Yves here. Readers may regard one of Joe’s ideas, that of putting central banking functions back under the control of the Treasury (as they were for around 70 years prior to the creation of the Federal Reserve System) as ceding too much power to the executive branch. While those concerns are valid, the idea that the Fed is independent is spurious. Greenspan weighed in on a number of policy debates in the Clinton and Bush administrations (prior to that, the Fed was above the fray) and Bernanke has worked fist and glove with the Treasury before, during, and after the crisis.
While combining the Fed and the Treasury may seem unappealing, we now have a powerful and secretive Fed that is not accountable to the public and overly bank-focused in its priorities. Changes in governance are needed. Implementing Audit the Fed as originally proposed by Ron Paul and Alan Grayson would be one big step forward. Feel free to suggest other proposals.
By Joe Firestone, Ph.D., Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director of KMCI’s CKIM Certificate program. He has taught political science as the graduate and undergraduate level and blogs regularly at Corrente, Firedoglake and Daily Kos as letsgetitdone. Cross posted from New Economic Perspectives
Our Congresspeople, corporate CEOs, tea partiers, most economists, Pete Peterson’s minions, and even our President, tell us that we’re running out of money; and that we can’t keep running huge deficits, and increasing our national debt forever, because eventually, our creditors will just cease lending us our dollars back.
They also tell us that the Government can only raise money by either taxing or borrowing, and that when it comes to taxing, we can’t tax “the job creators” very much or they’ll go on strike and won’t create any jobs because we’ll have killed their incentive. So, here we are, we have to reduce our borrowing, and we can have hardly any tax increases on “the job creators,” so what’s a fiscally responsible nation to do?
Well, they say, clearly “we” have to lower taxes on “the job creators” even more, raise them on the “unproductive” 47% or is it the 99%? And also, cut spending substantially on programs that provide benefits for the poor, the middle class, and even the 99%, so we can “. . . live within our means,” and remove the burden of excessive public debt on our grandchildren.
But, what if we say to these people, well, “the job creators” aren’t making any jobs? That’s a fact! They give all kinds of excuses, but the truth is that they have no sales, so they have no incentive to create any more jobs.
On the other hand, the more we lower their taxes, the more money they have sitting idle, and the more they have an incentive to use that money to invest in financial manipulation schemes rather than jobs. So, why not tax them at extremely high rates on net profits and provide them an incentive to lower their net profits by spending more of their gross profits on tax-deductible business expenses like employees and business expansion? Why won’t high taxes on them do more to create jobs than lower taxes? Didn’t we have far lower unemployment rates when marginal tax rates were sky-high, than we have now when they are a pittance on the wealthy?
And what if we say to them, well, Congress can always reorganize the Federal Reserve so that the regional Fed Banks are nationalized and both they and the Board of Governors are placed under the authority of the Secretary of the Treasury, so that the Secretary is empowered to create reserves out of thin air to fill the Treasury’s spending account, and keep it filled with sufficient funds to repay the national debt and cover the deficit without borrowing? And what if we tell them further, that we know that Congress has the Constitutional authority to do this? And what if we ask them, why doesn’t it do this, and get the national debt that you, our leaders, are so worried about, paid off, and keep us debt free? And what if we ask them still further, and if you do this then why would we have to have any spending cuts or tax increases, at all?
And what if we say to them, we also know that to pay off the national debt and cover the deficits for years to come; it isn’t even necessary for Congress to reorganize the Fed, because the Treasury can use the Fed to create money in Treasury’s account from seigniorage? What if we say to them that all that’s necessary is for the President to mint a High Value Platinum Coin (HVPC) with a face value of $60 Trillion dollars, deposit it at the Fed, and then begin to pay off the national debt and implement deficit spending using the electronic credits created in the process of seigniorage?
And what if we say to them, we also know that it is a myth that the Federal Government can only get money for spending from taxing or borrowing because Congress can modify the laws, as just described, so Treasury can generate US money out of thin air, just as the Fed does today, that Treasury can use to pay down the debt and cover deficit spending?
And what if we say to them, we know that you’ll say that this is “printing money” and will cause inflation? But what if we then say, sorry, but we know very well that it will not cause inflation; because reserves issued unaccompanied by debt are no more inflationary than reserves issued along with debt and, most importantly, we also know that if you legislate the ability for Treasury to do this, then you won’t have to worry about the deficit and debt or our grand children anymore; and we won’t have to worry about your cutting safety net and other necessary programs anymore?
And what if we say to them, we also know that it is a myth that the Federal Government can only get money for spending from taxing or borrowing, because the President can use Platinum Coin Seigniorage (PCS) to harness the power of the Fed to generate reserves that end up in the Treasury General Account (TGA), and Treasury can then use the reserves to pay down the debt and cover deficit spending?
And what if we say to them, we also know that this won’t cause inflation for reasons stated above, and, most importantly, we also know that if Treasury does this on orders of the President, then you won’t have to worry about the deficit and debt or our grand children anymore; and we won’t have to worry about your cutting safety net and other necessary programs anymore either?
And what if we tell them that, for all the reasons indicated in these questions, we also know that all your reasons for wanting to reduce the deficit and impose austerity on the 99% are bogus? We don’t know which of you believe in these reasons and which of you do not. But this isn’t as important as it seems, because we know that the debt commissions, the debt ceiling crises, the fiscal cliff, the sequestration, the continuing resolution, budgetary crises, and the constant propaganda campaign from all of you directed at all of us, is a grand “shock doctrine” process attempting to swindle us out of a government that works for 99% of us rather than the 1%. We know that “the Grand Bargain” is “the Great Betrayal”! And we won’t have it!
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I had a tooth removed today that I had waited too long to take care of.
I would tell them that the world has had this class based bad tooth of a social organization long enough, it went bad and had to be removed.
I would tell them that the mouth will recover. We know how to make replacement teeth (and other solutions) and we just need the collective will to make those things happen.
I would tell them that even some of us that are a bit long in the teeth can feel the bankruptcy that your world is offering to the young and are willing to band with them to end the class system of present with inheritance as a centerpiece and competition as its religion.
Are you calling the Fed a “bad tooth”? That’s the funniest thing I’ve heard recently. Wonder if we can make that meme stick?
We will tell them nothing. We have been trained to believe the lies, to adore the thieves and to elect the inept.
I find no refuge in hopelessness. Why do you?
Thanks Joe, for stating that so directly. This is the big lie that the 1% continue to impose so that they maintain their wealth and control. Even intelligent people have a hard time grasping these ideas and instead impose superstitions about “market discipline” (an oxymoron if ever there was one) and scare tactics like the hyperinflation bogeyman to keep the lid on. But its coming off. The platinum coin idea is out there, just as the 99% v. 1% meme … and these ideas will continue to disseminate and grow. And as they make our world more and more miserable, and they continue their lies to keep the people miserable and poor, these ideas will gain more and more traction until we win, and kick these lying, thieving, murdering monsters into a deep pit, where they can think about their greed and soulless monstrousness for a long, long time.
I’ve had a lot to do with the Platinum coin being out there. I don’t have a big platform; but I’ve tried to make up for that by blogging frequently and with a fair amount of intensity. But during the recent explosion of interest in PCS; I wasn’t able to overcome the Trillion Dollar Coin (TDC) meme, to get people talking about austerity and the $60 T coin to kill it! So, in a way, I’m glad the MSM is shutting up for awhile about the coin; so the real blogosphere can work on the memes for the austerity-killing game-changing coin, so that when it next surfaces in the MSM, they’re talking about a solution to problems rather than just a band-aid. We can all help with that if we blog and comment and rub the MSM noses in the idea that just blew a great opportunity to go after austerity. But we won’t let them do that again!
A platinum coin of any denomination is a piece of legal sleight-of-hand: it is ostensibly a solution that the Administration can enact on its own, because Congress has legislatively limited the options. But the fact is a complicit Congress can can create any money system that the Effective Lobbies support.
PCS as “gimmick” is the way to open everybody’s eyes to the fact that “money” is not “debt”, and leads them to question, “Well then what is this thing called money?” That is the debate we urgently need to have on the broadest possible level.
As for the $1T coin petition, at the rate it is going, it looks to be about 4,000 signatures short by Feb. 2. Getting the signatures will send a message to the White House.
https://petitions.whitehouse.gov/petition/direct-united-states-mint-make-single-platinum-trillion-dollar-coin/8hvJbLl6
The biggest lie as Michael Hudson points out is that there’s always plenty to borrow from the future to pay bankers and war-makers…but oh no Grandma’s cat food (Soc.Sec) must be pre-funded or slashed.
Let’s have the bankers pre-fund their next multi-trillion bailouts, and have the MIC pre-fund the next series of Permanent Wars. Same logic, no?
Might pay for a few new bridges, highways, and airports around the place
I have a question. It isn’t quite that the Treasury is creating money out of ‘thin air’ just like the Fed, if I understand correctly, because no Treasury bonds would be issued, correct? So…..If we started issuing non-debt based money, minting platinum coins, how would the rest of the world (markets) respond? Would they accept this as sound monetary policy? Or would they view this as printing bogus money, want to move off the dollar as reserve currency and would the value of the USD plunge? Has any other country ever implemented this? If so, how did it work out for them? If not, why not?
LucyLulu (and Yves),
“…..So…..If we started issuing non-debt based money, minting platinum coins, how would the rest of the world (markets) respond? Would they accept this as sound monetary policy? Or would they view this as printing bogus money, want to move off the dollar as reserve currency and would the value of the USD plunge? ” .
A related question here – what if India starts printing money ? Or , say, implements a huge fiscal stimulus to end its rural poverty ? Another question is with “reserve currency” – if US militarist influence world over (both overt and covert) were to go down significantly from its current levels, will it impact dollar’s position as reserve currency ?
Thanks in advance.
Cheers,
Mahesh.
@LL, your argument seems implicitly based on idea that the current system does NOT create money “out of thin air.” As I understand the current Fed+TBTF banking system, we already create money out of thin air. That seems to be what QE is all about (although I suppose the MMT observation that “loans create deposits” implies ths much or most money is still-debt based under ordinary circumstances).
So, to recast your question, why do the international markets still — after multiple rounds of big-time QE — regard the US$ to be the premiere reserve currency, as indicated by near-zero interest rates?
Would Treasury’s foot on the monetary accelerator be seen as less reliable than the Fed Board’s, which we all know primarily represents self-serving TBTF bankers with a track record of creating boom-and-bust economic cycles? Has “Independent” Central Bankism become the one true faith among money managers worldwide, despite its stunning and manifest failures?
Boom and bust cycles are a phenomenon of capitalism; they are not “created” by bankers, as self-serving as they are. Before the creation of the Federal Reserve, booms and busts were more severe and private banks had even more control over the money supply.
The Fed surely needs to be brought under democratic control and surely needs to be restructured. But it’s simply a tool necessary to somewhat ameliorate the extremes of capitalism, the same as every other central bank. Look to whole picture, not to one single component, however much that component is worthy of the strongest critique.
I don’t look to one component, and I see an evolution with the Fed coming under Treasury some years down the road. But making the Fed accountable to people rather than Wall Street needs to begin now. Audits are good; but also reducing the role of monetary policy in our economy, increasing the role of fiscal policy, and using the Fed’s powers to fill the public purse for easy debt repayment and easier enactment of active fiscal policy ought to be the first steps in the transformation to democratic accountability of that fiercely accountable to Wall Street-only institution.
Also, the “independence” of the Fed is a myth in my view, the real question is who it will be accountable to, I prefer that it be Treasury and the President, rather than Wall Street and the Banks.
