Joe Firestone: Using Generational Warfare to Divert Attention from Oligarchy and Corporatism

Yves here. Even though the pitched battle to cut, erm, reform Social Security and Medicare has died down, don’t kid yourself into thinking it’s over. Neoliberals keep stoking generational warfare to drive a wedge between the young and old so as to keep them from noticing who is behind the campaign to have old people die faster.

By Joe Firestone, Ph.D., Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director of KMCI’s CKIM Certificate program. He 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

Some of the favored children of the economic elite who have a public presence, work hard in their writing and speaking to divert attention from inequality and oligarchy issues by raising the issue of competition between seniors and millennials for “scarce” Federal funds. That’s understandable. If millennials develop full consciousness of who, exactly, has been flushing their prospects for a decent life down the toilet, their anger and activism might bring down the system of wealth and economic and social privilege that benefits both their families and the favored themselves in the new America of oligarchy and plutocracy.

Here and here, I evaluated Abby Huntsman’s arguments for entitlement “reform,” and, of course, Pete Peterson’s son, Michael fights a continuing generational war against seniors in pushing the austerian line of the Peterson Foundation. Now comes Catherine Rampell, who, in a recent column, sets forth the position that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them. I’ll reply to all of the main points in Rampell’s argument, by quoting liberally and then replying to the points she makes in each quote. She says:

”Yes, seniors paid into Social Security and Medicare during the years they worked, if they worked. But they generally receive much more out of the entitlement system than they paid into it.”

She continues by citing an Urban Institute study and pointing out that earlier age cohorts received much more in benefits from Social Security than they paid in, and also says:

”But let’s consider the average worker who turned 65 in 2010. Generally speaking, the people in this cohort will, more or less, break even on Social Security, according to Eugene Steuerle, an Urban Institute fellow who co-authors the annual report. (Earlier generations made out like bandits; for example, members of an average one-earner couple who turned 65 in 1990 receive twice as much in Social Security benefits as they paid in taxes.)

Medicare, on the other hand, is pretty much a steal no matter when you turned 65.”

After citing some details documenting “what a steal” Medicare is, Rampell concludes the first part of her argument with this:

”It boils down to this: Despite all the “we already paid for it” rhetoric popular among seniors, seniors did not pre-pay for their entitlements. If anything, they paid for their parents’ entitlements, which were more modest than the benefits today’s retirees receive.”

This argument of Rampell’s is disingenuous, because it takes the claim that seniors have already paid for their entitlements as saying that they’ve paid dollar-for-dollar, more or less, for what they’re getting in benefits. But seniors who know how SS and medicare works certainly don’t mean this when they say they’ve already paid for it. What they surely mean instead, is that Congress has legislated the SS and Medicare safety nets, and the benefits that currently exist, for the purpose of seeing to it that seniors have a minimum of economic insecurity during the period of their lives when a large proportion of them no longer have the capability to earn a decent living due to illness, other infirmities, or an extreme reluctance of private sector employers to hire them even when they are very skilled.

To draw on the benefits of these programs seniors were required to pay FICA contributions during their working lives. These payments, according to the law, give them the right, in other words, entitle them, to receive the benefits of SS and Medicare that were mandated by Congress.

No one ever said to today’s seniors that there was some rule in the SS and Medicare programs requiring that their payments needed to, or ought to, correspond to the amount of their total benefits, since that was never the deal legislated by Congress. No, the deal was: “You pay your FICA contributions, and you get your benefits at retirement.” Simple as that!

So, people who followed the SS and Medicare rules and made their payments over the years rightly view themselves as having paid for their entitlement benefits, regardless of whether their cumulative FICA payments fall short of or exceed the cumulative sum of those benefits. Why shouldn’t they, and why is Rampell implying that the deal implicit in our major entitlement programs is anything different?

Additionally, I’m afraid that Rampell is also wrong when she says that today’s seniors “paid for” their parents’ entitlements. They certainly paid FICA and Medicare-related contributions, of course; but it is not true that these revenues paid for anything, in spite of Federal reports that appear to link the two, or the accounting that shows that the Social Security Administration has built up a $2.8 Trillion credit against future expenditures, and that Medicare has a much smaller volume of credit to be used for such expenditures.

The reality of Federal monetary operations is that Congress mandates the spending for all Federal programs and then spending occurs through the Treasury keystroking reserves into recipients’ accounts. Where do those reserves come from? They come from the Federal Reserve, of course, which has the delegated authority from Congress to credit reserves into Treasury accounts.

When, where, and why does it do this? The main trigger events are 1) tax and FICA contribution revenues, 2) sales of Treasury securities, 3) credits from coin sales and deposits at the Fed (coin seigniorge), 4) sales of Federal property, and 5) return of Fed profits to the Treasury. Tax and FICA payments cause the Fed to credit Treasury Tax and Loan (TT & L) accounts with reserves. Treasury coin sales and deposits at the Fed cause it to credit the Mint’s Public Enterprise Fund (PEF) account with reserves, and Fed profits and asset sales cause it to credit other Treasury accounts with reserves. So that’s how reserves get into what might be called Treasury income accounts.

From there, the Fed and the Treasury co-ordinate to ensure that there are sufficient reserve credits in Treasury spending accounts to allow Treasury to keystroke reserves into private sector accounts in fulfillment of all Treasury spending obligations. This occurs through the Treasury informing the Fed about its scheduled payments and peak reserve balance needs for a particular time period, and then the Fed and Treasury ensuring that the reserves will be there, if necessary through the issuance and sale of debt instruments, or even if Treasury would choose to do so through its creation (through the Mint), and deposit at the Fed, of platinum coins with face values specified by the Secretary (of course, this last option hasn’t yet been used).

So, two important points emerge from this account that Catherine Rampell and all who think that entitlement benefits are “paid for” by taxes and/or FICA contributions need to learn. First, once Congress mandates spending, there is no way that the Treasury can be forced into insolvency or an inability to pay its obligations as long as it is willing to make use of all the ways it can cause the Fed to create reserve credits in Treasury spending accounts which can then be used for its keystroking activities.

And second, there is no way, in the Federal Government spending context, to link any specific category of tax revenues or FICA contributions to benefit spending. There is no way to accurately say that this tax pays for that spending. Or that this spending is “paid for” by that tax. Or that millennials, and other age cohorts, are paying for seniors’ entitlement benefits, or for the difference between what seniors’ payments were before they began to receive benefits and what they are now getting paid afterwards.

The whole neoliberal construction of Government finance which assumes that the Government is a currency user with limited financial resources is false. The Government is a high-powered money creator of reserves, currency, and coins. It is the only high-powered money creator. It is the high-powered money monopolist.

So, Catherine Rampell, as well as all the conservative and/or austerian, and most of the progressive pundits and politicians of all stripes, are wrong to spend time debating who does or should “pay for” entitlement benefits with their taxes. Federal taxes don’t pay for anything. So, payments made to the Government “for” entitlement benefits should be, required, if at all, only for other purposes than “paying for” such benefits.

They have only the following functions. Some unknown level of taxation gives a national fiat currency its value, by ensuring that people will need that currency to pay their taxes. Taxes also can drain excessive reserves and net financial assets from the financial system, reducing aggregate demand when this is desirable. They can also be used to reduce levels of behavior society believes is undesirable, or to incentivize behavior it considers desirable, and to reduce the accumulation of wealth across generations, or to drive resources to charities, and for other purposes as well.

But, what they cannot do in a fiat currency system is to function as the actual effective means of “paying for” sovereign spending. The instrument that, in fact, enables such spending day-to-day is the sovereign and sole authority of the Government to create high-powered money. In the United States. This means it is the whole process of interaction among Congress, the Fed, and the Treasury that creates such high-powered money which determines the amount of spending we have and not the specific taxes we collect from any specific generational cohorts.

And this brings us to Rampall’s next point:

”So who’s making up the difference between what seniors paid yesterday and what they receive today? “Spoiled millennial [expletives]” like me, as well as Gen-Xers and both groups’ children. And absent a major influx of working-age immigrants, the burden per worker stands to grow enormously in the coming years. That’s because the bloated baby-boomer cohort is aging into retirement, Americans are living longer and health-care costs per person are rising.”

The facts of fiat money operations described earlier, make clear that nobody is making up that difference between seniors’ current benefits and seniors’ payments prior to their receiving entitlement benefits with their tax payments. What is happening instead, is that the Government is paying all benefits using established monetary operations, and its authority to create high-powered fiat money.

So, Rampell has nothing to worry about. Her money isn’t going to baby boomers or other seniors like me. Its destruction by the Government through taxation is fulfilling public purposes other than providing baby boomers and other seniors with their benefits.

But while on this subject, what’s the point of the reference to “the bloated baby boomer-cohort”? Are the boomers to blame for the size of their cohorts? Should they have increased their suicide and murder rates to bring the size of their cohort more in line with others? Do they bear a moral responsibility for continuing to live?

Full disclosure: I’m a senior, though not a boomer, but I don’t see what the point or the justification is for referring to them as “bloated” because their parents decided to celebrate the end of the Great Depression and World War II by having lots of children. In fact, I don’t think referring to the boomer cohort as “bloated” makes any more sense than referring to the millennial generation as “spoiled.” It’s the kind of thing that in days of more simplistic philosophy people used to call “cognitively meaningless,” and that we have always called ad hominem argument.

As for health care costs rising enormously, and “the extra burden” that will place on other generations, there are many ways of handling that other than reducing benefits to seniors. For example, we could begin by recognizing that increasing health care costs are not a burden for a Government that can create high-powered money to buy anything for sale within its own borders, and that the REAL financial problem of rising health care costs isn’t a government solvency problem, but a financial hardship problem for most Americans. It’s they who need both lower costs and good health care outcomes, not the Government.

So, rather than implying that Medicare benefits need to be cut, why doesn’t Rampell propose that HR 676, enhanced Medicare for All, be immediately passed by Congress? We know from experience in other nations that HR 676 or similar legislation would reduce the rate of increase of health care spending much below today’s levels.

In addition, if we can get down to the same percent of GDP Canada spends for health care with such legislation, then we will spend roughly $1 Trillion per year less than we spend now on health care. Since health care involves no deficit spending right now, that means $1 Trillion per year left in the pockets and bank accounts of sectors of the economy other than health care insurers and providers.

That’s an awful lot of new jobs created, along with better health care outcomes, if the experience of other nations with single-payer systems is any guide. So, why isn’t Rampell advocating that kind of solution, instead of saying things like “Look over here at that greedy old codger” and “Don’t tax you, don’t tax me; tax that senior standing under the tree”?

Maybe we can find an answer to that question by looking at the last paragraph in her column.

“But as a society, we must decide exactly how much we’re willing to subsidize the growing ranks of the elderly. Republicans argue that we should control entitlement spending because (I’m paraphrasing here) deficits are evil. They should be joined by Democrats, but for a different reason: Money for other worthy, traditionally liberal causes — education, infrastructure, children, the deeply poor — is being gobbled up by increasingly expensive and unfunded promises to the old.”

So, here we have everything in a nutshell. Rampell, consistent with her false belief that entitlements are “paid for” by inherently limited Government fund raising through taxing or borrowing, also appears to believes the falsehood that Federal money is limited by the Government’s ability to tax and borrow, and that the needs for a quality education for the young, infrastructure for a healthy economy, a good life and equal opportunity for children, the deeply poor, and, implicitly, opportunities for good jobs and a good life for her own millennial age cohort, are in competition for Federal money with the needs of seniors.

However, Federal money sufficient to fulfill all these needs can easily be made available if Congress is willing to appropriate it. For example, the faux entitlement solvency crisis that Rampell worries about can easily be fixed by passing legislation providing for annual automatic funding of expected costs for all SS and Medicare trust funds.

Congress does that now for Supplementary Medical Insurance (Medicare Part B), and Prescription Drug Benefits (Medicare Part D), and the same practice, using similar legislative language, can be extended to the SS Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds. Solving the crisis can be done this way in an afternoon if Congress really wants to do it. End of faux problem; almost end of story, apart from possible debt limit problems.

Once legislation like this is passed, no gaps between SS revenue and benefits can be projected by institutions such as CBO, or other Petersonian deficit warriors. Because under current law, once those appropriations are set on automatic renewal annually, the Treasury will then have the obligation to spend those appropriations by using one or more of the various tools listed earlier to generate credits in the Treasury General Account (TGA).

Again, the Treasury has no fiscal solvency problem, under current law, provided it has an appropriation mandating it to spend, since it can always use its authority to create the reserves in the Treasury spending accounts to pay all its bills including all those exceeding its revenues. The customary way of creating such reserves is to sell Treasury debt instruments, destroying reserves in the private sector, while adding the net financial asset of Federal debt to that sector, and getting the Fed to place an equal amount of reserves in its accounts. But, this way of getting the necessary reserves can be interrupted by debt ceiling crises.

However, there are other ways it can be done that get around any refusal to raise the debt limit, if it wants to fulfill its obligations and pay all the benefits guaranteed by the change in the law to provide automatic appropriations that would solve this faux problem. The best way any gap appropriated by Congress can be closed under current law, is to use Platinum Coin Seigniorage (PCS) to do it. I’ve explained how this would work in my kindle e-book, as well as in many blog posts.

The basic idea is that its platinum coin seigniorage authority can be used by the Treasury to require the Fed to use its reserve creation authority to place reserves in Treasury accounts, without Treasury engaging in any additional taxing or borrowing. If Treasury doesn’t want to do this, then it can use a type of debt instrument which isn’t counted toward the debt limit such, as consols (See here).

Just as Congress, along with the Federal Reserve and the Treasury, can work together to solve faux self-created entitlement crises, it can also legislate the deficit spending needed to fulfill all the needs Rampell is worried about. It is a question of will and intention, not a question of financial capability. Rampell should not write disingenuously as if a future entitlement funding crisis is an inevitable fact of nature, rather than an aspect of “shock doctrine” and a political choice.

Entitlement benefits aren’t in competition with other needs for scarce Federal funds, and what seniors have paid in FICA taxes aren’t important for the level of benefits we decide to allocate to them. The whole debate over what’s been paid in and what seniors get out is all sound and fury signifying nothing but neoliberal madness and moral bankruptcy.

The proper frame to use when evaluating the question of how much the Government ought to subsidize one generational cohort as opposed to another isn’t the competitive neoliberal framing used by Rampell at all. The framing Rampell should be using is this:

”We don’t let old folks sleep on the street. We take care of our own. We don’t let children go hungry. We take care of our own. We don’t exclude the 47%. We take care of our own.

We’re all stakeholders in this great nation. We take care of our own. White, black, brown, yellow and red, we take care of our own. Young or old, healthy or sick, we take care of our own.”

Contrary to what Rampell advocates, the Democrats shouldn’t join with the Republicans to cut entitlements or any other spending, just for the sake of deficit reduction. Instead, they should embrace the framing of FDR’s last years and his Second (economic) Bill of Rights. That is the heart and soul of the Democratic Party: its reason to continue to exist.

It must turn away from corporatism and neoliberalism and turn again to this vision, or face its own death. Because if it won’t undertake and complete the great work FDR set out for it in 1944, creating renewed political, and new economic and social democracy, and ending the new American oligarchy, then the American people need it no more. And it may as well consign itself to history, and give a new “party of the people” a chance to do what it will not.

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  1. charles 2

    “This means it is the whole process of interaction among Congress, the Fed, and the Treasury that creates such high-powered money”

    No it is not that. Comrade Mao knew better when he said that political power grows out of the barrel of gun. What makes the high powered money is all the apparatus of law enforcement to enforce fiscal and private debts. It is this power that is abused today by the boomers to reduce millennials to debt slavery in order to provide the former for their entitlements. To the injury of doing so, they want to add the insult of doing it with good conscience thanks to the author’s fallacious arguments.

    1. lolcar

      I seem to recall that the average social security benefit was $ 1300 a month. But rather than looking at social security in terms of money, ask yourself what does $1300/month buy in terms of food, shelter etc. Not enough to even be the slightest strain on the productive capacities of the workers and factories of the nation. And not a great deal more than the bare minimum to survive I would have thought. If the millenials are being enslaved, it’s sure as hell not to boomer’s social security benefits.

      1. allcoppedout

        This is true lolcar. You have to add in basic pension payments, which are usually the biggest welfare cost. But none of the welfare stuff, whether money contributions were made or not, is what has us on the road to serfdom. I’m an oldie and ashamed at what we leave behind. I like to think I tried to protest and change stuff, but I obviously failed. More generally, “we” failed by teaching propaganda as presstitutes or gownedwhores.

        We are scared to death of rational, examined lives.

        1. Gary Goodman

          In NO ECONOMIC SENSE does public welfare spending — that is, so long as it’s federal spending — appear as a COST to the economy.

          It’s ALWAYS a boost to the economy, big or small.

          Every Section 8 voucher goes to Landlords and property mgmt companies and a host of related suppliers. The “targeted recipient” gets an otherwise-vacant overpriced dwelling. Most individual landlords are of middle class or upper middle class incomes, like doctors, attorneys, real estate sales people, investing their surplus income in largely slum housing, directly or through some partners. The larger landlords are corporations set up for that purpose of buying up old houses or building apartment complexes.

          If this was ACTUAL socialism, we’d just GIVE people vacant dwellings, but instead the Govt chooses to create investment opportunities guaranteed to throw off monthly cash incomes in that process, thereby propping up the banks too. Govt housing is a good deal for everyone, ESPECIALLY FOR THE RICH.

