1. slothrop

    MMT gospel: “There are no constraints on the government’s ability to create money.”

    Saying the government creates money is puerile semantics.

    Tell me MMTers, how does the government create money if there is noone to buy its bonds?

    And how can you guys honestly believe that there is no difference between money earned and money printed, between loans that derive from someone’s savings versus loans that are conjured up on a banks books? Seriously.

    Capitalism requires capital. Capital comes from savings.

    1. jerry

      There will always be someone to buy the bonds i.e. primary dealers that must participate in open market operations by the Fed, who could then just sell them back to the Fed if no one else wants them. But last time I checked, the US was running a 3-4% of GDP trade deficit, meaning someone is going to end up with dollars and want to earn some interest.

      Also there’s no reason we need to issue debt to raise money in the first place, it’s just an arbitrary constraint we’ve put on the whole process.

      What difference does it make if the savings comes from government spending or from the banking cartel with interest attached? I really don’t see the US as suffering from a lack of capital.

    2. toxymoron

      It might be nice if you tried to read up on the subject or listened to Stephanie instead of writing nonsense here.
      Printing money does not require bonds to be purchased.
      Capital has been created ‘out of thin air’ for at least a century now (and then sold for profit to the governments of the world, but that’s another story).

      1. Rich R

        This 18th century thinking is a perfect example of the mindset that is causing so much needless pain and suffering around the world today. It makes no distinction between a sovereign currency issuer, or a currency user. It views a money as commodity, rather than as a social construct. It needlessly creates artifical contraints out of ignorance.

        1. JGordon

          Yeah, 18th century thinking that says that the economy is connected in some way to actual physical reality. That’s so last-century.

          1. Ray Phenicie

            what physical reality are you referring to? The temperature of solid objects on Pluto? If you are able to unpack the statement, do so otherwise, stay home.

          2. different clue

            Earthside physical reality would be . . . the amount of food/fiber/lumber/etc. growable or extractable and then processable and usable by all participants in the social body political-economic being analyzed. At the largest level, all the people on the surface of the earth and all the biophysical life-support systems ( “ecosystems”) within which they live, from which they extract resources, and back into which they inject the unwanted endwaste and bywaste of their economic resource-extraction and processing-modification activities.

            The Lost Future Economists had lots to say about all this. Their names are worth mentioning, over and over and over again.

          3. stanley mulaik

            Money according to MMT is tokens of debt obligations in units of account between parties in the economy. It is not backed by a commodity. The value of the money in terms of what it can buy is set by all of the users in terms of how much they can buy and sell with the money of everything offered for sale. The people negotiate their debt obligations. But the government has one requirement: they must pay their taxes in the manner prescribed by the government by law.

      2. nothing but the truth

        confusing financial and real capital is a fundamental error.

        MMT is nothing but an explanation of the law behind the money system.

        As law and money are man made this is no great discovery from MMT. Bad law led to bad money system.

        The govt can declare 2+2=5 if it wants to. It certainly has the power to. But it would certainly be a suboptimal move.

        Similarly money system should exist to serve the real economy. That would be ideal. That most of the super rich are financiers is a good indication our money system is a bad one.

        1. MyLessThanPrimeBeef

          Is that ‘the law behind a money system’ or ‘the law behind the only fair money system?’

          I don’t think we want to leave laws of a money system which benefits only the 0.01% unchanged.

    3. PeterP


      “Capital comes from savings”.

      Fact: the private sector cannot net save financial assets without the government running deficits. Our savings come from deficits.

      *Every* transaction within the private sector leaves total net worth of the private sector unchanged. It is an accounting statement, not a theory. The private sector either exchanges assets or creates asset-liability pairs. So if it wants to amass money (or financial capital) then this money HAS TO come from the issuer – the government. Again, this is an accounting statement.

      On the other hand it is true that it is the private sector that is the source of REAL savings and REAL capital, and it can save and amass real capital goods without any government being in existence, but it cannot amass money. Again, that is accounting, not a theory.

      The government doesn’t need anyone to purchase bonds. Money, (like bonds) is created out of thin air. The government needs to spend money first, this is the money that is then used to buy the bonds.

      1. MyLessThanPrimeBeef

        As a subject, one should think carefully whether one wants to amass money, instead of real capital and real savings, from the sovereign.

        1. PeterP

          You can amass whatever suits you. The fact is that demand for money savings is there and is variable, increasing in recessions.

          1. MyLessThanPrimeBeef

            Individually, more money is good.

            But for the economy as a whole, it’s not necessarily so.

            Beware of the fallacy of composition.

        1. nick

          Private banks (regulated by the central bank) can place new currency into the money supply, but that new currency is *always* balanced against an equal liability. As such, they are unable to create any new *net* financial assets.

          1. Nathanael

            But net financial assets are irrelevant tp the issue of moeny.

            By mismatching durations of loans and deposits, private banks can effectively increase the *circulating* money supply. If you want to put it another way, you could say that they increase the velocity of money (it’s really the same thing). Effectively, they can create money.

    4. redleg

      There are no bonds – government spends the money into existence. Same inflation risk without the interest payments.

      1. Susan the other

        Correct. Stephanie says clearly, ” Inflation is the constraint.” Because the goal is to keep the economy in equitable equilibrium. No more booms and busts that always bust the poor and feed the ravenous rich. Inflation controls should work against speculation first; and against the basic stability of society only in a diluted manner. Today “austerity” does just the exact opposite. When the economy has been ballooned out in a big bubble by finance it is a false inflation (having nothing to do with scarcity of natural resources), and in our current situation it is also a fraudulent inflation, created by the speculators to gain a profit out of pure speculation, which is not prosecuted by our government because it is totally corrupt. Our government is virtually useless. And here, speculation means out of “thin air.” So if we MMT our economy, we keep it steady. We take control of our own money and we take credit creation away from the bankster speculators and their pals the land speculators and the energy speculators; we stabilize the flow of money through the economy to every “class.” Capital, management and labor. As it once was. Now you can add beggars to that list. The United States is a truly disgusting country. It could have done so many good things. It, all of us, came to a great, heartbreaking tragedy. It is so very over.

    5. Adam1

      “Tell me MMTers, how does the government create money if there is noone to buy its bonds?”
      1) The “Primary Dealers” (big banks) are required to participate in bond auctions.
      2) There is an INFINITE supply of reserves at the FEDs target interest rate. As the primary dealers draw reserves onto there books to participate in bond auctions the FED automatically adds reserves (via Open Market Operations) to the system to meet demand. In a fiat monetary system with a CB all government spending is funded by the CB – the only question is, is it done directly or indirectly (indirectly being what we do, first lend it to the banks who then buy bonds).
      “And how can you guys honestly believe that there is no difference between money earned and money printed, between loans that derive from someone’s savings versus loans that are conjured up on a banks books? Seriously.”
      Banks do not lend out someone else’s deposits. Despite what you’ve been told by an economist who knows nothing about bank operation, banks underwrite loans which create deposits. Banks seek deposits because they are a cheaper source of funding than borrowing from the market or the FED discount window – but as noted above, and in a very similar fashion, there is infinite liquidity from the FED to fund the banking system.
      “Capitalism requires capital. Capital comes from savings.”

      Sorry, capital comes from investment and investment can be borrowed and as can be empirically proven – banks create money out of thin air.

    6. Ray Phenicie

      “MMT gospel: “There are no constraints on the government’s ability to create money.”

      Saying the government creates money is puerile semantics.
      —-/It is not the saying that makes it so, it is the doing. You have never seen bales of paper money being loaded into the furnaces?

      Tell me MMTers, how does the government create money if there is noone to buy its bonds?
      —–/ You’ll have to expand on this, otherwise I’m putting it aside as an incomprehensible statement.

      And how can you guys honestly believe that there is no difference between money earned and money printed, between loans that derive from someone’s savings versus loans that are conjured up on a banks books? Seriously.
      ……? Conjured? Seriously? are you saying bank’s conjure or that MMT says banks conjure? Another bit of gobblety gook. Please unpack your statements and explain becuase you are not saying anything.

      Capitalism requires capital. Capital comes from savings.
      ….. And this is so because . . . / Oh, I forgot, becuase you say it is so and that conjures the statement into the realm of realty. Or is that your own virtural reality?

      1. Nathanael

        There are no constraints on the government’s ability to print money — this is just a fact.

        It is prudential for the government to limit the printing of money so that the money is more valuable than toilet paper. This is not difficult and vast quantities can be printed before this happens, *provided the money is not chasing a real asset shortage*.

        There is currently a real asset shortage only in oil, so printed money should not be used to buy oil.

        During boom times of full employment, there is also a “real asset shortage” in labor — no extra labor to buy. Then the government should always stop printing money, or it will cause inflation.

        Right now, money can be printed in arbitrarily large quantities without causing inflation, *as long as the money does not go to import oil*.

    7. Deus-DJ

      Excuse me sir, but John Maynard Keynes actually addressed this point decades ago, when he made the crucial point that investment drives savings, and not vice versa. Perhaps you would be doing yourself a favor, and certainly all of us a favor, if you got an education. Thanks!

    8. manjay49

      I am not an economist. I am a musician. I have only been trying to get up to speed on economic issues for @ the past 12 months or so. However, for what its worth, and what I can understand, I am a supporter of MMT. I read and listen to Michael Hudson, Bill Black, Dr. Kelton, Randy Ray and other commentators, such as Chomsky, all the time. So I say “yes” to MMT. It makes sense to me. However, it seems to me that the overriding issue is not which economic theory or system should be adopted. The real issue is the absence of what most folks would call morality and honesty, and committment to the common good by those “in charge”, elected or otherwise. It is obvious to anyone who follows current events that the social contract is broken. What we actually have is a global oligarchic kelptocracy of the %.001. These highly organised corporate criminals and banksters have no recognition of “national sovereignty”, or “human rights” or any such values. With such a system in place, I feel there is no chance that MMT can have any effect. With captured regulatory and legal systems, there is nothing to stop the KelptocRats from continuing as they have done and are now doing.

      Even if the Kelptocrats *agreed* with MMT, does anyone really think they will understand the error of their ways, “change their minds” and adopt MMT? I wish they would. But the chances of such an ocurrence are also probably @ %.001.

    9. shockedbythestupid

      “Capitalism requires capital. Capital comes from savings.”


    10. stanley mulaik

      I’d like to run this by the MMTers here. Is there a national debt? We say that fiat money can be created to eliminate it. But provide a detailed account of how you would do that. I’ve considered the megcoin solution, but I’ve come to believe that it is already preempted by the fact that there is no debt. If you try to buy a nonexistent debt instrument with dollars derived from a platinum megacoin, you have no Congressional authorization for that. You can only pay off existing debts.
      So, why is there no debt at the Fed? I’m concerned because the current political crisis hinges on the assumption that there is a debt and our government is near to becoming bankrupt, hence there should be no or limited further deficit spending, etc..
      When Congress deficit spends, the Treasury must come up with money to cover the deficit. It does this by issuing securities (IOU’s with a time for redemption plus interest). The securities are sold at public auction to representative buyers for banks. Banks buy the securities and possess them.
      The banks’ reserves also take a big dip when the money goes to the Treasury.
      In the meantime the Treasury has its money and is spending it on whatever Congress directs. It also has the debt obligation of the security to the banks.

      The Fed comes along, noticing the serious drop in reserves of these banks and to remedy that situation, buys these securities from the banks, and in the process buys with money it creates out of thin air. This increases the banks’ reserves back to where it was before they lent to the Treasury by buying the securities. It also introduces new money into the economy that the bank may now wish to lend on the basis of. The old money is being spent also in the economy by the Treasury.

      I contend that the very act by the Fed of buying these securities redeems the debt of the United States to the bank. It does so because (1) the Fed is an agency of government created by the Federal Reserve Act of 1913 as amended. (The FAQ’s at the Fed say as much). (2) By buying the securities with fiat money created out of thin air for the purchase, the Fed has further used a power only granted to government to create money (Const. Art. I Sect. 8, plus Supreme Court decisions that extend this to other forms of money).
      Hence the act of purchasing the securities is an act of government with powers of government. It is an act of government, and the act in buying the securities, pays in full its value to the banks that got the securities from the Treasury. That redeems the debt of the United States to the banks. So, there is no debt at the Fed. Now, the securities may not have been mature when the Fed bought them. There is theoretically still a debt obligation to whomever the Fed may sell these securities to. And the Fed will redeem that when the time comes by buying it back. But the original debt has been redeemed. And the accumulated securities held at the Fed have all been purchased by the Fed, hence the debts of the United States to whatever banks bought the securities has been redeemed in the acts of the Fed purchasing them. Hence there is no national debt at the Fed.
      There still seem to be what I call “vestigials” of the gold era: The practice of rolling over the debt by Treasury at the Fed by issuing new securities to cover the value of the old securities held at the Fed, with the Fed acquiring them by also purchasing these new securities. The Treasury gets the old securities back in return for paying the Fed from the money Treasury got from selling the securities to the banks. And the Fed also redeems the US debt for the new securities to the banks that bought them, just by buying them also.
      This seems to me to be now illegal if the Fed has already redeemed the debt of the old securities when it bought them. That amounts to the Treasury paying for a non-existent debt, which is illegal, not authorized by Congress or the Constitution.

      But my question to you all is this: Does this analysis make sense to you. Do you know something contrary to it? I think this is the answer to how in our fiat money system we pay off any debt the government has with fiat money.

    1. Max424

      There is an owl on the bookshelf, too –a mini black and white one. Stephanie likes owls, apparently.

      And why not. The owl is a noble bird, even though its main diet consists of (is this true?) eating dirty stinking filthy little rodents.

      Which is something I’d like to do when I go through some of the comments on these threads.

      It’s not ignorance, exactly, that makes me want to espy these critters using my 20/10 night-vision and then gobble them up, it’s more like a mixture of laziness and recalcitrance.

      What we encounter on these MMT threads, I believe, is a stubborn refusal to use one’s Sky-God given gift, to work and strive for a modicum of comprehension –of what is really, a pretty simple subject.