I’d love to see the evidence that the boom/bust cycle isn’t ’caused’ by banks/central banks creating an expansion of the money supply. I have been spending quite some time looking for recors of bubbles anywhere in the historical record that are not accompanied by private banks increasing the money supply, diluting the quality/quantity of reserves, or governments/central banks (whoever issued money at the time) expanding the money supply through printing, devaluing coinage, whatever method….I can’t say monetary policy is the sole cause of bubbles, but I haven’t been able to find any, anywhere, any time that have occured without this conditioneither…
The platinum coin is merely a way to make the debt ceiling legislation irrelevant. Obama could also invoke the 14th amendment, but he refuses to. Expenditures were already approved by Congress; the debt ceiling will interfere with Congressionally-approved payments being made.
If the coin were used, or threatened to be use, the Republican would back down. But as today’s links show, they are backing down on the debt ceiling anyhow.
Deficit spending is deficit spending. We’ve argued that deficit spending is actually necessary now since household save and businesses in aggregate are net saving, so the government needs to run deficits to accommodate them. And with so much slack in the economy, we have a long long way to go in employing slack resources before inflation is a risk. So direct monetization is not a risk. Issuing debt (operationally) is to accommodate the portfolio preference of investors (although the US has as a gold standard holdover that we fund deficit spending only via bond issuance).
Investors choose how they want to hold funds. Issuing Treasuries allows them to put cash in a risk free bond. If the government simply spent, investors would make other choices as to where to put any surplus funds.
If the government creates a platinum coin, it leaves money out in circulation which would otherwise have to be extracted through taxation and destroyed when the debt was repaid. Therefore the value of the money is diluted (and wealth is taken from anyone who has money, or has an income which is not increased in line with the money supply). Whether that causes inflation in the sense of increased general prices (which depends on the velocity of the money) depends on whether people believe it is a permanent state of affairs, and particularly whether they suspect that the government might do it again (and again, and again). More likely, it will just inflate yet another bubble somewhere else.
Yes, the government can try to encourage people to work harder to take up supposed slack in the economy, but what this really means is making people work harder in order to obtain the same standard of living. The reason that there is slack in the economy is that it would cost more to employ people than the value they would create in their employment. If you force people into employment even though their net contribution (under current circumstances) would be negative, all you do is debase the currency and take from those who have tried to do the right thing by saving for the future.
I fail to see the moral distinction between creating platinum coins and stealing.
“I fail to see the moral distinction between creating platinum coins and stealing.”
Bingo! All “taxation” is theft and requires the threat of violence as a fundamental prerequisite. The inflation tax is no different from a moral perspective than the income tax, or the sales tax, or the value-added tax, etc.
Taxation as theft is the conversation nobody wants to have. The solutions to our problems are not more fiat money, but rather standing up and saying no to all coercive relationships, starting with the one with the government, a gang of thieves writ large. Unfortunately, widespread state propaganda (they start indoctrinating the children around age five here in the states) has made this conversation nearly impossible.
The universally immoral nature of theft, and by implication the threat of violence, is the issue here, and I sincerely thank you for pointing it out.
Oops, looks like Yves banned me again, time to move to the next account…
There is so much wrong here I will respond inline. Your comment is in the quoted sections:
“If the government creates a platinum coin, it leaves money out in circulation which would otherwise have to be extracted through taxation and destroyed when the debt was repaid. Therefore the value of the money is diluted (and wealth is taken from anyone who has money, or has an income which is not increased in line with the money supply).”
The value of money is “diluted” in countless ways by the current system. Yes the government, if inflation occurs, can tax some of the money it creates without debt out of the system. You are confusing a vague notion of “dilution” with inflation, which are not the same thing. “Dilution” happens every time a bank makes a loan. Whether the money eventually “disappears” when the loan is repaid is rather irrelevant, given that the banks are almost always creating a greater loan pool than what existed before, diluting the money supply with no end in sight. If you want to be angry at “dilution” be angry at the banks that do this for bad purpose or no purpose other than to fatten their already fat wallets.
“Whether that causes inflation in the sense of increased general prices (which depends on the velocity of the money) depends on whether people believe it is a permanent state of affairs, and particularly whether they suspect that the government might do it again (and again, and again). More likely, it will just inflate yet another bubble somewhere else.”
No. Inflation isn’t dependent on the velocity of money, it is a product of supply and demand. And people’s “beliefs” have very little to do with inflation as well. This smacks of the, I believe Ricardian, notion that government spending can never actually boost economic activity because the private sector, understanding that this spending will mean increased taxes for it at some ill-defined point, will stop spending money now to save for those tax payments. This idea is laughably false. The idea that people will refuse to spend the money they have now based on some future supposed taxation depends for its patina of truth on the current sick system whereby the government insists on issuing debt to offset money printing. Do away with that and you do away with this lame and thoroughly disproven meme. And no, bubbles are not caused by government spending money on useful economic activity. They are caused by banks that see an opportunity to inflate their balance sheets and thus increase bonuses by funneling too much money into a particular economic sector and overheating it by making fraudulent loans, combined with cooperation from their friends in the giant media companies that help stoke a fever for whatever commodity they are trying to inflate this time. Bubbles are bank phenomena, as evidenced by the 19th century, when we didn’t even have a central bank, yet bubbles were horrible and frequent and caused long recessions and depressions.
“Yes, the government can try to encourage people to work harder to take up supposed slack in the economy, but what this really means is making people work harder in order to obtain the same standard of living. The reason that there is slack in the economy is that it would cost more to employ people than the value they would create in their employment. If you force people into employment even though their net contribution (under current circumstances) would be negative, all you do is debase the currency and take from those who have tried to do the right thing by saving for the future.”
No. The reason there is slack in the economy is because there is not enough demand for the goods and services the economy produces. The reason for that, in this current depression, is that individuals are over-burdened with debt/interest repayments due to decades of wage stagnation with no other way to pay for necessities like food, clothing, healthcare, education and shelter. The idea that employing people can somehow be a net negative on the economy can only be true if you don’t believe that people who have money in their pockets to spend is helpful to economic growth. You are more concerned with protecting some arbitrary notion of net worth than you are in growing and sustaining a healthy economy for all. The idea that your net worth will somehow be destroyed if demand grows is as flawed as anything you wrote today. Since when does increased economic demand destroy anything? Unless of course we reach a point where demand outstrips supply and inflation occurs, your strange fears are unfounded and frankly, rather inhumane. And at that point, the government can raise taxes to slow economic activity and reduce inflation. In our current system we have inflation aplenty (mainly due to commodity speculation among the very rich, which should be banned first if your main fear is inflation) with little demand and a sick, ailing economy that works for fewer and fewer while the tiny percent at the top gets disgustingly rich.
“I fail to see the moral distinction between creating platinum coins and stealing.”
This is because you have a flawed understanding of how an economy works, and how your proposed savings/investments will be affected under the platinum coin economy versus the current system. A healthy economy with healthy, sustainable growth is preferable for your investments to the current one where assets are being artificially inflated by massive money dumping into the markets by the Fed. If you are really concerned with your savings/investments your focus should be on attacking the current system that directs trillions of dollars into unproductive economic activity at the expense of a healthy economy with strong demand and a strong workforce.
Sorry, no. You can’t use a Treasury to buy a loaf of bread but you can use it to buy a company either using it as collateral or by repo’ing it. So in the financial world Treasuries and cash are essentially equivalent. The main difference at this level being that, unlike cash, the Treasury earns interest. So Treasuries do not soak up liquidity. They are liquid. Nothing gets diluted.
The real theft occurs in the payment of hundreds of billions of dollars each year in interest on Treasuries when there is no need to.
“Sorry, no. You can’t use a Treasury to buy a loaf of bread”
I’d sell you a loaf of bread for a $1000 10-year Treasury. I’d even courier it to your house for that. :-)
“but you can use it to buy a company either using it as collateral or by repo’ing it. So in the financial world Treasuries and cash are essentially equivalent.”
Well Treasuries fluctuate in value as interest rates rise and fall, so they are not really equivalent. There is also the issue that they are only equivalent to cash as long as people believe that they will be repaid in full, which means that the people are both willing and able to pay enough taxes for the Treasuries to be repaid. Try telling holders of Greek government bonds that they’re equivalent to the face value in cash. (Unless they’re the ECB of course – those people will believe you).
“The main difference at this level being that, unlike cash, the Treasury earns interest. So Treasuries do not soak up liquidity. They are liquid. Nothing gets diluted.”
I’m not quite sure of your point here. Yes, Treasuries are extremely liquid. But I wasn’t referring to reverse repos at all. I was simply saying that if you create a $1 trillion dollar coin, and use it to repay the Fed in exchange for destroying $1 trillion of Treasuries, it will be very different from taxing $1 trillion out of circulation and using _that_ to pay the Fed in exchange for destroying the $1 trillion of Treasuries. In the former case, there is an extra $1 trillion in circulation.
“The real theft occurs in the payment of hundreds of billions of dollars each year in interest on Treasuries when there is no need to.”
Well I’ve heard that argued before. But frankly I don’t see why governments shouldn’t have to pay the owners of capital for the privilege of borrowing it. If it were free for them to create new money (which is equivalent to shaving a bit of value off every existing note and coin), what would stop them?
And there’s an extremely easy way not to pay hundreds of billions of dollars each year in interest on Treasuries: stop borrowing so much money.
@striped-pad “Stop borrowing money.” Well, yeah. That’s Joe’s proposal. Not only do we not need to, the vig is killing us and making our enemies stronger.
Your thinking is completely upside down. Greece is a currency user, not a currency issuer. In using the euro, it operates under the same constraints as if it were under a gold standard. The US dispensed with the gold standard 40 years ago and has a fiat currency. What’s next are you going to say the government is like a household?
As for privileges, the privilege is to the lender in that government is borrowing money it doesn’t need to and rewarding the lender for a completely unproductive service.
And re the equation of Treasuries and cash, you seem to have this idea that Treasuries decrease the velocity of money by tying some of it up. But as I pointed out to you, in the financial world, this isn’t the case. There Treasuries act and are used much like money.
“I fail to see the moral distinction between creating platinum coins and stealing.”
That is, you believe that seigniorage is stealing. That is, you do not believe that the gov’t has the right to create money.
If we were still ruled by monarchs, you would have a point. But these days we have democracies. Before the American Revolution, the colonies created their own money, and prospered because they did. When Parliament said that “colonial scrip” was not legal tender, that was one of the complaints of the colonies that led to the Revolution.
“What’s next are you going to say the government is like a household?”
Oy gevalt! He’s not saying “the government is like a household.” He’s saying he wants to make money in bonds:
“I don’t see why governments shouldn’t have to pay the owners of capital for the privilege of borrowing it.”
His name is “striped pad,” for cripes sake. He’s practically giving it away.
The thing is, you need a nice little (lawful, limited) Republic for his “striped pad” era theory of public funding, (and this Imperial Terrordrome sure as hell ain’t it).
“If the government simply spent, investors would make other choices as to where to put any surplus funds.”
Yes, and perhaps they would then invest in businesses that actually expanded the production of goods and services and employed people.
You know, become like job creators.
A $60 T coin would eliminate the debt ceiling problem; but more importantly, it is for eliminating the political driving force and messaging pushing us toward austerity. That driving force is the scariness of “the debt” to most people. We can try to educate people out of their fear by pointing out that “the debt” is not really debt, as Bill Mitchell, Warren Mosler, Mike Norman, and I have tried to point out in the past; but that education process to would take many years before may people accept the reality that Treasury Securities out there are like time deposits people have in banks rather than the debts they have to banks.
I don’t think we can wait years for that to happen with real unemployment rates remaining at 15%. The $60 T coin is so important because it would get rid of the debt rapidly and effortlessly while demonstrating the power of the Government to create its own money. I think that as this understanding over a period of 6 months sinks into our collective psyche, austerity will simply die. And political conflicts will reform around what policies we ought to enact, rather than how much they add to our deficit/debt.
So, in short, it’s not really about the debt ceiling. It’s about getting Pete Peterson and the rest of the austerians out of politics for good.