          Every Food Stamp (card) allotment goes to the Retailers and every employee and every vendor and supplier up and down that entire chain, from Mgmt to cashiers to refrigeration repair and manufacturers, advertisers, shipping, etc. all the way to Shareholders and Farmers and companies like Monsanto. We get ALL this corporate welfare, while the designated poor people get some surplus food that we’d otherwise have to throw into a dump or just not produce.

          Ditto for EVERY form of federal benefit. All of it is an economic boost. Capitalists led the way with this vital transformation of the US economy back in the late 1800s when the actual “Progressive Era” began under all Republican administrations. The New Deal was just a new formulation beyond the Old Boys’ Network way of guaranteeing stable and growing corporate profits. FDR boosted sales, profits, consumption, and GDP by directing a portion of Govt Spending to the poor instead of giving all of that to the rich. THAT’S WHAT IS SO OFFENSIVE TO THE RICH. They think Govt should only give handouts to “deserving” people, those who are already millionaires and billionaires, none to the common peasants.

          1. Nathanael

            FDR understood that eventually, in order to keep the economy going, you have to transfer wealth from the rich to the poor. Actually, I think Woodrow Wilson understood this too. And Henry Ford *definitely* understood it.

            It had been made glaringly obvious by the Great Crash in 1929. You can’t get blood out of a stone, and you can’t get desperately poor people who are up to their eyeballs in debt to buy stuff. (Even housing. Even food. Once poor enough, you just have to steal it rather than buying it — you have no other option.) And if the 99% can’t buy stuff, rich people can’t sell stuff, so they can’t make more money.

            The trouble is, there are a lot of very stupid very rich people who cannot understand this basic principle. They’re like feudal lords in the Middle Ages who refused to feed their serfs, so their serfs were too malnourished and tired to work, so their crops did poorly… it’s just stupid, but it’s really common. Veblen describes how we end up with rich people who are this stupid.

      2. trish

        and those arguing that the old are “stealing” from the young are likely not dependent on that social security check (or their mommies or daddies aren’t)- they’ve amassed enough wealth in our rigged system to make that check merely small change.

        The politicians (both sides of the aisle) who push these safety net cuts under the guise of all making sacrifices, hard choices, whatever, epitomize this.

        What do they really care of the many seniors not in their club dependent on that $1300?
        And I doubt those like Rampell really give a damn about the young she blathers about, either.
        Many of these privileged people who have benefited from their own privileged backgrounds and all the upward-redistributing aspects of our current system are clueless at the very least.

    2. Ben Johannson

      So the elderly went forward in time and stole all of America’s production from millenials, then transported it back through time and are now enjoying those cars and foods and TV shows while millenials go without.

      You’re secretly Dr. Who, aren’t you?

    3. Gary Goodman

      It is true that money — without which we would not have actual capitalism and commerce, by definition — has a value that’s partly generated out of the ability to collect taxes “at the barrel of a gun”. Well, that’s the nation protecting one of its most vital assets, the U.S. Dollar.

      But those taxes — while an obligation on the taxpayer — have NOTHING to do with the size of public debt. TAXES ARE NOT A SOURCE OF REVENUE FOR FEDERAL SPENDING.

      Therefore, we could be “ultra-conservative” and take a look at Adam Smith’s 200 year old view on taxation. He felt that taxing people who work for wages was IMMORAL. He also understood that such taxes are economically counter-productive. Taxing income cuts sales and profits. Taxing sales directly cuts into funds available for consumption.

      Since SOME taxes are necessary to give a free-floating NON-FIXED currency it’s value, we might follow Smith’s ideal and tax “unearned income”. There’s LOTS of “unearned income” in this country, most of which is not merely unproductive wealth but anti-productive wealth, in that it comes from liquidating viable companies (corporate raids) and from artificially inflating Asset prices on credit, such as fuel futures, food futures, etc. (They LIKE some kinds of inflation — of the stuff they own.)

      This is the same POV of the most actually-conservative administration in American history, that of Calvin Coolidge, and the statement issued by his Treasury Secy Andrew Mellon on the subject of taxation. On wikipedia. (Hint, same as Smith said.)

      1. Joe Firestone (LetsGetitDone)

        The “barrel of a gun” epithet is just anarchist BS. Sure the currency is tax-driven and sure taxes are backed by the force of law and legitimate physical coercion. So what? Every political system is ultimately founded legitimate physical coercion as one of the sources of authority. That’s life! Anarchists and Austrians need to get over it!

  2. digi_owl

    I am always puzzled by the use of the word “entitlement” when talking about support systems for the weakest.

      1. Lord Koos

        Whoever thought up the word “entitlement’ to describe programs like SS was a genius, albeit an evil one. In fact, the people that seem to go around acting like they are entitled to everything are the rich.

        1. Joe Firestone (LetsGetitDone)

          When you say that someone has an entitlement, that means to me that they have a right to the benefit that is embodied in that entitlement. I don’t know about you, but I’m proud to fight for what I am entitled to and I wish you and everyone else who resents the word “entitlement” felt the same way. The right poisoned that word for the rest of us. I suggest we take it back and make them choke on it!

          1. Nathanael

            Our “entitlements” are what we have a right to.

            We are *entitled* to them. Anyone who tries to take them away is a thief and a criminal.

            I think people get confused between “entitlement” and “unjustified sense of entitlement”.

  3. Christopher D. Rogers

    @Charles 2,

    I appreciate what you are saying and reference to Mao’s dictum of “power coming out of a barrel of a gun.” However, why are you buying into the meme of “boomers” and “millennials”, when this is a false dichotomy, which is a shame, given you are on the right track by mentioning Mao.

    Can you not call it out for what it actually is, namely: “class warfare” with a new predator ruling elite exploiting the vast majority of citizens in the USA, and further afield.

    Now, I realise you chaps in the US keep espousing the mantra of the “middle class”, and how most Yanks belong to this class – which in reality is BS, as most of your population falls into a working class or proletariat bracket. That they themselves do not realise, or are propagandised against not to realise this sentinel fact is what is most worrying.

    Anyway, until persons, particularly those who call themselves “progressives” or “liberals” stop aligning themselves with single issue causes, be this feminism, gay rights or minority rights, the powers that be are going to prevail. Only when the majority realise that they belong to a cohesive single group can change be enacted/won – until then, its just “divide and conquer” and our neoliberal friends are masters of this.

    1. allcoppedout

      This is my view Christopher – though I guess most of the USUKers in here don’t fall for the middle-class stuff.

    2. trish

      I agree. The plutocrats toss out the occasional bones to the “left” ie on gay rights, issues that don’t threaten their economic interests, and all the elite “liberals,” “progressives” take the bait- obama is progressive!- and often the plutocrats can even quietly ram through some more regressive legislation to further redistribute upward while everyone’s distracted and our illustrious press helps on this with endless articles…
      works great.

    3. lambert strether

      Identity politics — e.g., generations — are always OK.

      Class politics are never OK.

  4. allcoppedout

    I’m with what Joe says. My problem is I’ve seen 30 years of the argument in academe and all to (more or less) no effect. In fact, only a tiny portion of the academy actually discusses anything; most of it is textbook teaching and vanity publishing now. Charles rightly points to ‘out of the barrel of a gun’, but we can think of a long history before Mao. Aristotle pointing out the tyrant first shows as ‘protector’, Nietzsche that bourgeois morality is based on being able to send the boys round to enforce debt and chains of command to make organisations work.

    We aren’t doing the deep questions well. This is hardly surprising given our dud schooling, forcing us to regurgitate simple answers from ‘holy text’. Originality is now lost on us. Our behaviour is now parasitic and most of us have so little understanding of biology we don’t know parasitism is the most common life-style on earth. There is a generational war, but this is a very old one. Each generation bulls the next to venerate age. We ain’t dumb enough not to know our fighting abilities are about done at 35. So we implant stuff in the young that it is wrong just to kill us off. With luck, some of what rubs off might cause some genuine gratitude. And we old farts might just have some actual use. In this last sense though, we might be the most useless, selfish generation of old farts ever.

    This cycle of child-bearing pain, nappies and the vile teenage years might be coming to an end. We have found a way to ‘de-age’ mice. Soon we may be able to ‘live forever’ and not have to suffer generationalism. In the meantime, we extend age through medicine and shift our demographics. Of course, given technology we no longer need so many young to do the actually necessary work. And we have created a legal-economic system to keep the young poor enough to do our bidding. Indeed, there must be too many of them as we can’t provide work for lots of them and the planet is burning because of all these surplus carbon footprints.

    We constrain argument about this to money. ‘We’ earned the right to our comfortable old age. Now we let money make money as though it breeds as stupidly as we do as a species. Finance is modern alchemy. I did three months on an Indonesian jack tuna boat years ago (admittedly this was my choice) and I have never believed since that any of us “earn” the right to our comfortable lives based on work like that. We have the arguments on pensions all wrong. They probably require 9% groaf to pay out That assumes current assets ‘we worked for’ are worth anything (unlikely).

    I see all this (in my madness) economics jive as about slavery and about the slavers (“us”) not wanting to work on the jack tuna boat. We wouldn’t last five minutes in a pitched battle against the lads on the boat. Neither would what passes as our yoof. Very few of us have been working for decades. Most of them never have. 85% of pension value may be worthless. Typically such ZH statements on such end ‘invest in gold’. The idea is always to have so much “earned money” (surely ho ho ho) to get your share of the tuna whilst leaving the work to almost unpaid people who do the real work.

    Anecdotal? Sure, but now explain just what most economics is based on. Start with comparative advantage. Make 100,000 soldiers redundant and see if Austrian anecdotes come true. You actually don’t have to do the experiment – look at what historically happens when soldiers are absorbed into real economies. Economics is like learning sex from Jane Austen, or geopolitics from John Wayne.

    1. Banger

      Cool stuff! I think I could put some beatz behind your rhetoric–is seems to have rhythm.

      1. allcoppedout

        And there was me thinking I’d written the full symphony Banger! I agree. We need some kind of team effort. I’m very suspicious of argument. There are many reasons, though I don’t patch them together well. An endless list might start:
        1. the hermeneutics of suspicion butters no parsnips
        2. most arguments make decisions (in the dark) on stuff excluded before the start
        3. part of 2 concerns the rules of argument
        4. investigating these rules one finds convincing deep argument the supposed logic of argument isn’t
        5. ordinary language philosophy excludes much ordinary language
        6. the search for meaning in 5 may be a mistake
        7. I feel ‘intercourse the penguin’ long before exhausting my own list.
        8. as I rush about Rome trying to organise fire-fighting, I discover some people started the fires as a party theme …

        Our songs are not written, let alone performed. We should try.

      1. masterslave

        “” Westerners don’t recognize evil and don’t fight it.””

        The Christian Science delusion is —
        see no evil , hear no evil , speak no evil ….. so then there is no evil .

        Christian Science is the only religion ever recognized by an act of the U.S. Congress around the year 1878 . No wonder the world is so messed up .

      2. psychohistorian

        I think that unfettered inheritance is a core evil where usury just reflects the greed of credit.

        Neutering inheritance would do more to tame the god of mammon than usury because then public commons become the backing for sovereign banking instead of the now semi private banking system that would be subsumed into the public commons. Actuaries, instead of the invisible hand/plutocrats of capitalism would set loan rates and contribution changes into programs like the original Social Security Insurance program……instead of bought politicians.

        1. mansoor h. khan


          Property is used produce income when combined with labor (i.e., goods and services). Why worry about “property” if most “return” from property is fairly (evenly) distributed via “social credit” (gift) schemes anyway as proposed by Clifford H. Douglas in 1924 and many other economists in the first half of the last century and even earlier in history.

          The owner of the property wants “cash” (currency) which the government can give him/her in return for real output for the people. Capitalism does work superbly. Usury does not work and causes the economic imbalance we see all around.

          we need a different model for distribution of goods and services produced by an automated economy.

          Clifford H. Douglas and others have come up with essentially a “gift” economy idea. Sometimes known as social credit in relationship to our current banking system which would simply deposit money in a citizen’s bank account on a regular basis.

          Just like god has gifted the natural world to humanity the super productive humans would have to be convinced that the right way to distribute the fruits of an automated economy they disproportionately help to create using automation as leverage should be “gifted/shared” with the rest of humanity.

          Another other setup is disaster anyway as we can see all around us.

          Also, automation and business process/business management knowledge is based on accumulated human knowledge and experience.

          We cannot have both a hyper-automated economy and current debt-based credit & salary based economic distribution model. This became clear to many thinkers like Clifford H. Douglas way back in the twenties.

          Keynesian government spending model to “fix” a slowing economy is trying to do same thing (social credit) a different way.

          The current spending on Social Security, Welfare and food stamps is really “social credit” by another name. We simply have to formalize this idea and have a “dignified basic guaranteed income” for all citizens. This is very possible in industrialized countries of the world.

          More at:

          Mansoor H. Khan

    2. sleepy

      While I agree with MMT, I think the argument of Huntsman could easily be defeated on her own terms, without resort to MMT which in this case, imho, tends to obfuscate the issues:

      1. SS can never go broke. Its payouts are limited by law to its receipts. By definition, it will only pay out what is in its dedicated accounts. General revenues cannot be used to fund SS. If there is a funding shortfall–which is predicted c. 20 yrs. from now–benefits will simply be cut to retain SS’s solvency. Presently, that is estimated at c. a 20% reduction in benefits.

      2. The boomer generation has already paid an additional cost for SS–in c. 1985, SS taxes were raised to “prefund” the boomers’ retirement, hence the $ 2.2. trillion something surplus in the SS account. That account was meant to be paid down as boomers retire. Additionally, full retirement was raised to 66, and above, from 65–another cost paid by boomers, as well as subsequent generations.

      3. To solve the “funding shortfall” envisioned 20 yrs. from now, I have read that all it would take would be a 1 point percentage increase in employer/employee contributions, phased in over a 20 yr. period. In other words, a 0.05% increase per year. Pitch that to the public, and there would be overwhelming support.

      Of course, raising the cap would accomplish the same.

      1. Joe Firestone (LetsGetitDone)

        It could be defended using the term’s of Abby’s argument; but ultimately arguing on the basis of her premises is a losing position politically because it will only lead to “compromise” involving cutting SS and Medicare with Democrats doing the Happy Dance and telling us how much worse it would have been if they hadn’t been there to force the Republicans and other austerians into a compromise. Sorry I’m not having any of that. Our problem here isn’t to defend SS or Medicare, it’s to defeat neoliberalism. The safety net is just a battlefield. We need to win the war! That’s what I’m about.

    3. Nathanael

      “parasitism is the most common life-style on earth. ”

      Actually, having studied biology, I’d say that photosynthesis is the most common lifestyle on Earth. Has to be, given that it’s essentially the only way for life to capture energy at all. (There’s also chemosynthesis, but it’s so minor as to be practically irrelevant. Both of these categories are “autotrophs” — they can feed themselves.)

      Unfortunately, the rest of us are just freeloading on the photosynthesizers. Freeloaders (“heterotrophs”) are categorized into three categories: those who eat lifeforms which died of other causes (“saprophytes” and “scavengers”), those who kill lifeforms in order to eat them (“predators” and “herbivores”), and those who feed off living organisms without killing them (“parasites”).

      Humans are pretty much the kill-to-eat type, sad to say.

    1. allcoppedout

      It’s had some attention on NC and ZH. The analysis of liquid assets and who has them has been around a long time. So have thingys like platinum coin minting. Something isn’t dawning on us.
      1. We could equalise bank accounts the world over tomorrow.
      2. We could buy out rich rents at yesterday’s prices.
      3. What is money at that point and how do we get anything done?

      My guess is we miss the argument “conpletely” – we are drawn into the waiting fire of the total con propaganda.- what the argument should be never surfaces. All hail the recovery. Now bring on the jesters of gloom so we can have some fun watching them juggle platinum coins. What about that guy with the liquid assets thingy? He’s clearly drunk too much of them!

      The old argument was ‘who controls the means of production’? The turned that one into the Wizard of Oz.

    2. Yves Smith Post author

      My problem with this is that from the NC perspective, this is old news. We’ve referred to the work of economist turned political scientist Tom Ferguson, who has meticulously been tracking campaign funding for more than 30 years. He wrote a book in the early 1990s called Golden Rule, which set forth what he called “the investment theory of politics” which was that the US was not about democracy, but about monied special interests buying the policies they wanted. He tracked this pattern back to the Great Depression (Ferguson argued that Roosevelt’s policies were backed by rich multinationals. who were the more innovative companies of their day).

      So bizarrely, Ferguson’s long-standing work has been validated by a third party, and that’s somehow news.

      1. Nathanael

        Smart, long-term-thinking elites should back New Deal type policies.

        Stupid, “primitive accumulation” (Marx) or “invidious impulses” (Veblen) elites oppose such policies — out of sheer stupidity, basically.

        Much of history can be described as a fight between the smart elites and the stupid elites. (Much of the rest is fights between different groups of stupid elites.)

      2. Nathanael

        It’s news when something catches people’s attention.

        I guess it was not the right moment, socially/politically speaking, when Ferguson’s book was published. What matters is to distribute ideas *when you have a receptive audience*.

        This is deep political science, or deep mass psychology if you prefer.