  2. Orange_Husky

    Question: At least in this interview, Professor Skelton seemed far more concerned with the tax side of the argument (payroll tax holiday) over the spending side. Is MMT less about spurring economic growth by running deficits a la increased spending and more about reduced taxes in terms of economic stimulus?

    Thank you in advance.

    1. From Mexico

      I think Kelton is advocating that the fake and arbitrary limits that are being imposed on the “policy space” by massively ficticious “economic laws” be done away with.

      The MMTers, Michael Hudsons and Steve Keens of the world are striving to put the politics back into economics, and demonstrate that the “laws of economic distribution” elaborated by Smith, Malthus, Ricardo, Say, etc. have about as much basis in reality as a geocentric cosmos or the Garden of Eden.

    2. Joe Firestone (LetsGetitDone)

      No, MMT doesn’t advocate tax cuts in preference to Government deficit spending. What MMTers advocate varies with the context. At the onset of the Great Recession, MMTers were advocating a full payroll tax holiday, because its fiscal multiplier, was relatively high compared to other tax cuts, its impact would be felt immediately, it was a very regressive tax, and the holiday could be rolled back upon reaching full employment. MMTers had two other proposals at the time. State Revenue Sharing with some MMTers advocating $500 per person and others advocating $1,000 per person. And a Federal Job Guarantee (JG) offer at a living wage and full fringe benefits. the first two measures would have been either one-shot or temporary. But the JG would be a permanent program. Of course, the last two policies are spending policies.

      MMTers have proposed other policies as well. Warren Mosler has the policies he favors on his site: http://www.moslereconomics.com Many of them involve spending programs.

      1. Aquifer

        Thank you! This is very interesting – that of the three proposals you put forth, only the payroll tax cut was utilized. Hmmm could that be because it fit very well into the right wing mantra of “taxes – BAD” but got bipartisan support because it had the “prog” cover you guys supplied …

        ” …and the holiday could be rolled back upon reaching full employment.”

        But that means, for all intents and purposes – never. And why would you even want to role it back if the tax is a) so terrible and b) not even “necessary”?

      2. MyLessThanPrimeBeef

        … doesn’t advocate tax cuts in preference to government deficit spending…

        Are there leftwing MMTers and rightwing MMTers with the former advocating government deficit spending and the latter tax cuts?

        Is MMT itself neutral on that so that one side can argue for one remedy and the other side another one?

        1. Aquifer

          MLPB – thanx – every time i turn around there seems to be another version of what MMT “prescribes”. Prof Kelton seems to be into tax cuts, Joe F. into spending – so if this theory can be used equally effectively by supply siders as well as “progs”, how does it help our situation to promulgate it?

          1. Lambert Strether

            Because MMT is not a faction with a policy agenda but an economic school. MMT is an economic school of thought in its descriptive aspects. In its prescriptive aspects it is far more an ongoing conversation, though some policy recommendations (like the Jobs Guarantee) seem a lot more “natural” to MMTers than they do to neo-liberals, say.

          2. Aquifer

            Lambert, somehow it seems to me MMT has a clear policy agenda, and it also seems to me that, insofar as all “economic” systems are man made, they will all most likely produce a set of results that favor some over others, and who those “some” are intended, at least, to be are outlined in the mind of the creator of the system.

            So – the questions i would prod the system to answer are a) who are the intended beneficiaries, b) who are the most likely beneficiaries under current conditions and c) what conditions would have to exist for the intended beneficiaries to be the most likely ones …

          3. Nathanael

            Aquifer, the one clear policy agenda of MMT is this:

            “Money should be our servant, not our master”.

          4. Robert Dudek

            Lambert, somehow it seems to me MMT has a clear policy agenda, and it also seems to me that, insofar as all “economic” systems are man made, they will all most likely produce a set of results that favor some over others, and who those “some” are intended, at least, to be are outlined in the mind of the creator of the system.

            The basics as I understand it is: pursue full employment policies as long as it does not create excess inflation.

        2. From Mexico

          MyLessThanPrimeBeef said:

          Are there leftwing MMTers and rightwing MMTers with the former advocating government deficit spending and the latter tax cuts?

          That’s my take, that MMT is a sword that cuts both ways.

          Increased spending for Pax Americana or Reagan’s state-subsidized renaisance for the wealthy are certainly right-wing. Likewise, lowering taxes on high incomes, corporations or on capital gains are also right-wing.

          On the other hand, cutting taxes on the salaries and wages of everyday working folks is left-wing. Spending money on unemployment insurance or universal healthcare is left-wing.

          1. From Mexico

            In this interview Kelton was supposed to parse out the prescriptive from the descriptive elements of MMT, but I don’t think she was at the top of her game in that regard.

        3. Ben Johannson

          There are left-wing and right-wing and libertarian MMTers. They accept MMT’s description of our monetary system but may differ on the prescription. MMT is at its core politically neutral.

      3. Aquifer

        I thought i heard Prof. Kelton say, in the video linked to above by Mexico, that the gov’t would not compete with the private sector in job creation – but a good chunk of that private sector pays below minimum wage and, in any case, minimum wage is a poverty wage. So is that the kind of jobs that MMT advocates for?

        If MMT actually advocates for living wage jobs, then how could these NOT compete, and successfully so, in fact, with private sector jobs? Don’t get me wrong – I think this would be a great way to increase wages in all sectors, by forcing the private sector TO compete for folks, but that is NOT what I understood Prof. Kelton to say in that video …

        1. Aquifer

          oops sorry – that post by “from Mexico” with Kelton link was from earlier in time, 1:13 PM, but actually located below …

        2. Ben Johannson

          The original Jobs Guarantee championed by Bill Mitchell and Warren Mosler would pay at or a little above a given country’s minimum wage. So for the United States the wage might be around $9 per hour for a guaranteed job in your community, tailored to your skill-set. The goal is to provide non-inflationary full employment by hiring from the bottom of the wage structure. Later on a society can decide whether it has what I call the “inflationary space” and desire to increase the prevailing wage.

          1. Aquifer

            But that is different from the JG that Firestone is talking about – so which one is the “official” MMT JG position?

  3. Bam_Man

    The arrogance of these people preaching MMT is simply breathtaking. Money is stored wealth. It is capital. It cannot be created on a printing press or a computer keyboard. Modern Monetary Theory is a convenient delusion used by bankrupt governments to convince themselves that they can indeed continue to spend and spend – even after they have run out of “other people’s money”.

    1. PeterP


      *Every* transaction within the private sector leaves total net worth of the private sector unchanged. It is an accounting statement, not a theory. The private sector either exchanges assets or creates asset-liability pairs. So if it wants to amass money (or financial capital) then this money HAS TO come from the issuer – the government. Again, this is an accounting statement.

      Marx noticed that and saw it as a contradiction of capitalism – profits in aggregate cannot possibly grow. He was right. But the solution is super simple: the government has to supply the money if profits are to grow.

      On the other hand it is true that it is the private sector that is the source of REAL savings and REAL capital, and it can save and amass real capital goods without any government being in existence, but it cannot amass money. Again, that is accounting, not a theory.

      1. MyLessThanPrimeBeef

        Have you read the story about Gakhatu, the Ilkhanate ruler of Persia?

        His subjects did not want to amass any of his paper money.

        1. jsn

          There are infinite ways for bad governments to destroy themselves. By the time a government can’t get its people to take its money tinkering with the monetary system won’t fix it ;-)

        2. PeterP


          If people don’t want to save money recessions are not possible, would be good, but it is not the situation now.

          1. MyLessThanPrimeBeef

            When people don’t want to save a particular sovereign’s money, recession would be the least of its problems.

          2. PeterP

            True, that is why the govt imposes the tax obligation – people then have to get the money to pay taxes. States that cannot enforce taxes see the value of the currency go to zero (hyperinflation). Right now our state extracts too much taxes (money is too scarce, hence unemployment), so our problem is the opposite.

          3. PeterP

            We are taxing the economy as a whole too much, that is how much we know for sure, because the unemployment is present.

            The statement that we are not taxing the 0.01% is a belief, not a fact. What are you basing it on?

          4. PeterP

            No, it is a belief. Do you have a model that shows that we are not taxing the 0.01% enough? What is your objective function in the model?

          5. MyLessThanPrimeBeef

            We’re adequately taxing the 0.01%?

            I thnk not and I will go along with it being just a belief and I want to be convinced otherwise.

          6. Aquifer

            MLPB –

            Your exchange with Pete here is very interesting – it rather gets to the heart of things, methinks. Pete seems to think that the fact that we have unemployment is proof that we are taxing too much, and Prof. Kelton seemed to back that up – that the way to get the private sector to make more jobs is to cut it’s taxes – sounds like a supply side trickle down sort of argument to me … the private sector needs to be “incentivized” …

            But corporate profits are way the heck up there – and some of these companies are already paying no taxes and even getting rebates – so how “incentivized” do they need to be? Do we need to send them our gold fillings, assuming we have any left?

            Then later on, she says, I think, gov’t needs to spend directly as well, though frankly it is not clear to me what “balance” there is supposed to be, or how that is decided …

            Frankly i do agree with you that the rich are not taxed nearly enough – and why should we tax them? Even if we don’t need the “revenue” the taxation would be a darn good “incentive” – hire folks or get taxed, take your pick …

          7. Aquifer

            PS – I DO agree with the part of MMT that says the gov’t should, and can well afford to, spend money on jobs ….

          8. PeterP


            MMT says that the problem now are broke consumers, hence no demand. Therefore no MMT economists thinks we need to incentivize businesses to do anything. We need to get consumers out of debt. Raising taxes on the rich may be “good” if you think that income inequality is not a problem, but although it may be a moral problem (i.e. based on *belief* in was is “right”) there are really no persuasive models that show that it hurts the economy, therefore raising taxes on the rich does nothing to address the economic problem the world has. Taxes in general should go down, this we know for sure, therefore if you raise taxes on the rich and stop there, you will *for sure* hurt the economy if anything (although not much, the rich don’t alter their spending habits all that much due to higher taxes).

          9. Aquifer

            Pete – no jobs because no demand and no demand because no jobs –

            Hmmm, so hire folks to provide the money to create the demand, right? But how and who’s to hire – that is the question, is it not?

            Look, you and I both know that this whole lower taxes routine, on which wagon we have been for some time, was/is purportedly to “allow” businesses to create jobs that weren’t being created because business “couldn’t afford” to hire and even had to fire. And you and i know that was/is a bunch of bunkum because their profits are higher than ever and they are using them to buy up the competition or build overseas or raise their stock prices or pay their execs, otherwise known as the “rich” whose incomes you seem to want to protect from the terrible predation of taxes …

            So, if MMT thinks there might actually be a place for taxes, not for revenue, but to “influence human behavior”, then here is one behavior methinks taxes, or the threat of taxes, could well “influence” – either create good jobs, you MFers or we will tax the hell out of you – how’s THAT for “incentive”?

          10. From Mexico

            PeterP says:

            …therefore raising taxes on the rich does nothing to address the economic problem the world has.

            Sure it does, that is if the tax system is perceived by many to be unfair or unjust. There is probably no quicker way to destroy cooperation, and thus a nation’s economy and cohesion, than to engender a sense of unfairness. Even monkeys are smart enough to not participate in an endeavor they perceive to be unfair.

            Roosevelt raised the top income tax rate from 73% to 79% in 1932, from 79% to 81.1% in 1938, and from 81.1% to 94% in 1942. Rich people were called upon to make extraordinary sacrifices in order to remedy the nation’s economic problems and defend it from the Axis powers.

            Your assertion is both morally reprehensible and empirically false, and demonstrably so. For much more on the subject there’s this:

            Moral Sentiments and Material Interests

          11. PeterP


            Would you create jobs just because someone taxes you more? Or would you leave the country or try to run an unreported business? People hire other people if they see consumers coming. Now consumers are not coming. You tax anybody more – he has less money, fewer consumers. Fewer people hired. Not good. This is not rocket science.

            From Mexico,
            Taxes may be unfair, or at least many may think this is so, still, it has nothing to do with the crisis. Many people think it is unfair to tax rich people anything at all, they are the mythical “job creators”. Who cares? These are arguments based on emotions or paid propaganda not any economic model.

          12. Nathanael

            PeterP, the main reason why rich people have to be taxed is that they *don’t* spend their money. They hoard it. Taxing the money away changes it from being not-spent to being spent (by the government).

          13. Nathanael

            PeterP: objectively, studies show that increasing the top margincal tax rate on the 0.1% increases government income until somewhere around 90% rates, and increases GDP until at least 70% and possibly 90% rates (there are too few samples to tell for sure where the point is).

            We’re not taxing the 0.1% at 70%, therefore we aren’t taxing them enough.

          14. From Mexico

            @ Nathanael

            It doesn’t appear to me that PeterP is into things like objectivity or empiricism.

            He’s more interested in evangelizing the tautologies of the Regan Revolution.

          15. Aquifer

            Pete –

            Would one create jobs because one gets taxed more if one doesn’t – well I should think so, why the heck not? One tries to maximize what one gets to keep in one’s pocket – no? So if one gets to keep more by creating jobs, wouldn’t it make sense to do so? As far as fleeing the country, well what the hell good are they doing sticking around here besides buying up the gov’t? If they don’t wish to contribute, I say “Good riddance!”

            You’re right, this ain’t rocket science … Let ’em put up or pay ….

          16. stanley mulaik

            Recessions can also occur with balanced budgets, if imports are constantly draining dollars out of the economy. Buy at WalMart only with peril. In case you haven’t noticed it looks like about 98% of what WalMart sells is made in China. Even old U.S. brands have “Made in China” on the products. Imports take money out of the “transactional arena” in circulation in our country.

        3. PeterP

          Your argument makes no sense at all – the whole point is that the govt can spend as much as it deems necessary without taxing one cent.

          1. nick

            Well, the government needs to tax at least *something*, because that is what gives a fiat currency most of its value in the first place. If you don’t place a tax liability onto the private sector, then it will have no desire to acquire or use your currency in the first place. Fiat money is basically Government IOUs (or perhaps tax-liability-extinguishers).