I’d say that the “political driving force pushing us towards austerity” is the strong commitment of America’s political elite to service the property protection and profit-taking demands of privately own capital. It is this force — this strong commitment — which will rule out platinum coin seigniorage.
The Constitution of 1787 was meant to defend the class interests of the nation’s oligarchs. The oligarchs of that time wanted sound money, debt repayment and property defense, including a defense of human chattal. The oligarchs and economic elite of today want much of the same. The more things change, the more they remain the same….
We may see platinum coin seigniorage sometime after we see a series of general strikes — if we manage to avoid ‘evolving’ into a dictatorship.
I find it difficult to understand why you don’t see the coin as a huge distraction rather than a real solution. If you think we need to stimulate the economy with a jobs program, and I heartily agree, then why not use your intelligence and your energy to argue for a jobs program? Something along the lines of FDR’s WPA sounds right to me, and would sound right to a whole lot of people in this country, especially the unemployed. Even if the coin is somehow not a pie in sky fantasy, that’s how it sounds to 99% of US citizens, I can guarantee it. So why waste time with it?
Your intentions strike me as good, but your tactics are lousy. If we need more jobs, then let’s fight for a jobs program, for crying out loud. Forget the coin, it’s a waste of time. Write an article about it for some esoteric academic journal, if you really thing it makes some sort of sense, but recognize that as far as the real politics affecting real people is concerned, it’s a non-starter.
@DocG “Why not fight for a jobs program?” Because the answer to that will be (“We can’t afford it” (“the debt” (austerity))).
“Fight for ____” is always programmatic, therefore tactical. Joe is proposing the strategic weapon that will allow these fights to be won.
“We can try to educate people out of their fear by pointing out that “the debt” is not really debt, as Bill Mitchell, Warren Mosler, Mike Norman, and I have tried to point out in the past”
If holders of Treasuries start to believe that it’s not debt i.e. that it won’t be repaid, what’s going to persuade them to transfer use of their capital to the government in future? Do you have any savings? Would you lend them to the government if you thought you wouldn’t be repaid? The entire value of the currency is predicated on Treasuries (and other bonds and loans) being debt. It’s backed by promises. Otherwise it’s a pure fiat currency, and infinitely manipulable. Who would ever save again, knowing that the value of their savings could be destroyed in an instant?
Instant Zimbabwe – just add zeroes.
Jobs Program:
We pretend to work, and they pretend to pay us.
Jobs Program:
We pretend to work, and they pretend to pay us. – ebear
Skippy… a lot of that going around for along time… whats your point?
“If holders of Treasuries start to believe that it’s not debt i.e. that it won’t be repaid, what’s going to persuade them to transfer use of their capital to the government in future?”
Oh, you must be Alexander Hamilton’s “striped pad.”
I didn’t know they even had striped pads in those days. I always see this picture of Sam Adams pointing at something that looks like a papyrus scroll.
Look, the Imperial Terrordrome doesn’t care what your striped pad says. Got it?
Yes, Yves is right. What we have to get away from is the idea that the public debt is some big awful monster that has to be whipped one way or another. These are the points I think need to be made:
1. If there were no debt ceiling, the Treasury could always pay off all its debt bills simply by issuing more debt.
2. As long as the rates of interest offered for Treasuries are not to high, this perpetual rolling over of debt will not be inflationary.
3. We will never pay off the whole public debt. Nor do we need to. It will grow and grow along with the size of the economy. Debt service payments will also grow and grow. But this can be managed in such a way that it imposes no burden on the capacity for Federal spending.
4. Debt service as a percent of GDP has been going down in recent years and is currently quite low.
5. Treasuries are like savings accounts for large institutions. They move dollars that are not earning interest into a risk-free vehicle that earns a modest amount of interest.
6. The fact that the government is constantly injecting interest into the system is part of what enables all of us to earn interest on our savings as well. The big institutions are intermediaries between the government (Fed + Treasury) and the smaller institutions where we bank and save.
7. We should focus our ire more on bankers, not banks. If bankers are delivering vast sums to some of their employers and to their stockholders, that means we are not doing enough to force them to operate efficiently, and in the public interest.
8.Austerity is indeed a problem. The solution to it is to spend more. Whether we are issuing more debt along this expansion of spending is a functional finance question that is largely irrelevant to the austerity issue. The question about the appropriate volume of public debt really just comes down to how much interest we should be injecting into the economy for savers.
9. The reason there is inadequate investment and employment is not because firms are reaping high rates of financial reward from government debt. The reason instead is inadequate demand caused in part by inadequate government spending.
10. If we see platinum coin issue as a tool for getting around artificial and politically-driven spending constraints, that is good. But if we present it as a tool for “fixing the debt” then we are playing into the austerians hands, because the debt doesn’t need to be fixed.
11. We’re being scammed by the Fix the Debt crowd. Don’t help them by amplifying their talking points.
12. It would probably be a bad thing to pay off all of our debt very suddenly. That would flood the system with money, which would be destabilizing and inflationary, and would lead both the Fed and others to make contractionary moves to offset the inflation.
Sorry, no. Little of the interest on the national debt makes it into the US economy. It goes to service debt that the government owes itself, to various corporations, some pension funds, to foreign countries, and to wealthy private investors, both foreign and domestic.
If the government does not continually supply new net financial assets to the private economy, then the economy cannot generate the additional money needed to pay interest on its own IOUs – including those IOUs that exist in the form of ordianrey savings accounts and money market funds. Issuing public debt is the main way the government injects these additional assets. The large institutional purchasers of government securities are themselves intermediaries for smaller financial institutions.
It’s not that there are no issues here at all, but there is massively too much attention being paid by progressives to the monetary system and not nearly enough on the exploitation, waste and inequalities in the production of real goods and services.
Public debt is not crowding anything out. It’s not the reason we don’t spend enough. It’s not the reason that education and health care are too plutocratic and inegalitarian. It’s not the reason that there is austerity.
The recipients of government payments of interest on the national debt are not those to those who need it to solve the problem of interest. It goes to corporations, wealthy individuals, and foreign countries. It does not go, or only a miniscule portion (in vehicles like Savings Bonds) to ordinary Americans.
The way the interest problem currently operates is in the spiral of private debt piled on private debt.
There are also other ways of addressing the problem of interest. It can be mitigated by strict anti-usury laws. It can be mitigated or eliminated by taxing interest recipients or through deficit spending funded by the issuance of debt free money.
Lambert sez: “Joe is proposing the strategic weapon that will allow these fights to be won.”
No, Joe is proposing a fantasy doomed to fail, that will drastically lower the credibility of good people like himself in the eyes of the general public. A jobs program is consistent with lowering the deficit if it’s combined with a meaningfully progressive taxation system. But the Republicans don’t want that and we progressives have permitted them to lead us around by the nose. THAT’s the problem, NOT our unwillingness to print fiat money. Stand up for what you believe in and forget the gimmicks.
See my earlier reply to Lucy Liu, Mahesh. On the reserve currency business, I don’t think there will be any impact on that status as a result of using the coin, because, as I stated, there will be no inflation resulting from it. But let’s say people panicked and replaced us as the reserve currency, then one: our exports would increase and unemployment would decline; and 2) our militarism would take a hit; because fighting wars overseas would be much more expensive due to the decreased value of USDs. Seems to me both of those things are good for our economy.
“decreased value of USDs.”
And if the value of the dollar declines, the $40 trillion or so of private debt becomes easier to pay off, right?
MMT teaches that he “government” creates every penny it spends, which (while completely true) is an intentional simplification for peopke new to thinking about these things. What happens in specific is that the Fed is the currency issuer and Treasury the currency user. The Fed is forbidden by law from directly funding the Department of Treasury’s spending, so it facilitates the purchase of Treasurys on the secondary securities market.
Government spending and other activities put excess reserves on the balance sheets of the banks, which then use those reserves to purchase Treasury bonds, bills, notes etc. Those reserves are then credited to the Treasury’s account at the Fed and are then used for spending.
So money is always created, even though the process looks like borrowing. We just play a game at the moment to get around the rules.
The Treasury issues currency. Congress has put a cap on currency, except for platinum coins.
The Fed creates money. Congress has put no cap on the money that the Fed creates.
You’re correct – it isn’t exactly the same as the Fed creating dollars in exchange for debt. The most important thing to understand about debt-backed currency is that its value comes from the promise of the borrower to sell in the marketplace some of their wealth (which they typically create after borrowing) in order to repay the debt. It is further backed by the promise of the lender to underwrite the debt if the borrower is unable to repay (i.e. the lender loses some of their capital). Therefore debt-backed currency is not inflationary in the long run, though it can be in the short term if lots of money is lent and spent but the borrowers have not yet sold anything in the marketplace yet.
EXCEPT… Suppose that lenders lend money which borrowers fail to repay, AND they have insufficient capital to make up for it. In that case, one of two things happens:
1. Accounting fraud is used, to make it appear that the debts will be repaid, when it is clear that they really will not (e.g. NINJA borrowers and insufficient capital). This makes the short-term inflation last as long as the accounting fraud is maintained. If the accounting fraud is maintained forever, the inflation is permanent.
2. Losses are recognised, and they wipe out not only the entirety of the lender’s capital, but also fall on the lender’s creditors (bondholders, suppliers, maybe depositors). Those creditors have to recognise the losses, and this has a deflationary effect as they can no longer obtain finance against their written-off phantom assets.
I believe that the reason we haven’t seen widespread hyperinflation yet is that there is still a belief, based on the experience of most people’s lifetimes, that somehow the debts will be paid, or at least that someone else will take the losses. Money created from debt has generally worked in their experience. But unfortunately, not many people have experience of widespread lending going bad and eating up far more than the lenders’ capital, which is exactly what I believe is happening at the moment.
The platinum coin approach is like the accounting fraud above. It tries to make people believe that there is some wealth backing the value of the money in circulation, but in fact it is simply a token saying “your money is backed by this coin which we assert is extremely valuable” – even though no real goods and services have been or will be produced which make the money valuable. Adam Smith recognised in the 18th century that the wealth of nations comes not from any stock of coins that people may hold, but from the production of the “necesseries and conveniences of life”, or as we might say now goods and services.
If you forget about the money for a bit, and just concentrate on goods and services, it becomes clear that creating a platinum coin, just like creating an accounting entry, cannot make people in general better off. If someone benefits as a result i.e. is able to consume or acquire more than they would have otherwise, this can only happen if someone else is forced to consume less or give up more than they would have otherwise. (Giving up more includes working harder without retaining 100% of the fruits of that labour).
“If someone … is able to consume or acquire more … this can only happen if someone else is forced to consume less.”
Please explain why this is necessarily true when EVERY factor of production (labor, plant, raw materials) is under-utilized?
How can putting newly-created dollars in citizens’ pockets, which creates demand, which puts unemployed people and plant to work, necessarily result in anyone having to consume less?
Failing to increase the money supply under current circumstances is like calling a baseball game off in the 7th inning because “we’re out of points.”
He’s basing that claim off the empirically false loanable funds framework, i.e. that for every borrower there’s a saver so net aggregate demand remains unchanged.
But that narrative falls apart when we realize banks are not constrained by their reserves, they can obtain any quantity they desire and so don’t have to wait for someone to make a deposit before making a loan. What he refers to as “debt-backed” money can easily drive inflation and did during the debt run-up prior to 2007.
“He’s basing that claim off the empirically false loanable funds framework, i.e. that for every borrower there’s a saver so net aggregate demand remains unchanged.”
No – I’m not looking at money at all. Just production and consumption of goods and services. Anything that is consumed must have been produced. Either someone who would have consumed it has to go without, or someone has to produce it and forgo it. They could trade it with the person who consumes, but then they could have done that anyway without the government getting involved.
“But that narrative falls apart when we realize banks are not constrained by their reserves, they can obtain any quantity they desire and so don’t have to wait for someone to make a deposit before making a loan.”