        I can think of lots and lots and lots of things where I knew about them for *decades* before they “caught on”. You might also research the prehistory of the Civil Rights movement — the same “triggers” which set off mass marches and protests in the 1960s *happened repeatedly* from the 1920s through the 1950s, and just didn’t manage to catch on. Something had changed by the 1960s and this time it DID catch on.

        1. Nathanael

          For another example, people listen to me now when I explain that inequality destroys economic growth. And they just didn’t listen in the 1980s.

  5. bkrasting

    I’m reading through this wondering where it is going. The thrust of this article is that there is plenty of money, there are no issues when it comes to paying the bills for SS and Medicare. And I’m thinking this guy is nuts, of course there is a shortage of financial resources. That’s why the deficits.

    Then I (finally) get to the end, and find that this all about issuing Platinum Coins. Sorry Joe, that idea is Dead on Arrival. So what is the real plan given that this “solution” is not realistic? There is no plan at all. Back to square one….

    1. Auburn Parks

      “The thrust of this article is that there is plenty of money, there are no issues when it comes to paying the bills for SS and Medicare. And I’m thinking this guy is nuts, of course there is a shortage of financial resources. That’s why the deficits.”

      Boy, you really don’t understand how this stuff works. For the dollar issuer (aka Congress) there is never a shortage of financial resources. Can the “bank” ever run out of money in the game Monopoly? Of course not, fiat money is infinite by definition.

      Where do you think all these trillions of dollars in the economy came from? China? The Wealthy? Nope, its illegal to make US Dollars, its called counterfeiting.

      1. Banger

        The point JF is making is that the government/Fed can just print money that debt, in the framework of a fiat money system is not what it was traditionally speaking. For example, if I borrow money to buy inventory for may store (I do that) I will get a return on that investment so I am not theoretically in a deficit because, at some future date, I will sell it for a profit. Similarly if we pay for seniors to live without dying in the streets the economy recoups that through spending on food and other goods and services.

        The point JF and people of his ilk are making is that we are doing that to fund relatively destructive things like giving zero or virtually zero interest “loans” to Wall Street to speculate with why not give it to more directly productive items like seniors, infrastructure. Why not pay to help educate the young rather than spend far more for wars where millions are killed, wounded or displaced as the us has done for over a decade with no improvement in the general welfare of anyone?

      2. Joe Firestone (LetsGetitDone)

        And the platinum coin is just tool that allows Treasury to grab hold of the Fed’s legal reserve creation power to fill the public purse so that debt can be repaid, debt ceilings can be rendered unimportant, and proposals involving current and future deficit spending can’t be opposed by austerians on grounds that we are running out of money!

    2. trish

      “The thrust of this article is that there is plenty of money, there are no issues when it comes to paying the bills for SS and Medicare. And I’m thinking this guy is nuts, of course there is a shortage of financial resources. That’s why the deficits.”

      The fix-the-debt scam is working.

      If you’re worried about the deficit and those old people sucking us dry, perhaps read a little simple lucid Dean Baker about the real stuff sucking up the resources (and funneling it right up to those at the top). It’s not the safety net.

      1. Lord Koos

        I have seen many people (I have no doubt that some of them are being paid) commenting on Zero Hedge repeating the ‘blame the evil baby boomers’ meme, and I’m sure it is taking place in many other forums as well. There is quite an army of propagandists out there and the web is the new frontier.

    3. Katniss Everdeen

      ‘Tis true. Mr. Firestone’s solution does always seem to be the platinum coin, which then becomes the star of the comment show.

      So how about this.

      The only reason discussions of the financial condition of Social Security and Medicare are even possible, is because these are the only government programs funded by dedicated “taxes.” Once an actual number can be put on the amount “available,” all manner of analytic machinations ensues. Surpluses/deficits, trust funds, “unsustainable” 75-year projections, comparisons to “contribution” and generational unfairness, just to name a few.

      And the horror of it all is in your face every two weeks as a payroll “deduction.”

      So how about putting these “entitlements” on the same funding footing that, say, “defense” expenditures or financial system bailouts currently enjoy. Which is to say, of course, on an “as needed,” no-audit-required, whatever-it-takes basis.

      SS and Medicare payroll tax deductions could be replaced with the “Defense/War/Global Power Projection” deduction and the “Too Big to Fail Profit and Bonus Protection” deduction.

      It would be kind of interesting to see the analytic fur fly for these “entitlements.” I wonder how “sustainable” and generationally “fair” they would be found to be.

      PS. Who in the world is Catherine Rampell, and why should I care?

      1. Joe Firestone (LetsGetitDone)

        She’s a young rising star serving the plutocrats with wonky column writing first at the NYT and now at WaPo. You’ll be hearing much more from her, sine she’ll surely soon be appearing on MSNBC in some capacity because she fits the profile of superficially smart, photogenic, climber so well. In addition, she bills herself as an “evidence-based” analyst, which may mean that they intend for her to be Ezra Klein’s successor at WaPo.

        As for the platinum coin, I often mention it because under current law it is the easiest way for Treasury to render debt issuance and debt ceilings inoperative without Congressional action. Sure it would be better if Congress just placed the Fed within Treasury and nationalized the regional Feds; but good luck with that one in the foreseeable future. The coin is much more likely to happen in the short run since that only requires the election of a president willing to use that tool when pushed by the debt terrorists.

        1. psychohistorian

          I like your comment about nationalizing the Fed and think the chance to do so is coming sooner rather than later.

          When the US dollar is no longer the Reserve Currency, 2014?, 201?, the opportunity will exist for the public to be “edumacated” enough to empower a totally sovereign FIRE sector. Think of finance provided as a utility, insurance that funds policy instead of setting it and real estate like China where there are only 70 years permits on holding property, ultimately owned by the government/public commons.

          If we could collectively have the will to neuter inheritance then the rest of this is just icing on the cake.

    4. Paul P

      Not enough money?

      Charles 2 jumped in first to reiterate the Peter Peterson meme that seniors are taking from the young. And the responses on the string have been disappointing. Social Security, AFDC, and unemployment insurance were created in the midst of the Great Depression. There was a lot less money then. The economy at that time was a lot smaller in relation to the population. Yet, these Great Programs were created under those circumstances. Now in a richer economy, the Great Programs must be cut.

      Joe Firestone uses MMT to explain that money to pay the entitlements is not the problem.
      But, he could also have explained that raising the cap on income subject to the FICA tax would do the job too. Apply FICA to investment income, for example.

      Untaxed offshore profits, the Fed lending to banks (but not to students or state and local governments) at an effective negative interest rate when inflation is taken into account, and unconditional bailouts to business–all this is off the table as a way of dealing with the scary deficit pushed by Peter Peterson and his class. Only thing they can think of is to cut the Great Programs.

      Lets treat Peter Peterson as he treats us. He wants to cut the legs out of the economic well being of the many. Lets get behind a proposal to put a cap on personal wealth and take privilege away from the few. And, if the response is they earned their wealth, let’s have a debate about that.

      1. Joe Firestone (LetsGetitDone)

        “Joe Firestone uses MMT to explain that money to pay the entitlements is not the problem.
        But, he could also have explained that raising the cap on income subject to the FICA tax would do the job too. Apply FICA to investment income, for example.”

        I could have done that if I wanted to reinforce the point that taxes “pay for” entitlements. But I want to destroy the belief in scarce Federal financial resources, and think it is more important to do that than it is to tax away the wealth of the rich. Randy Wray had a very good post partly on this matter linked to above. Read it! It’s pretty convincing.

    5. Gary Goodman

      bkrasting, I was going to suggest a remedial reading course, but your problem was described by someone critiquing Stephanie Kelton as an “autostereogram” effect that makes us unable to see the picture …. until we do.

      “Deficits” doesn’t mean “lack of money” when it comes to the Govt, they way a personal deficit means that. A federal deficit is merely “leaving money on the table”, with the table being OUR ECONOMY, the private non-govt sector. So a federal deficit is like inviting Uncle Sam to a keg party and he chips in $10 but doesn’t drink, or drinks very little. A federal surplus is when Uncle Sam chips in $2 and drinks $10 of beer.

      The non-govt sector MUST have a surplus, or we go broke, bankrupt, decline. The govt sector MUST run a deficit, or the private sector CANNOT have a surplus. Every single US Dollar in existence — that is, Dollars not created as bank loans — which are self-extinguished and disappear as loans are paid back — has been created by Deficit spending.

      That means that the total Net Financial Assets (savings) in the form of US Dollars for America and the rest of the world (that also saves Dollars in accounts) was created by Deficits, by Govt “leaving money on the table”. If we hypothetically ran that tape in reverse — like preachers playing Led Zeppelin backwards to hear satanic verses — that would be a process of systematically extinguishing every single US Dollar-based Net Financial Asset in existence. IT would mean wiping out ALL financial WEALTH that WE possess, the private sector.

      (We might still have non-financial wealth, but how would that be measured? The bigger point is what happens to non-financial wealth if or when financial assets are rapidly destroyed. That’s called a catastrophic Depression, which destroys the value of real goods, real services, and real assets, since commerce can’t happen, barter isn’t commerce, and there hasn’t been a commercial economy in 1000s of years that didn’t use money in the form of some kind of accounts record-keeping). (The story of a transition from common barter to gold money to paper money is a myth. Sumerians had account-money on clay tablets and rocks.)

      I’m writing this in “economic baby talk”. There’s more accurate terminology to use to explain this, but average people can’t seem to grasp that.

      Universal common currency we use — mostly account credits with a some paper and coins — is created by the LAWFUL POWERS of the Govt to issue payments, by issuing orders or instructions. It doesn’t “come from” somewhere, least of all from taxing currency user citizens.

      All money throughout all human history has existed as a “relationship”, not a thing. It’s a relationship between two counter-parties, one being the asset holder, the other holding a liability. When you have a positive bank account balance, you have an asset and the bank has a liability … aka debt … because it “owes” you your balance. The bank “owns” your money temporarily, but it promises to give it back to you. There’s documents explaining this function going back to ancient Rome (or prior).

      When you have US Dollars in your wallet, that is also YOUR ASSET, so it must be the liability of the counter-party, which is the issuer, the US Govt. In total, the NET assets of the American people (and foreigners) are by definition the NET liabilities or “debt instruments” of the American Govt, by simple fact of how accounting and double-entry bookkeeping works.

      That’s why there’s no actual “running out of money” problem. So long as the institutions and officers of Govt have the powers to issue edicts — like declare wars or declare national holidays — they have the power to issue orders to make payments. That is how money is created.

      The platinum coin does NOT change this. All it does is create a new paradigm. Instead of the scary idea that the Govt is issuing Treasury Bonds to fund itself — which is the current paradigm created BY LAW by past Congresses — the executive branch Treasury could mint a coin for $50 cost and simply DECLARE the value of that coin at any denomination it chose, with $1 Trillion as a suitable number.

      That’s NOT functionally different from how modern “notional value” money already works.

      However, the so-called “debt” could be retired or not get any bigger, and the Coin could represent a positive account balance held by the Treasury. THERE WOULD BE A PROBLEM.

      Rich people and rich corporations need some kind of safe account vehicle to hold their substantial savings, or in the case of banks, a place to park their surplus Reserve balances. That current vehicle is savings accounts located in the central bank designated as Securities Accounts, which are Treasury Bonds/Bills, which are guaranteed to be payable to the account holder by the United States Constitution, Amd 14. That simply means that if a party creates a deposit by moving their funds from a Reserve acct at the Fed to a Securities acct at the Fed, the Govt promises to not confiscate the money. If it did, that’s what they call “communism” — expropriation. Since the US Govt doesn’t ever NEED anyone’s US Dollars to conduct a balance transfer between accounts it controls, that’s never a problem to guarantee those accounts (unlike pedestrian commercial bank accounts which are only guaranteed by FDIC to a limited amount).

      In Australia in the 70s, Billy Mitchell described a high-level conference on the “amount of debt the govt should issue while running a budget surplus” because the High Street banks needed more vehicles to park their funds, and the Govt wasn’t issuing enough accounts for the Financial Sector.


  6. Moneta

    And second, there is no way, in the Federal Government spending context, to link any specific category of tax revenues or FICA contributions to benefit spending. There is no way to accurately say that this tax pays for that spending. Or that this spending is “paid for” by that tax.
    IMO, this sums it all. When I entered the workforce in the early 90s, I knew the problems would hit when boomers retired because of this gross lack of accountability. Spending is out of control and we don’t know the value of anything. Over the last 4 decades, progressives just kept on asking for more without any concern for money and the conservatrons said yes until debt levels became a problem.

    Until the 2 sides finally understand that someone’s cost is someone’s income, nothing will change. Printing money without changing the structure will solve nothing.

    1. Trinity River

      Moneta, your post is almost funny. Not that I’m laughing at you and not funny ha-ha. But you are not understanding what has already been said. I agree that we have heard this meme about the debt so often that we can’t really hear/think anymore. Given that, fiat money is even harder to understand. Reread Banger above and Dean Baker. Rewatch the documentary “Inequality for All”. I’m certainly not trying to chase you away from this blog: keep reading.

      1. moneta

        I don’t know where to start to convince you that I am not a dimwit so I won’t even try.

    2. Gary Goodman

      Debt levels are NOT a problem, at all, ever, because of an understanding of what “debt levels” and the “national debt” means.

      First off, PRIVATE debts are a big problem. When the economy as a whole became unable to make Balloon payments on those funky debt obligations created by banks — while they purposely lied about the value of the underlying collateral — mortgage securities derivatives had their value collapse rapidly, and banks started cutting off and contracting credit.

      Banks had created some $42 TRILLION in outstanding private debt, between the Great Depression and 2008, with a huge and exponentially-rising chunk of that after 2000.

      Yeah, problem.

      The Govt’s debt is a completely different issue.

      When any company — like Apple with $150 Billion in cash — or any person, like a retiree — or any reserve bank, like Citi or JPMC or Keybank — or any foreign central bank like China or Japan — has surplus holdings denominated in US Dollars, those reside (normally) in Reserve (checking) accounts, which are kept on the books by OUR Central Bank, called the Federal Reserve. What the Fed keeps is RECORDS.

      Because Reserve (checking) accounts out of which these entities may spend typically don’t pay interest (but could, if we tweaked the rules), Congress has generously provided these wealthy people and institutions a “save haven” for their surplus Dollars. Congress has done so by REQUIRING the Treasury to sell “Bonds” of varying length maturity and interest at redemption to a handful of private US and foreign banks. It is also possible for institutions other than Primary Dealers to purchase Bonds directly. These are functionally SAVINGS ACCOUNTS which are nothing more than RECORDS kept by the Fed.

      Whenever some bank (or central bank) transfers their funds from Reserves to Securities accounts — a balance transfer — as Treasury makes these available at auctions — the United States is said to have “gone into debt” because these are called “debt instruments”. When cities or states issue IOUs, these must be repaid with taxes. When corporations issue bonds, these must be repaid out of profits.

      When the Fed Govt issues bonds, these are “paid back” when the Bonds (Security accts) reach maturity — 3 mos, 6 mos, 1 year, 10 years, etc. — and the account balance is transferred from savings back to checking, automatically. That part of the debt is then “paid off”.

      So why is the “national debt” growing? These private parties CHOOSE to park their Dollars in our T-Bonds, they WANT to buy these Treasury Bond accounts, and they actually are always demanding MORE of them than what Treasury is willing to provide, by a substantial amount. They WANT the interest and they WANT the security of parking their savings with ZERO RISK, unlike parking some funds in the NASDAQ or Dow funds or other high-risk private investment. Those other options may be more profitable if they bet right, but they can also LOSE a lot. Look at how much Pension funds and others lost by believing that Mortgage Securities had AAA-rated safety, the same as Treasury Bonds which should be AAAA.

      There’s only ONE potential practical risk of those T-Bonds being insolvent. That is, if Republicans go on strike and refuse to process those payments.

      There’s also the possible but highly unlikely risk of a total insurrection which would wipe out the United States Govt, but even in that case, the Russian Govt agreed to cover all the Soviet Union’s debts. There’s a possible risk that some other country could attack, invade, defeat, and overthrow the US Govt and take over, but they would have to have better weapons and more nukes than we do, and they’d have to WANT to do so for some reason. Most of the world has Dollar assets they currently own, which mean THEIR wealth would immediately become worthless too.

      Since those scenarios are not happening, therefore the US Dollar AND our constitutionally-protected “national debt” have zero chance of becoming insolvent. The Bond Market knows this fully. It’s idiotic Americans who don’t understand this, who believe that Americans and America has to suffer and decline into even more widespread poverty, in order for the US Govt to remain “solvent”.

      Any nation which has the sovereign power to control and issue it’s own currency can never be unable to make any payment to anyone in it’s own currency, as Greenspan told Ryan. The Eurozone? Opposite story. They surrendered their monetary sovereignty to the Euro and ECB. Every other known case of national default was either voluntary — Japan during WW 2 — or else they legally agreed to debts denominated in a foreign currency, usually following a war treaty, and usually with coincidental collapse of domestic production and work.

      The USA owes NOTHING in the form of Rubles, Pesos, or any other currency or any metal. We are 100% solvent, forever, for practical purposes, unless these “smart people” convince America to surrender OUR sovereign monetary system to some foreign entity. Now we’re probably talking about some “New World Order” scenario, like if that was a global central bank that “we” don’t control. That could get very ugly, the USA could then be “like Greece” or worse.

  7. tiger

    Great post! QE based financial profits are fair but social security promised benefits are not? Time to wake up indeed.