            As I understand it, “commodity money” (i.e. gold-backed paper or precious metal coins) almost always traded above the commodity’s market value, in part due to Gresham’s Law and in part because “commodity money” was simply the wrong metaphor: money has *always* been more about “unit of account” and “medium of exchange” than “store of value”. Coins first became popular in marketplaces when governments (which *owned* the gold/silver mines) paid their soldiers with coin and then demanded the coin back from the population via taxes.

            Which is a very round-about-way of saying that even money which was nominally commodity-based had fiat generated value too. I.e. taxes make the money.

      2. From Mexico

        Money for the Stephanie Keltons, Michael Hudsons and Steve Keens of the world is fundamentally different from commodities, as Kelton explains here:


        The neoclassicists, and folks like Paul Krugman (regardless of how he likes to self-identify), hew to the Say’s barter model of money — “products are paid for with products.”

    2. Lil'D

      What a peculiar “argument”

      I don’t see anyone asserting that governments *should* spend spend spend on everything and anything.

      But MMT’ers, at the atomic level, simply point out that a government like US, UK or Japan, is not constrained by the quantity of “money” it “possesses”. It’s just a fact.

      It is true that consequences matter. In an economy operating at full capacity, government demand for goods & services will compete with private demand. Supply & demand actually do matter as well. The dynamics tend to be increased demand => increased prices, increased prices spurs new investment => increased supply. But it’s not all free.

      Some MMT’ers adopt very left wing takes, but it’s not required to want fairness and less inequality in order to understand the reality of sovereign money.

    3. diptherio

      “Money is stored wealth…It cannot be created on a printing press or a computer keyboard.”

      You should let the Mint and the Fed know this, since they seemed to be confused about what money is. Ben Bernanke actually thinks he’s creating money with keystrokes, but he obviously isn’t, since you say it’s not possible. I guess that’s not really money in the Big Banks’ ballooning reserve accounts…I wonder what it is?

    4. Adam1


      I recommend spending some time reading the FED’s own research archives. MMT starts with explaining HOW THE SYSTEM WORKS! The “theory” part is in applying or using the system to achieve and maintain full employment without causing excess inflation.

      Of course you could use the system to line your pockets, but that’s someone else’s theory, not MMT.

      1. joebhed

        Modern Money Things.
        If you read the Fed’s publication titled “Modern Money Mechanics”, it explains how today’s money system actually works. You know, the mechanics.
        It explains that, today, money is created by the private banks when they make loans, and explains the mechanics for doing so.
        It does not explain that the government creates money when it spends.
        So, there’s a bit of a gap when MMT claims that it explains things just the way they are now, and at the same time explains that government creates money when it spends.
        What would clear things up is just as clear an explanation of the mechanics of money creation via government spending.

        1. Adam1

          For simplicity MMT assumes a combined CB-Treasury arrangement; however there are various institutional frameworks that exist. But in the end the non-government sector ends up with additional financial assets either way. When the banking system creates financial assets (money), it also creates financial liabilities which net to zero. In order for the non-government sector to generate positive net equity in dollars it needs someone entity (the government) to take a negative net equity position because in monetary terms all equity nets to zero (note this does not include equity created by non-monetary things like houses, factories, cars, etc…).

          Some institutional structures include allowing the treasury to overdraft (or borrow directly) from the CB as it spends (not legally/institutionally permitted in the US). You could also create a structure where the CB can spend on real economic output (which creates net new financial assets) – while not utilized very often Canada’s CB is legally allowed to by real assets. But the most common framework is to force the treasury to “borrow” in some kind of market. However, that only means the CB indirectly funds the spending because only reserves can be used to purchase a treasury bond. Therefore when the “bond market” buys a bond it drains existing reserves from the money markets operationally causing the CB to replace those reserves to defend its target interest rate.

          In I believe 1946, FED Chairman Marriner Eccles testified before congress regarding allowing treasury overdrafts at the FED, saying that the FED would fund government deficits either directly or indirectly and that it didn’t matter what the law said. You see the CB can’t fulfill its chartered role of defending the payment system that underpins the financial system and NOT also indirectly fund Treasury bond sales.

          1. joebhed

            Actually, I’m somewhat familiar with MMT-speak.

            When the public issues “certificates-of-indebtedness”, the private sector gains those monetary assets and the public pays the holders the interest “forever”. MMT is in denial about compounding interest.

            When the GUV-US created Greenbacks, it issued MONEY without debt. Can there be anything more public-equity generating than creating a permanent national means-of-exchange.

            MMT’s joining of the Fed with Treasury has no basis in reality – it is rather incredible quasi-economic science based on stretching the study of functional finance to a study of the money system.
            MMT never really acknowledges the proper relationship of money system and distributing wealth.
            If they did we would have a national economy and a money system and a means of exchange and from there we would have system for distributing the wealth of the national economy.

            For clarity, rather than either simplicity or shorthand, reformers like to make sure that this simple truth remains at the forefront: the private banks create all the money that can provide the true policy space needed to do anything about anything.
            That is what endogenous money is all about.
            Were the government the money creator-issuer, we would have an exogenous money system.

            That there is an “accord’ between Treasury and the Fed is the definition of the government’s acquiescence to the private bankers, and THEIR Federal Reserve System, to determine the amount of money in existence and how it gets there.

            Why is there even a notion that the government – meaning of course the group that we elect for administering the public purpose – is the monopoly issuer of the currency.
            Perhaps for simplicity, we derive new meanings to “government” and to “monopoly” and to “issuer” and to “currency” so that we can shoehorn a new monetary reality into public consciousness.

            For the MOney System Common.

    5. Ed Seedhouse

      “The arrogance of these people preaching MMT is simply breathtaking. Money is stored wealth. It is capital. It cannot be created on a printing press or a computer keyboard. Modern Monetary Theory is a convenient delusion used by bankrupt governments to convince themselves that they can indeed continue to spend and spend – even after they have run out of ‘other people’s money’.”

      Argument by assertion. None of your “facts” (assertions, actually) are true in the actual observed world. No matter how many times you repeat a falsehood it remains false.

      MMT simply points to the way things, observably and provably, are.

      1. MyLessThanPrimeBeef

        I think we are hoping through discussion to find out if MMT is pointing out the way things are, in a fair system or the way things are in a bad system.

        1. Aquifer

          I would guess it is saying that is the way things “are” in the system that exists and if one thinks it is a bad system, then MMT, as the playbook for that system, is bad, as well. I suspect that is where some folk here are coming from

          OTOH, if MMT is a description of a way things “could be”, then the discussion, ISTM, would be whether this “could be” system would be a good one, and if so, under what conditions. Methinks some are discussing in that vein, maybe?

        2. Nathanael

          MMT is pointing out the way things are in any system where the people trust money created by the government and the government has no significant physical constraints on creating money.

          This includes any fiat money system and most “metal-backed” systems. It does not include systems used in places where government has collapsed, for instance.

    6. Nathanael

      Bam_Man, you are wrong. Money is not stored wealth; it’s only as good as other people’s desire for it. Money is certainly not real capital. In contrast, a factory is stored wealth *and* real capital.

      This is exactly the confusion which MMT is trying to straighten out. Money is not like a factory. Money is a shared illusion. A factory is not, a factory is real wealth.

  4. Can't Help It

    I am not getting it. It says that the government should not spend dollars left and right meaning there’s an assumption that the government will always do the right thing and invest in feasible projects. But this is clearly not true. What’s MMT’s take on QE?

    1. leafleaper

      The word Always is a clue here.
      No the Government does not always make the right choices.
      However does the private sector Always make the right choices?
      The Government at least has a Constitution saying that it is obligated to act to “promote the general welfare”, basically it has to take externalities into account and answer to voters.
      The private sector generally has no such constraint and has levels of waste, abuse, fraud which are largely not subject to public or shareholder constraints and are largely only revealed when a corporate empire implodes after internal looting.

    2. Benedict@Large

      QE is a bookkeeping operation. It neither increases nor decreases net financial assets. It simply changes the form in which money is held (from bonds to currency/reserves).

      The mistake that the monetarists make on this is that they think that simply changing money’s form will change its use. It doesn’t work that way. The preference of the asset holder remains unchanged even as the asset changes form (via QE). Yes, I have more currency/reserves after QE (and less bonds dollar for dollar), but I am equally disenclined to spend them afterwards as I was before. I may change my mind at some point, mind you, but QE is not the event that causes me to do so. Hence, QE is a bookkeeping operation.

    3. From Mexico

      Can’t Help It says:

      What’s MMT’s take on QE?

      Kelton explains in this presentation:


      QE is a loan from the federal government (the Fed) to the private sector (private banks). The private sector has to pay it back. It therefore does nothing to help an already over-leveraged and over-indebted private sector to deleverage.

      However, instead of loaning money to the private sector, the federal government could spend money into the private sector. This money does not have to be paid back by the private sector, and thus helps the private sector to deleverage.

      1. Aquifer

        Is this the ZIRP money, or whatever, that the banks get at 0 interest and then can lend out and make money on, theoretically, but which in fact they are investing in “risky business” stuff with bigger profit margins than would be had by actually investing in such mundane things as job creating enterprises? Or have i missed another boat here?

        1. From Mexico

          Yep. You got it.

          And of course it completely ignores and does nothing about the elephant in the room that’s wrecking the economy like a bull in a china shop. Google Steve Keen’s “Let’s Go, Back to the Future” to see what I’m talking about.

          For an almost identical graph for the US, google Steve Keen “manifesto”

          1. Lambert Strether

            This tactic of directing people off site to some YouTube or other that will immediately explain everything is getting a little old.

            If you’ve got a point to make, make it. Steve Keen does really interesting work, but it would be all the more interesting if you could apply it in the current context in an on-point fashion.

        2. Ben Johannson

          MMT teaches us that banks are not reserve constrained, because they can always go to the market or the Fed’s discount window to get whatever they need to facilitate loans. So the money being dumped onto bank balance sheets by QE is largely useless. It doesn’t make it easier for banks to make loans and therefore doesn’t increase the money supply the way monetarists hoe it would.

      2. skippy

        “to the private sector (private banks)” – Mexico

        skip here… IMO that should be unpacked – totally, as in commingled with everything to the Nth degree, tightly coupled like a suicide bomber that has super glued its self to – any thing – that needs money.

        Skippy… the historical progression from hard, to soft, to maturity and then to quantum forms of money is curious indeed. Who has been the benefactor of each great leap[?], humanity at large or life its self? Troubled…

  5. lingenmi

    Yes. Print print print. Spend spend spend. Sounds great. So the perceived value of a dollar becomes? I know you are not a fool. You know very well the value of a dollar is not fixed. So how does MMT prevent the dollar becoming about as useless as a penny? Unless we intend government to dictate prices as well? Oh how grand a fairy tale land.

      1. lingenmi

        Are you serious? Hate? That is what you get from that statement? Perhaps I should have gone out of my way to be overly polite and non-critical to avoid tripping over your hyper-sensitivity.

        How about pointing out how inflation won’t run rampant if we just print money like it is the Sunday comic strip.

        1. Nathanael

          Inflation doesn’t run rampant if we print money.

          Inflation only happens when the money is chasing too few goods or services. For instance, if we tried to spend all the printed money on oil, since there’s a very limited amount of oil left, we’d get inflation.

          But if we spend it hiring people to dig ditches or work on farms, we won’t get inflation — why? Because there are a whole bunch of unemployed people right now! Once we employ them all, if we THEN spend MORE money trying to hire people — with full employment — then we get inflation.

          Got it?

      2. Valissa

        Really Lambert? Project much? Why are you so thin-skinned here? You must realize by now that while many at NC are MMT fans, many NC readers are not, and that should be OK, IMO. Unless, of course, the mission is to proselytize the unbelievers into submission.

          1. Aquifer

            Gotta admit i would have to agree that perhaps “h8tred” may not be a useful way to suggest that you find a comment non serious … :)

          2. Yves Smith Post author


            People who start out

            1. Trucking in arguments that have been addressed repeatedly (as in broken record strategy) and

            2. Start out vitriolic

            pretty much never are prepared to discuss an issue in good faith

          3. Lambert Strether

            @Aquifer Guess the little fillip of irony with the “8” wasn’t enough. But yeah, vitriol, though granted, directed against the ideas, not the person; Faraday handles the latter duty, apparently.

    1. leafleaper

      Do look up Fractional Reserve Banking on Wikipedia.

      US Banks currently create money out of thin air and change interest on it all day every day.

      She is just talking about the government actually creating the money and not the banks, because frankly where this has been done with an eye on controlling the amount of currency to match the productive capacity of the economy it has worked really well.
      How do you think we rebuilt Europe and Japan after WW 2?

      1. MyLessThanPrimeBeef

        Government the money issuer ≠ government the money user.

        How much the government can spend is to be decided by the people, annually.

        It’s important we have a system that money is not created by government spending; otherwise you are commingling the two roles.

      2. Up

        I wish everyone would stop using this “thin air” phrase. As far as I can surmise it’s a meme that someone invented to comply with the media contraint that discourse be quick and clipped to keep a mass audience watching. The “thin air” phrase is meaningless though for someone who really wants to understand money creation as opposed to just having “the news” on because The Simpsons will be on in 20 minutes.

        The banks do not create money out of “thin air.” They make more loans than actual reserves held on the basis that not all of their customers will come and redeem their demand deposits at the same time, bringing insolvency to the bank. It isn’t “thin air,” it’s an observation that en masse you won’t get a bank run, excepting of course, crises that occur from time to time. I do not see that there is anything wrong with noticing this fact of mass customer behavior and then putting the obsevation to use by making loans and having reserve capital ratio that makes sense.

        I’ve not said anything that nearly all of you do not already know. I’m making the comment for that one person who is parroting the “thin air” meme as like it is some tremendously powerful indictment on banking methods, which it is not.

        Of course, too many loans issued, can lead to (euphamistically speaking) misallocations of investment capital. But that is separate from the practice of banks making loans at all. Responsible authorities setting interest rates are supposed keep it in mind that some borrowing will become “frivolous” or “excessive” if the fee for borrowing money becomes super cheap.

        CNBC using the “thin air” meme: I expect it of them.
        I prefer not to see it here though. Just some thoughts.

