‘Debts don’t matter’… Politician speak for were going to say whatever we make up to say to do whatever we make up to do to give Tax Breaks to the cronies who paid to get us in office… Borrow-and-Spend Republicans and Tax-and-Spend Democrats … There are no good Deficits, there are only necessary deficits to prevent a Depression and idiotic deficits when No Depression was emminent… We’ve been fed Reagan’s idea about starve the beast of govt of funds and then politicians won’t spent… It was worth a try… once! but Guess what?. They still spent and just borrowed MORE against the Future… Reagan doubled the Natl Debt from what his predecessor had, Bush did the same, and Obama is headed in the same direction, but with more cause.

    And now the new Republican spin, BOADENING THE TAX BASE, translation, have more of the poor and middle class pay more taxes which we are going to go to give Tax Refunds to Wall Street and friends for the creative job of wiping out 40% of the wealth of the midde class… Takes a Yale or Harvard degree to do that. A regular con-artist only wipes out $30k at a time from 1 old person at a time…

    1. Hugh

      I said the dot com bubble and the good jobs picture. Clinton used the one to sell the other. And it was the SS contributions from these jobs that mainly accounted for his budget surpluses.

      This did not happen under Bush. Bush was a supply sider and was never interested in creating jobs so that even after the 2001 recession and even during the housing bubble and up to the recession beginning in December 2007, his record of jobs creation was poor. And on the other side, there were his wars and tax cuts. So of course, he ran deficits.

      1. BertS

        It was actually a corporate IT bubble (all of them), Y2K included, and all hardware and software mfgs that supplied to it.

        Lots of good bonuses and stock options being cashed in too.

    2. Tall Tom

      I was hoping to leave the Politics out of the discussion. HOWEVER…

      I guess that it was in vain as the article is politically charged.


      The Parties are basically the same. The Republicans are just as much of Liberal Socialists as the Democrats are. This is not intended as an insult but I am just stating the truth.

      For illustration we will look at just two issues in the current Presidential Campaigns.

      The first is rather simple. Job Creation…

      The Republicans criticize the President for not creating jobs. It is a rather hypocritical stance. They expect Government to create jobs??? Really??? According to their ideology one needs to rely upon one’s self, NOT THE GOVERNMENT. They repeat the “Personal Responsibility” Mantra until it becomes inconvienent…for them. This is where it gets really funny…They will critcize the President for being a Socialist Liberal. Then, out of the very same mouth, they’ll whine when he acts as a Conservative by NOT CREATING JOBS. They whine that he is not Socialist Liberal enough…for them. That is laughable LMAO.

      The second is much more blatantly obvious, ObamaCare.

      Mitt Romney, the Republican Presidential Nominee, was the Architect of ObamaCare. Yes the people in Massachusettes are covered by RomneyCare. It is okay if their candidate creates and implements a Socialist Health Care program in Massachusettes.

      But if a Democrat does the same he must be a Liberal Socialist bent on taking America down the path of Totalitarian Communist destruction….which, coincidentally, is no different than the Republican Nominee’s plans.LMAO.

      I can come up with many other examples…

      Let’s get real…I am not lauding Socialism or Liberalism. In fact I have a Conservative ideology. I believe in Fiscal Conservatism. I am moderate on some Social issues. But I am a Capitalist. I believe in Free Market solutions.

      But I do not delude myself. I am a REALIST, a LOGICIAN, A MATHEMATICIAN, and I deplore irrationality.

      If it does not make sense, if it reeks of irratiionality, I will let you know it. And the Republican “Conservatives” of today…Well… they just do not make sense.

      This is irrational. It does not function (a Mathematical term) It…it…it does not compute…Error…Error…

      Most of the Republican Party are just Socialist Liberals masquarading as Conservatives. That is just so..so..so hilarious. LMAO.

      The Parties are one and the same.
      We are bankrupt.
      America is doomed.
      It is over.
      We are falling off the Fiscal Cliff.

      Well I hope that you have your GOLDen Parachute. I do. I am Personally Responsible. Are you?