No – banks are not really constrained by their reserves nowadays. But that doesn’t mean that wealth is not constrained. You can create as much money as you like with no effort, but creation of goods and services always takes effort. Sometimes it’s not very much (e.g. making an MP3 download available to someone), but usually it’s significant.
“What he refers to as “debt-backed” money can easily drive inflation and did during the debt run-up prior to 2007.”
As I wrote, short-term inflation does occur with debt-backed money, but in the long run, the additional production (or at least the sale of goods and services by the borrower or the destruction of the lender’s capital) means that the extra money can be used to buy goods and services which would otherwise not have been available, and prices do not increase. It is only by pretending that bad debts are good assets that the inflation is permanently entrenched. That is exactly what happened with the housing bubble – the debts which were assets of banks and CDO holders were fake because the borrowers couldn’t repay and the houses weren’t really worth much more than they had been worth a few years earlier. So there was more money, but no extra production – only a claimed increase in the value of the houses. That inflation was being undone in the deleveraging of 2007-9, but the governments around the world prevented it from happening – reinflating the bubble.
This is a reply to stripedpad here: http://www.nakedcapitalism.com/2013/01/joe-firestone-the-great-austerity-swindle.html#comment-1028810
I don’t think that we produce is fixed. First, with at least 20% of the economy’s capacity unused and maybe more. We can produce a lot more to consume. But also, greater activity in the economy can easily expand the capacity to produce valued outcomes, so it may be that much more than 20% of capacity remains unused.
““If someone … is able to consume or acquire more … this can only happen if someone else is forced to consume less.”
Please explain why this is necessarily true when EVERY factor of production (labor, plant, raw materials) is under-utilized?”
Because you can only consume something if it’s been produced. If something a government does allows one person to consume something they wouldn’t otherwise have consumed, someone else who otherwise would have consumed it doesn’t get to. Notice that I said that production could increase by people being forced to work harder than they would do if they had a choice.
If factors of production are under-utilised, why aren’t they being used? I suggest it’s because those people who own them would actually suffer a net loss by using them. Or so much of the value created would be taken from them as a result that it would not be worth the effort.
Now if people are slaves to the government, the government can tell people that they have to use their factors of production anyway. Or if the government doesn’t believe that people own their “property”, then it can take as much of that property as it likes to compensate the potential producer for the loss they would suffer in their production. But if you believe in freedom, you cannot also have a government forcing people to keep working harder and harder so that enough is produced to keep feeding the financial sector so that it can work its way out of insolvency. Instead the lenders should be forced to recognise their losses, leaving their shareholders (and creditors if necessary) with less, so that the economy is no longer weighed down by everyone having to keep paying the interest on bad debt to fund the financial sector out of its self-inflicted disaster. Once the economy is no longer operating as a means to keep bankers in big houses and nice yachts, many more factors of production will become profitable again, and will be used of the owners’ free will.
“Because you can only consume something if it’s been produced. If something a government does allows one person to consume something they wouldn’t otherwise have consumed, someone else who otherwise would have consumed it doesn’t get to.”
There’s the problem: your model implicitly denies the existence of persistent aggregate demand deficiency. That it the only way it can claim that borrowing reduces the capacity of someone else to purchase.
“There’s the problem: your model implicitly denies the existence of persistent aggregate demand deficiency. That it the only way it can claim that borrowing reduces the capacity of someone else to purchase.”
I didn’t say that borrowing reduces the capacity of someone else to purchase. You’re thinking only in monetary terms, and I think you can get a useful insight by considering just the goods and services. I said that consuming something causes it to be, err, consumed: then that thing cannot, obviously, be consumed by someone else. Of course, the person who consumes an apple can then produce another apple to sell, so that someone else can buy it. But then you can’t say that people overall have benefited, because the net effect is that the borrower has just grown an apple for themselves (and paid some interest to the lender for the privilege).
In the short term, borrowing _will_ reduce the capacity of someone else to purchase whatever the borrower buys (same goods and services in the marketplace, but more money), but either the borrower will bring something new to the market which the other person can buy, or the lender will forgo their claim on goods and services in the market (when they write off the debt), allowing the other person to purchase those goods and services that the lender would have bought. If the losses exceed the lenders’ capital, they will fall on lenders’ creditors, allowing the other person to purchase those goods and services that those creditors would have bought.
—–If factors of production are under-utilised, why aren’t they being used? I suggest it’s because those people who own them would actually suffer a net loss by using them. Or so much of the value created would be taken from them as a result that it would not be worth the effort.——–
It seems to me that production today is under-utilized due to a lack of demand rather than any fear of a net loss or owners afraid of confiscation. If people can’t afford the product or find the product overpriced or don’t have a compelling need for the product, they aren’t going to buy the product. If there is demand for the product, production is not going to remain under-utilized for long unless there are exceptional factors in play.
Considering the weak and uncertain economic state of the consumer today, lack of demand seems the obvious answer to any under-utilization.
“It seems to me that production today is under-utilized due to a lack of demand rather than any fear of a net loss or owners afraid of confiscation. If people can’t afford the product or find the product overpriced or don’t have a compelling need for the product, they aren’t going to buy the product. If there is demand for the product, production is not going to remain under-utilized for long unless there are exceptional factors in play.”
I largely agree with you about a lack of demand, and I don’t think that what we’re saying is that different. If there isn’t much demand for a product i.e. people don’t have either the desire or the means to buy it in a fair exchange, then extra production can only be consumed by one of two means. (i) The producer could lower the price, which they may not want to, or even be able to profitably. (ii) The government can buy more of the product at the current price, and charge it to taxpayers. The government is telling people: “We know this product is only worth $95 to you, but if you don’t buy it for $100, we’ll borrow $100 from Goldman Sachs, buy the product for $100, give it to someone _we_ decide on instead of to you, pay $2 interest to GS, and then send you a bill for $102.”
Now that people are $102 less well off, and have nothing to show for it, are they going to feel much more confident and start buying more stuff? Of course the producer and its employees will be better off, as will GS, and maybe some of their suppliers, but most people will be worse off. It’s the broken window paradox – it’s easy to see only the jobs created by the extra demand created by the government, but not the demand destroyed by the bill being dumped on taxpayers.
“Considering the weak and uncertain economic state of the consumer today, lack of demand seems the obvious answer to any under-utilization.”
If there’s a lack of demand, I don’t think “under-utilization” is the right term. Let me put it this way: your productive capacity could be increased by spending an hour every day weeding your neighbours’ gardens or washing their cars for minimum wage. Are you under-utilized? If you think you are making a reasonable judgement that you value your time and effort more highly than that, I don’t think you can say that a factory owner should be obliged to run the production line flat out and wipe out their profitability just because they can.
Stop with the austerian nonsense already! Under the conditions we have today, people wouldn’t be “working harder and harder” from some 40 hr or more per week baseline. Due to the high rate of unemployment, the “harder and harder” or “more and more” starts from something more on the lines of 35 hrs a week, average. -Not trying to be anything like exact. It’s the idea is the point. Until we get everyone back to work, there’s no such thing as Joe having to forgo consumption so that Mary can consume more, (Unless you mean Thurston Howell II having to forgo yet another layer of gold leaf on his yacht, paid for by his profits. Nor, until we sop up the unemployment, is anyone going to be overworked).
I do believe in shortening the workweek as a measure to allow all of us (you know, the little people) to share in the increased productivity miracle, the benefits which, so far, as I understand it, have gone 100% if not more, to the wealthy.
My comment was meant to be directed to Striped-pad’s just above it.
Raw materials are underutilized? Oil and NatGas deposits are depleting, the Oglalla Aquifer is dropping, soil is net-eroding, fish-stocks are dropping, etc. And the earth’s air/ocean/climate system has passed its safe CO2 absorption
threshhold.
A shrinking ecosystem and diminishing resource base will shrink the economy (all economies) over the next few decades. If various increase-the-money-supply games build new soil, restore the Oglalla Aquifer, de-carbonize the air and the ocean, etc.; then I’ll admit how wrong I was and endure the “last-laughs” of people who believe that money precedes and creates wealth and who act on that belief.
Creating a $60 T platinum will make people better off in the following ways. First, people will stop worrying about the national debt and the burden on our grandchildren. Second, it will stop the drive towards austerity, so if it were done now it would immediately stop the move to cut 3% off SS payments through the Chained CPI. It would also stop the drive toward cuts in Medicare, Medicaid, other safety net items and discretionary programs that are important to many people. Third, the presence of $43.6 T in the TGA not reserved for debt repayment would encourage enactment of programs to provide full employment, Medicare for All, Infrastructure reinvention, educational system investments, nw energy foundations, and other initiatives that will provide value for Americans. So, the effects of filling the public purse with a $60 T coin would be indirect, but very powerful, and since one person can cause this to be done; it is our best hope in the near term for the downward spiral of the American political economy to be ended.
Also, your worry about inflation isn’t in accord with the facts available to us; and your psychological theory of the causes of inflation also has no basis in fact.
“Creating a $60 T platinum will make people better off in the following ways. First, people will stop worrying about the national debt and the burden on our grandchildren.”
Just because people aren’t worrying about it doesn’t mean that they shouldn’t be. If I jumped down the Grand Canyon, but didn’t worry about it, it wouldn’t stop me from going splat at the bottom.
The US standard of living is maintained by consuming more than it produces, and promising to make up the difference (plus interest) later. If the government defaults (which paying back in diluted money is), there are not going to be many people or institutions willing to continue to fund that gap. Would you lend the government $1000 of your own money which could buy 1000 loaves of bread today if you got back $1150 over the next 10 years but which could only buy, say, 990 loaves of bread? I know I wouldn’t.
So how is the government going to continue to obtain the wealth for spending on the services which it funds? Well, it isn’t. It’s going to have to either cut its services, do some Zimbabwe-style money printing, or seize all the means of production and make the people into serfs.
Breaking promises, particularly $60 trillion worth of promises, will have consequences for your grandchildren whether you worry about it or not.
“Second, it will stop the drive towards austerity, so if it were done now it would immediately stop the move to cut 3% off SS payments through the Chained CPI. It would also stop the drive toward cuts in Medicare, Medicaid, other safety net items and discretionary programs that are important to many people.”
Austerity in an attempt to save enough to keep paying the bankers for other people’s bad loans is doomed to failure. But if you first have a widespread bankruptcy of those people and organisations which are hopelessly indebted, and the consequent losses are recognised by the lenders, then austerity (which is a good thing – consuming no more than you produce rather than selling your children and grandchildren into bonded labour) will produce a stable economy once again. It just won’t be as much fun for the people who like to spend without a care and hope that someone else will pick up the bill.
“Third, the presence of $43.6 T in the TGA not reserved for debt repayment would encourage enactment of programs to provide full employment, Medicare for All, Infrastructure reinvention, educational system investments, nw energy foundations, and other initiatives that will provide value for Americans.”
So vast amounts of new fiat money will be spent. And this will not have an effect on other people’s standard of living? Why not make an $852 quadrillion coin instead. You could build a death star, and make everyone rich in the process.
“So, the effects of filling the public purse with a $60 T coin would be indirect, but very powerful, and since one person can cause this to be done; it is our best hope in the near term for the downward spiral of the American political economy to be ended.”
Honestly, do you really believe that so many miracles can be performed by creating a coin that would fetch, say $60,000 for on the open market, and asserting that it is worth one billion times that? Seriously? If so, do you think we would all be wealthy if a load of appraisers claimed that our houses were worth twice what they sold for recently? Or can you see a problem with that, perhaps one which we’ve seen the consequences of in the last decade?
“Also, your worry about inflation isn’t in accord with the facts available to us; and your psychological theory of the causes of inflation also has no basis in fact.”