        1. diptherio

          Some banks, the small ones, operate essentially on a loanable funds model as you describe. However, the biggies engage in endogenous money creation, without regard for reserve requirements. From Wikipedia’s ‘endogenous money’ article:

          The theoretical argument states that money comes into existence driven by the requirements of the real economy and that banking system reserves expand or contract as needed to accommodate loan demand at prevailing interest rates. It forms part of post-Keynesian economics. This theory is based on three main claims:

          ‘Loans create deposits’: for the banking system as a whole, drawing down a bank loan by a non-bank borrower creates new deposits (and the repayment of a bank loan destroys deposits). So while the quantity of bank loans may not equal deposits in an economy, a deposit is the logical concomitant of a loan – banks do not need to increase deposits prior to extending a loan.
          While banks can be capital-constrained, in most countries a solvent bank is never reserve-constrained or funding-constrained: it can always obtain reserves or funding either from the interbank market or from the central bank.
          Banks rationally pursue any profitable lending opportunities that they can identify up to the level consistent with their level of capital, treating reserve requirements and funding issues as matters to be addressed later – or rather, at an aggregate level.

          Therefore the quantity of broad money in an economy is determined endogenously: in other words, the quantity of deposits held by the non-bank sector ‘flexes’ up or down according to the aggregate preferences of non-banks.

          Reserve ratios are not even required for a modern banking system to operate. Canada doesn’t use them. Banks can always create loans out of thin air, since the Fed will always supply enough currency to the banks to back those loans, and at a price which ensures that the interest rate stays where they (the Fed) want it.

          1. Up

            Reserve ratios are not even required for a modern banking system to operate. Canada doesn’t use them.

            Jesus H. Christ! I just went to the Bank of Canada website. What you say is true. No reserves required by law. This does not seem sane, I must be missing something. There is a paper on it, which I may read.

          2. Hypothetical_Taxpayer

            Don’t get too excited. It just means Canadian Banks run on repos. They are like Lehman without the kaboom.

            The key part about all the wiki words above:

            “While banks can be capital-constrained, in most countries a solvent bank is never reserve-constrained or funding-constrained: it can always obtain reserves or funding either from the interbank market or from the central bank.”

            It’s when they run out of “capital” to use as collateral in repos that they need to get funds other places – as in our financial crisis.

        2. stanley mulaik

          You don’t appreciate the usefulness of metaphors in helping thought. By saying “create money out of thin air” that is more than merely “creates money”. Under the gold standard the Fed created money but had to match that to a quantity of gold in possession of the Fed. So, you need to specifically indicate the nature of “money creation”. By saying “out of thin air” you specify that there is no prior backing of the money. Another phrase often used is “ex nihilo” which means “out of nothing”. Or just use “create out of nothing”. The Fed seems to dislike the phrase, because it too starkly expresses that the money has no backing, and they fear they will be vulnerable to the gold bugs’ criticisms. They seem to have developed the art of saying money created out of nothing in ways that don’t reveal what actually is going on. Create new money –but that doesn’t say it is not backed. So,
          “ex nihilo” might be an erudite way of saying it that has little meaning to the layman, thus disguising what is going on. Saying money is just created with key strokes in this digital age conveys the idea that the money has no prior backing.

      3. LeonovaBalletRusse

        leafleaper, where is OUR Marshall Plan? Not gonna happen.

        The ONLY UMKC’er who can tell us cleanly how Big Bites the Bullet is Dr. Michael Hudson. “Debts that can’t be paid, won’t be.” This is bed rock.

    2. Ed Seedhouse

      “Yes. Print print print. Spend spend spend. Sounds great. So the perceived value of a dollar becomes? I know you are not a fool. You know very well the value of a dollar is not fixed. So how does MMT prevent the dollar becoming about as useless as a penny? Unless we intend government to dictate prices as well? Oh how grand a fairy tale land.”

      The fairy tale here is yours, since MMT doesn’t advocate any such thing, which you would know if you could read and listen. You are merely beating a straw man of your own imagining.

  6. Lambert Strether

    I thought the focus on the tax side of MMT was a stance derived from a sense of what would play well in Washington right now.

    * * *

    For the rest of it, I thought it was great to see RT going into MMT in depth at “the glass table.” I’d be interested to see what seasoned TV viewers think of the interview from the rhetorical side. TV is not the same as a classroom is not the same as a public lecture is not the same as a blog is not the same as a podcast!

    I came away with a general sense that the talking points (which were real, and well-polished, and so they ought to be by now) were too often placed at the end of an expository build up, when they ought to have been placed right up front, for impact, to stick in the brain right or wrong, and then only then explained. Not exposition -> talking point, but talking point -> exposition. And the more controversial the talking point, the more this is so. Conflict makes for good TV, so put the offensive point that induces conflict up front, and the defense can follow after.

    But I freely admit that I hardly ever watch TV — it’s a public health hazard! — and then only in the forn of YouTube clips.

    The other thing that needs to happen as a matter of course is transcripts; perhaps RT provides them?

    1. fallawayjumper

      Personally i found the interview fairly weak wrt to MMT in general (despite the ‘any publicity is better than no publicity’ theory.)

      The ‘descriptive’ elements were not well articulated, the ‘prescriptive’ aspects were misplaced (the payroll tax holiday is not the right way to stimulate) and the ‘idealized’ theory of MMT relative to ‘spending’ money into existence vs. debt issuance by the FED was not explained well either…

      Why can’t MMT’ers ‘make this sale’ save for Yves…?

      Finally, under ‘prescriptions’ why was there no mention of converting massive and grossly inefficient defense spending into sustainable energy development…? As a viewer it just sounded like another librul saying not to worry about government overspending…drat…

      1. Lambert Strether

        Well, the ability to close the sale differs by the context, which was one point of my comment. It’s not easy to go on TV and close the sale; it’s a skill and takes practice.

    2. Aquifer

      “I thought the focus on the tax side of MMT was a stance derived from a sense of what would play well in Washington right now.”

      The problem with playing that little game, using “what will play”, is that it might be the ONLY thing that WILL be used by those doing the playing …

  7. JEHR

    Descriptively, Stephanie tells us that the government is the monopoly issuer of money. But now that government has been captured by the financial system, the banks have de facto become the monopoly issuer of money by privatizing it in the Shadow Banking System which is unregulated and, therefore, “unknown.”

    Too bad we do not know how to get rid of the oligarchic overlords that have captured the government. We need a prescription for that operation.

    1. Benedict@Large

      You are confusing money with credit. They are not the same. Banks (and the shadow banking system) issue credit. Only the government issues money.

      1. jerry

        Banks create money with loans, this increases the money supply. But they cannot add net financial assets to the economy because all the bank credit nets to zero, only the government can do so.

        JEHR brings up a very important point. The government should be doing a lot more to utilize its control of money, but it does not (healthcare, education, banking, etc.). Consequently, we have the private banking cartel with its hands on nearly every aspect of finance in our current system. This is the savage status quo that must be altered, the cancerous Vampire Squid must be expelled from our economy – not an easy task needless to say. But only then will the people regain control over their own money.

        1. From Mexico


          Both you and Benedict@Large are regurgitating the Loanable Funds Theory of Money.

          An alternative is an endogenous theory of money, such as that articulated by Steve Keen.

          Google Steve Keen “A Macroeconomics Debate at Cambridge” for a complete explanation.

          1. jerry

            Instead of inundating me with academic jargon and names of theories, why don’t you just tell me what you think. I don’t really care what some other person says, explain it in your own words.

      2. Calgacus

        Benedict ( & Jerry & From Mexico ): distinguishing between “money” and “credit” that way is bad terminology. All money is a form of credit. Bank credit, bank deposits are a form of money. Just not as high-powered as government money. Because government money is government credit, and the government is much more powerful than any bank. It can and does enforce the reflux, redemption of its money through taxes, more strongly than any bank can.

        MMT covers “endogenous” bank money with great clarity too; that is one of its great merits, the increased clarity largely due to Mitchell-Innes. Wray’s first book being on endogenous money, before he discovered Mitchell-Innes.

        There isn’t really any difference with Keen or circuitistes. The better way is to think of them all, and a lot of other postKeynesians like John Smithin, or whatevers, like Geoffreys Ingham & Gardiner or the rest of the gang of 8 as one big happy family of people who are actually interested in how economies function and arrived at basically the same ideas.

        1. From Mexico

          • Calgacus said:

          All money is a form of credit. Bank credit, bank deposits are a form of money. Just not as high-powered as government money. Because government money is government credit, and the government is much more powerful than any bank. It can and does enforce the reflux, redemption of its money through taxes, more strongly than any bank can.

          I thought the expression Kelton coined — the “hierarchy of money” — and the chart in her lecture that I linked above was a great way of expressing this.

          Some, such as David James, push the envelope even farther, and include “meta-money” — things like derivatives and HFT — under the rubric of “money.” Of course all the money created by the traders and bankers would be worthless if they couldn’t enlist the long of the arm of the government to either enforce or force the taxpayers to pay off their claims, something that became clarion in the wake of the GFC.

          • Calgacus said:

          MMT covers “endogenous” bank money with great clarity too; that is one of its great merits, the increased clarity largely due to Mitchell-Innes. Wray’s first book being on endogenous money, before he discovered Mitchell-Innes.

          There isn’t really any difference with Keen or circuitistes.

          There are, however, important differences between Keen’s monetary theory and that of the MMTers, all of which he explains in the lecture he gave at Cambridge University.

          • Calgacus said:

          The better way is to think of them all, and a lot of other postKeynesians like John Smithin, or whatevers, like Geoffreys Ingham & Gardiner or the rest of the gang of 8 as one big happy family….

          True enough. For example, in Kelton’s lecture I linked above you can hear Keen and Michael Hudson in the background cheering her along.

    2. Aquifer

      From what i gather, the gov’t hobbled itself significantly when it created the Fed in the way it did – giving a lot of power to the bankers who run the system – so now the bankers, are, and have been, buying the gov’t to make sure the gov’t doesn’t reclaim all the power it could have …

      1. Nathanael

        Aquifer is correct. The Fed is a scheme by which the private banks transferred many of the government’s money-creation powers to the Fed, thus limiting them. Look up “Money Trust”. This battle was fought-and-lost in 1913.

        1. From Mexico


          The real coup the bankers pulled off with the creation of the Fed was to put a buffer between them — the real powers pulling the levers behind the scene — and the people, thus allowing them plausible deniability.

          The political philospher Hannah Arendt explains how this ruse works in “On Violence”:

          And power, it turns out, is an instrument of rule, while rule, we are told, owes its existence to “the instinct of domination.” We are immediately reminded of what Sartre said about violence when we read in Jouvenel that “a man feels himself more of a man when he is imposing himself and making others the instruments of his will,” which gives him “incomparable pleasure.” “Power,” said Voltaire, “consists in making others act as I choose”; it is present whenever I have the chance “to assert my own will against the resistance” of others, said Max Weber, reminding us of Clausewitz’s definition of war as “an act of violence to compel the opponent to do as we wish.” The word, we are told by Strausz-Hupe, signifies “the power of man over man.” To go back to Jouvenel: “To command and to be obeyed: without that, there is not Power — with it no other attribute is needed for it to be…. The thing without which it cannot be: that essence is command.”….

          Today we ought to add the latest and perhaps most formidable form of such domination: bureaucracy or the rule of an intricate system of bureaus in which no men, neither one nor the best, neither the few nor the many, can be held responsible, and which could be properly called rule by Nobody. (If, in accord with traditional political thought, we identify tyranny as government that is not held to give account of itself, rule by Nobody is clearly the most tyrannical of all, since there is no one left who could even be asked to anser for what is being done. It is this state of affairs, making it impossible to localize responsibility and to identify the enemy, that is among the most potent causes of the current worldwide rebellious unrest, its chaotic nature, and its dangerous tendency to get out of control and to run amuck.)

      2. Calgacus

        Nah, not really. The Fed doesn’t have so much power – it is just a Wizard of Oz. One real power it does is regulatory. But it has long since been captured by crooks it is supposed to regulate and put in jail – hell some of the worst are on the various boards. The other big thing is interest rates – not much power there now. It can wreck an economy like Volcker did by raising them into the stratosphere, and “fix” its own damage by bringing them down again, but that is very rare. Or it can create smaller recessions and instability as it has from time to time. But that hardly applies now.

        Congress’s power of the purse is enormously more potent, and the Fed is Congress’s creature, that usually obeys the President when push comes to shove (Carter & Volcker something of an exception) But the cult of the all powerful “independent” central bank is a quite recent thing. Look at old books (in all fields, a good idea, in economics an ESSENTIAL) – nobody ever heard of this magically powerful central bank – because the fables had not yet been written.

  8. kevinearick

    Implicit Cities

    Let’s summarize, shall we?

    So, (yes, I do that on purpose – the yard apes hate that) an empire depends entirely upon attracting intelligent kids to its technology center, and otherwise employs a hash table with a delay pointer system to stacks, adjusting the severity of the law to penalize nonconformance to its control features, which serve as multiplier effects. What does that sound like in physics? Chemistry? Biology? The operators are like those little dinosaurs that hunt in packs on Jurassic Park.

    The Internet pulled the floor out from under the city/state model, because the kids no longer had to physically congregate, and as the empire attempted to control the Internet they simply created an implicit Internet. The gold is no longer rushing to California, or anywhere else. Now, the empire is a vine, rushing away from its dead root system, hoping to find better soil. Unfortunately for it, there are no large, empty continents to exploit, their operators gave up space exploration for petrol dollar control, and both small business and labor within the empire have been crushed to kick the can down the road, with corporate monetization of dead inventory. What is a Fed chairman to do?

    You can’t change human behavior in real time, because it is in a positive feedback loop with the law that protects legacy non-performing assets, and capital is not going to terminate itself. In the early stages of an economy, Family Law is geared to raising children and producing income, the future. As it ages, capital gears it to favor capital accumulation, the past. Go to any city and you will find that the best producers are discouraged from having children, because everything they have or will ever make can be taken away with no due process of law, and the poorest producers, welfare mothers with the most children, “earn” a premium in the welfare state, with every conceivable legal protection.