      (That means…Buy Gold…It is a bargain…AT ANY PRICE.)

      Don’t trust your Government. Why? Because it is evidential that they do not trust you. (DHS, TSA, NSA, FBI, CIA, etc. Need I name more?) Distrust begets…distrust. They must have a reason, right?

      Tall Tom
      I Cor 13

      1. Warren Celli

        Tall Tom,

        Let’s get real… ALL of life is politics.

        True “Personal Responsibility” includes care and oversight of your sphere of influence. That sphere of influence has now been made global as a result of all of the products that have given you such great advantage over the years and at the same time have exploited so many others.

        Man up Tall Tom, the few in control who shaped you, formed you, and pumped you up and allowed you your greater crumb supply advantages for your immoral complicity — so as to exploit the rest of the planet and consolidate control — are now in herd thinning mode. You have been emotionally ego pumped and now you are being dumped. The wealthy elite Xtrevilist few who have conned you, and used you to gain global control, now seek to put you in perpetual conflict with every other human being on the planet. Robots are cheaper, more reliable and do not require benefits.

        Inculcating you with your independent, Clint Eastwood, buy gold, guns, and ammo, and hide in the woods immoral loner spirit, was an integral part of their strategy.

        We are not financially bankrupt Tall Tom. We are morally bankrupt — morally short — Tall Tom.

        America is doomed Tall Tom, as long as you keep drinking and regurgitating all of the intentionally created and promoted divisive ‘label’ Kool aid.

        Deception is the strongest political force on the planet.

        1. Tall Tom

          My moral complicity? LOL If you believe that knock yourself out. I have some wealth yet I live in austerity.

          I did not support the wars of agression waged by the United States Government yet dissent every time I get an opportunity.

          (Yet that is not “On topic” for the replies to this post. I do not want to diverge too far away from the post from the concept that Surplus Budgets somehow Killed the Economy.)

          I think that Mr F Beard may be right when he states that Mises.org may be a better place to find agreement. Yet I am always open to consider new ideas. It is not necessarily good that one reads only that which one finds agreeable.

          In fact when one is challenged to defend one’s beliefs is when one has the opportunity to reaffirm beliefs that are valid or discard beliefs that are erroneous.

          In those times are the greatest opportunity for personal growth and development. That is why it is most valuable to foster intellectual challenges without the ad hominums.

          If I wanted those I can just post on Yahoo…for what it is worth.

        1. MyLessThanPrimeBeef

          For justice and mercy, ask what happened to all the printed money.

          Ask the 0.01%, why no shared sacrifice?

          1. F. Beard

            There need be no significant sacrifice!

            So how just is someone who advocates needless suffering? Care to explain that to God?

          2. F. Beard

            If they broke the law, then prosecute, fine and imprison them. If they use their wealth to drive up the cost of food and necessities then tax it away from them.

            But the above can wait – the patient is dying while you crave revenge.

          3. MyLessThanPrimeBeef

            So you would exempt from wealth taxation those who are not driving up food (and other necessities) prices?

            Income brackets do not imply any criminality. If you have more, you are taxed more – that’s the idea.

            If you would just give it a try, addressing wealth inequality would at the same time give money to the those in need.

          4. MyLessThanPrimeBeef

            That’s why your 0.01% love depressions.

            You don’t want to tax them more during a depression.

            Nor in a recession.

          5. MyLessThanPrimeBeef

            Do you want to do something about the 0.01% or not?

            If you do, I have something that will address your concern above.

          6. F. Beard

            I want to get this country out of a Depression. There are bad actors, to be sure, but the problem is the system.

            Go pester the folks you think are guilty.

          7. MyLessThanPrimeBeef

            Here is how to get out of your Depression.

            Stop thinking only about tax increases.

            When you want to address wealth inequality,

            1. you tax the 0.01% more
            2. you tax the 99.99% less.

            There – No money destruction.

            There is your money for the 99% to spend.

            No need to print money.

          8. F. Beard

            1) Why wait on tax revenues before spending? That’s stupid for a monetary sovereign.