In my experience, there’s still a widespread belief that governments and central banks wouldn’t just destroy the purchasing power of their money, and that it’s almost as valuable as it ever was. Most people don’t understand how money works, and don’t really want to. They just think that it somehow becomes worth 2% less every year. I don’t think people can bring themselves to believe that people in power are capable of blatantly robbing them. If people start to believe that their purchasing power is being deliberately eroded, and that “saving” actually makes you worse off, the sudden loss of confidence in the currency will cause high inflation and then either a huge depression-causing hike in interest rates or hyperinflation as central banks lose control of the velocity of the money that nobody wants any more.
Joe’s not printing money. He’s minting a coin. This matters because legally and operationally the two practices are completely different.
You make two mistakes. First, as others have noted, you assume the economy is a closed system. It isn’t. Because of both unemployment and capacity under-utilitization, production can be increased without harming other consumers. Second, you ignore wealth inequality and the highly financialized state of the economy, that is there are huge amounts of capital out there that do not produce goods or services, but simply make capital off of capital. If I give a thousand dollars to all Americans, their relative wealth will increase. The one whose relative wealth will decrease is the billionaire. That kind of dilution is actually a good thing.
@Hugh
“You make two mistakes. First, as others have noted, you assume the economy is a closed system. It isn’t. Because of both unemployment and capacity under-utilitization, production can be increased without harming other consumers.”
I don’t assume anything. I say that anything which is consumed must have been produced (even something like food, which in some cases is “free”, must be transported from where it grows to where it is of value to the consumer). Perhaps you can give a counter-example?
I’m surprised you think that anyone might believe that production increases would harm consumers. Production increases benefit consumers, since there is more available, which tends to reduce the price. Production increases harm *producers* – they have to expend more effort and wealth in the production process, making it less profitable, and potentially unsustainable.
“Second, you ignore wealth inequality and the highly financialized state of the economy, that is there are huge amounts of capital out there that do not produce goods or services, but simply make capital off of capital.”
If you are expecting me to stand up for insane gambling through credit derivatives in the financial sector, you’re going to be disappointed. That’s an insane off-balance-sheet con which I believe is going to end in total disaster. These things can accumulate huge losses, but get hidden away until someone calls the bluff of the holder, like when Lehman tried to repo some of its assets to Citi, were told that they were worthless and didn’t have anything else to use. These derivatives need to be put on exchanges with central clearing, marking to market, and margin payments being made daily.
“If I give a thousand dollars to all Americans, their relative wealth will increase. The one whose relative wealth will decrease is the billionaire. That kind of dilution is actually a good thing.”
If you give $1000 to all Americans, certainly some of them will experience an increase in relative wealth, at least in the short term. And yes, the billionaire will experience a relative decrease in wealth. I’m not convinced that that is a good thing. Arbitrary seizure of wealth, which is what it amounts to, is not something I’d like to see. After all, if you agree that it’s ok to seize wealth arbitrarily to equalise people, you’d also have to be in favour of having lots of your wealth seized in order to equalise yourself with the majority of the world who live on less than $2 per day.
But the other thing which you ignore when you talk about creating new money like this is that the new money reduces the value of everyone’s income, since no new goods and services are created. The ones who are able to keep their incomes in line with the inflation are those who are politically well connected, not the average Joe. Just look at who is doing well at the moment with the Fed (and others) QEing like crazy – it’s the CEOs, the politicians and the senior bureaucrats, not those at the bottom of the pile, and certainly not those in the middle.
If you want to equalise people, it would be better to do it the honest way – through explicit taxation. Doing it through inflation penalises the thrifty, benefits those who live beyond their means, and leads to a destruction of savings which could have been invested in improved productivity and job creation.
“If you want to equalise people, it would be better to do it the honest way – through explicit taxation.”
I’m not sure Hugh would disagree with this. It worked pretty damn well until Reagan ascended to the throne.
Of course, if you push it too far, you may find rich people deciding they’d like to live in Russia. :-)
But you’ve got to be realistic – if you take all the wealth of all the richest people in the USA, it will only get you a few months of balanced budget. Then what do you do?
I think we need to stop judging ourselves and others by how much we are able to consume, irrespective of whether we can afford it. We’ve come to expect the best of everything, and like petulant children we demand things from the government if we can’t get it any other way. And what government can resist the calls for, say, spending hundreds of thousands of dollars so that a poor little girl can have a 20% chance of surviving a rare disease? I think there’s something very sick in western society – a fear of death, a fear of loss of control, a fear of being seen as a failure, a fear of losing what we believe we have. As a Christian, I personally believe we need to remember the words of Jesus about considering the lillies and the birds. But I can’t help feeling that it’s going to take a pretty major calamity to turn people around.
“Production increases harm *producers* – they have to expend more effort and wealth in the production process, making it less profitable, and potentially unsustainable.”
That is total BS. With logic like that you could argue that producers should produce less since it will increase their profitability of the production process and reduce the amount of wealth and “effort” they need to invest. Indeed the most profitable production process would be one they did not invest in at all. That’s just nuts.
“Arbitrary seizure of wealth, which is what it amounts to, is not something I’d like to see”
Boy, have I heard a hundred versions of this, all wrong. Apparently, it is OK for the rich and elites to rig the system and steal to such an extent that we see the massive wealth inequality we have today. But any repatriation of that wealth back to the middle class and the workers that produced it is “arbitrary” and we get lots of sniffing about how that is not “something I’d like to see.” Them that got keeps and them that got stole got to suck it up. How wonderfully convenient.
What you seem not to get, deliberately or no, is that all wealth is really just a call on resources, and all resources are resources in so far as society values them, that is they serve some function useful to society. Resources are not just raw materials, but infrastructure, knowledge, skills, labor, and goodwill. If you have a call on a million widgets, and widgets have zero value to society, your wealth is zero.
I’m beginning to think you are libertarian so you are not going to like this next bit at all. Money is just a medium to effect socially useful distributions of resources in a society. When a distribution arises that does not serve our society’s purposes, such as the massive wealth inequality we have today, then society, that is we, have a duty to redistribute that wealth so that our resources are used more productively for us all. There isn’t a billionaire or even multi-millionaire in this country whose contributions to society merit the great wealth they have garnered for themselves off our labor, our resources, our knowledge, our infrastructure, our skills, and our goodwill. This is not to say that some of them have not made some contributions, and let them have some reward for their efforts, but just how many millions does anyone really need? How many millions is any of these truly worth to society? And at what point do their extractions become far more negative to the health of our society than their contributions.
Money is not some primordial substance of the universe. It is a social construct for societal purposes. It is not some version of the Darwinian competition of survival of the fittest. Today’s rich and elites have done everything they could to split money from its social purpose, precisely so they can more easily justify the absurd degree of wealth concentrated in their hands. It is just that more important for us to remember what money really is and whom it is supposed to serve.
Hear, hear.
““Production increases harm *producers* – they have to expend more effort and wealth in the production process, making it less profitable, and potentially unsustainable.”
That is total BS. With logic like that you could argue that producers should produce less since it will increase their profitability of the production process and reduce the amount of wealth and “effort” they need to invest. Indeed the most profitable production process would be one they did not invest in at all. That’s just nuts.”
Sorry – I didn’t phrase it very well. What I meant to say was not that there was a net cost to producers from producing, but that there was *a* cost to producing more. There are of course benefits to producing too – you get to consume what you produce, or trade it for something that you want instead. Producing nothing is not the most profitable activity – as production increases, profitability increases as the producer is able to sell more of their product. But after a while, the market is saturated, and there are no more buyers who buy the product at what the producer considers a price which makes it worth their while. And as production increases further, there are no more buyers who buy the product at a price which covers the costs of the extra production. I think it’s up to producers to decide how much they want to produce, and as long as they don’t have a monopoly, I don’t see why they should be forced to produce more.
As I commented somewhere round here earlier, I’m sure most people could produce more – how many people honestly are physically incapable of spending two hours a week doing something socially useful, such as mowing a neighbour’s lawn, for a small amount of money. But I’d rather spend that time resting and enjoying life than spend all my time working just because I’m capable of producing more. If you think there’s an obligation on people to produce more, just because they can, then it seems to me that you think that people are slaves to be controlled.
““Arbitrary seizure of wealth, which is what it amounts to, is not something I’d like to see”
Boy, have I heard a hundred versions of this, all wrong. Apparently, it is OK for the rich and elites to rig the system and steal to such an extent that we see the massive wealth inequality we have today. But any repatriation of that wealth back to the middle class and the workers that produced it is “arbitrary” and we get lots of sniffing about how that is not “something I’d like to see.” Them that got keeps and them that got stole got to suck it up. How wonderfully convenient.”
I agree with you that it is not OK for the rich and elites to rig the system and (or in order to) steal. I also think that it is not ok for anyone to steal. I think you are implicitly suggesting that anyone who is rich got there by stealing, and I don’t believe that. For example, many sports stars got rich as a result of being good at their sport, and people willingly gave them money to watch them. I think it might do them some good to give away some of their money, but if they’ve paid their taxes on their income, I don’t see why anyone would feel entitled to “repatriate” more of the rich person’s wealth to themselves.
Did Henry Ford steal to make his fortune? I don’t know for sure, but I think he mostly made it by coming up with a good idea, paying people to work for him at a price that they agreed to, and making lots of products which people wanted (in the presence of significant competition) and were prepared to trade something that they owned for.
I’ve worked for several companies, some of them where I was paid much less than the people around me of a similar age and with similar skills. I didn’t like it, but with one exception I can honestly say that I didn’t have anything stolen from me. I agreed to work at that price, and I don’t feel entitled to claim back what I now think I was worth to them. The exception was a start-up company which was being funded monthly: the funding ran out, but we were strung along for 3 months being told that there was new money on the way, not all of which materialised.
The main theft which I am aware of affecting me is when the government decided to bail out the banks, transferring the shareholders’ and bondholders’ losses to the taxpayers. The fact that democratically-elected “representatives” decided to rob the ordinary people to support the elites convinces me that democracy *by itself* is not the answer to all our problems.
I do find it interesting that you equate being rich with stealing. Are you rich, when compared to most people in the world? Did you steal to get there? Do you think your wealth should be “repatriated” to the poorest countries in the world?
“What you seem not to get, deliberately or no, is that all wealth is really just a call on resources, and all resources are resources in so far as society values them, that is they serve some function useful to society.”
If by a call on resources, you include the ability to use resources which belong to you, whether in your immediate possession or not, then I completely agree with that part. What I don’t agree with is the part about society being the determiner of whether something is useful. Society doesn’t have a single voice to state whether, say, a bridge or a bag of flour is useful. To me, it is people who are important, and who are the determiners of whether something is valuable. They can express that very simply – by their decisions as to what and how much they are prepared to offer in exchange. Is a photograph of your family a useful resource to society? Probably not, but it might mean a lot to you. Should it be produced? I’ll leave that question with you.
“Resources are not just raw materials, but infrastructure, knowledge, skills, labor, and goodwill. If you have a call on a million widgets, and widgets have zero value to society, your wealth is zero.”
I think I agree with all those resources, although I don’t think of goodwill as being like the others. I’m not sure about your widget example though. If everyone else in the world thinks that widgets are totally useless, but I’ve found a way to use 1000 of them to make a bowl of rice pudding, then they are valuable to me, and therefore my wealth is not zero at all.
“I’m beginning to think you are libertarian so you are not going to like this next bit at all.”
I only became aware of libertarianism in recent years, and yes I do find it quite attractive. I am particularly impressed by the idea of not employing force to get your way. Unlike the Libertarian party in the USA, I consider the exploitation of monopoly power (as either a buyer or a seller) to be a means of employing force.
“Money is just a medium to effect socially useful distributions of resources in a society. When a distribution arises that does not serve our society’s purposes, such as the massive wealth inequality we have today, then society, that is we, have a duty to redistribute that wealth so that our resources are used more productively for us all.”