    The Fed prints, with no exit, and crushes the global economy in a vice. The US has the best seat on the Titanic, because the other countries have been in the same families for centuries longer. They cannot get out of their own way. The ivory towers are collapsing, and the kids are getting out of the way. Can you blame them?

      1. kevinearick

        The farmers buy land just outside the city, sell a piece for incorporation, and move out. Technology works the same way. In effect, you are printing your own money. The kids have decided not to give this empire any more technology. The virus is contained and exponentially consuming all its resources.

        1. kevinearick

          The middle class talking about printing money is ridiculous, because it doesn’t produce ANYTHING at an economic profit. On its best day, it can do what it did yesterday a little more efficiently, the profit from which all goes to sustaining legacy nonperforming capital. What you have is capital above the law, protected by middle class conformers to the law, against labor unprotected by the law, and the upper middle class engineers have eliminated the need for humans in most empire processes, rendering the middle class redundant, from the perspective of Harvard, hence you the individual require no rights and the corporation gets free speech.

    1. They didn't leave me a choice

      Would you kindly start making some kind of a sense? I feel like there’s a coherent argument somewhere in that disorganised mess of words, but for the life of me I can’t seem to be able to extract it.

      1. kevinearick

        all empires operate at a net loss, exploiting non-renewable resources to ensure control, delaying reconciliation with technology. They are sling shots, catapults, whatever.

        some sort of external intelligent infusion is required…Bernanke is attempting to tighten…

        1. kevinearick

          a simple-stupid dc computer rendered the middle class redundant, at the diposal of capital at will. left to its own design, what do you suppose capital will do with an ac computer, which is an order of magnitude more powerful, and will quickly lead to further developments.

          Humanity as you know it will go by-by.

          1. skippy

            Humans as an asset, as viewed by capital, is in gross excess, a negative gdp influence (fiscal cliff thingy).

            Skippy… they will liquidate by one means or another, so saith history.

  9. Don Levit

    Money does not involve a monopoly issuer. It has to be a partnership, not a sole proprietorship.
    There must be 2 distincr parties to the transaction, a creditor and a debtor.
    In olden times, Jews would lend to fellow Jews, interest free.
    But, you can be darn sure they got back their principal.
    Don Levit

    1. Lil'D

      All money is a social construct. It has whatever value people agree it has. There is no intrinsic wealth anywhere. It’s plausible to consider “money” as being a store of wealth. Though in my opinion, it’s better viewed as an IOU, a debt claim. Sovereign IOUs and private IOUs can spend the same, but the private IOUs eventually need to get settled…

      1. They didn't leave me a choice

        The fact that nobody has to really recognise or recieve the money IOUs in exchanges throws a bit of a monkey wrench in that particular set of theory.

        1. jsn

          You’ve found not paying taxes to work pretty well for you? And as a consequence quit using govt. issued money to purchase things?

          1. They didn't leave me a choice

            How exactly does a situation where I can pay my taxes in a currency resolve into a situation where either party, me, or the government, is in debt to each other? It is a purely coercive relationship, while debts have indeed been forced on parties for millenia, I don’t see how just the presence of coercion makes a debt. I see this more as a definitional problem, why is a tax in any way, shape or form considered a debt?

          2. Ben Johannson

            Corect. You owe the state a debt in its currency because it holds a gun to your head. That is what drives money.

  10. Bebob

    Understanding government issuance of bonds to be a different economic response than the creation of currency is essential to the MMT discussion. The funds a government collects as a result of generating bonds is a transaction. That of either simply removing existing currency from the economy for a period of time or redirecting existing currency for immediate policy spending. In such a way the effects of surpluses in the hands of currency users in private and international economies are managed to effect interest rates, currency values,trade balances and growth management. Governments with sovereign currencies can be both creators and users of currency. Wealth creation in the real economy is transactional as well,but the value it creates is that held by individual users and represents a debt for one party and credit for another. No added value of work or production exists unless it represents a transaction and a shifting of debt and added debt to another party. The weakness of the savings model is that of the debt pyramid. MMT explains that it can only exist as long as the ability to pay exponentially growing debt interest is possible. It has been proven time and again that it’s only a matter of time until the pyramid collapses. The policy option of currency issuer’s can be used counter cyclicly when so called income saving models show signs of inherent failure to achieve the ends of public purpose.

    1. MyLessThanPrimeBeef

      Maybe we should look into separating the two roles – government the currency issuer and government the currency user.

      And it doesn’t have to be a central bank, though one can understand how these creatures came into being and how people were deceived – maybe governments earlier commingled the two roles and abused peoples’ trust?

        1. MyLessThanPrimeBeef

          We are in a deflation.

          Should we avoid levying fines on corporations like HSBC, BofA and Goldman, because, well, that will destroy money – something to avoid in a deflation?

          1. Hypothetical_Taxpayer

            If you have deflation, you should give them tax cuts. Course if they are still unprofitable in spite of criminal activity and owe no tax , bonuses may be necessary.

          2. MyLessThanPrimeBeef

            Wouldn’t hurt if those SEC boys (and girls, I remember to mention them this time) go easy on them.

            We don’t want to destroy money these days.

    1. Hypothetical_Taxpayer

      It’s how MMTers control inflation. But why end on an unhappy note. Embrace the National Sales Tax. Peterson would.

      1. MyLessThanPrimeBeef

        Is that correct, per MMT, you tax more in an inflationary period?

        But inflation is a hidden tax.

        So, to fight inflation, you tax more.

        That’s like to fight a problem of too much hidden tax (inflation), you tax more.

        IS that true – to fight too much tax, you tax more?

        1. Hypothetical_Taxpayer

          I kid you not. It’s how they make the whole enchilada come together.

          Course the rich already got away with all the money, and regressive taxes is what we will get.

          So after they destroy SS, you can tax old people with no money, for instance. That’s the beauty of a National Sales tax. Or do away with the home mortgage deduction. That’ll put about 30% of the population in bankruptcy.

          Plus we get inflation of all the things that are grossly underweighted or ignored in the CPI – healthcare, education, aircraft carriers, financial crisis, etc….

          1. MyLessThanPrimeBeef

            You put healthcare in your CPI and everytime my premium goes up, the government can tax me more.

          2. Aquifer

            Yeah, that’s one thing I was wondering about too – who gets to decide what is included in the official definition of “inflation” ….

  11. BC

    MMT = chartalism.

    Banks create private debt-money with a compounding interest claim to all outstanding debt-money in perpetuity. Therefore, the owners of the banks own everything denominated or collateralized in private fiat digital debt-money. The bottom 99%+ only borrow and circulate the debt-money at compounding interest in perpetuity until the debt service costs preclude further borrowing.

    But now total imputed compounding interest to term for US total credit market debt outstanding is now an equivalent of 100% of US private GDP. Private debt-money can no longer grow because the claims absorb 100% of wages, production, profits, and gov’t receipts in perpetuity.

    Moreover, total local, state, and federal gov’t spending is now equivalent to 100% of private wages and 54% of private GDP. Total gov’t spending as a share of private GDP has been at or above the peak of WW II since the ’80s (when the US could no longer afford an industrial economy because crude oil production peaked, falling 60% per capita since ’70), and it is well above today.

    The private sector can no longer afford for gov’t spending to grow.

    Federal deficit spending since ’08 is now more than 50% of private GDP on the way to 100% of private GDP by no later than ’16. Total local, state, and federal gov’t debt is now an equivalent of 140% of private GDP and approaching an order of exponential magnitude larger than private wages.

    Private wage labor can no longer afford for gov’t debt to continue to grow.

    Moreover, the revenues of the Fortune 25-300 firms (primary borrowers, creditors, and collateral holders of the largest TBTE banks) constitute 40-100% equivalent of private US GDP; but these firms employ fewer than 13% of the US workforce at a revenue/employee of $425,000.

    The next recession in the US, which is likely imminent, will result in deficits to federal receipts of 100% or more after Social Security and Medicare receipts.

    The US is on the way to becoming a PIIGS, including “austerity” imposed by the criminal bankster syndicate via the gov’t-sponsored monopoly license to steal and their surrogate central banksters and politicians who run cover for the banksters and their rentier overlord owners, the top 0.1%.

    1. joebhed

      You’re raising the issue of the debt-based system of money and the fact that bankers collect compounding interest on all of that debt-based money as if this was the real cause of the wealth concentration and income disparity that is tearing this country apart.
      Thank you.
      But hey, it’s just endogenous money.
      For the Money System Common.

  12. Gerard Pierce

    The “theory” was interesting, but there is something stunningly wrong with her answer to the key question: “what should constrain government spending in a situation where you think it should be spending?”

    Her answer: That’s a role for lawmakers – that’s what legislatures do. … our elected officials are in charge…

    An intelligent interpretation of the question would mean: what criteria should our elected officials use to determine whether to spend money on a particular project.

    In the absence of some kind of intelligent guidelines our elected officials are hardly competent to decide what to spend money on – and how much.

    What MMT (if it has any valididty) should be doing is providing those guidelines.

    Whatever thee real answer is, it was not presented here.

    1. redleg

      Elected officials can be (nominally) held accountable for poor fiscal choices through elections. How many bankers have been held accountable for anything?

      The economic megaproblem facing the developed world today is a PRIVATE credit bubble. Banks have no problem issuing money out of thin air (used intentionally, BTW) in the form of loans. In return they get a cut of the loan. Seeing that private debt is somewhere around twice the amount of public debt, the change in private debt load will have a much larger effect on the economy than changing public debt load.

      If I had to choose who I would trust with handling inflation – banks or congress – I would choose congress.

      1. Gerard Pierce

        That’s still beside the point.

        The point I thought I made is that whoever is creating money needs some rules to decide whether an expenditure makes sense – and whether the total amount of expenditures makes sense.

        MMT should provide those rules – or some guidelines on how to make the rules.

        As presented in this interview, MMT makes no sense.

        1. aj

          Pretty sure this has come up before. Indeed, Stephanie even mentioned, “inflation is the constraint.” MMT advocates an an approach to spending that is almost reversed from what we have today. Let me try to lay it out in a few simple steps.

          1. Figure out what you want to spend money on. The criteria here is that spending should “further the public purpose” whatever that is decided to be. It could be making sure everyone has access to adequate healthcare, or providing senior citizens a comfortable retirement, or ensuring that everyone who wants to work can find a job.
          2. Spend money on the things you want.
          3. Figure out things you want to discourage people from doing. Like polluting, high-frequency trading, rent-seeking.
          4. Tax those things in number 3.
          5. Monitor the impact of your program on real metrics. Is it doing what you wanted it to? If it’s healthcare, are you seeing better healthcare outcomes? Is the program doing what it’s supposed to do? If so, good job. If not, figure out how to modify or cancel the program.
          6. Monitor inflation. Are you seeing inflation? If not, good. If so, then it’s time to drain some money out of the economy. This can be done via increases some taxes or decreased some spending.
          7. Monitor and modify any of the above as needed.

          I do not understand what seems so controversial about any of that.

          1. Hypothetical_Taxpayer

            “I do not understand what seems so controversial about any of that.”

            If you did most of those things, the present system would work.

            Unless we lose the whole private sector to globalization. Sure we can have a jobs program and every 7-11 can have a Hello Guy and a Hello Gal. Then you can tell yourself we have utilized the productive capacity of America – and we all have money-wealth – and let’s bring out the Monopoly board and have a good time!

            The other exception being that we are terrible at coming up with inflation indexes, and you can’t easily tax money from people that have no “discretionary income”, and it’s difficult to tax the rich later after they pocketed money every year.

          2. They didn't leave me a choice

            In addition to the question of what whose inflation we’re talking about there’s also the question of what kinds of inflation we’re talking about. Oil prices are destined to go up as the global energy crisis proceeds no matter what else happens, do we grind the economy to a halt because of it, or will we more aggressively target alternative energy sources?

          3. MyLessThanPrimeBeef

            You’re right about the other question of what kinds of inflation.

            I will confine to my original question briefly.

            Maybe it was different before I was born, but for as long as I can remember, CPI, especially the core, and by core, by core, they do not mean energy, but how much workers are getting paid – wages.

            So, when workers are getting paid more, they scream inflation.

            When gas prices are going up, well, we exclude that.

            So, when workers finally start to get paid more (hypothetically here), are you (aj) saying we should tax more to counter that?

          4. aj

            ‘who’s inflation?’

            Inflation as monitored by something like the CPI. Not sure what you are getting at by asking who it belongs to. It happens to everyone. If price only went up for 2 people, it wouldn’t exactly be inflation now would it?

          5. MyLessThanPrimeBeef

            CPI, especially the emphasis on the core, is a means to suppress worker wages. That’s the 0.01%’s inflation index.

            It’s not the 99.99%’s inflation.

    2. psychohistorian

      I will take politicians that can be voted out over the global inherited rich that make all the capital investment decisions currently.

  13. Steve Roberts

    By her own words, 1 time in the last 35 years we didn’t need a flow of funds to stimulate the economy. (12:20) Let’s just stop pretending anything about this the stimulus proposed is “temporary”. Stimulus is one word to use but maybe a better phrase is “propping up” what would deflate if we ever slowed the growth of spending.

    1. Benedict@Large

      You’re correct that stimulus is a very bad word, and yes, all stimulus is permanent, but you’re missing the point. Capitalism is extractive. Money leaks from it and is eventually idled by the permanent motion of profits ever gradually upward. This means that over time, the bottom of the pyramid where the profit-givers (as opposed to the profit-takers) reside runs out of money. It’s “stimulus” that replaces this money, and allows capitalism to continue. This is a permanent feature of capitalism; i.e., there is no way to “fix” it without ending profit, and thus capitalism itself.

    1. rob

      The bill kucinich put forth lays out just where we as a country needs to go. AND how to get there.
      MMT, as a theory, incorporates some good ideas to come away with as to why the way it is being done right now, isn’t really “What has to be done”.But alas, IT is a theory, that doesn’t actually provide a path towards any of its stated goals. The “NEED act”, on the other hand, lays out the state of affairs as it is today. the abuses for which reasons we should change what we are doing today.Why it is an american imperitive, we protect ourselves from the vultures who control the money supply. And MOST importantly, How this can be done…These are real steps. Real ideas.It seems to me the first thing we as a nation must do to move forward;is to outline a plan….. now let the debate begin.
      If the mass consciousness that is the open source community,here there and everywhere, can figure out the bugs, and do what needs to be done…let it be done.
      I for one am sick of the mess.