            2) Cutting taxes on the 99.99% by the amount taken from the .01% will not nearly be enough; we need about $7.5 trillion to give away (according to Steve Keen).

            You’re just opposed to ending this Depression is my guess. Misery loves company?

          9. MyLessThanPrimeBeef

            1. You and everyone have talking for how many years now? Whatever you do, you have to wait.

            2. How much are you giving away a month? $800 per person per month? How many years did you say you had in mind? A couple of decades? The tax increases on the 0.01% should be for similar length of time, if not more. I am sure we will get to a few trillions.

          10. F. Beard

            1. You and everyone have talking for how many years now? Whatever you do, you have to wait. Beefy

            So what? Do you want to have blood on your hands by delaying it any more? You do know that people are committing suicide every day over a mere lack of money?

            2. How much are you giving away a month? $800 per person per month? How many years did you say you had in mind? A couple of decades? The tax increases on the 0.01% should be for similar length of time, if not more. I am sure we will get to a few trillions. Beefy

            Fine, I don’t care. Raise taxes on the .01%. But deficit spending without borrowing is needed anyway to prevent deflation with the 100% reserve requirement. And deficit spending without borrowing is essentially money “printing.”

          11. MyLessThanPrimeBeef

            There is delay only if you don’t try hard enough.

            For example, if you want fast results, drop the Libertarian 100% reserve requirement. Don’t let ideology get in the way. Work on that later.

            There is no need to mess with deficit if you take from the 0.01% and give it to the 99.99%.

          12. F. Beard

            For example, if you want fast results, drop the Libertarian 100% reserve requirement. flabby beef

            No, because the 100% reserve requirement for new loans is necessary to prevent the banks from creating another bubble as the new reserves get the economy going.

            Without it, there would be no defense against those who would scream “Inflation!” But with a 100% reserve requirement for new loans, the money supply can be carefully controlled to prevent either deflation or inflation.

            Plus a 100% reserve requirement (not that you’d care?) is necessary for honesty’s sake.

          13. F. Beard

            There is no need to mess with deficit if you take from the 0.01% and give it to the 99.99%. flabby beef

            Yes there is a need since that process does not create new reserves and we need about $7 trillion in new reserves for 100% reserve (honest) lending.

          14. MyLessThanPrimeBeef

            Was that 100% reserve first attracted you to the libertarians?

            Is there ant theological basis for that?

          15. F. Beard

            That will be in my book on theology which I plan to write after my autobiography.

            But since it would come from the Bible anyway, you can start there.

          16. MyLessThanPrimeBeef

            I am glad you’re not evading and since you don’t want blood on your hands by delaying, I assume you will either not publish it if it’s all in another book or publish it as soon as possible.

          17. MyLessThanPrimeBeef

            Well, that’s it for me tonight.

            I hope you find it in your heart to pray for and forgive your former colleagues at mises dot com, whomever they are.

        2. Tall Tom

          Justice??? You want justice??? Then that will be exactly what you will have.

          Personally I am more than happry to report that “Justice” is not in this World nor will it be in the World that follows. In fact I thank God Almighty every day for that.

          As for mercy that is what I am banking on. I am merciful to my fellow man. No I am not cut throat, unless, that would be merciful.

          Just because I expose the DELUSIONS of the public does not mean that I support the REALITY. I merely report. That is it. You expose a lot of your personal attitudes in your response.

          As for my PERSONAL SALVATION that is between me and my Lord.

          Everything that I “own” is not mine. I merely am a caretaker as I pass through…including the Gold.

          When I write a fair warning maybe…just maybe…I might be wanting to let you know that so that you can prepare for the other side of this Financial Calamity.

          Sometimes it is the wealthy and powerful that are morally corrupted. More often than not it is…Yet sometimes it is not.

          However we will get through the impending collapse. Somebody is going to have to have the capital to provide and rebuild.

          I am not taking it with me to the Other Side, the afterlife.

          But God is positioning me to be HIS SERVANT, NOT THE GOVERNMENT’s, so that I am able to help others.