  8. Chromex

    If the austerians are really making this argument about dollar-for dollar parity don’t respond to it . The whole thing is run-or is supposed to run-on actuarial calculations. What that means is that investment value of the money taken must be accounted for. What that means is that dollars of contributions versus dollars paid out is irrelevant, as is the actuality of whether the money is actually invested or not. How can boomers be held responsibile for the idiocy of politicians? You get maybe one in one thousand people who understand econ and finance in the general population, my experience working for and with legislatures is even fewer. All they see is a pot of money and they can’t keep their mitts off it;why is this anyone’s fault but theirs?
    Milton Friedman, whom I otherwise dislike, wrote an article in the WSJ before he passed explaining why he was comfortable taking SS despite his rigid political beliefs. Basically, he made the “investment earnings must be taken into account” argument and found that it was “very difficult to beat the tables”.
    Any insurance/retirment annuity/gic program, including social insurance is run this way- there will be those in the group who benefit, ie beat the tables and there will be those who die at 64.Whether, when the money was taken from our paychecks, there was actual actuarial investment going on was out of our control AND it is presumed anyway.
    If reform, in addition to increases, is needed, maybe we should demand that the money actually be invested this way.
    But, yeah, as a group, we paid for it I suggest we cut “military” and “security” if debt is a concern. I find it MORE than ironic that the boomers suffered the biggest tax increase in history circa the Reagan-Moniyhan “reform” to save SS ( and allow for hideous military build up, unfettered to this day) and now that we are reaching our less”productive” and “declining” years we are hearing all this crap about dollar for dollar benefits. Looks like a plot by the elites to cast us aside now that we are no longer needed. Same will happen to you younger folks when the time comes.

    1. Joe Firestone (LetsGetitDone)

      This reply just reinforces the old frame. Did you get that the post says we can create the money we need to fulfill our needs? We just need to see that we don’t deficit spend too much too fast, so that we create demand pull inflation; and we also need to see to it that we deficit spend on goods and services that have value for most of the population.

      1. Nathanael

        Bureau of Engraving and Printing prints the money. They can print as much as we need. People gotta remember that.

        1. EconCCX

          @Nathanael Bureau of Engraving and Printing prints the money. They can print as much as we need. People gotta remember that.

          Prints it. Doesn’t issue it. Can’t spend it without taxing or borrowing it. Joe’s strategy depends abjectly on the USG’s power to coin money. But USG coins small denominations at a loss. And the Federal Reserve Banks have been attempting to delegitimize the small seigniorage the USG earns even on the dollar coin, let alone the multi-trillion dollar ducat Joe would have USG issue. Per this gem of NPR stenography:

          [T]he benefit to the government would come only from the profit it makes by manufacturing each coin for 30 cents and selling it to the public for a dollar.

          When this profit, known as seigniorage, is factored out, switching to the dollar coin would actually cost taxpayers money over three decades, according to a Federal Reserve analysis of the GAO’s figures. The cost works out to $3.4 billion.

          The Fed’s Louise Roseman wrote to the GAO that seigniorage should not be considered in an analysis of whether the switch would benefit the larger U.S. economy.

          The reason, says Roseman, director of the Fed’s Division of Reserve Bank Operations and Payment Systems, is that seigniorage “is a revenue transfer from the private sector to the government.”

          So, in other words, a tax?

    2. nowhere

      The whole “The greedy old codgers are getting more out of Social Security than they put in!” bit amused me too. I doubt that those who write those things are dumb enough to actually think that’s a valid argument – they’re just being deceptive and manipulative – but it’s still kind of worrying that they could get it printed without comment and presumably get somebody to believe it.

      Maybe they’re being honest and really believe what they say. If so, have I got a retirement fund for them! For anyone who wants in on it, my most basic plan guarantees a payout of $24,000 per year, starting at age 65 (period over which benefits are to be received not to be greater than period over which premiums were paid into the plan – this to be in very small type or spoken extremely quickly on a TV advert). You merely send me $2,000 each month starting now and I’ll take care of everything. You don’t have to worry about being selfish or being part of an unsustainable system and I’m such a nice guy I won’t even charge you any fees for looking after the money for you!

  9. Noni Mausa

    The millennials who fall for this argument and go along with cutting SS will get stung twice — they end up with their elderly relatives living with them, and then when they get old by getting their own benefits cut. The bloated seniors and the spoiled millennials are the same people, and the neoliberals haven’t done either age range any good at all. “Look out for that grandmother, she want part of your cookie.”

  10. Banger

    Let’s state it simply: the oligarchs will do anything to maintain the current system of plundering whatever they can for themselves, their families and their friends. Nothing to do with financial or economic issues has anything to do with practicality. All economic issues are, particularly at this time, political. Power, who has it and what are they trying to do is the only thing we ought to be concerned with. Arguments about debt are arguments about who gets what money when. Debt is, in a way, a fiction–it can be eliminated with a snap of the finger in any number of ways. Debt is a form of authoritarian control today both in itself and as an issue.

    The question we ought to face is what sort of society do we want–we are in a position to ask that question and be able to create a new set of more convivial arrangements if we de-hypnotized ourselves from the media/mind-control trance we are in.

    1. Greg T

      This is exactly right. It has nothing to do with economics per se. The present system is designed to funnel income to powerful cartels and their servants at the top. This accumulation of income creates surplus for them which is then used to purchase political influence, which further entrenches their power. Much of economics is a justification for this phenomenon. No amount of economic argument will sway them. They won’t voluntarily cede their acquired advantages. There must arise a forceful countermovement to take back what was lost.

      Economics cannot be divorced from politics. The only way this is reversed is to begin to unwind this system which enriches a few at the expense of the population. First, people have to be clear on what the problem is. It’s not a difficult case to make. More are aware of it since the GFC of 2008, but not enough have caught on. The propaganda streams remain effective, but their effectiveness, I think, is waning. Without that mass awareness, we’ll get pockets of resistance , but no coherent movement to apply pressure at the system’s weak points.

  11. Dan Kervick

    This is just a personal note. I’m 54. When I talk to my 23 year old son about the fact that US democracy has been transformed into an oligarchy of wealth and almost unimaginable inequality; and about the fact that his generation is shaping up to be the first one in America to have a less prosperous life than their parents, I fell like a failure. I also feel weak and stupid. And when people tell me “Oh it’s not your fault Dan. It’s those evil [fill in blank here with favorite social enemy]. You’re just a victim.” I feel insulted and belittled. Victim? What kind of people allow their country to be stolen from their children by economic predators, and their children turned into serfs?

    Our generations have seen a decline in civic obligation and participation, a decline in civic knowledge, a growth in self-indulgent personal pursuits and hedonistic indulgence, a mocking destruction of the norms of solidarity and community, and a proliferation of the ethos of self-interest and avaricious acquisition.

    That’s not to say the younger generations have it figured out any better. They are in many ways just as spoiled and addled as we are, as some of the crackpot fantasy solutions that spun out of the Occupy movement showed. Sadly, most of us contemporary Americans of all generations are soft and stupid chowder-heads with utterly unrealistic ideas about how the world butters its daily bread, with massive institutional illiteracy regarding the kind of work that is needed to maintain even the basic productive apparatus of everyday life, with servile notions of entitled consumption, narcissistic expectations of personal liberty and gratification, and a grossly inadequate grasp of the obligations of democratic citizenship.

    1. Katniss Everdeen

      ” What kind of people allow their country to be stolen from their children by economic predators, and their children turned into serfs?”

      The same kind of people who believe that bad things only happen to someone else. And they probably deserved it.

      The same kind of people who believe that “it can’t happen here.”

    2. Banger

      I’m even older and I feel even more responsibility–my generation had a real chance but we turned into Bill and Hillary.

      But, realistically, everyone is responsible–we are part of the flow of history, part of multiple wholes. Guilt or despair just wears us out. From a logical POV the situation is hopeless and we should acknowledge that reality and move on. The remedy for hopelessness is to be in the moment–this one right now. From this state we become more powerful and potent. Act and be here now. Hedges has it right in saying we must resist without hope of success.

    3. Greg T

      We all share some degree of blame. It does no good to dwell on fault. What matters is what we do now.

    4. Jackrabbit

      The struggle of man against power is the struggle of memory against forgetting.
      – Milan Kundera

      To say “everyone is responsible” is to blame the victim. Yes, Americans, and the West in general, grew slack, thinking that we now lived in a time of liberal consensus. But they were largely unaware of the powerful forces acting to pull that apart. Not in an overt and forthright way, but in a sly and covert way. Media was concentrated. Think tanks formed and grew. Neoliberal thinking was pushed relentlessly. The end of the Cold War was held up as demonstrating the righteousness of ‘free market capitalism’ but actually coincided with the beginning of a wave of market failures: the 1987 crash, Japan’s crash in 1991 (and stagnation since), LTCM failure and EM market crisis of 1997, the dot-com crash in 2001, the 2008 GFC, Eurocrisis, and the revelation of manipulated markets (LIBOR, HFT, etc.)

      Now we are in one hell of a fix as our financialized, militarized economy appears to be headed for a brick wall. Inequality, cronyism, a bankrupt nation.

      = = = = =

      PS Global Warming is another case where some push the line that “we are all at fault”. NO!! Oil and Gas companies have spent billions on influencing the outcome, including think tanks, media, fake science, and campaign contributions.

      1. Gary Goodman

        Largely true, except “the United States of America” is not bankrupt and cannot be bankrupt, for all practical purposes. THAT is the main part of the LIE that Soc Sec is insolvent.

        The American population has gone and is going bankrupt, literally. The banks created fictional “wealth” stored up in our housing, then started seizing houses when the Bubble collapsed. Of course they couldn’t keep the houses, but they kept as much financial wealth as possible, by dumping the losses into the private Pension funds that bought those AAA rated mtg securities.

        Our productive economy has gone into decline and is going deeper into decline, because of INSUFFICIENT DEMAND, meaning insufficient money.

        When banks aren’t creating sufficient new money-in-circulation — growing credit-money — via loans for productive investment (or even simply by inflating a new asset Bubble), there is only ONE remaining source of the financial liquidity and financial assets that our Economy NEEDS, which could constitute sufficient Demand, and could restore lost output and jobs.

        That entity is the US Govt, which creates money via its Lawful Powers to issue payments … to anyone, to military contractors, to grandma, to corporations, to various “welfare” recipients, and even “foreign aid” to US corporations.

        With the Govt sector is contracting spending while the banks are contracting credit (or growing too slowly), and the foreign sector is still taking more Dollars for exports to US corporations than the reverse, the domestic economy MUST fall deeper into decline. It’s simple arithmetic, plus understanding Sectoral Balances and bookkeeping.

    5. Lord Koos

      I think part of the problem is that at this point, there are so many younger people who were not around back when we had an American society and government that functioned better for the average person. Having come up in the current age of growing inequality and government dysfunction, they assume that this new normal is all there is. I’m sure the oligarchs will be much relieved when the last of the boomers are gone… people who can recall a time of greater opportunity and equality, with a government that at least attempted to help people.

      1. JTFaraday

        “I’m sure the oligarchs will be much relieved when the last of the boomers are gone… people who can recall a time of greater opportunity and equality”

        I don’t know. I’m not a boomer, but I’m not 22 either. On one hand, I take a very dim view of the present, and so I can see where one might find oneself nostalgic for the glory days of true enlightenment before the fall, in the land of freely flowing milk and honey.

        On the other hand, I’m also old enough to have personally experienced some nostalgia, have even been gifted with some artfully crafted reinterpretations of the past, and therefore understand something of the charms of Nietzsche’s “truth and lying in an extramoral sense,” something of its effects on that which one recalls, and of its psychological pull.

        I don’t know how I ever manage to resist this.

        1. mansoor h. khan


          Does not look like Nietzsche suffered any adversity (violence, hunger, serious disease, etc.). If he did he certainly would have known the truth enough. Even if one does not believe in god there is always pain, hunger, bullshit, injustice, meanness, etc to contend with.

          Mansoor H. Khan

            1. mansoor h. khan


              Ok. Maybe he never had date.

              I remember my first kiss was “electric”. Since then I wanted to work very hard (education, job etc) so I can marry a pretty girl.

              In Indian culture (at least in the early nineties) even an ugly guy like me could be arranged to a (poor) pretty girl if one had decent job. I think it is even possible today.

              I guess the the indian culture can be advantageous to ugly/nerdy guys like me when trying to find a mate.

              Mansoor H. Khan

    6. Oregoncharles

      Not an optimistic interpretation, but thanks for an important dose of reality.

      I also feel that my generation has failed our children’s in extremely dramatic ways. I think our parenting was OK overall, but our stewardship, especially of our life-support system, was atrocious.

      And we knew better.

    7. Nathanael

      You’re too pessimistic. There’s definitely massive illiteracy and lack of understanding — but this was cultivated explicitly by the power elite, the Koch brothers type, Reagan.

      The norms of solidarity and community are more and more popular in those younger than me (born 1976). Hedonism and indulgence are still popular — and why not? Self-denial doesn’t do any good to anyone except the masochist — but the sense of society and community duty is stronger than ever in the youngest generations, from what I can tell.

      Civic participation is actually up, it’s just up in ways which don’t show up on a Baby Boomer’s measuring chart. People really *do* think that US electoral democracy has failed completely, and are often ignoring it and pursuing alternative societal structures. It will be… interesting… to see the results.

  12. Dan Kervick

    The retired don’t eat money. They don’t put money in their cars. They don’t put money in their oil burners. They don’t swallow two currency notes before bed every night to reduce treat their various ailments. Rather, the retired live day to day by consuming some portion of the goods that are currently produced by people who are currently working. So I think we tend to muddy matters, rather than clarify them, when we look to address issues of the social contract and generational justice by focusing on aspects the monetary system.

      1. Calgacus

        The focus on the monetary system – explained wrongly – is the plan. Delude millennials like Charles2 to reduce themselves into debt slavery by robbing the people who raised them. At the behest of kleptocrats like Pete Peterson, who understands “fiat” money just fine. And divida et impera even better.

        1. Gary Goodman

          YES. Pete Peterson absolutely understands FIAT money.

          When Nixon abolished the FIXED EXCHANGE RATE system in August 1973, and moved America (in terms of foreign exchange) to a FLOATING EXCHANGE RATE system, thereby abolishing the promise to give out Gold for Dollars at Treasury, with the stroke of a pen, Pete Peterson was Commerce Secy and was present at Camp David where this scenario was planned.

          Michael Hudson was invited by the Nixon admin to do a study of this for the US Govt, he also explained this to them, but from his own perspective.

          Anyhow, we don’t have all the notes of the meetings, but I’ve read some articles on it and Pete was there, so he helped craft this system where the ONLY thing either Americans or foreigners are entitled to receive for their Dollars (such as wealthy French which still economically controlled Vietnam at the time) was more Dollars or Treasury Securities, aka “national debt”.

          We told THE WORLD they could have an account balance at the Fed, directly or via other banks, but Uncle Sam was not going to go out and purchase Gold on the market to hand out at $35/z any more. If anything, that was a global COUP, because Nixon declared it singly by himself. Others were left to negotiate with us for exchange rate terms with the Dollar. We won.

          Peterson is trying to paint his co-creation as a some kind of debt-disaster, so it’s purely for political subterfuge reasons.

          1. Calgacus

            Gary Goodman:Pete Peterson was Commerce Secy and was present at Camp David where this scenario was planned.

            Yup. I’ve been pointing this out myself for a while. Excellent comments – I’m a nitpicker, but I can’t find any nits there. :-)

  13. Ep3

    Yves, I think article failed to discuss a reason for the use of “we could be fixing the roads, but we have to pay for seniors”. As rampell argues, funds that could go to paying for education (“think of the children”), fixing our roads, etc., are instead used to pay for old people. This is intergenerational fighting at its finest. It is making me get mad at old ppl when I hit a pothole, instead of governors like Rick Snyder who cut business taxes and do nothing to fund road construction. If rampell thinks that if we cut old people’s SS & Medicare we will fix our roads, she’s truly hallucinating. As has been proven over the last 35 years, any cuts to taxes and spending have only resulted in lower taxes for the ultra wealthy. Where was rampell in 2001 when we had surpluses for decades and instead of “saving that” (yes I understand the concept of fiat money), taxes were cut, followed by significant borrowings for 2 wars and other unfunded spending?

    1. Gary Goodman

      NO you DON’T understand fiat money. You don’t understand that taxes pay for NOTHING AT ALL, and money is created BY SPENDING into private sector accounts.

      Nobody “wasted” any Budget Surplus. The Budget Surplus merely destroyed our private sector wealth. Look what happened. (1) Dot Com Bubble collapsed. (2) the economy was “maintained” for a while because instead of Americans actually getting richer, Americans started borrowing at faster and faster rates @ an exponential curve on the Housing Bubble.

      While the Budget went into Surplus, the Economy went into DEEP deficit. It just seemed to work because (a) there was more money in circulation (from bank credit) and (b) all the experts told us that housing prices could NEVER DECLINE, no matter how rapidly they rose, and no matter how stagnant incomes were, no matter the fictional collateral prices.

      Many people “liquidated” the pent-up equity in their homes, as Greenspan suggested. When the merry-go-round of RISING credit halted and then reversed, the borrowers got wiped out, after the “liquid” went to the various fraudsters, including Wall St.