      1. joebhed

        Actually, I agree completely about the positive role that MMT is playing in the study of money that has been advanced by the financial crisis.
        Many MMT macro-economist were among those that correctly pointed out the unsustainability of ponzi finance, as Minsky called it. This has provided the opportunity for MMT to raise the consciousness of people to monetary sovereignty, which they have done quite well.
        But they have erred in their understanding of money as debt, and of the actual operations of the national monetary system. This is primarily due to MMTs ‘unit-of-account’ identity of money in the monetary system, rather than its ‘means of exchange’ identity in the national economy.
        The Kucinich Bill uses the reality of our monetary sovereignty to empower the government TO create the money – just as was done with the Greenbacks way back when.
        Once there actually exists a public money creation function, there is very little difference between the Kucinich Bill and MMT.

        1. stanley mulaik

          >But they have erred in their understanding of money as debt, and of the
          >actual operations of the national monetary system. This is primarily due
          >to MMTs ‘unit-of-account’ identity of money in the monetary system,
          >rather than its ‘means of exchange’ identity in the national economy.

          I think what makes it seem like the Treasury is not creating money is the prohibition to the Fed that it cannot buy securities from the Treasury. If it were not for that, then the creation of money would explictly begin with the Treasury issuing a security directly to the Fed, which the Fed would buy with money created out of nothing. So the security in this case would be like an order to the mint or money creator to create more money and give it to me. The security is the first step in money creation and it comes from the Treasury.
          The current practice gets around this prohibition to achieve the same thing:
          Treasury issues securities, these are sold to intermediary banks. Then the Fed buys the securities from the banks with money created out of thin air. In the meantime Treasury got its money from the banks and a debt was created so that Treasury owed the banks for the money at a future date. But the Fed’s buying the securities as an agency of government with government powers to create money out of nothing redeems that debt for the government. Money being fungible, the end result is equivalent to the earlier case where Treasury issues securities and Fed buys them directly with new fiat money created out of nothing going to the Treasury. In both cases Treasury has debt free money. And the banks have their original money equivalent. And the overall money supply has been augmented by the creation of money.

    2. psychohistorian

      There are a paucity of comments to this posting that reflect the understanding that we currently have a private money and banking system and it would be better to move to one that is public money and banking.

      THANK YOU!

      1. joebhed

        Funny thing about that.
        MMT presents the ‘endogenous money’ system.
        For anyone who really understands the meaning of that term, it is that all of the money is created ‘within’ the economy, and that it is created as a debt by bankers giving loans to creditworthy borrowers – and they all live happily foreverafter.
        MMT also presents that the government, acting as the nation’s monetary authority, (they join the Fed and Treasury) IS the monopoly issuer of the currency – such that right now the government DOES create money when it spends.
        So, at the same time you have a public monopoly currency issuer, you also habe a private monopoly currency issuer.
        And the corners need squaring without having to understand vertical reserves.

    3. Kurt Sperry

      Kucinich’s NEED Act is an exceedingly interesting piece of proposed legislation that seems informed by MMT but steers the concept in a potentially useful direction. What do the local econ wonks think of it?

      1. joebhed


        This despite the fact that it was designed by the guy who wrote the book on debt-deflation (Irving Fisher) and who proposed it in order to forever prevent debt-deflation.

        I don’t know that any of them has read the Kucinich Bill.
        It’s kind of revlutionary – in a good way.

        So, why deflationary?

    4. Aquifer

      Well methinks that is a perfect segue into my favorite topic :), the need to put folks in office who would actually pass such an act … and for some strange reason i can’t quite put my finger on, I seriously doubt we could ever put enough “pressure” on the duopoly to do it, which of course means we need to support another party, and …. :)

  14. Tom

    I think what was overlooked is taxes and the purpose of taxes.
    MMT is sound when it comes to money and, it clearly abstains from crossing the political boundary. Yes, a sovereign currency can be produced in any amount – inflation being a boundary but, our government must decide policy as to where that money goes – I think it should go for infrastructure improvements, technology, habitability of this planet (the ultimate infrastructure), education etc. and, into the consumption and production economy – I did not need to list separately because they are all the common good. I do not believe the money should be created to support non-production and consumption activities that harm progress in the common space.
    Taxation in MMT is not relevant to the issue of money: the government does not need to raise revenue to issue currency. So indeed, taxation is political and is not in the provenance of MMT – IMO that is the way it should be.
    So why do we tax and issue currency? (interest is a form of taxation) – they are both functions of a sovereign nation separate from MMT – IMO as it should be.
    What are the government functions.

    Issue currency so that trade can happen with little friction…it should be a form of infrastructure but, importantly, it should issue currency to promote what the people want it to be spent on – remember we the people have adopted our government for and by the people.

    Taxation is a device used to discourage activities that we the people have agreed are bad or, negatively impact the common good. Taxation is not a means to raise revenue, it does raise revenue but so what, it has nothing to do with the issuance of currency and more to do with limiting or stopping activities that do harm (guess why all the talk of a carbon tax). We have seen the devastation and instability, loss of income etc. directly attributable to financial predication, fraud, usury particularly in the financial sector. If we the people want to stop these activities from harming the citizens of the USA, then we ought to elect people and, educate ourselves about the real purposes of taxation and currency issuance and then, further tax those activities that do harm and prevent progress to our common good.

    1. Benedict@Large

      To the extent that you are defining the current system of taxation as political, I think MMT would probably agree that this is not an unreasonable viewpoint.

      But MMT also recognizes that taxes ultimately control the value of money, and that there needs to be a system of taxation that meets whatever goals society establishes for that value. Unfortunately, this aspect of MMT is woefully underdeveloped. [But to be fair, no one else does it either.]

      1. MyLessThanPrimeBeef

        If taxes control the value of money ultimately, does it mean that the more you tax, the more valuable the currency, relative to another currency?

        1. Hypothetical_Taxpayer

          That’s a complicated and trick question. I don’t want to type up how FX may work.

          But if you really want to understand the MMT value of money hypothesis – it’s valuable because you can pay your taxes with it – then these 47% we have heard about that pay no Federal tax would have no use for money.

          Sure it’s theory, but there must be good parts somewhere?

          1. taunger

            It is valuable to the 47% as part of the tax system through the tax credit channel. It is not that you pay taxes with fiat money that makes it valuable, but that fiat is the tax communication channel – its a two way street, to mix metaphors.

          2. Hypothetical_Taxpayer

            Short answer is no one, domestic or foreign would by bonds if they believed the government wouldn’t tax to pay the bonds back in the currency the bonds are denominated in. Also, they don’t really want to be paid back in a spurt of printing press electrons either. Especially foreign ones. Dollars still ok due to reserve currency status.

            At a mininmum that would cause foreign exchange value of the cureency to drop like a rock.

            In practice, we have have bond traders that will buy bonds that can’t be paid back, but they will take the interest payments for now and beleive they can monitor events and trade out before bonds prices or currency value drops.

            The caveat is you need a economy that will support taxation – you can’t squeeze blood out of a rock.

          3. Nathanael

            You’re correct that money-printing would cause the foreign exchange value of our currency to drop. If the foreign exchange value of our currency drops like a rock, *suddenly we have a vibrant export industry* and we can employ lots of people in manufacturing. So, problem solved. A weak currency is a VICTORY when you have unemployment!

            The Swiss government knows this and vowed to print as much money as necessary to keep the Swiss franc below a specified target level, to protect the Swiss export industries.

        2. Ed Seedhouse

          “But if you really want to understand the MMT value of money hypothesis – it’s valuable because you can pay your taxes with it – then these 47% we have heard about that pay no Federal tax would have no use for money.”

          Yeah, because of course Income tax is the only tax and those who don’t pay income tax don’t pay any tax. Oh, wait…

          1. MyLessThanPrimeBeef

            Income tax should be the only tax.

            Actually, if we only want one tax, wealth tax should be it.

            GDP sharing would elimiate any need for tax at all.

            It’s simple too – calcuate the GDP/capita and everyone get a paycheck every quarter. If there is any manipulation, sorry, mistake, we all suffer equally – none of that inequality stuff.

            Becuase it’s simple, you can do it with small government – remember trust no one over 30 and fore sure, you can’t trust the government, even if you have forgotten to wear flowers in your hair.

      2. Tom

        Taxation is not part of Modern Monetary Theory – Taxation is a tool of government to aid in the fulfillment of societal goals set by those who are governed, it also pays for the government functions.. the will of the people. Why do you think so many of the predators are want to control government functions, news and information outlets, scientific discovery and every limb of the body human. Why do you suppose that Kock Bros., energy sector multinationals etal. are want to spend huge sums of money bribing politicians and steering the public discourse. Why are they steering the discourse in directions diametrically opposed to the will of the people and, to the survival of our species. Why do you suppose the climate deniers are almost exclusively backed by polluters who have huge stakes in not paying for damages already done and, to maximize their personal fortunes by continuance of lobby activities designed to detach their gains from societal loss. Why do the TBTF institutions and those they back in congress wish to subvert the will of the people to their self interest through devices like the fiscal cliff and to the detriment of the people.
        If the will of the people is to create jobs and to pay descent wages, to balance the inequities of our country,to avoid tyranny, to have a just society and push ahead into the future then it can be done politically as it should be. The ceding of government to the debauchery of vested interests via the demands of plutocratic interests who manipulate and obfuscate science, political debate, news media and election funding and hide behind ‘free market’ propaganda to achieve their narrow interests at the expense of our common good is bad enough. However, that they do it in secret, disguising themselves from the public light while promoting public issues – makes it worse. It should be an indication of their extreme cowardice much the same way many in congress who have signed a tax pledge are cowards, much the same way Norquest (IMO) is a coward for issuing the pledge to be signed and cowers behind it to this day.
        One final question:
        Does anybody know who said something alone the lines of: Claiming patriotism is the last refuge of a coward.

        1. MyLessThanPrimeBeef

          I was told that it (the tax question) depends on which version of MMT you are referencing.

          Is that true?

        2. Aquifer

          “– Taxation is a tool of government to aid in the fulfillment of societal goals set by those who are governed, it also pays for the government functions.. the will of the people.”

          Wait, i thought a central tenet of MMT is that taxes “pay for” precisely – nothing

          1. Hypothetical_Taxpayer

            You are right, but you must understand that MMT is “squishy” theory. Whenever you repeat something they said and question them on it – they respond by saying MMT does NOT say that !?

          2. Calgacus

            Hypothetical Taxpayer: Whenever you repeat something they said and question them on it – they respond by saying MMT does NOT say that !?

            MMT is NOT a “squishy” theory.
            The problem is that the understanding of many proponents is rather squishy. Because the theory is so simple it repels the mind. (Galbraith) And everybody knows MMT implicitly – they just don’t know their knowing very well.

            Since this is a thread with one of my favorite quotes, I’ll give another one from the same source – an important MMT academic who died in 1831. Was ist bekannt ist nicht erkannt. What is familiar, known, (connaitre in French) is not [necessarily] intelligently understood (savoir in French). Everybody has always “instinctually” understood MMT economics. It’s just that much economic theorizing about our inborn understanding is highly defective.

            Aquifer is right and Tom is wrong, taxes don’t (directly) “pay for” government services like SS. What they directly pay for is a not-so-free personal get-out-of-jail-free card for the person who is assessed a tax.
            Just like you used to pay the government and get a quantity of gold, or just like you can pay the government and buy something in a government store. Any of these things can drive the demand for money. Taxes are just the basic modern way. Taxes pay for “things” that individual taxpayers get, not necessarily services that the government provides to the public.

          3. EconCCX

            The problem is that the understanding of many proponents is rather squishy. Because the theory is so simple it repels the mind. (Galbraith) @Calgacus

            Long as we’re invoking the Galbraith reference, here’s his precise wording, from Money (p 24, Bantam, 1976). Emphasis mine:

            The process by which banks create money is so simple that the mind is repelled.

            Galbraith continues:

            The coin on deposit served no less as money by being in a bank and being subject to transfer by the stroke of a primitive pen.

            Invariably it was discovered…that another stroke of the pen would give a borrower from the bank, as distinct from a creditor of the original depositor, a loan from the original and idle deposit. It was not a detail that the bank would have the interest on the loan so made. The original deposit could be told that his deposit was subject to such use — and perhaps be paid for it. The original deposit still stood to the credit of the original depositor. But there was now also a new deposit from the proceeds of the loan. Both deposits could be used to make payments, be used as money. Money had thus been created. The discovery that banks could so create money came very early in the development of banking.

            (That MMT is taken seriously here amply demonstrates the accuracy of Galbraith’s observation.)

      3. Aquifer

        I completely agree – woefully underdeveloped – maybe they’ve done it somewhere, but i would like to see a concise statement of the things they think taxation is or could be useful for, if not for revenue …

        1. Calgacus

          Beardsley Ruml’s 1945 article “Taxation for Revenue is Obsolete” is a classic that answers your question. MMT is NOT a new theory – everybody used to understand it. As I’ve been saying for a long time. And some academic MMTers, who had been I daresay less in touch with web-misrepresentations than I – have been starting to emphasize the lack of novelty (in the usual sense, perhaps) in MMT too.

          1. Aquifer

            Well 1) do you have a citation for that and 2) do the MMTers that are promulgating the theory/description here agree with this assessment of taxation?

        2. stanley mulaik

          I like the definition of money expressed by some MMT “authorities”:
          Money is tokens of debt obligations in units of account between parties in an economy.

          That fits the money sticks used by English for over 800 years. The sticks were not backed up by metal. They didn’t have enough gold and silver for that. The sticks just recorded debt obligations between parties. And studies have shown that at no time in the history of money was a unit of money precisely related to a unit of precious metal (weight, etc.), like “an ounce of pure gold is exchangeable for $35”.

    2. Nathanael

      Tom, accumulation of currency and wealth in the hands of a small elite has proven extremely destructive to democracy. It’s something we need to discourage.