          The love of Money is the root of all evil. Money is just a tool that can be used…or, as you have seen…misused and abused. The haughty and proud are just being set up for a Horrible Humiliation.

          I do not drive around in a Lexus. In fact I drive a broken down clunker. I dress as a homeless man. You’d never guess that I have anything to my name. That is not what the money is for.

          What do you think it is for?

      2. Nathanael

        Political solution?

        As someone else said, everything is political. The French Revolution was certainly a political act.

        Is there a ballot-box solution? I hope so, but it’s not looking likely.

  20. JustJokes

    No government = ?

    A new govenrment.

    Waiting in the wings:
    A new fangled David Koresh with hidden arms stockpiles
    Or that Black whatever-it’s-name mercenary group

    The megalomaniacs are not ready to walk off into that good night

    A smaller military is one thing, but no government is no military. How many militarized nations would be rubbing their hand with glee at a U.S. with no government and no military?

    How about just severing the cash flows between govt and the corporations and see how that works? One small step for man….

    1. Nathanael

      Bingo. No government -> a new government.

      It’s unavoidable.

      The catastrophic failure level of the current government has me mentally focused on how to try to make the new government a happy, fluffy, social democracy rather than some sort of tyrannical nightmare.

  21. Jo

    What utter nonsense this guy’s spoutin’.
    Folks like her and Cullen Roche make me want to barf.

    Do the world a solid and cut your own throat.

    Love ‘n peace.

        1. F. Beard

          I used to but I outgrew those deflation loving, gold standard loving so-called “libertarians”

          You should try it. You might like it there.

          1. MyLessThanPrimeBeef

            Was it a secular split or religious split?

            I mean, the split didn’t have anything to do with your religious views on money, did it?

  22. vtek

    joe weisenthal one of the nation’s most influential journalists? i don’t know what that is a greater indictment of. as debatable as calling him influential is, one thing he certainly is not is a journalist. he uncritically stenographs his sources, most of which happen to be second hand anyway and does close to zero investigation of his own. journalists are supposed to be both adversarial and investigative and he is neither.

    matt yglesias is no better. both are spin doctors; partisan hacks that don’t stand for any principals, just cheerleaders for their favorite powerful elites that they nominally cover.

    1. MacCruiskeen

      And his take-off point is Charlie Gasparino regurgitating the CRA crap. And ends with basically saying that the government needs to issue debt because investors need to buy it. This is the function of government, I guess, to keep investors from spending their money on other things.

  23. Ignim Brites

    Does MMT provide any insight on whether or not the technocracy should struggle to save the Euro? It would seem that increasing the number of sovereign currency issuers would be an unqualified good. From that conclusion the path for California, Illinois, and New York is clear too; full monetary sovereignty. Of course, New York already has it’s own currency.

    1. BertS


      As long as there is a “fiscal union” so someone can raise taxes, even in NYC, if inflation ever picks up. And N. Dakota remains exactly in trade balance with Illinois, New Jersey and California. And each of these places should have their own state bank of course – because…just because.

      Nah. I don’t really know. I just made that up.

  24. Kukulkan

    Okay, I’m obviously too stupid to understand this, but the claim is that no entity that can create it’s own money can ever run out of money. Seems straightforward on the face of it.
    Banks create their own money; in fact, we’re told, this is where money comes from.
    Therefore, banks would be an example of an entity that cannot run out of money.

    Yet in 2008 — as well as various earlier points in history, but we’ll stick to the most recent example — a whole bunch of banks and other financial institutions did run out of money. They became insolvent and had to bailed out to the tune of several trillion dollars.

    So, either: i) entities that can create their own money can run out of money and become insolvent; or ii) what banks are creating isn’t money. If there is a third possibility, I must admit I’m not seeing it.

    I’m sure that the reasoning behind MMT is wonderfully elegant, well argued, supported by solid scholarship and completely consistent. It’s just not supported by the actual evidence. And I’m afraid that, like Thomas Huxley, I have enough of a hard science bias to prefer the ugly little fact to the beautiful theory.