      A BIG reason this was done is they didn’t hang onto THEIR debt-based assets. Laws had been changed which allowed them to package and securitize those mortgages, and to sell them back to Americans and pension funds as “safe investments”. So the gains accrued up front to the Super Rich, while the inevitable guaranteed losses were dumped on the American economy, especially on Retirement Accounts.

    2. Gary Goodman

      In our truly FIAT system, the term “unfunded spending” as well as “unfunded obligations” don’t make any sense.

      The decision to spend — to issue a payment to someone — is what creates the money. That money doesn’t come from “funds” that are either “funded” or “unfunded”.

      Or as Warren Mosler says it, the Govt neither HAS nor DOESN’T HAVE money.

      Nor does any scorekeeper HAVE any points, nor does he NOT HAVE points he could issue. When someone scores a touchdown or a basket or runs or a strike, the scorekeeper simply MARKS UP the point balance of one of the teams. That’s how “fiat” actually works.

      There’s no instances where a scorekeeper has to “borrow” points from another team or another game, or where a scorekeeper needs to “tax” points, or where the scorekeeper must try to suppress a high-scoring team, lest he run out of points to issue. When an official tells a scorekeeper to deduct points from a team or player, the scorekeeper doesn’t then have more points to issue to someone else.

  14. Dan Kervick

    Is it just me? A number of my comments have failed to appear over the past few weeks. Sometimes I get an italicized note saying they are being moderated, and then they vanish.

    1. Ben Johannson

      It’s not just you, they’ve been having some issues for awhile now with comments. My responses yesterday to someone’s posting of Leeson’s ridiculous “Somalia was better off without a government” paper disappeared into the ether.

    2. Yves Smith Post author

      If they are in moderation, they won’t appear till Lambert or I get around to approving them. That’s what “moderation” means. It hasn’t posted on the site.

      We’ve also had an upgrade to our spam service, Akismet. It might have been generating more false positives than usual. We do not check the spam comment because we get way way too many to look through them, well over 1500 a day.

      I’m sorry but the Internet is a hostile environment.

      1. Dan Kervick

        Yes, I tried to figure out what words might have been triggering a hold. It all seemed innocuous to me.

  15. P FitzSimon

    Ok, some old people do quite well like Warren Buffet, the Koch brothers, Pete Peterson et al. But lets get to the real issue it’s the rich vs the poor not the old vs the young.

  16. Mel

    “The millennials who fall for this argument and go along with cutting SS will get stung twice ”

    Or even three times. With huge unemployment and plummeting sales and loss of business, how will we live? Cut consumer demand by 30% * ! That’ll pep things up!

    * or whatever the number really would be, given the multitude of bloated boomers who would be affected

    1. Katniss Everdeen

      If $1300 per month is “bloated,” I’m wondering what a lean, mean “senior” would be. DEAD?????

  17. allcoppedout

    @ Dan and Katniss
    The awaiting moderation stuff happens to me too. I find it much more likely to happen if I reply early – I’m usually working UK time.
    Ben J (above) mentions we have no time machine and thus can’t travel to the future to steal from our kids. This is an important point, if both right and wrong. Just as there might be some malevolent people selecting our posts for ‘awaiting moderation’ treatment, there may be other agentic explanations. This is true on stealing from the future. Shame is only one emotion I feel in respect of what we have done collectively. I’m deeply suspicious on how ‘they’ get ‘us’ to feel these days, not least because our treatment of victims is so generally appalling. ‘They’ still have a system organised to make any expression of how we really feel the point at which we lose credibility (for one must argue dispassionately). This is just one of their modern-day instruments of torture,

  18. Mel

    The Platinum Coin argument is getting a bit tired, but it has the property that scholastic philosophers called adequatio. It fills its need. It’s the stupid answer to a stupid question. The stupid question is “How can the gummint borrow enough money to pay for all this?” The stupid answer is “It doesn’t have to borrow. It can simply create the money. For instance look, right here, it says so in the law.” Or is that so stupid? Was I wrong about adequatio?

    1. allcoppedout

      My view is these coins, MMT and such are thought experiments, or would be if we could do thought experiment. I agree stupid begats stupid without drawing in some wider intelligence. Aristotle noticed money only a convention, gone in collective decision to ignore it tomorrow. I’ve tended to think of such as scholastic too, though not put it as well. Ideologies lurk dark in these arguments, like there ever having been a fair competition in allocating money.

      1. Gary Goodman

        MMT is a description of how our CURRENT post-Nixon post-FDR monetary system actually operates.

        The previous Gold Standard was still somewhat like MMT, but it was burdened by a RULE, that of a FIXED EXCHANGE RATE to gold bullion, meaning a FIXED PRICE in Dollars guaranteed by Treasury (and banks).

        Those two presents eliminated that RULE, FDR for our domestic economy, Nixon for foreign exchange. Uncle Sam stopped giving out gold, at any fixed rate. That obligation was ended.

        Given that our system is currently MMT-based, which conservatives KNOW when they have a war to fight or banks to bail out, why don’t we behave like MMT, or behave like this following author says?
        Beardsley Ruml, NY Fed, 1946
        “Taxes for revenue are obsolete.”

        The “nice” answer is they just don’t understand, they are living in a Gold Std paradigm learned from Gold Std textbooks. That is partly true, some people do honestly think of the USA in those terms.

        The “not nice” answer is this is a hoax, a con, a fraud, designed by knowing Elites to sell us mass poverty and business failure as a sound economic and fiscal policy.

        The platinum coin idea is merely a kind of “trick” (imo, sorry to Joe) which can serve as an “object lesson” of how fiat currency and MMT actually works. Right now, they can declare money into existence, but Congress requires an equal amount of “debt” aka Treasury Bonds be issued or declared.

        If Treasury “declares” that a platinum “commemorative” coin is worth $1 Trillion, even if it only carries $50 of material plus design and minting costs, then it could give several such coins to the Fed, and the Fed would credit Treasury with a several Trillion account deposit.

        Then, Treasury could issue payments — which are authorized by Congress — for a very long time, without asking Congress to approve the sale of Bonds, which Congress requires Tsy to do when it spends money that Congress had ordered. A ridiculous situation. Treasury “could” spend whatever Congress orders today, but for the lack of sensible rules from a very political Congress.

        The difference being that Treasury would not have to “pretend to borrow” funds from Primary Dealer banks, nor could anyone pretend that “taxpayers borrow from China” simply because China decides it wants to store some of it’s US Dollars in the form of US T-Bonds..

        1. Joe Firestone (LetsGetitDone)

          “The platinum coin idea is merely a kind of “trick” (imo, sorry to Joe) which can serve as an “object lesson” of how fiat currency and MMT actually works. Right now, they can declare money into existence, but Congress requires an equal amount of “debt” aka Treasury Bonds be issued or declared.”

          Gary, you’re on quite a tear and I’m happy for the support. But the platinum coin isn’t a trick. It’s authorized by law. The Treasury just hasn’t used it because people will say it’s a trick and try to brand it as illegitimate. So please stop reinforcing this meme. Tell Ezra Klein and the other mainstream propagandists to stick it where the sun don’t shine! It’s legal and that’s all there is to it. If the Executive won’t use all legal means to avoid default and de-fang the debt ceiling idiocy, then they’re the ones playing tricks in order to use shock doctrine to impoverish us further, not the people who want them use the platinum coin to make the debt limit a dead letter.

    2. ThroxxOfVron

      “The Platinum Coin argument is getting a bit tired, but it has the property that scholastic philosophers called adequatio. It fills its need. It’s the stupid answer to a stupid question. The stupid question is “How can the gummint borrow enough money to pay for all this?” The stupid answer is “It doesn’t have to borrow. It can simply create the money. For instance look, right here, it says so in the law.” ”

      Indeed, the idiotic arguments for Platinum Coins and other MMT ‘open borders AND full employment’ gibberish completely ignore very real supply of goods and cost-push inflation issues.

      It is completely legal for the US Government to simply emit cash and/or spend it into existence with proper Congressional oversight. The idea of the Platinum Coin seems little more than a contrivance to cloak the unsterilized emission of currency/spending, and one with grotesque, pompous and unnecessary mystery and symbolism at that.

      SO: the Government is going to emit currency and/or buy whatever the Boomer/retirees need? Well why not whatever the Millenials/kiddies need, too?
      Such a system cannot function unless it is both Closed; as in very strict emigration, strict visa/foreign worker/student/visitors, etc.; otherwise the whole World will flood in and overwhelm NOT the funding of the system; but, the SUPPLY of real goods and services and shelter available in the system.
      This is called RATIONING. It can be done. With a closed system/sealed borders, and rationing.

      All this talk of separating the emission of currency from debt instruments is useful. IMHO, debt-based fiat is a deeply flawed predicate upon which to base a monetary system. However, simple emission of currency by the Government will NOT solve real supply scarcity issues; and an emission/grant of entitlements system very likely can only possibly function for any significant duration in a Nation with strictly controlled emigration/borders -and rationing regimes.

        1. Nathanael


          We do not have any real scarcity right now.

          Due to global warming, we might soon have real scarcity, as we have global crop failures and the ocean food chain collapses. But *right now* we have a vast surplus. It’s just not being used properly.

      1. Gary Goodman

        All this talk of separating the emission of currency from debt instruments is useful. IMHO, debt-based fiat is a deeply flawed predicate upon which to base a monetary system.
        Randy Wray explained in a talk — using slides from archeology and other photos — why money has ALWAYS been debt-based and fiat. Money is both a DEBT and an ASSET at the same time, of counter-parties. I now find it ridiculously unfathomable that some on the LEFT are following American Monetary Institute and Bill Still in calling for the creation of money by Treasury which is “not debt”, defying basic rules of Bookkeeping and Accounting.
        However, simple emission of currency by the Government will NOT solve real supply scarcity issues;
        There ARE NO real supply scarcity issues now, IMO. Maybe so if we’re running out of oil. Maybe so, if we’re running out of sufficient environment to serve as a waste dump. But I haven’t heard of conservatives clamoring to become environmentalists and Peak Oil enthusiasts — to purposely restrain economic growth and create mass poverty to “save the Planet” — via the subterfuge and pretense that America has to “borrow” it’s own Dollars, which is only true because Congress requires that under the terms of Congress’ own Federal Reserve Act.

        Congress never changed its own rules when the Fixed Exchange Rate regime was abolished.
        and an emission/grant of entitlements system very likely can only possibly function for any significant duration in a Nation with strictly controlled emigration/borders -and rationing regimes.
        We HAVE a rationing regime. It’s called “The Budget”. Congress decides how much money to allocate. What they don’t have to do is pretend that there are apocalyptic Fiscal Limits to how much it can allocate. Congress could spend as much as it wants, and slow down net spending (or hike taxes) as Full Employment is approached.

        The argument that MMT doesn’t recognize or address “inflation” as an outcome of spending BEYOND Full Employment is wrong. That’s a key argument of MMT, that inflation is the ONLY constraint, and the political question of how much overall inflation is acceptable.

        Milton Friedman said that MILD inflation is both acceptable and necessary. How much is “mild”? The slow steady rise of inflation is a factor that keeps us off the verge of DE-flation, which causes a wave of bankruptcies and business failures, when private debt becomes harder to repay at the end of a crop cycle or period of manufacture.

        Mild inflation tips the scales slightly in the favor of creditor-businesses and creditor-consumers, their ability to repay debts to banks, vs tipping the scales in favor of banks achieving max value on their loans — but facing a mass of insolvent customers that destroy their balance sheets.

        MMT also rejects the Quantity Theory of Money equation which had been “debunked” decades ago, even by one of the economists who developed that theory, Irving Fisher. Fisher said MV=PT is only relevant inside a static CLOSED economy, NOT in an open dynamic economy. The “terms” of that theory are that we must ASSUME that “V” is fixed. “V” is only fixed in a static economy where business doesn’t expand production in response to heightened Demand.

        To what other “scarcity issues” are you referring? As far as I know, America is one of the most Dynamic economies on the planet, and business DOES in fact respond to increased financial and economic Demand by producing more Supply, and hiring more people. Right now, Fiscal Policy is acting like a DRAG or Governor on our economic engine.

        It’s almost like Conservatives are truly deep believers in man-made Global Warming, and rather than invest in new energy technology, they simply want to slam the brakes on Consumption to “save the planet”, but rather than concede that we may be running out of environmental space for a carbon sink or landfills for toxic waste or even animals to eat, they create the hysteria that America is running out of Dollars.

        Is that it? Are fiscal hawks really secret environmentalists? Because nothing else makes much sense.

      2. Gary Goodman

        What I said: Congress could spend as much as it wants, and slow down net spending (or hike taxes) as Full Employment is approached.
        As a matter of fact, we all know that happens automatically. It’s called Automatic Stabilizer. Without actively engaging in spending cuts or tax hikes, existing taxes go up automatically as an economy grows out of recession, and a certain portion of spending connected to unemployment and poverty automatically goes down.

        Our complaint should be with on-purpose creation of unnecessary joblessness (as a cruel economic and inflation stabilizer?) by pretending that the best Fiscal Policy is that some Taxpayers must pay for every dime of Govt Spending, while ignoring real economic issues outside of Govt, like Demand Leakage in the real economy.

        So long as we don’t have a “strict rationing regime” on imports — the powerful US Chamber of Commerce is lobbying for policies that push for even more imports — the result is Americans get “stuff” (or at least our corporations get cheap stuff), but foreigners get Dollars that flow out of our economy, OUT of the cycle of consumption/Demand. That would be a huge problem if the US Govt was not the monopoly issuer of Dollars.

        We can just add back in sufficient Dollars to counter-balance the Dollars that have leaked out as the result of our corporate-backed trade policies. We can do this NOW, except that the “experts” have us terrified that we have to borrow these Dollars from China.

        We can also add back in sufficient Dollars to counter-balance the Dollars that leak out of the consumption cycle as the result of Savings. Unspent income is great for the individual Savers, but bad for the flow of Consumption and Supply, unless Govt compensates for that Demand Leakage of unspent, saved income by doing it’s own spending.

        MMT and/or post-Keynesian econ is the only branch of economics that considers and measures the real results of these financial flows in the REAL economy. Neoclassical econ pretends that that money and credit — the way that stuff really works — doesn’t exist, and is just a meaningless “veil” obscuring a simple barter economy. Bull. That’s an incomprehensibly stupid model, IMO, once I learned about that.

        Neoclassical economists and other experts pretend that Govt spending is mere pointless “meddling”, as if Demand Leakage related to imports and savings does not exist, and as if Say’s Law that Demand ALWAYS grows to meet Supply (supply-side economics) (ergo, no general glut of lack of consumer Demand leading to unsold goods and overall economic contraction is possible) is a Law of Nature like Boyle’s Law in thermodynamics.

  19. Dan Kervick

    I think we tend to muddy matters, rather than clarify them, when we look to address issues about the social contract and generational justice by focusing on aspects the monetary system. The retired don’t eat money. They don’t put money in their cars. They don’t put money in their oil burners. They don’t swallow two currency notes before bed every night to reduce treat their various ailments. Rather, the retired always live day to day by consuming some portion of the goods that are currently produced by people who are currently working. The questions we should be asking are about projected ratios of retirees to workers under existing policies and under various alternative policies, about trends in productivity, about what levels of consumption among retirees should be deemed adequate or appropriate relative to the population as a whole and about different possible mixes of public and private systems for organizing retirement support.

  20. TedWa

    Reading these comments was very interesting. However, for those dissing thw platinum coin option consider this. The Federal Reserve has placed over $2 trillion with the banks to hold as reserves to insure their solvency. We the taxpayers are paying them interest not to spend it and cause hyper-inflation. Will they spend it at the first sign of serious trouble? Of course they will. Now if the Federal Reserve can place over $2 trillion in the banks with the promise of not being spent, what difference would it be if we were to place a $2 trillion platinum coin in the Treasury in reserve to cover Fed R debt and insure our national sovereignty?? None. The banks will most likely resort to spending those reserves while it’s pretty certain the Treasury never will have to!!

    One hand, banks control our futures. Other hand, we do. I chose the latter any day of the week.

    For those blaming liberals for the spending, you must remember who said “deficits don’t matter” and then proceeded to run up trillions in debt. It wasn’t liberals.

    1. Joe Firestone (LetsGetitDone)

      I’ve proposed a $60 T coin in Fixing the Debt . . . That does a lot more than a $2 T coin in disarming the austerians. Also, the stupid idea was a Central Bank independent of the Treasury and limiting the Treasury’s money creation power. As for the platinum coin; it is a way of placing the Fed under control of the Treasury for purposes of implementing fiscal policy and to free the Treasury needing to sell debt instruments in order to implement mandated spending already appropriated by Congress. That’s not a remotely stupid idea in my book. Calling it so, is just a means of marginalizing without actually criticizing it. In other words it is just name-calling.

    2. Gary Goodman

      1) The Federal Reserve has not “placed” Dollars in banks’ reserve accounts. The Fed has done a huge ongoing swap, replacing short-term Treasury bonds — normally purchased with Reserves in the first place — with Reserves. Ergo, changing the mix ratio of Bonds vs Cash held in two different accounts by banks.

      2) No one has asked Banks to not spend these Reserves. As a matter of fact, banks DO NOT spend those reserves any time in any way. Treasury spends. Banks create Loans.

      3) Banks DO NOT create Loans out of Reserves. Banks create Loans out of the signature on a Loan agreement. Ergo, “plumping up” of Reserves does NOTHING to increase Loan issuance. Banks aren’t issuing much Loans *not* because of some secret agreement with the Fed.