I’d say that money is a medium to effect mutually useful distributions of resources in a society. Tell me if I’m wrong but I think the difference between us is something like this:
I consider that everyone must be free to decide whether they wish to retain the things they own or to trade them at whatever price they can obtain.
You, I think, consider that if some greater good or “society’s purposes” can be achieved by a redistribution of resources which people would not consent to individually, then a government should do that.
My concern over the “society’s purposes” approach is how they are decided. By referendum? I find the analogy of two wolves and a lamb voting over what to have for dinner a powerful counter to this. By representatives deciding? Representatives have repeatedly supported elites against the ordinary people, or used divide and conquer between different groups of ordinary people.
I’ve got to go now unfortunately. There’s more I’d like to reply, and it’s been very good debating with you – thanks. For now, I’ll leave you with this thought. Imagine someone in sub-Saharan Africa saying:
Does it serve world society’s purposes for millions of Americans to have homes worth hundreds of thousands of dollars? How can this little elite justify that extreme of wealth inequality? We have a duty to redistribute that wealth so that our resources are used more productively for us all.
The central contradiction of libertarianism which has many contradictions is the myth of the autonomous individual, except individuals are never autonomous, even if they are raised by wolves. We always depend on others not just as infants but throughout our lives. The libertarian pose is hypocritical in a very ordinary way. Its practitioners ignore what contradicts it, that they would not exist except for the society in which they were born. While taking advantage of the resources which society accords them, as members of society, they pretend that this is all done by a series of “mutual” arrangements and that they can opt into those they want and opt out of those they don’t want. And that somehow this is “freedom” and not adolescent selfishness. It just goes on from there. We are all free to engage in a social Darwinian competition, whether we like it or not. We, as in most of us, are free to be poor and watch a few cart off most of society’s resources. We are, in brief, free to lead lives which are nasty, brutish, and short. Isn’t freedom grand? Isn’t libertarianism wonderful?
Society is us. What is so wrong or bad that we undertake to provide each other with the basics of a good and decent life and that we accomplish this by building together a fair, just, and equitable society? Against this, the pale sophistries of appeals to sports stars mean nothing. Those stars could not have thrown one football or made one hoop except for the arenas and stadiums we built. Henry Ford could not have built one damn car without our labor, and those cars would have had no place to go except for the roads that we built.
As I said before, the rich and elites love to separate their wealth and the means by which they acquired it from any social purpose. Libertarianism is tailor-made for them because its mythology lends itself so well to this end.
@Hugh.
We’ve come a long way from the creation of platinum coins, but I’ll reply anyway. I was going to write something long, but as I don’t have time, I’ll have to keep it short.
It seems to me that much of your criticism of libertarianism, much like many socialists’ criticism of capitalism, makes an implicit assumption that those who support it are selfish. I think that assumption needs to be challenged. On what basis do you claim that?
My other point is to come back to the question I have posed you. Is it right that Americans should have so much wealth compared to the majority of the world, and does the rest of the world have a duty to redistribute it?
@ Hugh: Exactly!
@Striped-pad just above this:
The free-market utopia is a beautiful vision that can work quite nicely under limited conditions, like when 2 farmers and several artisans meet in a town market-place. When it’s you or me dealing with Walmart or BofA for a loan, or with our health insurance company OR hospital, not so much. They are privy to practically infinite more information than we are. This gives them a terrible advantage over us.
The same with large corporations as employers. They need employees in order to create wealth. We need a job, first of all so our families won’t starve to death. We are way, way, way, way, way,…. in a more dire predicament than they are. Again, that gives them a terrible advantage, one which, given human nature, they are certain to exploit. So Thurston Howell III gets another layer of gold plating on his yacht, while Gilligan and the Captain are lucky if they can make their “Minnow” payment and not have it repossessed.
As Hugh said, the rich get many, many times the actual value of the work they put in by leveraging their advantages.
I believe, historically, that most nations/regions have been roughly equivalent of modern third-world nations, again, because once you have a level of relative advantage, you can leverage that to compound that advantage.
In other words, I’m perfectly happy to see some wage inflation reduce THIII’s advantage some. It will be good for everyone else, and only cause Thurston some emotional discomfort which will be good for him spiritually.
Minting platinum coins today is like making the tally sticks that circulated in England for six centuries, until 1834. It is like issuing the greenbacks to help pay for the Civil War. It is like issuing paper money today (since 1971).
First, if we minted a $60 T coin, the reaction of the bond markets wouldn’t matter, because we wouldn’t be issuing bonds again for some time, maybe never.And since we would be paying down debt, Treasury Securities would become scarce, and therefore the demand for them would be very high.
Second, how about the currency markets? Us paying back debt is very unlikely to roil them. How about more money going into the economy to replace the bonds. Well, this would occur gradually over a period of time, and the bonds themselves would produce money through leveraging some of them for bank loans, and also because some of them would be sold to the Fed for its QE operations. The Fed might have to back off those because the debt payback by Treasury is essentially QE by the Treasury. Bottom line, it’s unlikely that more money will end up in the economy as a result of using the $60 T coin proceeds to pay off debt than would have otherwise.
Third, if the proceeds are used, as envisioned for deficit spending, then inflation could ensue with consequent effects on currency trading markets, if and only if, Congress appropriated too much in deficit spending and over-heated the economy. We’re far from that however, and given our savings and trade deficits, we should be running deficits of at least 10% per year right now. That’s about $1.6 T, and with deficit reduction now planned we will fall some $800 B to $1 T short of that in the near term, pushing us into depression, not currency inflation.
Finally, using the coin is like the Fed creating money out of thin air. That is a $60 T coin deposited at the Fed would be like a Treasury instruction to the Fed mandating that it use in power to generate reserves out of thin air to deposit $60 T into the Mint’s account; after which Treasury will “sweep” the seigniorage into the Treasury General Account (TGA) at the New York Fed, thus filling the public purse, but opening the purse strings, which it is up to Congress to do.
Why not, after paying off all the current debt with a big platinum coin, create a new platinum coin at the end of the financial year for the exact amount of the government deficit that year?
Or maybe that would finally be the trigger for people to realise that debts that never get repaid (which a
$1 trillion platinum coin is all but equivalent to, because one nanogramme of platinum isn’t all that valuable) are a one-off tax on savings and additionally an increase in the annual tax on incomes? I wonder when people will start to think, “I wonder why my family has to hold down 3 jobs just to afford a house which isn’t that different from the one my parents bought with a single income”. And even if they don’t, what happens when families can’t afford a house without needing 6 jobs? Or 12?
People used to be skeptical of schemes that appeared to offer something for nothing. What happened?
I respectfully disagree that raising taxes on the wealthy and offering tax advantages for hiring will result in job creation. The reason companies aren’t hiring is primarily due to lack of demand (and uncertainty is a factor, too). Until demand returns and there is a market for a company’s products/services, why would they hire? However, I’m not opposed to raising their taxes for other reasons. Some should be in jail and their ill-gotten gains confiscated.
Of course demand is low because the middle class has been depleted and has no money to spend, according to people I’ve talked to. The solution is to get more money back in their pockets, beginning with getting them gainfully employed. So, the 99% can’t supply demand because the 99% don’t have good jobs and the 1% won’t hire because there is no demand.
The 1% hasn’t figured out yet that they’ve killed the goose that was laying their golden eggs.
Legends in their own mind, dancing on the wall like Humpty Dumpty.
Raising taxes on the wealthy reduces their reach as rent collectors*,it reduces their ability to lobby government, and raising taxes on the wealthy would reduce both the incentives for extracting money from company X to pay executives or raiding pension funds because one still has to give the money back and would reduce the ability the wealthy to bribe regulators.
*This would stimulate demand because we wouldn’t have to pay tribute to a rich asshole for the right to conduct commerce or live.
Very true, LucyLulu. If people don’t have money (because they are out of work or wages are stagnant or declining) they can’t buy it. Making up for declining wages throught debt didn’t end well (except for the banks, of course). If industrialists can’t sell what they already make, why should they invest? More demand leads to more investment. Austerity is a vicious circle spiraling downward.
“The 1% hasn’t figured out yet that they’ve killed the goose that was laying their golden eggs.”
Where is Henry Ford when you need him?
Lucy said: “If we started issuing debt free money…how would the rest of the world respond?”
When the french people finally took away King Louis XVI’s absolute power (one of the reasons being the immense debt Louis and his predecessor had piled on the nation), the other European monarchs conspired with French nobles to restore the french monarchy. War soon followed.
Whatever his faults, John Law enabled the French gov’t to pay off those debts. ;)
There is a wide-ranging debate taking place in parts of the econ blogosphere about the impact on monetary policy of the Fed’s current practice of paying interest on reserves. It’s going on at Waldmann’s Interfluidity, at Krugman’s blog and also at NEP. One thing people have to understand is that once reserves earn interest, then it no longer makes any difference whether the government issues bonds or issues money directly. They both earn interest paid out by the government – in one case by the Treasury working with the Fed, in the latter by the Fed alone.
” They both earn interest paid out by the government – in one case by the Treasury working with the Fed, in the latter by the Fed alone.”
Does not compute. Could you please explain please for those of us who are not as sharp? Are you referring to the Fed reimbursing Treasury for interest paid? If so, why the difference?
Sure LucyLulu,
Suppose the government were simply to increase its spending by $1 billion, without increasing taxes and without increasing the of public debt it issues. So in other words, it just creates the money by spending it into existence. The checks it cuts are deposited by their recipients in banks, and the payments are then settled and cleared with the government as the banks redeem the checks. As a result $1 billion in additional dollars are deposited in bank reserve accounts.
But these reserve accounts now earn interest from the Fed. So the net result is about the same as if the government had borrowed the money from the banks and given them interest-bearing Treasuries instead.
Thanks, Dan. I get it now.
Raising the minimum wage by 40% in 2007 was an important precipitant of the financial crisis. While few American workers make the minimum, this dramatic increase put employers on notice that they should invest in labor saving equipment as much as possible rather than put themselves at the mercy of Mercurial government.
I find it interesting that the rise in the minimum wage has gotten so little attention from mainstream economists.
Probably because the changes in minimum wage didn’t set off the declining housing market which already occurred prior to the minimum wage laws taking effect, and much of the labor saving devices were already in place or in direct response to rising fuel prices. The push button menus at Sheetz were already in place prior to the minimum wage increase.
You do know that the minimum wage has been declining in real terms for over three decades, right? Please…
“Raising the minimum wage by 40% in 2007 was an important precipitant of the financial crisis.”
Link, please.
Actually, it occurred in three steps and over three years, from 2007-2009. The federal minimum wage increased from $5.15 to $7.25, a 41% increase.
http://www.dol.gov/whd/minwage/chart.htm
That being said, little attention was paid to the effect on the financial crisis because it had little effect.
Do you have any figures on how many workers make minimum wage? You said few do. I don’t have any official figures but anecdotally minimum wage, or close to it, appears to be pretty common pay.
I think only five or six percent of American workers who are paid an hourly rate earn minimum wage or less. More are paid less–legally, because of exceptions to the minimum wage laws–than earn the minimum.
http://www.bls.gov/cps/minwage2011.htm
This is a small number of people, but the psychological effect on employers of a forty percent increase is large, in my opinion. I recognize that the minimum wage hasn’t kept up with inflation.
Many of these arguments rest on the “fact” that there is no inflation. How do you figure?
Medical insurance premiums are going up 22% per year. This has been dealt with with a law to force people to buy it any way.
When house prices were rising at 50% per year it was dealt with by using “owner’s equivalent rent” in the inflation calculations.
Food inflation is erased with chained CPI. Gasoline costs double per gallon what it did when Obama first took office.
On what basis does ANYBODY claim that there is no inflation?
Here Joe or Dan will correct me….
I think the claim is not that there is “no inflation,” but that minting the coin will not cause inflation (or ZOMG!!! Zimbabwe).