    Or am I missing something?
    How do entities that can create their own money go broke? And why shouldn’t those same reasons apply as much to governments as to private companies?

    1. Susan the other

      The banks are not sovereign even though they act like they are. They went broke because the market for their “securitized” products and their looney derivatives up and died. They (the banks) killed their own market by creating some very fraudulent products, and at the same time their partners in crime (corporations and PE firms) off-shored all the jobs. So even if they had continued to print up money and meta-money, they couldn’t buy and sell much of it because none of them trusted the other one, and so they all went insolvent. That is not what happens with sovereign banking.

      1. Kukulkan

        So you’re saying the answer is option ii) what banks are creating isn’t money? That the banks just create a product (“securities”) which they then sell to others for money. Okay, that means that the banks are no different to any other type of business. They could be selling cars or t-shirts or strawberries or comic books; if no-one wants to buy what they’re selling, they’re in trouble.

        This raises a couple of questions, though.

        First, why does MMT spend so much time and effort describing and documenting the details of how banks create money? If the banks aren’t creating money, that suggests that the whole narrative is a work of fiction. And if that part is a work of fiction, why should we accept any other part of MMT as anything other than also a work of fiction — or at least to regard it as fiction until such time as it’s shown to be otherwise?

        Second, it brings us back to the old question of where does money come from? I mean if the banks aren’t creating it and the government isn’t creating it, where does it come from? Someone must be running those printing presses, working those mints and/or hitting those keys on a keypad to create it. Who? Or What?

        1. Nathanael

          “Moneyness” is a continuum, not a “on or off”.

          What happened was that the banks created “money” — money market instruments, for instance.

          Then suddenly, for various well-explained reasons, people decided that that WASN’T good enough money and demanded government-backed money.

          People “demonetized” the money the banks had created. Thus creating a massive shrinkage in circulating money, very suddenly.

    2. Calgacus

      Excellent questions, Kukulkan. You’re thinking about things yourself, not just repeating what you see on the web. You are missing something though. These questions are answered by MMT, and once you understand the answers, you will be a very long way to understanding the theory.

      Thing to remember is Minsky: “Anyone can create money. The problem is getting other people to accept it.”

      The point is that there are different kinds of money. Money is not a thing, but a relationship between an issuer and a holder, a debtor & a creditor.

      Bank money, bank notes, bank accounts are bank liabilities, debts that the bank owes. You can create an IOU, just like a bank can. But bank IOUs, bank money is better than your IOU. That is what “getting a loan” is: you go to the bank, sign a mortgage note say, give the bank your IOU with some number on it to pay for your house in the future, say, and the bank gives you their IOU, with a smaller number written on it. A cashier’s check, or a bank account with that much money in it. This would be crazy, except that the bank IOUs are better than your IOUs. They are more moneyish than your IOUs. In general, the more powerful the issuer, the better, the more moneyish his money, his IOUs are.

      The banks’ IOUS are money, the most widely used money in our society, but are not the BEST money. The best money is US government debt, reserves at the Fed, cash, currency, coins etc. The bank’s IOUs are money because they are backed indirectly by Uncle Sam. He accepts them at par for taxes, insures them with the FDIC, and the banks have a credit line at the Fed’s discount window whenever they need reserves, at their demand, as long as Uncle Sam sez they’re playing fair by his regulations.

      So you’re right, the banks intrinsically have an infinite power to issue money. Utterly unregulated banks have the same monetary power as Uncle Sam. Pinky & the Brain‘s bank could TAKE OVER THE WORLD!!!. So there has to be some regulation. The money creation by the banks has to be restrained by the state somehow in return for the enormous privilege given them by state backing of these debts. Without regulation, banks have infinite destructive power; they’re a counterfeiting cartel as F Beard says.

      So the upshot is that banks can & do create money, but only under the supervision of the state (if everything works right). And they can’t create the state’s money, which is still the top dog among monies. They can be in need of this state money, which they cannot create. If they are run badly enough, they can fall afoul of capital requirements & lose their license, have officers go to jail, etc.