      Banks aren’t issuing much Loans because the economy sucks, and because Real Estate which they purposely hyper-inflated in the 00s is still underwater, and because most people who work face real risks of joblessness and insolvency.

      The Fed, acting in tune with Milton Friedman’s suggestion of dumping money from helicopters into the economy, well since the Fed is unable to literally SPEND money into the economy, it did what is can do, it increased Reserve Balances, by purchasing existing “Debt” — the way ALL BANKS OPERATE — by purchasing T-Bonds, which overall accomplishes exactly nothing, except that the Fed adds LESS interest to the private sector, so QE was really an economic shrink mechanism not economic growth.

      4) The combined phrases “deficits don’t matter” and “trillions in debt” are nonsensical in terms of MMT and how Govt Spending ACTUALLY works. Deficits DO matter — to the economy, not to the govt — because deficit spending is absolutely vital for economic growth and health, for detailed reasons previously mentioned.

      Deficits DON’T matter to the Govt. A Deficit merely means the Govt is creating more Dollars faster than it is destroying Dollars, in our real economy. Why would we WANT our Dollars net confiscated and net destroyed? How does that create jobs or prosperity? Are we all THAT stupid that we think LESS money makes us all richer?

      The National Debt is not caused by spending — except to the extent that Congress stipulates that. In reality, the National Debt is caused by monetary policy which is designed to give banks a place to stash their surplus Reserve balances and earn some interest, thereby propping up the Inter-bank overnight interest rate above a natural rate of Zero (which would occur if all banks were trying to lend excessive reserves to each other at the same time), serving as an anchor point on interest rates in the private sector.

      The National Debt is really a SERVICE provided by Congress so savers can earn interest on NO-RISK savings of fiat currency. Nobody who is rich has a RIGHT or “ENTITLEMENT” to earn interest from the Govt, including the banks. That is a GIFT from Congress to wealthy people .. and to the entire economy to an extent. Call it “wealth-fare payments”. It also counter-balances the mild inflation that Milton Friedman said is necessary for a healthy economy, which doesn’t collapse and contract in Deflation and bankruptcies.

      5) It’s the LACK of Deficits in the Govt Sector which drives the private non-govt Sector into Deficit spending, because a Budget Surplus = Private Deficits. That’s one reason that credit-based money began to EXPAND during Clinton’s budget surplus regime, when combined with pro-credit regulatory policies and the opportunity to create a profitable Real Estate bubble. (I say “Real Estate” rather than “housing” because speculative construction of Condos occurred too, and were left empty, and commercial real estate was also part of that bubble.)

      Bush’s tax cuts — being mostly for the already rich — did nothing directly to expand Demand at the bottom, except via “trickle down” policies such as lending on home equity, and the “trickle down” effects of construction and such. That’s why the real economy — jobs — remained rather tepid despite massive Bush deficits on tax cuts and war. Very little of that trickled down into the wallets of ordinary consumers. Sure, there were SOME jobs created or not destroyed via Bush deficits, but not enough.

  21. TedWa

    Follow up : The banks ability to destroy our financial system has never been stronger, including the Federal Reserve bolstering their reserves with taxpayers funds. Using a $2 trillion platinum coin to offset in reserve the power we have given the banksters seems not only logical but essential ! There must be balance and the platinum coin is a way to restore that balance. Maybe I’m missing something large or small in my argument, and I’d be glad to hear another side to this.

      1. TedWa

        Where is the interest paid to the banks to not spend that $2 trillion, but to keep in it reserve, coming from?

    1. Gary Goodman

      The main thing a Platinum Coin would do is eliminate the illusion that the source of Govt Spending is from (a) taxpayers and (b) borrowing our own US Dollars from China’s central bank.

      We would know that a Platinum Coin is worth $1 Trillion because the Treasury has the lawful power to DECLARE that it is worth $1 Trillion in notional value, far more than the value of the metal in the coin.

      Right now, the Govt already has a convoluted mechanism to issue payments (or “print” money) as needed, without any need to burden the economy with unnecessary or excessive taxes to “pay for” such spending, and without literally needing to “borrow” such money from anyone, foreign or American savers, EXCEPT that Congress stipulates this existing “borrowing-to-spend” arrangement in their own policies.

      In other words, if the Govt follows sane economic policies for a Balanced Economy instead of the chimera of a Balanced Budget, the federal budget will be in deficit most of the time, because the private sector will want to be in surplus or growth most of the time.

      Since Congress stipulates that deficit spending MUST be accompanied by Bond issuance by Treasury, therefore Treasury holds auctions and sell Bonds to private banks … which can ironically borrow funds from the Fed in order to “lend” those funds to Treasury. This is the convoluted path by which Treasury “effectively” funds itself by merely swapping paper with the Fed, trading debt for debt, Treasury notes for Federal Reserve notes, via “flowing” those funds through the global commercial financial system.

      There’s complex reasons and purposes in macro monetary policy, but the simplicity of it is that Congress chooses to give away money and interest to rich people which is not a requirement of economics or accounting or a Law of Nature, nor is Congress really in a position where it must “borrow” funds from the private sector to fund itself.

      Even when the Govt issued patriotic War Bonds for WW One (and Two?), this was not to “fund” the war budget. This was a way to “sink” or postpone the high govt deficit spending on production of war materials and jobs. It was to prevent consumers from going out and making massive purchases of hard goods with their new fat paychecks.

      If consumers had decided to spend all their war-based paychecks instead of “financing” (pretending to finance) those wars, they would have been directly competing with the Govt for steel, petroleum, and other REAL resources. THAT would have not only caused supply shortages for the war, it would have forced Govt to pay more for airplanes and tanks, thereby driving up domestic inflation in consumer goods too.

      After the war, the Govt had to invent the Cold War and Marshall Plan to continue massive Govt deficits as a way to prop up Demand for USA industrial output. The (quiet) point was to avoid a recession, not because wars are inherently profitable, as some have said. Wars generate massive waste of real resources (and lives), but deficit spending is profitable. We just need a good non-socialist patriotic excuse to compel Congress to grow the economy instead of shrink it.

      The so-called War on Terror is in no way sufficient in terms of deficits to prop up the economy the way the Cold War and previous wars did, there’s not enough enemies to justify massive Pentagon spending on industry. But the economy still needs large deficits.

      Capitalists understood this fact during the Republican-led Progressive Era starting with McKinley. The New Deal was nothing but a reformulation of the Robber Baron era of govt spending and managing of the economy, by boosting Demand more directly, by putting money into the hands of some consumers like the elderly, instead of govt handouts going ONLY to the rich, instead of ONLY going directly to corporate profits and via overseas expansion of markets.

      1. Gary Goodman

        The sales of patriotic War Bonds during WW One (and Two?) can be thought of “voluntary rationing” by Consumers, incentivized by future interest and future prosperity … the 1950s, ergo the Baby Boom.

        There was some direct rationing of gasoline too and nylon hosiery and such, with coupons, but the voluntary rationing of postponing consumption with Savings Bonds while Supply got caught up seems like a “cleaner” method.

        Again, unspent saved income = lack of Demand. But we WANTED less Demand then, because industrial Supply faced some practical and physical limits, and Govt was competing with Consumers to purchase war material.

        Today, the Govt still competes with Consumers by purchasing industrial output, and by indirectly purchasing output with Social Security or other untaxed deficits, but Govt consumption aka Demand is insufficient — particularly in an era of contracting bank credit money — to prop up sufficient Demand for full employment.

        Throughout ancient human history, Govts consumed SCARCE real resources, leaving the actual producers hungry, but the Industrial Age was a new era of problems of Surplus output and insufficient consumption to guarantee steady and stable corporate profits to Capital. That is the reason the Progressive Era was invented by Republicans. Supply outpaced Demand. They wanted the US Govt to expand Demand via “Open Door” policies to take over or create markets in Asia and elsewhere. This could be done via diplomacy or via force, or both. “Walk softly and carry a big stick.”

        Conservative ideology forgets it’s own roots, including this story explained in the book ‘Triumph of Conservatism”, a critical look at the Progressive Era by one of the “New Left Historians”.

        Now, of course, we no longer export to Asia, instead policies changed so we have exported Labor to Asia and we import goods from “developing” economies into our “mature” economy.

        But Congress is acting in the mode as if our economy is still “developing” instead of “mature”. Investors know the difference, which is why their Dollars are flowing to China instead of domestic production. But what are we to do here in America? Commit suicide? For anti-human anti-social economic choices and theories? Govt has the capability to make this shift go OK, but Congress is advocating their responsibility in deference to ideology and idiocy, the idea that the real economy is unimportant, and all that matters is the Govt’s solvency (a non-issue) and the financial sector.

  22. flora

    To quote:
    “Catherine Rampell, who, in a recent column, sets forth the position that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them. ”

    And *that* is the heart of the neolibs misdirection…. that SS and MC are some sort of savings account or investment. In reality both are federal insurance policies. Insurance policies. I pay my car insurance policy premiums. If I suffer a qualifying event, a fender bender or hail storm or tornado that totals the car, I am legally entitled to the compensation guaranteed in the policy even if the payout is higher than the sum of my premiums. The compensation is not limited to the sum of premium dollars I have paid. Which is what Catherine Rampell et al seem to be arguing for. She apparently wants SS and MC transformed from insurance policies into individual savings accounts.

    1. washunate

      But that’s the thing. We’ve been paying the premiums for collision coverage. But then when the hail storm comes, people are asking for comprehensive coverage.

        1. washunate

          lol, Lambert, that tone only works with people who don’t know what they’re talking about :)

          The US spends more money on healthcare than any other nation on the planet. The issue is how we spend the money, not how much we spend.

          1. Lambert Strether

            It’s exactly on point. A household purchasing insurance is not the same as a government providing social insurance. So, no, you don’t know what you’re talking about.

          2. Dan Kervick

            The issue is how much of our resources we devote to delivering health care, and how much of what we devote goes to enriching the deliverers rather than improving health.

          3. Gary Goodman

            BOTH. How we spend money determines whether money flows directly to the already-rich, who therefore SAVE because they already own most of everything they need.

            Or whether money flows indirectly to the rich via Consumption.

            Health care spending DOES flow into the consumption chain, via wages of nurses, STNAs, custodians, doctors, etc., which becomes Consumer income and flows around the economy, but also flows to HMOs, to corporate real estate, to shareholders, etc., where more of it gets sucked into savings and wealth, aka Treasury Bonds.

            In the meantime, we have people who need health care and we have unemployed people who could work in health care jobs, but the MONEY to pay for this is being withheld by Congress, for ideological reasons, not real fiscal or sound economic reasons.

            Sure, we should improve health outcomes, but not because “the govt is broke”.

        2. masterslave

          “” What part of “Federal taxes don’t pay for anything” do you not understand? “”

          It is nonsense and patently false . This meme “Federal taxes don’t pay for anything” causes enormous public confusion and must be terminated . If the gov did not spend then taxes would not be collected ( ie. paid ) . Ergo , taxes do in fact really pay for gov spending albeit after the fact . The wordsmiths project to perpetuate that meme is a leftist ideological scam . Gramsci would be proud of those marxist wordsmiths . Paying taxes is a reimbursement to gov for having already spent . It pays for gov spending contrary to that absurd and chaos producing meme .

          1. Joe Firestone (LetsGetitDone)

            No! There is no direct link between specific tax revenues and specific Government spending. That’s the operational truth. To say that taxes must be there to drive the value of the currency and to drain reserves, doesn’t establish that we need to tax to balance budget or that we need to tax to pay for specific things. Those who say that taxes pay for spending are saying what you say. What they mean is that taxes pay for spending on the Federal level in the same way they do at the local or state levels, and the same way they do in Europe. They are not saying that taxes are needed for the reasons you and I just gave above. Please don’t shift the argument. It doesn’t help anyone. It’s just sophistry.

    2. Joe Firestone (LetsGetitDone)

      These are not insurance policies even though they’ve been sold that way, because the taxes don’t buy the benefits. The benefit levels are specified in legislation and the process of mandating the benefits and spending on them is entirely separate from the process of taxing people supposedly for the purpose of “paying for” these benefits. To understand senior entitlements properly you have to firmly reject neoliberal constructs like “insurance policies” that people buy from currency-using organizations called insurance companies. Entitlements are grants issued by currency creating governments in response to economic rights that voters want them to fulfill.

  23. washunate

    Professor, there are, actually, legitimate questions about how much consumption is appropriate for government to support in the healthcare arena. Especially since the healthcare sector is so bloated and wasteful, and there are significant moral quandaries in everything from abortion to drug use to suicide. The President himself – the Democratic President – has said that abortion isn’t a healthcare issue. This is the kind of nonsensical blather from the leadership that you think can implement a JG?

    But moreover, behind just healthcare, government is restricted in its finances. Currency can be printed in unlimited quantities, of course. No one doubts that, from MMTers to gold bugs. What is not unlimited is the wealth in the real world that such currency units can acquire.

    In real terms, government finance is quite limited. By reality. Nursing homes are expensive. Prisons are expensive. The war on terror is expensive. That real expense is not lessened by creating more currency units.

    1. Lambert Strether

      This is the argument that “it’s not politically feasible.” And people who make that argument never lift a finger to make “it” politically feasible. I don’t understand this behavior pattern, but it’s very real.

      1. washunate

        Lambert, are being purposefully dense here? Or are you not aware that beginning and ending of life issues are filled with a variety of important decisions about which there is no one right answer but decisions nonetheless that have significant repercussions for the usage of finite resources?

        You act like the US spends less than other nations on healthcare.

        1. Lambert Strether

          No, I’m dealing with obfuscation while investing as much time in it as it’s worth.

          1) “In real terms, government finance is quite limited. By reality” is, exactly, the “it’s not politically feasible” argument. (Yes, spending is limited when we run up against capacity issues in the real economy. We are very far from that now.)

          2) Yes, health care spending is absurdly high and poorly allocated. That’s why I’m a single payer supporter. So what?

          1. washunate

            Lambert, you are really distorting what I am saying. It sounds like you’re trying to fit my commentary into some sort of Red Team Paid Shill box.

            I’m not saying social insurance is not politically feasible. Quite the opposite – social insurance is one of my top preferred public policy choices, one of the reasons being that it is quite popular.

            My point is that apart from the concept of social insurance, there are very real questions about how much consumption these programs should provide. You then proceed to acknowledge both that theoretically, government has constraints, and that in our particular system, healthcare spending is absurdly high and poorly allocated.

            So, I guess in the style of managing up, I have succeeded, since you are saying precisely what I believe. The only quibble I would have is when you say we are far from capacity constraints. The fact that things like healthcare, higher education, housing, criminal justice, and so forth costs so much suggests to me that we are actually running into a number of real world constraints, from energy issues to social instability. Excess inequality itself is destabilizing, the underlying disease which causes the various predictable symptoms.

            None of this is caused by unemployment or the debt ceiling and none of it would be solved by high value platinum coins and low wage government jobs.

            I mean, the ultimate irony in all of this is that the Social Security Act of 1935 was designed specifically to have a payroll tax not because of economic concerns, but rather, for political reasons. But mixing the OASI program with the DI and HI programs obfuscates the fact that there are difficult choices to make in healthcare that we don’t have to make on the retirement front because the healthcare industry has become so predatory. In real terms, either payments have to be reduced, healthcare consumption has to be reduced, or consumption in other areas has to shift to healthcare.

            1. Calgacus

              The fact that things like healthcare, higher education, housing, criminal justice, and so forth costs so much suggests to me that we are actually running into a number of real world constraints. This could be the case in an alternate universe. Not ours. These things cost more because we have an oligopoly economy and a government that often accommodates with enough spending to keep things going, as long as most goes to wealthy parasites.

              Housing costs so much because we have decided to destroy public housing and have housing bubbles. Criminal justice costs more because the for-profit prisons need to be fed and the oligarchs want racism and fascism. Higher Ed costs so much because parasitic do-nothing administrators that didn’t exist decades ago need to be paid princely salaries.

              The book to read is Galbraith’s Predator State – particularly the parts based on his What is the American Model Really About?: Soft Budgets and the Keynesian Devolution . For all of these Bad Things – all these wasteful things – are why the US had a roaring 90s, why the US has had better growth than austerity-mad Europe. Far from real constraints beginning to bite, we don’t waste enough on health care etc. The problem with single-payer, as Galbraith explains is that it is too much better. It is too efficient. This makes it too much of a target for bloodthirsty austerians always looking for healthy tissue to excise so that the tumors can get more.

              Sure – have single payer – but it would be so much better that it would be hard work for the USA to spend enough to not cause a depression. If we don’t get single payer – better to have a more wasteful and inefficient healthcare etc sector.

              None of this is caused by unemployment or the debt ceiling and none of it would be solved by high value platinum coins and low wage government jobs. No, basically all of it is caused by unemployment, and the lack of “low wage” government jobs towards public purpose.

              In real terms, either payments have to be reduced, healthcare consumption has to be reduced, or consumption in other areas has to shift to healthcare. Absolutely wrong. We could easily increase payments, healthcare consumption and consumption in other areas, simultaneously.

              1. Nathanael

                Exactly right.

                We have NO scarcity. We have NO shortages. (Excpet the shortage of circulating money, which we could print any time we decided to.)

                Right now, we have horrible mis-allocation of resources.

                Eventually, we might have real shortages. Crop failures or ocean fish stock depletion. In the 1970s the US had a real shortage of oil due to OPEC “closing the spigot”.