      Therefore, high taxes on the very rich, so as to discourage people from being very rich. It worked in the 1950s.

  15. Jus7tme

    Lauren Lyster talks way too much, way too fast, and most of the words do not contain any information.

    Slow down, delete 80% of the words, and stick with the few sentences that actually contain information.

    Listening to her for more than 30 seconds drives me insane.
    Especially during the intros, where she just prattles on at open throttle. The guests help because they recognize the problem and try to take the speed down.

    Lauren, you need to watch Charlie Rose and learn how to speak.

    1. craazyman

      yeah but she’s hot, so who cares. :)

      I’m going to watch this video tonight right after a few more Floyd Patterson boxing youtubes. The dude wasn’t more than 185 pounds but he could hit like a monster.

      I don’t know what more anybody can say about MMT here in the Peanut Gallery, but if I think of something I won’t hesitate to say it.

      1. craazyman

        Wow, Professor Kelton is pretty hot too!

        Holy Cow, what is this “Booty Call”?

        I just thought of something that could destroy the intellectual foundation of MMT. They say the government can always print money to pay it’s bills, but what if it runs out of paper??

        this stuff is hilarious. nobody knows what money is. nobody in economics that is. You need to watch out the window very carefully to see reality. Money is just an idea, a form of social imagination. How can you run out of social imagination? You can run out of cooperation thought. ecce homo

          1. craazyman

            There’s no doubt. I bet any banker who needs some cash would be happy to see either of them. haha

            MMT has the makings of a religious revival — that just hit me, this IS religious revival energy — and I think that owl with the electric eyes there on Professor Kelton’s desk could be the deity. I know that’s pagan. I’m sorry but it’s not like Christianity is not a thin coat of paint on a canvas of millenia of paganism.

            That owl looks like something from a xanax and red wine dream. I’ve seen stuff like that, even when not on drugs, in my dreams and it’s always a minor shock. You can tell it’s not the same as a normal dream. It jumps in and talks to you wordlessly. Then it pops out. and you remember in the morning. and you wonder in your mind what the hell it was. I remember a few, still, that said things in my head that even I could not have known.

            I respect Professor Kelton’s humanism. I appreciate that. I really do. But this stuff is so much more complicated than numbers and procedures. My hero the shoesalesman might be up for going toe to toe with it, like Floyd Patterson going against Ali,way past his prime.

            he lasted 11 rounds and took a beating that would kill most anybody, later he died from alzheimers. Jesus. Not even to remember. he was so soft spoken and kindly. and Ali made him into a laughing stock and then beat the shit out of him. why do people do that sort of thing?

            Public purpose? a coalition of sanity and insanity, gladiator and saint, trying to agree on how to live and die. It sounds like a religion to me. Money is just the hollow idol but it’s not the reality.

          2. Hypothetical_Taxpayer

            I’ll bet Stephanie has owl dreams like that, but I’d never get on TV and tell everyone.

    2. Up

      Capital Account is less than 30 mins long. Rose’s show on PBS is an hour, no commercials. Lyster is going to end up talking fast sometimes and try to fit in stuff she thinks is relevant. I’ve heard Rose pursue things of dubious importance. Sometimes, I’ve thought he should shut up; he’s no paragon, who is?

    3. diptherio

      Charlie Rose is perhaps the worst interviewer of all time, imo. Terry Gross is up there too. Lauren isn’t great, but she does ask decent questions and, as crazy points out, she’s a hottie. Rose is the biggest soft-ball interviewer ever and he’s ugly to boot,if you want to know what I think (which I am SO sure everyone does).

      1. Up

        Damn! You nailed it, Rose is the King of softball questions. Lauren hot? Ok, I’ll bite, it’s true, she’s very fine!

        …and he’s ugly to boot..


      2. craazyman

        What about Howard Cosell?

        I think Professor Kelton got a little nutty there with the calculation of the billions of wasted working hours lost to the economy, as if they economy was.

        She is definitely hot and her heart’s in the right place, but I wonder if she’s ever had a real job. maybe she has, Maybe she worked as a waitress or did construction work as a flag waiver. I have no idea, but it seems like she’s just gettting lost in the math in her head. Most jobs just f*ck things up. The less hours the better for almost everybody.

        If they paid people to be professionally unemployed that would be better. Then there’d be dignity in laying around doing nothing. It wouldn’t be for everybody, but it might absorb the “buffer stock”. And they’d have money to buy things from the private sector!

        When the product is imagination, like entertainment or software or wireless apps, how can there be a production constraint? It’s impossible. There won’t be inflation. It will be steady deflation until things just get so delusional that people forget they’re alive.

        1. Lambert Strether

          I’m actually so outraged by the official consensus that permanently high DISemployment is A Good Thing that I’m moving in your direction, CM. I think a Jobs Guarantee is way better than what we have (given that it applies only to those “willing to work”) but Jack Crow, long ago, asked a very good question: Why can’t we all have it easy? (too lazy to find the link, and I always misremember the quote).

        2. skippy

          “got a little nutty there with the calculation of the billions of wasted working hours lost to the economy, as if they economy was.” crazzyman

          Skippy…. like next installment of star wars… the geeks take a day off … lolz… how much did the GDP suffer… the loss… lament!

  16. Aquifer

    Hmmmm – focusing on the distinction between “descriptive” and “prescriptive” – remember that applies to gov’t as well – we can describe what government does/has the capacity to do separately from what it “should do” ….

    Kelton’s answer to Lister re China was interesting – she did not refute that China is behaving as an unconstrained money issuer in the way MMT describes, but says it is not doing so in a way the MMTers would recommend … so it would seem that the “prescriptive” aspects are as, if not more important than, the descriptive ones in achieving the goals an economy “should” achieve if it is to be “of, by, and for the people who are part of it.

    This also feeds back into my “favorite” concern – the issue of the payroll tax. When Lister raised the issue of “taxes” – Prof. Kelton specifically mentions and spends time on the payroll tax … and ups the ante considerably – get rid of it comp[etely. I am finding their emphasis on the payroll tax more and more interesting – they don’t come out and say “get rid of all taxes unless needed to fight inflation”, they seem to concentrate on the payroll tax – why is this? Because it is “regressive”? (that is easily fixed) Because it is widespread? (so are just about all taxes)

    I think there is a problem with this for at least a couple of reasons – a) until the “prescriptions” of MMT become the operating principles of our gov’t, the “descriptions” of MMT can and will be used and manipulated by TPTB – so that “removing the payroll tax” gets bipartisan support, including backup from MMTers, in a system which currently does not have, and has no desire to write, a “prescription” for the provision of SS outside of the concept of funding it, in whole or part, by that payroll tax. Could the gov’t do it outside of this “mechanism”? Sure … Will the gov’t do it? This gov’t? Any duopoly gov’t? ha, ha, ha …..

    Now I know the argument – “the gov’t does it outside this mechanism NOW, it’s just that folks don’t know it” Well, OK – but guess what, it is that perception by folks that they, themselves, are funding it that keeps it alive – I keep making this argument over and over and it is either totally ignored or insufficiently, IMO, refuted … So what MMT is doing, in effect, IMO, by removing that “perception”, is providing more ammunition to the “enemy”, because in the absence of a gov’t that wishes to follow the desired “prescriptions” of the current MMTers, which by their own definitions are NOT inherent aspects of the MMT concept, they are putting a powerful tool, their description of MMT, in the hands of a regime that is using/will use it against “we the people”.

    And how will that be done? – very simply, by de-legitimizing the idea of taxes as the price we pay for services, which MMT is doing and which will be quite welcome by TPTB, without at the same time instituting programs whereby the gov’t pays for these services by “printing” money, which MMTers have no power to do. MMTers can write a prescription for a program, but they, themselves, cannot fill it and the folks who have the power to, won’t, as they have demonstrated over and over .. So we will wind up with the worst of both worlds – no “tax based” services, and no gov’t money paid for services …

    So, I suggest, nay plead, with the MMT folks to COOL IT, especially on the payroll tax bit, until we get folks who will enact the “prescriptions” they want their system to facilitate – and even then, they better make sure that folks understand the importance of keeping such folks in power. What they are doing now, IMO, is akin to making “acceptable” the power of nuclear fission – when the folks who are in a position to use it will use it for a bomb …

    Ask yourself – why are you really getting more MSM exposure …

    As always – be careful what you ask for, for you will surely get it ….

      1. Aquifer

        Thanx, MLPB, it’s nice to know that somebody reads my stuff once in a while :), especially when, being a 2 fingered typist, it takes me forever to write it …

    1. joebhed

      If you accept the FICA tax argument on its face, and I do, it is the most readily available vehicle available for placing “purchasing power” – that is the power of money in providing ‘means’ for exchange – directly back into the hands of the consumer, thus correctly alleviating the problem of a lack of aggregate demand.
      But nobody wants to give up the boat unless there is assurance for achieving the benefits of SS. The only reason it became acceptable last time was because there was a concurrent commitment to otherwise fund the balances provided by the tax – so there was no loss to the benefit – and we didn’t need a replacement.
      We could do the same thing again.
      With the same result.
      But MMT claims we do not need taxes to pay for governmment services. And so we don’t need a replacement program. If this is true, then let them propose some other direct government incentive program of exactly the same magnitude as the FICA abandonment and let them convince the government that it doesn’t need that money to come from anywhere in order to pay our benefits.
      Same aggregate demand benefit. No loss of SS funding. Greater potential for the following actions to reduce unemployment.
      There may be a good tactical reason to target FICA. But despite it being an easy target for testing the theory of public purpose money, there is greater reason to protect the funding for SS, it being the only safety net available to many retired persons.
      The priorities of the public are to maintain the program. You can change it as you like. But you can’t defund it without a replacement.
      How about a few hundred $Billion of that ‘create it when we spend it’ variety?
      How will that work?

      For the Money System Common.

      1. Aquifer

        Some other gov’t incentive program –

        My argument in defense of FICA has really nothing to do with whether, from a strictly “financial” point of view, the FICA funds are needed by the gov’t, but from the point of view of a) it is a “man-made” program dependent on the will of the people to sustain it b) the will of the people to do so is much stronger when the people that benefit have some “skin in the game” – when they have personally invested, when they they feel that it is theirs by virtue of that investment. This is not a bizarre idea – but simply the result of human observation. The more removed the “funder” from the “fundee”, the less the attachment –

        FDR understood that, and the folks who want to whack SS/Medicare understand it as well. And until the MMT folks understand it, I feel very strongly their position on taxes will help the enemies of these programs destroy them.

        Even Bush didn’t whack FICA – to put more money in folks pockets he sent them checks! That’s pretty direct …
        There are so many other ways to put more money in folks pockets that MMT could advocate for – why pick this one – wait and see how it will be used to destroy the program …

        I don’t know what else i can say or how else i can say it …

      2. stanley mulaik

        But MMT says taxes are needed to control inflation, and government should not endlessly spend, otherwise inflation results.

  17. Malmo

    Profesor Kelton has done a splendid job explaining herself. Yet how many politicians has she persuade? I suspect not even one, at least one that matters. How many of the plebs has she persuade? Several more than that of the politicians I’m sure. Still, in excess of 98% of the public see the governemnt’s budget like a household’s. That bnut won’t be cracked for years, if ever. Furthermore, this subject is much too esoteric for 90% of the masses, so they are going to fall in line behind either their chosen politicians or MSM proxies, who are all almost uniformly against or ignorant of MMT. Thus, the fastest way to change the public’s mind will be to convince her fellow economists to come on board en masse. The whole idea that the public will somehow gravitate to MMT before Dr. Kelton’s peers is simply ridiculous. Get them on board first and the public and politicians will follow, and not before. There will be no grassroots movement by the people absent a flood of experts on the subject. Ever.

    1. Malmo

      There will be no grassroots movement by the people absent a flood of experts that agree with her on the subject.

      1. MyLessThanPrimeBeef

        Keep things simple.

        If possible, GDP sharing (imagine a national version of corporate profit sharing).

        If not possible, a wealth tax.

        It’s not esoteric at all.

        1. Malmo

          Not esoteric? Are you kidding? Go over to Cullen Roche’s MMT offshoot, MR. Einstein would would lose focus the way MMT’er (and MR folks) claw at each other over technical minutia. And if it’s so damn simple to understand then why aren’t even her peers embracing these so called obvious truths, much less the uninitiated?

          1. geerussell

            MMT is utter simplicity. Spend enough to fund public purpose. Tax enough to control inflation. Rinse, repeat, enjoy prosperity.

            Simplicity doesn’t preclude debate over what public purpose should be (hence, MMR) but what it does do is move the field of debate from the false constraints of financial affordability to the real constraints of inflation.

            Changing the terms of the debate is the big battle, the rest is just politics as usual.

          2. skippy

            @geerussell… “but what it does do is move the field of debate from the false constraints of financial affordability to the real constraints of inflation”

            Skippy… The only restraint is carrying capacity, of which, distribution of that capacity – is questioned… eh.

          3. geerussell


            I’m perfectly happy agreeing with someone who prefers to phrase it in terms of carrying capacity. You can call it carrying capacity, or output capacity or real resources… it still leads to the idea that rather than running out of money, you are running into some real barrier and if you try to brute force through it with more spending you only generate inflation.

            That’s the field of battle I shoot for, from which to has out the political decisions on whether we want old people eating cat food or sick people left to die. (I know, I know, that was editorially charged language but I only used it to emphasize how straightforward I believe the debate and victory is once the myth of affordability is dispensed with)

          4. skippy


            Got that, yet the politic is captured by design. I fear lucid argumentation, shame, rhetoric, moral – ethical pleading is a dead end. Its – *Da Free Market* (I own more stuff – more say) precludes this line of Philosophy (didn’t work out so well for some old brand names in the end either…eh).

            It s just the same shite different day syndrome and the only change is how much further humanity can escape the laws of physics – temporally – until a day of reckoning.

            Skippy… MMT – MMR only work if the proscription is right. This could have all been avoided if it were not for the unsubstantiated axioms of the past – people with wealth are right and everyone else is wrong…

          5. Malmo

            Who said anything about a jobs guarantee being technical minutia? But since you brought it up, the hell with a jobs guarantee unless I can make a Kelton level wage or she a ditch diggers wage.