What I wonder is if our current system of “Fiat money for me but not for thee!” — as in the bankster bailouts, $14 trillion worth, no? — has anything to do with the price increases your talking about? (I’d call the insurance price increases a fine example of rental extraction…)
There was a general search for some short road to prosperity: ere long the idea was set afloat that the great want of the country was more of the circulating medium; and this was speedily followed by calls for an issue of paper money. The Minister of Finance at this period was Necker. In financial ability he was acknowledged as among the great bankers of Europe, but his was something more than financial ability: he had a deep feeling of patriotism and a high sense of personal honor. The difficulties in his way were great, but he steadily endeavored to keep France faithful to those principles in monetary affairs which the general experience of modern times had found the only path to national safety. As difficulties arose the National Assembly drew away from him, and soon came among the members renewed suggestions of paper money: orators in public meetings, at the clubs and in the Assembly, proclaimed it a panacea—a way of “securing resources without paying interest.” Journalists caught it up and displayed its beauties, among these men, Marat, who, in his newspaper, “The Friend of the People,” also joined the cries against Necker, picturing him—a man of sterling honesty, who gave up health and fortune for the sake of France—as a wretch seeking only to enrich himself from the public purse.
The first issue of paper money (theoretically backed by land) indeed boosted the French economy. Problems arose with continued issuance of money. People did not understand paper money very well back then. Now the whole world is on paper money (except that the Euro acts a lot like gold), and does not want to go back.
Thank you, Joe, for that thoughtful rendering of “what could be.” If only it could!
I get tired of this MMT stuff. This posts seem to just go over and over the same ground.
I wish Yves would just spend a week to figure this stuff out for us lazy readers and write a definitive post on monetary and fiscal policy. And then her editorial policy and discussions could build off that foundation.
here is what I see:
1. Government should spend freely when labor is underutilized. But congress and the presidents usually try to benefit from mouthing the platitudes of deficit hawkism and also like to hobble each other, so we need a truly independent authority to set fiscal policy. (Maybe the congress could just figure out how to spend the money and who to tax after the fiscal authority choose the spending and taxing levels)
2. The fed is a seriously flawed institution but congress and the president are usually dim so giving over monetary policy to them would suck too. So we also need a truly independent (non-bank controlled) monetary authority. ( a competent monetary authority would figure out the right mix of money versus term government debt financing to target a moderate inflation trajectory)
3. We don’t just need these independent authorities, because fiscal and monetary policy do not mix well with elective politics. Economic policy needs to be stable over time and not subject to electoral forces every two years.
Oh wait, I’m descibing institutions like the Supreme Court and we all know how well that’s turned out.
“I get tired of this Keynesian stuff. This posts seem to just go over and over the same ground.”
“I get tired of this Marxist stuff. This posts seem to just go over and over the same ground.”
Chacun à son goût, or, in the vulgate, “It’s a big internet.”
* * *
I sympathize with your desire for “simpler.” Unfortunately, there’s only one way to sharpen and hone a message available (unless you’re in the mainstream) and that is to sharpen it and one it in public discourse. Which is what is going on here.
The value of MMT at this particular time is that it serves to put the lie to the dominant economic and political discourse in Europe and the US. It is a drum to be beaten. MMT is not in itself, as far as I can tell, a theory of revolution, but it is revolutionary in that it directly and convincingly refutes the nonsense presumptions underlying the current predominant power structure.
To me, MMT will only be boring when congressmen stop analogizing the government to a household – or, put differently, when Niall Ferguson, Pete Peterson, NPR’s Planet Money Team, Ken Rogoff, etc. etc. are consigned to the obscurity they richly deserve.
It’s not revolutionary unless you believe that creating money for public purpose through a democratic process is revolutionary. YMMV.
correction 3. above should have read
3. We need these independent authorities because fiscal and monetary policy do not mix well with elective politics. Economic policy needs to be stable over time and not subject to electoral forces every two years
Because anti-democratic money creation is working so well?
The problem with the Fed is industry capture and the failure of the economics profession not its independence from Congress.
This is the problem with calling for the end of the Fed, — Do you really want people like John Boehner in control of monetary policy?
Now maybe the MMT’ers are just grooming their message so they have they can have a perfect economy after they replace the US government with a radical democracy , but like most people I’ll be dead by then.
But are not Bernanke and Boehner pretty much owned by the same interests though? I do not see much difference between one pawn of the financial sector and another.
Well I’d take Bernanke anyday, and I could pretty much gaurantee you the unemployment rate would be double what it is now if Boehner & company ran the Fed directly. Imagine the awesomeness of austerity if you controlled both fiscal and monetary policy!
But then again, maybe that revolution everyone seems to want would be at hand.
Excellent academic article, JF. I think your conclusion is critical, because to all the well-informed questions you pose, it is quite clear that the Criminal Reserve Cartel, TPTB and their White House waterboy will say as they have for years “talk to the hand, you impertinent, unworthy peasants!”
As you correctly presuppose, the architects of disaster capitalism, shock doctrine, and perpetual war already know all of this all too well. They know they can create money from nothing and hence cannot allow audits. Their interest is not in optimizing economic productivity, aggregate wealth, or broad prosperity; it is about power, absolute corrupt power.
“It is not enough to succeed. Others must fail.” – Gore Vidal
So your last sentence, “And we won’t have it!” is critical. Independent of the malefactors of great wealth and their political minions, there must be a large groundswell of irrepressible outrage. Thanks for your efforts to kindle that.
Again with the platinum coin!!! If G. W. Bush had come up with that idea, the denizens of this blog would have been all over him, and for good reason. It is literally pie in the sky. How is that so difficult to see? And of course it will lead to runaway inflation. How could it not do so? Once those trillions are put to work paying real bills there is going to be an effect on the real economy. The value of the dollar will collapse and everything will cost a whole lot more. You don’t need to be an economics Ph.D. to see that. Just as it didn’t take a Ph. D. in economics to see the follies behind the mortgage bubble before it splattered all over all those self assured faces. Now these same faces are talking endlessly about a platinum coin??? Sorry, but fool me once and shame on you, fool me twice and shame on me. I’m not buying such nonsense, I didn’t last time and I refuse to now.
“So, why not tax them at extremely high rates on net profits and provide them an incentive to lower their net profits by spending more of their gross profits on tax-deductible business expenses like employees and business expansion?”
Here we see an example of Firestone’s thinking that DOES make sense. A whole lot of sense. So why is it supplanted, and ultimately overshadowed by the dopey platinum coin idea?
Sorry, but I have to shake my head and wonder when my fellow liberals, progressives, what have you, start sounding like tea partiers on yet another ideologically driven binge. Ultimately what we should all be talking about at this point in history is: class consciousness, class conflict, inequality, and ultimately, some form of socialism. The platinum coin is more than just a dumb, pie in the sky fantasy. It is a major distraction.
The Platinum Coin is not to be used for what you think it is to be used for. The trillion dollars will not go into circulation. There will not be a trillion extra dollars going into the economy, as the coin will never be spent, only kept.
The coin is basically a gimick to get around the debt ceiling, which itself is a silly gimick. That is ALL the Plat Coin would or could do.
It is NOT putting at trillion dollars into the economy. Putting a trillion dollars into the economy would he hyperinflationary, and Paul Krugman and others are not stupid enough to not know that. So dont call Krugman a fucking tea partier please.
The Plat Coin idea is just a gimmick to get around the Debt Ceiling, nothing more nothing less. Its more a political thing than an economics thing.
Then why is it being touted as a substitute for debt? And a solution to the deficit?
No no no let me explain.
With the Trillion Dollar Coin, we will continue to pay our debts as normal. That will not change. This is not a “We dont have to pay our debts!” scheme.
What it does, is eliminate the ‘debt limit’. With the trillion dollar coin, we can continue to accumulate debt over the debt limit without having congress agree on raising the debt limit. That way the Republicans cant threaten the government by refusing to raise the debt limit, which would be catastrophic for the economy.
The platinum coin is just a silly political solution to an even sillier political problem, the debt limit. We dont even need a debt limit, it helps nothing, except give the Republicans political leverage.
Again, the trillion dollar coin will never be spent, it will just sit in the Fed looking nice and pretty. So its not inflationary or anything because it will never enter the economy (Where in hells name would anyone spend that lol…)
JF explicitly and in detail ties the platinum coin idea to actual political realities. He openly and explicitly proposes that the idea’s real purpose is to extinguish austerian thinking, which is the boot on the throat of the 99%. Our political and economic discourse, in Europe and the US anyway, is built on a monstrous lie, and the platinum coin idea shows up that lie for what it is, in simple terms.
And your take? The platinum coin thing is dumb and pie-in-the-sky, *sigh*, whilst we should be talking class struggle. Let’s forget platinum – let’s get “concrete” by talking class.
That, to me, sounds like abandoning concrete action in favor of just talking about concrete action. Exchanging the concrete concrete for the abstract concrete.
If our economic system is a monstrous lie, then expose that lie. Analyze that lie. And propose an alternative system. Why waste time proposing another lie as a substitute for the original one?
Doc, I agree with you on this one, but unfortunately its not that easy to reveal something on this magnitude to the average man. As Hitler said, if you are going to lie, lie big, and thats pretty much what the capitalist establishment has done.
Exposing the lies of capitalism to the average man is exceedingly difficult, and different groups such as socialists, among others, have been trying to do so for well over a hundred years, and usually get ridiculed for even attempting to understand parts of the system that scholars working within the capitalist framework do not dare to even acknowledge exist.
Of course, to continue to teach the average person of the contradictions of unadulterated capitalism is and has always been a truly worthy goal, and may be societies last hope for sustainability, as opposed to the ponzi scheme of capitalism characterized by never-ending growth gained from an ever quickening exploitation of finite earthly resources.
Are you saying fiat money is a lie? It’s “fiat money for me but not for thee” when I’m a bankster that’s the lie!
“It is literally pie in the sky. How is that so difficult to see? And of course it will lead to runaway inflation. How could it not do so?”
May I recommend that you read up on the fiat currencies of the American colonies in the early 18th century? Rhode Island did not handle their currency very well, but other colonies did. Those currencies brought prosperity, not runaway inflation.
As for the hyperinflation of the Continental Dollar, Benjamin Franklin, who was instrumental in the creation of Pennsylvania’s currency, advised the Congress to give itself the power to tax. That would have backed the dollar.
MMT isn’t partisan, despite the (unprovable) claim. MMTers agree on the operational realities, but differ on policy, which is where the partisan game plays out.
There is denial here and places similar (Econmonitor). ‘Progress’ is another weasel word, it does not exist.
People don’t that the understand the economy is a matter of goods and energy … money is only way to ‘keep score’ and settle accounts. Fiddling with the money cannot create more goods or energy, these are things which are dug out of the ground. When it costs too much to dig — when the ‘use’ of the goods and energy do not return enough to pay for the digging — the game is essentially over. This diminishing spread between use (credit) and cost is our crisis right this second.
Modernity is nothing more than monetizing our waste then congratulating ourselves over our cleverness.
Issuing debt-free money will not increase the amount of available energy and other capital, it cannot. Instead, debt free money increases the demand for capital. Why? Debt-free money is added to the debt-money consumption toolbox rather than a substitute for it. 0-D money can act no other way: industrialization requires debt the way a human requires oxygen. Industries cannot pay for themselves, it is impossible both practically and thermodynamically. They must be subsidized by debt.
Any and all strategies to ‘revive growth’ make our current capital shortage worse.
Capital shortage is ultimate austerity. We have been successful at waste for too long and comes now the hangover. How is this so? Look at the price of crude oil: in 1998 a barrel of crude @ the refinery cost – $12. Today the same crude costs $110 … The output of goods and services is the same for the high-priced crude as it was for the cheaper version. Meanwhile, there is no cheap-to-extract crude any more, it has been burned up. Once the waste-based economy reaches the point where +$100 crude is unaffordable there will be no more crude oil in the economy … that’s austerity and is coming to a gas station near you and there isn’t anything the government of the central bank or the finance wizards or anyone else can do about it .. except wring their hands and cry.