                But that is simply not what we’re dealing with right now. Right now it’s *all* mis-allocation.

        2. Ben Johannson

          The U. S. can provide all the health care staffs and facilities necessary for a universal system. There is no constraint on our ability to provide every American with quality care.

    2. Ben Johannson

      Finance is not limited. Real resources are limited. You still don’t see the difference.

        1. Calgacus

          This is the crucial mistake of bad (monetary) economics. Finance is NOT something used to represent real resources. Finance is social relations between human beings (and things they treat like human beans, like governments and corporations.). The problem with economics is that the bad definition can sometimes be used without much damage – sometimes when laissez-faire is in fashion, or full employment happens to occur, or when we are looking at things microeconomically.

          But the social relation we call credit or money or finance is not anchored in the past, as the resource / commodity money view has it, but in the future, what J.R. Commons called “Futurity”. Money is a bond. Bonds are money. The social relation of credit is logically necessary to engage in the division of labor – to create things that don’t exist yet. These as yet non-existent “resources” which can’t be created without money are what “back” money, not what we currently have or see as “real resources”.

          1. moneta

            Money determines the distribution of those resources which are limited in the short term at the least… It could be argued that because of multi decade malinvestment, current resources can no be exploited to fill all the benefits and promises that have been made without having emerging markets slave for westerners. It can also be argued that the western world has over consumed resources and consumption of these resources now need to shift elsewhere forcing westerners to shrink their lifestyles. Perhaps we could become more efficient and all get along but chances are this would not happen in time to fund all liabilities. I believe we should print for everyone but if I am right, devaluation will ensure and the purchasing power will drop. I would argue that no matter which road we choose, there will be hard times for many.

            1. Calgacus

              All the evidence is the opposite, Moneta. We are in a classic Keynesian poverty amidst plenty situation. Caused by gross underspending on the right thing – public purpose employment of the unemployed. Extreme and growing inefficiency and waste in the “private” sector. (Which has had a beneficial “Keynesian devolution” effect – as all waste does when there is not full employment. Cf Galbraith’s Predator State & his relevant papers.)

              So there is an enormous amount of room non-inflationary, disinflationary public spending in the “advanced” economies. There has been 40 years of systematic application of the stupidest “economic” theories of all time. It’s like the whole world decided to make all wheels square, and managed to muddle along somehow. Stagnation overall, but everything else had to get better to make up for the square wheel factor. Just use round wheels again, and you get a colossal free lunch – everything gets better instantly, effortlessly. We have a tremendous margin for error, because we have been and continue to be so insane.

              Be careful about terms – the natural effect of good Keynesian MMT spending is NOT inflationary. But by increasing demand, including demand for foreign good, the natural (worst case) effect is devaluation relative to foreign currencies. But the answer to that is – so what? It is a tiny short term price to pay for enormous longterm benefits.
              Sure, one could argue that there is some environmental catastrophe in the offing – but that is the problem then – and it has nothing to do with financial problems, the current problems of the poor and middle class, which are entirely caused by the Empire of purposeless-human-sacrifice-economics striking back since the 70s.

              1. moneta

                You see that’s where I differ. I believe that the plenty we see is non sustainable and stolen from other countries. One percenters are stealing from the “middle class” and the latter has been stealing from from emerging markets. I believe that if we had protected our environment and jobs, we would not be basking in the material indulgences and planned obsolescence we have. Here in Canada, they are building burbs full of 2500 plus square foot houses. I believe we will be forced to downsize want we have overbiult. And to me, Mmt would only promote more infra around what is consuming way too much energy and should not exist. Imo, we are being forced to downsize materially but no one wants to admit it… And if no one admits it, then we are sure to have gross mismanagement a badly distributed wealth.

                1. Calgacus

                  There just isn’t any evidence for that view. The economic policies of the last few decades have been entirely insane practically everywhere. How can one argue that there is tremendous malinvestment but that it has no effect?

                  I believe that if we had protected our environment and jobs, we would not be basking in the material indulgences. No, we would be basking in far more material indulgences. Sure, we might be taking from poorer countries in some ways. But the taking is dwarfed by systematic domestic destruction,. This is extremely obvious – which is why insanestream economics relentlessly denies it. Think of what you are saying – “if we had protected our jobs” we would have less. Wealth comes from labor. More labor,, more wealth. The core of insanestream economics is magical thinking – the less we work, the richer we will be. Wrecking our environment, that we need to live produces wealth too! This should insult the intelligence of a small child. But because it is encased in Big Words, bad accounting & fake mathematics suckers buy it..

                2. Nathanael

                  You’ve just described mis-allocation of resources, moneta.

                  Where’s the scarcity? There are all these construction workers, all this lumber, all this concrete — currently being wasted on suburbs. It could be used to build compact, walkable urban rowhouses or apartment buildings (which are actually *more popular* and *sell for more money* now) — but it isn’t being used for this purpose!

                  Your anecdotal evidence shows that we have NO scarcity — we just have misappocation of resources.

                  1. Moneta

                    I believe there is scarcity and misallocation and that our global economic model based on the British style of centuries past, when humans were just a blip on the planet, of raping the planet is not sustainable.

                    This means we need to restructure it. I believe our economy can still grow for a long time but not if it stays based on materialism. The thing is that humans are materialists and scarcity makes material even more desirable… Frankly, if our pop goes from 7 to 9, something tells me mother Nature will fix this trait for us..

                    Restructuring an economy does not happen overnight, it can take a generation. This is why supply is limited in the short term. But everyday, the commenters on this blog show me that most Americans do not see any danger of scarcity. Maybe they are right, maybe they have been spoiled and deluded. I think it is the latter.

                    I think we are in the beginning of a new redistribution of global resources and Westerners are blind. Printing to fix the infra is a good idea. However, because of this lack of concern for scarcity, I believe the spending on infra will be completely misspent on projects that reflect the principles of the old economic model.

                    IMO, the material wealth we see floating around us should not be reserved to us Westerners, it should be distributed between us and all those who produced stuff across the planet. On a relative global basis, we are still fat cats and if this redistribution happens, this would mean that promises made to boomers would probably be broken because they would have been made to sustain a way of life that needs to shrink.

                    The 1 percenters are not as stupid as progressives think. Most know that if the 99ers can’t buy stuff, they are limited. Here in Canada, I have heard them say they don’t care if the 33 million Canadians 99ers can’t buy anything because they can just sell their stuff to the new middle class in China, India, Brazil, etc. And there are way more than 33 million! Also, many of them believe the planet is overpopulated, so they secretly wish the number would go down… that’s why they need so much wealth… to make sure they are protected.

                  2. Moneta

                    You see, scarcity/abundance of resources is unprovable using our current human models. Each of our brain has assimilated all kinds of data and has come to very different interpretations.

                    In my worldview, there are plenty of resources still for all Americans if the US manages to exploit and bully the planet for a while longer, but not enough if globalization keeps on going.

                    I don’t believe the whole planet could live according to Western standards of materialism without an environmental catastrophe.

              2. Gary Goodman

                This was my point/snark about fiscal conservatives really being closet environmentalists. Perhaps they secretly see Climate Change and Peak Oil and the lack of sufficient dumping grounds for industrial consumer waste as genuine problems.

                But due to ideological bias, they restate this as “fiscal constraints” which don’t exist, while they claim that physical environmental and resource constraints are a myth.

                That would be hilarious, except for all the lost output and harmed lives and joblessness and prisons and social inequality and inefficiency etc of conservatives trying to be Left Wing environmental stewards via tight fiscal policies and neoclassical myths.

                I don’t really believe that. I think they are just plain stupid, but that’s an alternative plausible explanation for square wheels. One could imagine them advocating God-ordained square wheels on automobiles to constrain spending on highway deaths without evil govt regulating speed limits.

          2. masterslave

            No they do not ” back ” money . They back the decision to extend credit ( ie. give a loan ). Nothing new backs fiat credit money which causes inflation and ultimate economic collapse if not properly controlled ; which it is not .

            1. Gary Goodman

              Fiat bank credit is a vital necessity for Capitalism — unless you go with Steven Zarlenga of AMI and have Govt be the monopoly commercial banker, doing rationing of financial resources and credit.

              When fiat bank credit is allocated to desired Asset Inflation — as has been overwhelmingly the case since the 80s and beyond — creating financial wealth for the Few sans real tangible wealth of production and services — then yeah, that’s inflationary and you get Dot Com Bubbles and Real Estate Bubbles and the like … at least so long as the real economy can sustain those Bubbles.

              Expectations of housing inflation was the justification for the Bubble. Future purely-inflationary gains sans value what was supposed to pay for refinancing those “exotic” loans. That was the banker/mortgage industry/conservative scheme. Also, let’s turn poor people into Republicans by making them all home owners, via The Market instead of via ‘handouts”.

              New Bubbles can’t be sustained yet, not for at least 15 years until housing catches up with past private debt loads.

              If fiat bank credit was loaned into real production instead — or govt spending into creation of real public resources — then Demand-Pull inflation is a manageable issue, much more so than the forces that drive Asset inflation and associated “trickle down” economics where new bank credit is deemed the only politically-legitimate source for flows of operating capital.

    3. ThroxxOfVron

      The currency to pay for goods/services/shelter/energy CAN be emitted/created at will by the Government -basically ‘spent’ into existence in theoretically unlimited numbers; but, the introduction of ( unlimited numbers of ) currency units does not produce new/more goods/services/shelter/energy for purchase.

      Digits on a spreadsheet aren’t anything but digits on a spreadsheet -no matter if the US Treasury is the Entity with the spreadsheet. The least problematic results likely to manifest from an unsterilized emission of currency are a combination of classic simple inflation, and a targeted wealth re-distribution as the price of the goods targeted for purchase and distribution by the Government Bureaucrats rises in value above what a free market would pay.

      How the hell can People NOT understand that printing money does not materialize t-bone steaks or gasoline or textbooks or diapers or insulin or town houses or ….out of thin air?

      1. Auburn Parks

        Why do you think that we are closer to our production ceiling than the floor and so don’t need anymore money circulating?

        Do we have too many scientists?
        Fraud investigators?
        Public Defenders?
        Fiber optic cable lines?
        Solar arrays?
        Wind turbines?
        Fusion power?

        Why don’t we have too much of this stuff? Because people think we are out of money or that the US Dollar comes from China or the 1%.

        So next time we get to and stay at full employment and have a real demand inflation problem (hasn’t happened since WWII) then we can say your comment is justified, but right now, given the current state of our economy after 30 years of neo-liberalism, your way off.

        1. Nathanael

          I should point out that we could also have supply-side inflation — caused if, for example, we have a sudden food shortage, or if the entire economy is completely dependent on oil and OPEC suddenly starts refusing to ship oil to us (both happened in the 1970s). But we don’t have either of those going on now.

          If it happens again, well, in the second case, Jummy Carter explained the solution — switch the economy off of oil.

          The first case is much harder, but basically if there’s a food shortage everyone will be poorer for a while. No choice about it, deal with it, issue ration cards. (In the very long run, the solution is to have fewer babies and reduce the population.) There is a food surplus right now, but global warming may cause a food shortage later, so it’s worth paying attention to.

      2. Gary Goodman

        That is mostly FALSE. Of course these things aren’t created out of thin air.

        At the same time, Irving Fisher explained that this theory you explain only works in a STATIC economy.

        MV=PT if V is assumed to be static. The Quantity Theory of Money is false because we don’t live in a static “communist” economy where Demand (consumer dollars) doesn’t drive business to ramp up production. Business & production DOES expand.

        Sheesh, the number of conservatives operating inside a “communist” “controlled” paradigm of production is a bit astonishing. There are practical limits on how QUICKLY the economy can ramp up production and jobs. Corporations might choose to institute MORE “Demand Leakage” by increasing imports instead of domestic production. Chamber of Commerce wants that.

        That means that more Deficit Spending needs to be directed towards (a) domestic public works that can’t easily be imported (b) domestic service jobs that can’t be easily imported. Fortunately for us, there’s PLENTY of unmet domestic service and public works needs right now, as well as PLENTY of domestic workers available to fill such needs.

        Fortunately, the innovative domestic economic market WILL ramp up to take advantage of those newfound paychecks, because it’s not a zero-sum game and we don’t have a “communist” economy where output decisions are determined wholly by govt bureaucrats. People CAN start new restaurants, grow food, open factories, re-open existing factories.

        1. Gary Goodman

          ThroxxOfVron: the introduction of ( unlimited numbers of ) currency units does not produce new/more goods/services/shelter/energy for purchase.
          How the hell can People NOT understand that printing money does not materialize t-bone steaks or gasoline or textbooks or diapers or insulin or town houses or ….out of thin air?”
          That is mostly FALSE. Of course these things aren’t created out of thin air.

          At the same time, Irving Fisher explained that this theory you explain only works in a STATIC economy.

          MV=PT if V is assumed to be static. The Quantity Theory of Money is false because we don’t live in a static “communist” economy where Demand (consumer dollars) doesn’t drive business to ramp up production. Business & production DOES expand.

          Sheesh, the number of conservatives operating inside a “communist” “controlled” paradigm of production is a bit astonishing. There are practical limits on how QUICKLY the economy can ramp up production and jobs. Corporations might choose to institute MORE “Demand Leakage” by increasing imports instead of domestic production. Chamber of Commerce wants that.

          That means that more Deficit Spending needs to be directed towards (a) domestic public works that can’t easily be imported (b) domestic service jobs that can’t be easily imported. Fortunately for us, there’s PLENTY of unmet domestic service and public works needs right now, as well as PLENTY of domestic workers available to fill such needs.

          Fortunately, the innovative domestic economic market WILL ramp up to take advantage of those newfound paychecks, because it’s not a zero-sum game and we don’t have a “communist” economy where output decisions are determined wholly by govt bureaucrats. People CAN start new restaurants, grow food, open factories, re-open existing factories.

    4. Joe Firestone (LetsGetitDone)

      Thanks for the compliment. I used to be a professor back in the 1970s; but I never made it in academia because I entered without a regular university line, was too popular with my students, and also published lots of articles in interdisciplinary journals rather than books like readers and texts for university undergraduates which quickly gave me a big name. Never was much of a strategist when it came to academic politics, I’m afraid.

      On the point of consumption in the health care area, I think it’s obvious that the real consumption of Americans in this area as opposed to the nominal consumption of goods and services on health care is much less than that in other modern nations, even though you’re quite right we spend far more nominal wealth in that area than the people of other nations. In short, I don’t think we’re coming against real limitations in health care goods and services, only nominal limitations which can be fixed by passage of a Medicare for All system, funded through deficit spending.

      1. washunate

        We agree on universal health insurance conceptually. Most Americans do. Virtually no one outside of monetary theory cares about how government pays for things. It pays people dollars to do stuff. That’s what’s so odd about this approach. This is all inside baseball. This MMT focus on the technical system rather than what the spending represents is part of the diversion of attention away from the real issues, which is what kind of society we want to live in and how to obtain political power to create it.

        I see no way to make a distinction between real and nominal healthcare consumption. The issue is that we need to create a healthier system so that people don’t need treatment in the first place, which requires tackling the underlying issue that our leadership class are psychopathic thieves. Public health is threatened by everything from authoritarian work environments to inefficient transportation systems to garbage food to an absurd drug war to an out of control national security state.

        This notion that there’s some sort of free lunch from capacity expansion and deficit spending strikes me as an unwillingness to actually make choices about how resources should be allocated.

        1. Auburn Parks

          Why do you think that we are closer to our production ceiling than the floor and so don’t need anymore money circulating?

          Do we have too many scientists?
          Fraud investigators?
          Public Defenders?
          Fiber optic cable lines?
          Solar arrays?
          Wind turbines?
          Fusion power?

          Why don’t we have too much of this stuff? Because people think we are out of money or that the US Dollar comes from China or the 1%.

          So next time we get to and stay at full employment and have a real demand inflation problem (hasn’t happened since WWII) then we can say your comment is justified, but right now, given the current state of our economy after 30 years of neo-liberalism, your way off.

          We can’t have the discussion about allocating real resources using different definitions. If people think we are running our of fiat money, then they can’t possibly understand what are real options are. This is where MMT comes in.

        2. Gary Goodman

          washunate, what you said is wise, but MMT does address those issues — more in the background — and MMT doesn’t purport to solve every problem of human nature and corruption.

          Bill Black accused Warren Mosler of being “in love” with banking oligarchs, and being anti-regulatory. Mosler countered that his proposals for completely eliminating the “food supply” of speculative finance was actually more harshly regulatory than trying to regulate and/or punish finance people and bank CEOs who go beyond certain limits of corruption in the existing system.

          MMT describes how fiat currency actually operates vis-a-vis Govt and banking, and the absence of real hard fiscal constraints, but it doesn’t solve all the “political” problems of choices our over-lobbied political leaders make given those parameters.

          MMT also *suggests* sensible policies. Think of that as MMT (A) and MMT (B), or MMT (facts) and MMT (ergo).

          Some people want to keep the two completely separate or deny (B) exists, others insist on highlighting the (B) that flows from (A). For sure, these are two distinct viewpoints, one more technical, one more human. Economics used to be called “political economy” because it was “social” and “human” more than “technical”.

          MMT attempts to both address technical fallacies and the human dimension, but not necessarily in the same articles. When they do combine the two in a cogent synthesis, then the rats crawl out of the woodworks crying “That’s Socialism!” No, it’s capitalism plus sanity.