        2. Aquifer

          I have a question for you, however – wouldn’t this act as an incentive to keep raising the GDP by whatever means? And considering that GDP can be raised by some rather noxious activities, might this not be, as they say, a 2 edged sword as well?

          1. Aquifer

            LS – well yeah, but ISTM when one proposes a policy it is good to mention the “oh, by the way …”. Sometimes that “by the way” is enough to make one drop the policy …

            So which side of the sword is sharper – sometimes that matters, or should matter …

    2. MyLessThanPrimeBeef

      By the way, the fallacy of composition lies not in the government budget not being the same as a household budget (they work the same way), but in private sector savings being the same as personal savings (here, through newspeak and not the fault of the language itself).

  18. Haigh

    Guideline 1: Repeal human nature.

    Rationale: Need to prevent legislators from getting into a mode where each says: “If you vote for mine, I’ll vote for yours.” Otherwise the system has the half-life of a fiat currency.

    1. Nathanael

      The longest-lasting fiat currency lasted for several hundred years in ancient China. There is no “half-life” for fiat currency.

      Governments which don’t provide for the basic material needs of the people, however, fall very quickly.

      1. Haigh

        Your hypothesis will be tested in the next 20 years, because both Bernanke and the MMTers see inflation(price increases) as the constraint on the expansion of credit(FED) or money (MMT government spending).

        1. Nathanael

          Unfortunately, that’s not a clean test of my hypothesis. The US government is not even trying to provide for the basic material needs of its citizens, so I actually expect it to collapse.

    1. jerry

      I guess it’s a sign of progress that you have to scroll down this far to get to the first knee-jerk Zimbabwe reaction.

  19. /l

    “When banks extend loans to their customers, they create money by crediting their customers’ accounts. The usual role of a central bank is to limit this rate of money creation, so that an excessive expansion of money spending does not lead to inflation. But a damaged banking system means that today banks aren’t creating enough money. We have to do it for them. And as private sector balance sheets contract, public sector (government and central bank) balance sheets have to take the strain. ”

    Merwyn King
    chef Bank Of England

  20. JTFaraday

    Other than Lyster’s reference to the FDIC that can’t fund itself through bank fees anymore and so has be funded by the MMT money, in order to bail out bank depositors the next time the bankers use the MMT money to blow themselves up again, the only thing worth taking from that half hour was Kelton’s positively inspired reference to Greenspan’s bottomless pit.

    Now all that remains is to print the T-shirts:

    “The MMT money destroyed the global economy, put the final nail in the coffin of US democracy and destroyed it as a nation, and genocided the Arab mid-east… and all I got was this lousy job at CVS.”

    That somebody doesn’t have a job at CVS tonight is sad enough—and she certainly indulged herself is fair bit of morally righteous verbal diarrhea over the emotional anguish this lost golden opportunity gives her–but all things considered and politically speaking, Professor Kelton could not come across more campy, more superficial, and, indeed, more repulsive if she tried.

    Oh, but thanks for the tax cut! I don’t know why on earth the Repugnants haven’t run her for President yet—she’s a right-tard dreamboat, (and not because of the tax cut).

    I know it’s hard not being a right-tard in a f*cked up fascist country that’s been sucked into the swirling vortex of Greenspan’s toilet but, you know, try.

    1. Malmo

      Well she did appeal to the politicians as a means to rescue us by spending the newly minted money judiciously. Of course said politicians might just keep the corrupt practices in place that have fucked this country up in the worst way. But perhaps that likely outcome escaped her. LOL.

    2. rob

      There is no “MMT money”…you are thinking of “mad money”,or perhaps “monopoly money”…
      MMt money didn’t “do” anything.It does not exist. It is not a seperate stage of money creation, like “hitting the nitro” is another stage of automotive propulsion.or maybe,”go to warp drive,Mr Spock”.
      You have it all wrong.
      What this person was describing is how the current fiat money system, would be better to not be controled by greedy,self-serving private banks, and instead be created by the Gov’t.Who is US.These are all US dollars.
      That part of MMT ,I don’t have a problem with.
      And sure, there was a lot left out…but hey like they say… “if you don’t like it;get your own show”Time restraints and an attempt to include people who otherwise have no introduction to specific topics,means….water it down. start slow..

      1. MyLessThanPrimeBeef

        ‘If you don’t like it, get your own show.’

        Is someone working on Post-Modern Monetary Theory already?

    3. Aquifer

      JT – I realize by now this is your style, but i will repeat, i do think your personal trashing of these folks is unwarranted, frankly rather crude, does NOTHING to help you make your case and in fact tends to be offputting in the extreme to the point of it being counterproductive e.g. I, personally, am frankly having more and more problems with MMT from listening to its proponents here and there, but your personal trashing of them, for me at least, produces a reflex desire to defend them, and perhaps, by extension, their theory. ISTM that is NOT the sort of response you intend, but, then again, who knows, maybe it is ….

      I find nothing “repulsive” about Prof. Kelton …

  21. LeonovaBalletRusse

    Absolutely incredible. “What’s the Matter With UMKansasCity?”

    Is the no-longer-flying Owl of Minerva on Kelson’s side desk a hint?

    Dr. Michael Hudson only.

    1. skippy

      One more word about giving instruction as to what the world ought to be. Philosophy in any case always comes on the scene too late to give it… When philosophy paints its gloomy picture then a form of life has grown old. It cannot be rejuvenated by the gloomy picture, but only understood. Only when the dusk starts to fall does the owl of Minerva spread its wings and fly. ”
      —G.W.F. Hegel, Philosophy of Right

  22. dannyc

    Every time I hear that expression “creative destruction” I think of the millions of children whose parents have lost their jobs, had their homes foreclosed on, seen their pensions looted, have gone bankrupt due to a medical emergency….on and on and on….

    Why isn’t macroeconomics taught so as to serve the needs of human beings rather than some fucking intellectual cannibalism?

    Curiously, I never heard the term “aggregate demand” mentioned. Is it because it smacks too much of prosperity — shared prosperity? Would too many individuals and the economy as a whole benefit too much? So much so that perhaps our politics would even become democratic?

    1. Lambert Strether

      Hmmm…. I first learned the term “aggregate demand” in the MMT context, and I’m sure MMTers are not at all insensitive to it. A Jobs Guarantee, for example, would surely stimulate it, and IIRC that was the argument made in favor of the payroll tax holiday (granted, taxes are a poor means of stimulus, but with a conservative like Obama in office, what can you do? It’s better than a slap in the belly with a wet fish or a poke in the eye with a sharp stick…)

      1. dannyc

        Yes Lambert, I think a jobs guarantee program would be the single best policy move for ALL, including the oligarchs. But, I don’t see why MMTers have to pay semantic fealty to creepy terms like “‘creative destruction’ or ineffectual and demagogic concepts like supply side tax cuts. (“Creepy is the new normal”)

        Also, by explicitly addressing insufficient aggregate demand – and explaining it to the public (that’s another thing: all the neoliberal bad ideas get sold because everyone thinks a PHD is required to understand macroeconomics) – Individuals benefit (families with children) and the economy as a whole grows.

        And finally, it should be explained to the public that stoking aggregate demand is not a giveaway to inefficiency, it is not an idea superimposed onto the economic system, rather it is releasing a power for force already there!

        That, to me, is the best part of Keynes great discovery. He didn’t invent it; he uncovered it and disclosed it.

    2. Nathanael

      “Creative destruction” is *supposed* to mean that when Citibank becomes a ruthless, evil, incompetent corporation, it goes bankrupt, depositors flee, investors lose their money, executives go to prison, and small banks replace it.

      Yeah, that’s not been happening lately, has it?

  23. EDL

    MMT is cute for a status quo policy position. The problem of the lack of full employment is still, in part, a system that amasses existing money in the pockets of a tiny percent of the national population while the rest scramble over crumbs left behind. Our dear professor is laying out a position where that growing inequality would remain untouched while the government tries to backfill the pool for to keep the rest of us poor slobs employed. IMO the distribution of national wealth is as important as the source of money to match new wealth in a growing economy. So a payroll tax holiday is cute … but so is raising the taxes on corporate profits, financial windfalls, and speculative income massively and deploying that money in human capital and infrastructure investments. Yeah that’s right I support communism….

    1. Lambert Strether

      So, you have no problem with the descriptive aspect, but quarrel with the prescriptive? That’s fine… “Public purpose” should be determined by the public in public, after all.

    2. 4D


      I made this same preserving the staus quo/imbalance point numerous times here and on other MMT sites but gave up two years after never once getting a response from the pro-MMT bunch.

      To me its the right basic approach at the wrong time and will do little to rebalance the structural weaknesses in the US and would have negligible trickle through impact on consumer debt loads. Until that is sorted through natural market forces everything else is a running repair.

      1. skippy

        Concur… as the US of A has been, for some time, the largest consumer of – everything – on the planet. The balances issue is its Achilles heal… hence new paradigm shift.

        1. 4D

          “Concur… as the US of A has been, for some time, the largest consumer of – everything – on the planet. The balances issue is its Achilles heal… hence new paradigm shift.”

          Which brings me to my other bone of contention with MMT.

          The theory seems to be ok for the US and other major economies, and while there is knee-jerk mocking when the Zimbabwe objection is raised, MMT most definitely has dangerous implications in the wrong hands. It could easily be used to justfiy all sorts of profligate government spending in less developed and “overseen” countries.

          Again, never got a decent counter to this point, only obfuscation.

      2. Thorstein

        Back at 2:34 pm PeterP said

        Do you have a model that shows that we are not taxing the 0.01% enough? What is your objective function in the model?

        implying that MMT is objective-function-neutral. It seems to me that the GINI coefficient makes for a perfectly good OF. Or, perhaps better, take the number of “discouraged workers”. So the choice of an OF is a moral issue, not an axiom of accounting or economic theory per se.

  24. Don Levit

    You wrote earlier that government doesn’t need taxes to pay for SS. You also said that taxes represent a get out of jail free card.
    Putting those 2 statements together, you seem to suggest that it is government’s ability to tax which provides its power, and the corresponding value of the dollar.
    Today, for every $1 of tax, we are spending $1.43. And, that is only for the last year.
    It seems to me there comes a point when government’s power is weakened, along with its currency, if the borrrowing gets to a point where the taxes bring in so little in relation to spending, that its full faith and credit is compromised. At that point, its power is more dependent on force than faith in the full value and credit.
    Don Levit

  25. James

    On my first day of introductory economics in college, professor Feldstein stressed the difference between positive and normative economics. I think that reviewing those definitions would be helpful for the entire comment thread.

    Positive economics is relatively scientific (testable) and focuses on value-free descriptions of and predictions about economic relationships.

    Normative economics deals with values and addresses what should be rather than what is.

    A lot of the the criticisms of MMT (especially from hard money types) attack the positive framework but ultimately reference a normative conclusion. Whether or not you believe that a fiat money system is a “good” system to adopt, it is clear that MMT does a better job of describing objective reality than frame works that try to extrapolate personal solvency constraints to a model for the behavior of a fiat currency issuer.

    To briefly tackle the normative question, my contention is that the primary macro problem facing the global economy is too much private sector. The desire of the private sector to collectively save and pay down debt is creating a shortage of aggregate demand which is driving the output gap/unemployment.

    The two choices are to either have less debt or to increase real private sector income/wealth so that the debt burden becomes sustainable. If one wants to pursue the second option the only way to do that is through deficit spending (sorry uncle ben manipulating the natural rate of interest wont do it) and the question then becomes what is the best way to go about that (e.g. more govt infrastructure projects, further reductions in taxes, issue more bonds to finance the deficit or just electronically credit ppl’s bank accounts)

    1. Gordon

      That’s a useful distinction. As far as the ‘positive’ goes I’ve long been persuaded that MMT provides the best description of how the system works but have puzzled over the prescriptive side. For instance I see no necessary link between an MMT analysis and job guarantee (although I happen to think a JG would be good and MMT explodes some of the anti-spending arguments used by deficit hawks.

      Kelton makes it clear what she would like to see, repeatedly saying at one point “investment in infrastructure, investment in education, investment in…”

      That’s fine but it takes us out of the sphere of macro into micro which she treats rather as what I call a ‘black box’ – a subsystem I can see but not see inside or understand. I can only know (or hope) that it works or doesn’t work. She assumes it works.

      Now, I’ve no problem with investment PROVIDED that it’s actually investment in the sense its well founded with a positive return. In practice much of government spending (I’m in Britain but I don’t think it’s materially different in the US) doesn’t meet this criterion -the subsystem inside the investment appraisal black box is broken – and politicians just throw money at problems in the hope that some of it sticks or because it fattens up their sponsors in the MIC or big pharma etc.

      While that remains the case government, especially ‘big’ government is going to remain unpopular with a large section of the population and with reason. MMT cannot touch that problem.

  26. Bryan

    In Modern Money Theory the value of money is never discussed. It is an exchange medium. As well it never examines what displacements take place when the government choose where and how to spend money. Some people refer to this as malinvestment. Malinvestment was one of the largest components of the great depression. we built not productive assets. We bulit infrastructure years before they were needed.

    The money does come from somewhere else. The debts will be paid back or we have war with the countries whom we defaut to in order to settle those debts. We always have.

    1. MRW

      The money does come from somewhere else. The debts will be paid back or we have war with the countries whom we defaut to in order to settle those debts. We always have.

      Hunh? When you say “money” do you mean US dollars? Because only the US Govt can issue US money. Worldwide. Globally. WHY would we borrow money that we issue ourselves from other countries? Where did those countries get that US currency to begin with, who issued it? We certainly don’t borrow from China. China’s checking acct at the Fed is made up of payments from Walmart, Kmart and Target, etc. If China wants to get interest (instead of trading it for Yuan on the open market like you or I), it moves the dollars from checking to savings when it buys, or in order to buy, Treasury securities. The act of cashing those securities when they become due and moving the money back from China’s savings acct into its checking acct is called “paying off the National Debt.” Read the Treasury.gov FAQs.

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