All of you so-called progressives need to get your heads out of the sand and do so immediately …. there is no more time to a) fool around, b) fool yourselves and c) fool others.
There is no end to austerity, either. It is a condition. It can be adjusted to with good management the first step of which is acknowledgement. The second step is to cut consumption to a small fraction of current, to re-orient the economy around conservation and husbandry rather than waste. To do otherwise/nothing and conservation is going to beaten into you … and a lot of people are going to die.
A lot of people.
No offense man, but youre not making yourself very clear.
And we dont have a capital shortage, or in other words, a liquidity crisis. Thats something completely different, look it up.
We dont have a shortage of capital, nor do we have runaway inflation, which is what you presume. It is true Oil is much more expensive than before, but that is because of inflation. In real terms oil is not actually very different in value. Adjusting for inflation, oil prices have stayed pretty much the same.
The problem is, wages have stayed the same during inflation. So in reality, wages have decreased, even though worker productivity has increased, while corporate profits as a share of GDP has increased. With the crippling of the welfare state, as is natural in capitalism, most of the capital flows to those who already own large amounts of Capital, as explained in Das Kapital.
Your equation of inflation and austerity do not make any real sense. In what way are inflation and austerity the same?
By the way, the reason oil has gone up is not because of less oil, but for inflation, im just pointing that out. Theres plenty of oil left. Peak oil is irrelevant, as the earth will be too hot for human life before we burn it all.
You are right on one point, however. Constant growth IS impossible, as capitalism has always been based on a ponzi scheme. But thats for environmental factors, not economic ones. I dont see why your conflating resource degradation with austerity and inflation. Austerity + Inflation have little to do with resource scarcity, I fail to see why you bring it up here.
Youre right though, plenty of people will die if we dont replace Capitalism with a more Socialist system based around
supporting human needs instead of the needs of an artificial Capitalist economic system.
By the way, singling out progressives seems kind of silly. Its not like anyone else, save socialists and a few others, present any actual alternative to Capitalism. Singling out progressives seems sort of unfair when liberals, conservatives, Libertarians, and every other political demographic that is capitalistic are equally unable to grasp the same problem.
Lastly: There is no capital shortage. Theres no such thing as a capital shortage when there is proper inflation, as there is now (Look up Liquidity Crisis, which is the proper name). Are you sure you dont mean resource shortage, or something similar?
“We dont have a shortage of capital, nor do we have runaway inflation”
I went to Federal Express the other day to mail a small, 6 pound package to Indonesia. They wanted almost $300!!!! I went to the supermarket and paid well over $100 for groceries that not too long ago cost $40. Sorry, but we DO have inflation, and $300 to mail six lbs. sounds pretty runaway to me.
No, we DO have a lot of inflation, but the PROBLEM is that WAGES ARE STAGNANT. Run away inflation is hyperinflation, which is what we do not have. Iran has hyperinflation, the value of their currency the Rial fell what, down by like half, in a year? THATS hyper inflation. 2% a year or less is manageable.
If wages increased along with inflation, there would be no problem with inflation. Which wages did for a few decades, at least until around 1980, since which they have been stagnant.
Inflation isnt the problem, the problem is that people are getting poorer, because their wages are not rising with inflation, as they are supposed to.
SfV. I agree with you. I also agree that the government should nationalize the Fed and then we can spend our own money directly into the economy. The oil crisis will cause us to conserve. We will have no choice. But we do not need to suffer austerity as currently proposed by the bond vigilantes. The part that bothers me about the current talk is that it is not breaking with the idea of trade as a good thing. l think trade is an unmitigated disaster. We won’t protect the value of the dollar from inflation by keeping a trade balance. No country will when trade is superfluous and totally wasteful. No country needs to trade for products and services it can provide for itself. No need to waste transportation energy; no need to waste energy on trade wars. Way too destructive of the environment. And society. I like MMT for all of the above discussed reasons, but most of all I like MMT for its ability to create both a healthy society and a healthy environment. The Federal Reserve cartel isn’t going to step up to that in a thousand years. In fact they are busy creating their next lucrative debt bubble based on fantom oil supplies. I wish the strength of the currency were pegged to the health of society and the environment. That Congress would see the light and create lots of low productivity government jobs of high social/environmental value. And just push austerity and debt viglantes off the bridge.
I hope someone other than myself has noticed that the austerians frequently correlate the bailouts with J.M. Keyns General Theory and fiscal stimulus. This irrational correlation equates government spending to enrich the global elite (we should never forget that Geithner bought their crashing CDOs at face value – effectively gifting the rich with our money), with fiscal stimulus. Further, even though I would support seigniorage and the high value coin concept, it is easily lampooned – and proponents ridiculed. And Krugman’s support actually added little to the discussion because his models (ISLM) ignore the effects of debt overhang on demand making him a favorite punching bag of the austerians. All I am saying is that the optics – MMTer’s ability to persuade, may actually be diminished by championing the high value coin. I don’t suspect we’d ever be able to convince ideologues like Charles Hugh Smith, or Karl Denninger that placing monetary policy in Congress’ hands and the authority to issue currency in the Treasury’s is a good (and democratic) thing to do, but we might make a bit of headway by focusing on how sovereign coinage would overcome a lot of economic headwinds (e.g. dependence on primary dealers, sovereign wealth, ratings agencies to define interest rates, Congress extorting the president on budget, the effect on interest rates of Fed buying (saving disincentivized), etc., etc.). Again, Joe, I do not disagree with the high value coin approach to circumventing the debt limit, I simply believe we need a message that both the well-informed and the less-informed can comprehend and support.
“Further, even though I would support seigniorage and the high value coin concept, it is easily lampooned – and proponents ridiculed.”
I likewise support the coin, but from a purley political point of view the platinum coin has no immediate chance (like forever immediate) of being implemented. 99 out of a 100 average joes would laugh their asses off regarding it. Heck, maybe 100 out of 100 would LTAO over it. Politicans (Obama in particular) won’t bite the hands that feed them on this question either, especially given they largely agree with the electortae on the issue. Hell has a better chance of freezing over before we see a trillion dollar coin, much less a $60 trillion one. Nothing wrong with dreaming, however.
“All I am saying is that the optics – MMTer’s ability to persuade, may actually be diminished by championing the high value coin.”
Ya think? Well, duh!
Flipping things around here, isn’t the pervasiveness in popular culture of the “ZOMG!!! [Zimbabwe|Weimar]!!!” meme all the proof we need that democratic control of money creation will not lead to hyperinflation?
Joe writes:
“The Federal banks are placed under the authority of the Secretary of the Treasury, so that the Secretary is empowered to create reserves out of thin air to fill the Treasury’s spending account and keep it filled with sufficient funds to repay the national debt and cover the deficit without borrowing.”
So, are you suggesting the Federal Reserve be a subsidiary of the Treasury? And since the Treasury cannot create money out of thin air, it will use the Federal Reserve to do it for its parent, the Treasury?
Is this suggestion based primarily on the idea that loans are not involved, so that additional debt interest will not be due?
If that is the case, from a tax perspective, is this a gift from the Federal Reserve to the Treasury, and the Treasury would have to pay gift taxes on the proceeds?
Don Levit
Lambert, I don’t think Mugabe is a democrat and suspect that most of his wealth is not denominated in Zimbabwean dollars. And, wasn’t the devaluation of the DM by Wiemar aimed at reducing the cost of its reparation debt that was defined in DMs? I get it that you perceive austerians as dumber than stumps, but the majority is not immune to stupidity and those damn stupid austerians, using those memes you describe are winning in the public policy arena, even if logic suggests they shouldn’t. I am simply suggesting that the zillion-dollar coin concept is easily lampooned to make those of us interested in sovereign coinage seem like idiots.
BTW – One of the ghosts we are fighting is Reagan’s. Let us recall that he became president, in part, by loudly expressing disdain for the U.S. Government. The view that government can’t do anything right is a significant hindrance to our being able to move the public to support placing the U.S. Government in charge of U.S. monetary policy. Somebody at the Roosevelt Institute or other moderate think-tank must have looked at this issue. I believe it is undermining democracy (aided of course, by the Pete Peterson’s of the world). OWS might consider an assault on this meme.
Why did the “we hate government” line appeal to so many, enough to garner Ray-gun two landslide victories? Why did this line appeal to white working class baby boomers, the very people who directly benefited from Golden Age big government policy?
Hint: what role did this big government play in the forced integration of Little Rock Central High School?
@Finnucane, having lived most of my first 30 years in the southeastern US (1950-1978), I agree 100% with your hypothesis.
The US is still paying dues for the “peculiar institution” that it abolished 150 years ago. And having abolished de jure slavery, it looks like TPTB are determined to revive indentured servitude (what’s the difference between today’s student loans and the indentures of immigrants to their “benefactors” 200 years ago?).
I’m talking about the United States.
Government grants and enforces all rights!
This Government clearly needs to Tax CentaMillionaire$ and Billionaire$ out of existence!
The 99% know that’s a fact!
Greed has transferred wealth from the 99% to the 1%!
The 99% know that’s a fact!
The 1% own the “Deciders”!
The 99% know that’s a fact!
The 99% know it’s hopeless, because the 1% gluttony will not ever be satiated!
Are the Primary Dealers really the best place to put trillions of dollars?
In my community there are school closures, roadwork is unrepaired due to lack of funding, the dredging of the community port has been deferred, etc.
Anyone else tired of watching these clowns pump the equity, bond and oil market while our communities go begging for funding?
When are people going to get every “anti-government” “pro-free market” group is Khazar controlled?
The goal is liquidation of all countries globally and the selling of those assets to capital owners is their main goal. We will then have the nation state completely degenerated into the market state.
They are not Jews either. They have used “Israel” as a scam. All “right wing” groups ala the “Tea Party” originated in Israel. They finance it and racialist movements such as “White Nationalism” to keep crackers under control.
Time to raid the armories and begin the purification process. We will need far more than “assault weapons”. Gun ownership is another scam to use on these weak mined, inferior fools.
Seems to me that the MMT & PCS crowd must do a better job of understanding the psychological/emotional appeal of austerity, about how it’s been so deviously and cleverly linked to people’s notions of personal responsibility and family budgeting. It’s not enough to merely expose the deception and errors. Why do people so desperately want to believe in austerity and spending cuts?
Perhaps it has a lot to do with accountability. There’s a deep-seated desire for accountability in the general populace that must be quenched. We aren’t allowed to hold those are are really responsible accountable, so we turn on ourselves?
I see that J.D. Alt does a much better job of describing what I was crudely poking at in this NEP piece, “MMT and Social Norms:
4. The fourth aspect is reflected in Chris Hayes’ remarks about the “moral subtext” of the debt and deficit debate. He very entertainingly imagines the nation as going crazy, worshiping the golden calves of profligate spending, and then Moses comes down the mountain calling on everyone to “get good again.” And that means paying your debts and living within your means. This is a very powerful message to the religious psyche that permeates our cultural norms
”
http://neweconomicperspectives.org/2013/01/mmt-and-social-norms.html
Maybe we should follow your advice and just blow the whole thing to pieces? I think I’d prefer a bullet to the heart over death by a thousand cuts.
The Fed made it’s share of mistakes in the lead up to and during the crisis, but on the whole, their crisis response kept the financial crisis from completely imploding. Blinder has a good view on this in his new book After the Music Stopped. He was on the Federal Reserve Board back in the 90s and well established in academia and private sector, so he could care less about curry-favoring with government officials. He’s blunt and critical, but gives praise where it’s due. I’d highly recommend it. If anyone’s interested, the book’s facebook page gives a nice overview of the book: http://facebook.com/afterthemusicstopped