      On the other hand, the state cannot run out of its own money, because there is no one above it regulating it. The system may be set up, as it is now, with lots of smoke & mirrors and shell games that don’t ultimately mean much. That don’t put any real restriction on state money creation, but are enough to fool the supremely stupid (aka modern “mainstream” “economists”) that the state is constrained like anyone else. And they brainwash everyone else, the 99%, so they vote to cut their own throats.

      1. Kukulkan

        Thank you for this. It’s cleared some things up considerably.

        If I understand you correctly, what happened was that the banks didn’t become insolvent because they couldn’t create enough money to pay their bills, they became insolvent because other entities would no longer accept the money they created. That is, they could create as much money as they wanted, but if no-one else was willing to accept it as money, it effectively ceased to be money. Is that right?

        That’s why a bigger entity like the government had to step in. Since people still accepted the government’s money as money, they would extend that acceptance to the bank’s money so long as they believed that the money created by the banks was backed by the government.

        However, this seems to just shift the problem to a slightly different level. If banks can become insolvent because other entities cease to accept their money as money…

        I can see this is going to get confusing; we need different terms to differentiate the concepts. I’m going to use “money” to refer to money as a concept and “currency” to refer to the stuff created by banks and governments which is generally accepted as “money”, but which need not be, as seen in the example of the insolvent banks.


        If banks can become insolvent because other entities cease to accept their currency as money, then I don’t see any reason why governments wouldn’t also become insolvent if others cease to accept their currency as money. The government’s ability to create more currency would not be diminished, but that currency would no longer be money and could not be used to pay bills.

        This suggests that the most basic concern of any entity that can create currency is to preserve the acceptance of that currency as money. If you’re right and “the more powerful the issuer, the better, the more moneyish his money”, then the best thing the United States (or any other government) can do is create and maintain a large military and use that military semi-regularly. That impresses others as power and makes the currency issued by the government that much more acceptable as money.

        Further, it also suggests that the foreclosure crisis is a quite sensible policy on the part of the banks. Having to be bailed out would have made them appear less powerful in the eyes of others, so they need to re-establish that power. Arbitrarily kicking people out of their homes — even, or rather especially, if they don’t even have a mortgage — would establish their power. They may not be as powerful as the government, but they are more powerful than you or I, so we should accept their currency as money. It’s brutal, but the nature of the system you describe would seem to necessitate such displays of brutality to reinforce the perception of the power of the currency creator.

        Other than such displays of naked power, though, currency creators would also preserve acceptance of their currency as money by conforming to the expectations of others. That is, if the vast majority of those who need to accept the currency as money consider a gold-backed currency — or even a currency made of gold — to be better than one not backed by gold, then a government would be well-served to back it’s currency with gold. It’s not that people more readily accept a gold-backed currency because it’s better, a gold-backed currency is better because people more readily accept it. It has nothing to do with the properties of gold, it’s all about people’s expectations and getting them to accept the currency as money.

        Similarly, if people believe that currency issued by a government with a balanced budget is better or sounder than one issued by a government in deficit, then a government is best served in trying to balance it’s budget, not because it needs to have a balanced budget for any particular reason, but because having a balanced budget makes it’s currency more moneyish. If striving for a balanced budget creates great hardship, that would be a bonus, since it would also demonstrate the government’s power as well as meeting the expectations of those the governments need to accept it’s currency as money.

        The same could be said for banks and profits. Currency created by a profitable bank is more acceptable than currency created by an unprofitable one, so banks are best served by regularly posting profits, the larger the better. It almost doesn’t matter how those profits are achieved, so long as they are posted regularly.

        In an odd way, currency creators are trapped by the expectations of the currency users. If people believed that currency created by red-headed virgins was better and more sound than other types of currency, banks and governments would be well-served to scour the land to find as many red-headed virgins as they could and to employ them in various capacities related to currency creation. To outsiders such a thing might seem silly beyond belief, but within the system it would be sound and solid policy. In fact, it would be the only policy that made sense.

        From that perspective, if things like gold-backing and balanced budgets produce negative consequences, then something like MMT really needs to find other markers for a sound currency that don’t have those negative consequences, but which make the currency more acceptable as money. Red-headed virgins, perhaps. Or something else. It really doesn’t matter, so long as people accept that currency created by entities displaying that marker is “solid” and “sound”.

        The trick would be to find markers that are:
        i) broadly acceptable, especially by those with power;
        ii) have no or at least relatively mild negative consequences; and
        iii) allow for competition between currency creating entities in a non-destructive way.

        Those seem to be some of the implications of what you are saying. Do I have it right? Or have I missed something again?

        1. Nathanael

          “they became insolvent because other entities would no longer accept the money they created. ”

          Yes, 100% correct.

          “I don’t see any reason why governments wouldn’t also become insolvent if others cease to accept their currency as money. ”

          Absolutely correct. *In practice*, we can look historically at the circumstances under which this happens, where people give up on government money!
          (1) The government is repeatedly losing foreign wars.
          (2) The government is unable to collect taxes successfully.
          (3) The government is failing to provide “justice” and lots and lots of people are resorting to vigilante justice.
          (4) The government has left huge numbers of people out of work and in poverty….

          There are some others.
          Interestingly, *none* of these have to do with money printing. It seems to be impossible to create currency revulsion with pure money-printing.

          Rather, you have to have a fundamentally incompetent government, or a government which is fundamentally unwilling to perform its basic duties — these things can lead to currency revulsion.

          (You will note that we are having these problems right now! Their origin had nothing to do with money printing, and everything to do with what Bill Black calls a “criminogenic environment”, or what Veblen describes as the psychology of the Leisure Class.)

          For some of these problems — such as the lack of food and jobs — the only cure involves, in fact, money-printing. Money-printing can *increase* trust in the government’s money under the correct circumstances, such as these ones.

        2. Nathanael

          To follow on what you have said, you are absolutely correct.

          Rather than red-headed virgins:

          I believe that a record of social stability serves as a most important marker of a “safe currency issuer”. (Hence the inflows into Switzerland.) This is maintained largely by keeping the masses fed and employed. (In the private realm, a bank in a “stable community” has a leg up.)

          Another important marker is a consistent, trustworthy legal system (rather than a crooked one which lets banks steal people’s houses with forged documents). (In the private realm, a bank with a reputation for *honesty* has a leg up as a currency issuer.)

          A third important marker for a trustworthy currency issuer is military might — actually winning the wars, y’know. (In the private world, I suppose a bank could attempt this with sheer thuggery, but that tends to be perceived a bit differently than when a government does it!)

  25. Paul

    Accounting identities are nice, but they tell you nothing about cause and effect. The Clinton surpluses did not “destroy the economy” because they weren’t the result of any fiscal adjustment. The private sector didn’t go into debt because the public sector starting saving. It was obviously the other way around as the surpluses were “unpredicted” and only happened because of “unexpected increases in economic growth” not any technical changes in taxes and spending.

  26. acmerecords

    call me small paul –

    1 cor 13. true, love has no price tag and cannot be used to buy starbucks coffees; but faith=(presumed)knowledge & hope=(unprovable)prophesy get you things like zionism, benny hinn, gwbush & bobama

    may be better to read l.wittgenstein, whose proposition 7 should be considered “Whereof one cannot speak, thereof one must be silent.”

  27. Rouge Trader

    I stopped reading the slate article when the guy wrote that the U.S government can print money as it pleases.

    propaganda piece

    1. Nathanael

      And yet, the US government can print money as it pleases. It’s a simple fact; you can ask the Bureau of Engraving and Printing. They’ll tell you that Congress can authorize the printing of any amount of money.

      This is just a fact. The consequences of this fact are subtle and not obvious to most people.

  28. Tall Tom

    @Rouge Trader…Yes. You must keep your mind closed at all costs and NEVER have anyone challenge your beliefs. that way you can be more comfortable in life. LOL

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