        3. Calgacus

          This notion that there’s some sort of free lunch from capacity expansion and deficit spending strikes me as an unwillingness to actually make choices about how resources should be allocated.

          Yes, it is unwillingness. Unwillingness to make completely unnecessary choices about how resources should be allocated – which is NOT what economics was traditionally about. Unwillingness to brainwash oneself with preposterous lies. If there are free lunches, it is the height of irrationality to ignore them. Where the free lunches of MMT comes from is obvious – from not systematically destroying the enormous, expensive lunches we already have made.

          MMT is basicallly a doctor talking to an insane person who complains of constantly bleeding. The doctor says – you are bleeding because you keep stabbing yourself. The solution is to stop stabbing yourself. The lie that there are real issues – some “real cause” of the bleeding is a distraction from the true stabbing cause, which is very obvious, if only one can get the person to carefully look at what he is doing, to have some doubt that he might actually be stabbing himself.

  24. allcoppedout

    There’s not much wrong with letting people spend to get what they need to be comfortable. The only real questions are work allocation and moral responsibility in a social contract. Some think the current system fair or the best we can do. In fact we burn and poison the planet, and live in a screaming monkey society, drugged on television. Meanwhile, lifted from the world of my rough hands by James and Bangor, I do high literature and the arts, having discovered the women in that circle more interesting. Fear not, I lie and am off down the pub. Shakesperian soap washes there every week. There are people there who articulate our arguments in a few ‘grunts and expletives’. No tilt at my friends here. Many of the arguments we raise here are half-baked, but are no better when fully cooked by academics. I kinda disguise. Bangor may be onto something in recognisng my disrupted rhythms. We need some new songs.

  25. Hugh

    Consider the society you want. It doesn’t really matter who pays what where or how much as long as we achieve the society we want. Consider then the society we have. Many people do socially useful things for which they are paid poorly or not at all. Others are paid huge fortunes for activities that do nothing to contribute to our society or are hugely destructive of it.

    What Rampell is doing is distraction and misdirection. It is class war, setting one segment of the 99% against another while directing attention away from the vast looting accomplished by the rich and elites. That is the real nature of the con going on here, keep us from focusing on the society we want to live in and the changes in the current society needed to get us there. We have the resources to make sure that every member of our society has what is needed for a good, decent, and meaningful life, but we do not have the resources for this and to support predatory classes of billionaires and multimillionaires and the elites who serve them. If I have to choose between the two, I know which I would choose to do without.

    1. masterslave

      “” to support predatory classes “”

      That is the basic crux of the whole politico-economic problem — population control . Neither mankind nor any other creature is able to adequately control for overpopulation other than by predation . Many do not even recognize the possibility for overpopulation . Abortions are predatory . Procreation intervention technology is nonpredatory and gives the promise of being able to retire predatory politico-economic systems . However , there are profound moral / ethical issues with prevention technologies .

  26. Paul Tioxon

    The entire argument about how much money there is or is not paid into the Social Security Trust Fund is an exercise in the bourgeoisie mentality of transforming money from an intangible cultural artifact into a material source of wealth. And reversing the order of value of wealth by mystifying all economic activity to being primarily a process that originates with money, instead of originating with the natural resources all around us and the effort we have to make to use those resources to live. Before we domesticated grains, animals by creating an agri-culture, before we built up settlements into civilizations, we some how managed to work very hard without money to stay alive and grow into a successful species that dominates all other species. Now, we work very hard in order to be dominated by select members of our own species with money.

    Social Insurance is not a capitalist commodity that can be bought and sold in the market. It transcends the market and is beyond its operation by the political decision to do so. As long as people are productive enough to produce enough food and fabricated goods to support a healthy, long, happy life, we can produce more money to enable that economic system to function quite well. The shortage of gold, silver or dollars or a pile of them as large as the Rocky Mountains will not command food to grow from drought stricken land or force skyscrapers up into the heavens if steel is in short supply, if the ores are depleted or if there are not enough workers skilled enough to erect a structure that will not fall down in a matter of weeks.

    Social Security is a social insurance program that is built upon hundreds of years of work and the built environment all around us, the bridges, the roads, the houses, and offices that we do not have to build every generation because their useful life exceeds the lifetime of the people who built them. The disaster in a social program is not a lack of money, which we can now create to enable the already built environment of civilization to operate with some maintenance. The disaster of Social Security is to transform it into a market commodity and not recognize it as a structural feature of the social order, which is much larger than any market economy. The accumulated wealth of hundreds of years of work increases as it is passed on intact by the death of our ancestors to us. It represents work that does not have to repeated. Spending money into an economy works not because of some crazy idea, but because we are surrounded by material wealth inherited from generations of blood, sweat and tears. The money disappears from circulation by several mechanisms, one of which is the taking of profits and accumulation of them without re-introduction to the world that needs money circulating in it to function. Introducing money at the end of the lifetime of work and other contributions from the informal economy, allows this magnificent legacy of cities and farms, factories and schools to go on sustaining new generation of people that will populate the world and operate and maintain the social order.

    It solves the problem of boom and bust not because it is fiat money or a government enforcement against our will, it solves the problem because so much wealth has been produced and is left behind by the old to the young. They can then go on and improve upon and expand the technologies and productivity that can sustain the next generation after them. And so on til the sun burns out.

    1. moneta

      Maybe what has been been is wrong for what will be needed in the future. Maybe the infra that is currently perceived as wealth is a destroyer of future wealth. Maybe there is too much entropy in the system. Maybe it requires too much energy and needs to get right-sized. So if these assets need to be written down, they won’t be generating the income people are expecting.

      1. Paul Tioxon

        Under my analysis, you don’t write down a house, unless you demolish it. Wealth is not money, money is the intangible accounting for wealth using numbers and mathematical relationships. Once a bridge is built, a regional commuter rail system installed, schools and other buildings built, their value as usable structures does not go up and down with its price as derived from its position in the market as a commodity. The built environment wears out, a lot less slowly than a pair of shoes, but it does wear out. The fact the dollar value of a piece of real estate, for example, goes up, goes down, plateaus doesn’t stop it from being a form of shelter where we can live, conduct business and store things we need. If you are speaking to over consumption of American consumer society or excess capacity and over supply, that is changing the subject completely.

        There is no entropy in the built environment. It does not need to be “written down”. The financial system is unstable and prone to booms and busts. Its cycles of instability are contrary to the well known and scientifically valid knowledge of engineering. For the most part, when we build things, they don’t fall down. We compensate for wind, soil density, climatic changes etc. The problem of saying the old steal from the young is contrary to history which shows the old die and leave all of their productive output to whoever is left alive, the young. The entire generational thievery of old people living it up at the expense of the young is an attempt to create social conflict between indebted young people and obligations of society to older people. The final solution is to have the old work longer to support themselves and rely less on the young, who will then be freed from the serfdom of duty to the old and have more money in their pocket to buy all of the high end goodies from apple and samsung to their hearts delight. Of course, they will get screwed along with the old if Abby Huntsman and other heartless right wing fanatics get their policies implemented. Having the young and the old screaming at one another will keep them from organizing together in common cause against the corporate domination that squeezes all to enrich itself.

        1. masterslave

          “” Wealth is not money “”

          This is another pernicious and patently false meme that the rich love to broadcast . Money is a store of value and anything of value is an item of wealth . When you make a purchase it is an exchange of valued items even if it is electronic bits of a credit account . The payment transaction is essentially a greatly evolved barter deal . The Webster definitions of wealth show that every one of them applies to money inclusively as wealth .

          And yes the value of infrastructure does fluctuate except that you do not normally see it because infrastructure is not traded in a daily market .

          1. Gary Goodman

            masterslave: Money is a store of value and anything of value is an item of wealth.
            Money is BOTH a store of wealth in financial form and means of commerce. How we design the monetary system and the field of economics is a reflection on whether we emphasize the hoarding (financial savings) function or commercial production and flows.

            I say the latter is Adam Smith’s “real” capitalism, though both are real in some sense. Goldbugs of the 1800s preaching “hard money” and “sound money” meant scarce money and expensive scarce credit, which maintained the value of their hoards, and actually increased the value of their hoards via govt intervention of declaring a hard FIXED link between currency and commodity metal.

            Their opponents favoring “softer” money of bimetalism were favoring commerce, flows, and the smaller capital of their productive farms and enterprises, which were being taken via financial bankruptcy, whenever Finance lurched and collapsed from excessive speculative activity. Minsky figured this out by studying economics over time, instead of static equations.

            Lysander Spooner, who is ironically featured on because of his anarchist tendencies, argued that artificially FIXING a metal commodity to currency meant that the commodity would always increase in relative value to the face value, which would cause hoarding of such coins and re-conversion from coinage at the Mint back to commodity metals for decoration or other industrial uses, a rule known as Gresham’s Law.

            Gresham’s Law said that “bad” money — which is good for commerce — will circulate while “good” money — which is good for hoarding but not so good for commerce — will disappear from circulation. “Bad” and “good” are poetic descriptions. (There’s a better word, but I can’t think of that now.)

            No one would buy a Big Mac and Coke or a bicycle with gold coins, but anyone will purchase same with “worthless” fiat electronic account credits they can swipe off a card.

            Austerity and Budget Surpluses are like a “pseudo” “hard money” regime, restricting the supply of “worthless” account credits we would use for commerce, as if they were precious commodity gold.
            masterslave: When you make a purchase, it is an exchange of valued items even if it is electronic bits of a credit account . The payment transaction is essentially a greatly evolved barter deal
            Financial transactions DID NOT evolve from Barter. Barter is radically inefficient, and even ancient humans were not that stupid. As they were able to form communities, or some Warlord conquered a region or Warrior assumed leadership status, some type of Govt or banking system would emerge to keep track of account credits and debts between individuals, record-keeping.

            With the advent of priest-supplied or warlord-supplied money, the “govt” as such could purchase part of the production and raise an army and collect taxes in the “state” currency that they had issued.

            Gold emerged in Europe for other reasons. Kings didn’t march domestic armies across the continent — usually — except for Genghis Kahn — European Kings would hire foreign mercenaries. Not surprisingly, they could not be paid in “worthless” currency or coin of the foreign realm, because they were not taxpayers and didn’t live among taxpayers in that currency. Mercenaries had to be paid in “universal” money which was actually NOT “money of account”, it was a valuable commodity. (They could have been paid in cocaine or coffee or tea or tobacco, and sometimes that has occurred.) (Locals in the meantime could be paid in marked shells or other forms of local accounting.)

            That is probably why Keynes called gold a “barbarous relic”, because it had been so useful in paying for wars, conquests, and overthrowing govts.

            Gold was also apparently favored for foreign expeditions, because gold was not “backed” by distant foreign powers, but was a commodity with an intrinsic global value, in and of itself, for these purposes.

            Nowadays, some $2 Trillion in “worthless” fiat currency circulates the planet from account to account, on bets and counter-bets, via international finance via the Internet, a piece of infrastructure created initially by the Pentagon ostensibly for Cold War defense reasons. I don’t know how early it was perceived as a useful tool for international commerce and finance, as well as other flows of “information”.

            That’s what modern money is: information. That’s what modern payments are: instructions. We THINK of money in 15th or 16th century paradigms (or myths), as if the Industrial Age and Computers and the Internet had never been invented.

            Getting back to the topic, WE have the power to decide whether money Of Law and Of State is geared mostly to serve the interests of commerce, consumption, production, and trade, or whether money is geared to favor hoarding of financial wealth within a dearth of actual healthy commercial activity and social investment.

            Finance and credit are themselves not “evil”, only when the entire system is so geared towards making Financial Services the heart and core of the economy, while allowing the real economy to crumble for lack of money.

            The Finance sector is understandably pro-cyclical in terms of booms and busts. Finance lends into booms making them hyper-inflate, then contracts credit in the inevitable busts, deepening the recession, the misery, and the actual loss of REAL economic valuables, including not merely goods and services but human experience, youth, education, etc. as millions of viable creative and/or strong individuals are left stagnant to commit creative crimes to survive and while their time away in non-productive or unhealthy activities, bad for themselves, bad for society.

            The Govt sector — BECAUSE IT IS NON-PROFIT and doesn’t need to worry about deficits — and BECAUSE it represents the needs of society en total, at least ostensibly — has the power to spend in a counter-cyclical manner, boosting net spending when Finance contracts, and cutting net spending when Finance expands. It can do so AS NEEDED for a balanced economy (however we choose to define that) instead of a balanced budget. It doesn’t collect taxes for the revenue it needs to spend, it collects taxes to tamp down Finance expansion of credit.

            masterslave: Why argue for MORE SLAVERY to the private Financial sector?

            Beardsley Ruml, NY Fed, 1946
            “Taxes for revenue are obsolete.”

            William Vickrey, Nobel Prize winner, 1996
            “Fifteen Fatal Fallacies of Financial Fundamentalism:” (see fallacy 6)

            The 7 Deadly, Innocent Frauds of Economic Policy

            1. Gary Goodman

              Minsky figured out the tendencies of stable Finance towards instability by studying economics over historical TIME, instead of static equations where Time = T + Tx or some such.

              Nowadays, some $2 Trillion in “worthless” fiat currency circulates around the planet DAILY, for financial speculative activities. (This dwarfs the volume of finance linked to actual productive investment.)

              1. rob

                Which 2 trillion dollars in fiat cureency is “worthless”?

                The US dollar is a fiat currency.

          2. Nathanael

            Money has value only because people agree that it has value.

            Remember that.

            Other things (houses, food, etc.) have *inherent* value. They keep you warm, keep the rain off you, keep you fed, etc.

          3. Paul Tioxon

            I no longer accept the proposition that money is a store of value. Items and services are valuable, but money is only a symbolic representation of valuables. If money is a storehouse of value, then how are any goods produced seen as valuable in themselves? Goods are valuable, as luxuries, as practical or useful and even as absolute necessities to live, they store value. The value is measured by money. Money can not store value, but only numerically represent the value we place on a good or service. No one goes into a store and buys ten dollars in pennies for a ten dollar bill. The theoretical positions as to why money works may not be consistent with each and every example of how money is handled and used by different people under all circumstances the world, but money clearly works to maintain a large scale social order of a highly complex nature. Money is not traded for money outside of the territories it does not function, but commodities, services can be traded as barter. Money under analysis is more symbol, more numeric and not a valuable. Hyperinflation belies the innate value of money. The relation of money to economic output, how money functions in the everyday world and not some concept of money is what I observe first and then think about. I don’t think about money in the abstract, outside of its social context. It is money handed back forth that needs to analyzed, and that money can change overtime as society changes. From metallic coin, to paper to digital phenomena. Money can not be defined by referring to itself, anymore than anything else can. Money does not store value because its valuable, money is used to move valuables back and forth among people because they want those items, and not the money.

        2. moneta

          Don’t take care of your house for a couple of years and get back to me. Now look at all the infra around us and calculate how much energy we must consume to keep the status quo. But on top of that we must grow. I don’t believe 350 million people can expect to keep this emery intensive lifestyle without stealing resources from other countries. I thought progressives cared about world peace and fairness globally and not for just a few countries.

          1. Nathanael

            We could hire all the unemployed people to build dense, easily maintained apartment buildings, to insulate existing houses, to make buildings more durable, to make our lifestyle less energy-intensive.

            But we aren’t doing that because we aren’t printing enough *money* to do that. Think about it and you’ll begin to get why understanding Modern Monetary Theory is important.

            1. Moneta

              There are 6 billion other people on the planet who are fighting for the same resources and the same creature comforts. You assume that those ressources should automatically go to Americans.

              The MMT theory of printing assumes that the Americans are the kings of the world and can import anything they want, taking resources away from other countries with impunity. And that by some miracle, newly printed money will be efficiently distributed. The US can print BECAUSE it can bully the world… take away the bullying and MMT dies a quick death. For MMT to work, the US will need a very strong military complex. But the military complex burns a lot of energy which could be going to the people. America has hit a point of no return. America will not change because it choose to. It will be forced to change. This is what the current pain is all about… Americans are still clinging to their old ways when many signs point to a change in paradigm.

  27. EconCCX

    Joe writes: Tax and FICA payments cause the Fed to credit Treasury Tax and Loan (TT & L) accounts with reserves.

    That’s incorrect. TT&L accounts are Treasury’s accounts at commercial banks.

    Under the Treasury Tax and Loan (TT&L) program, tax payments by individuals and businesses go into accounts at depository institutions, rather than directly to the Treasury’s accounts at the Federal Reserve.

    While we await Joe’s acknowledgment of this error, I’ll walk you through the significance of it.

    First off, the very existence of a “Treasury Tax and Loan” account belies the MMT claim that taxation destroys money.

    Joe writes: Federal taxes don’t pay for anything. But here we see the NY FRB declare that they fund the TT&L accounts at commercial banks. No creation or destruction of reserves involved. Your tax payment instructs the clearing network to reapportion reserves from your commercial bank to a commercial bank in which USG maintains a TT&L account.

    Joe has long acknowledged that Federal Reserve Banks are private banks owned by the national banks in their districts, though he uses the Orwellian term “the Fed” to describe their activities in this piece. It is the Reserve Banks — not the regulatory and rate-setting “Fed” of Bernanke and Yellen — that purchase and own USG securities via open market operations. The Treasury General Account is USG’s account with the FRB, and Treasury must maintain adequate funds therein for its payments to clear.

    A Reserve Bank isn’t an arm of the US Government; it’s the US Government’s banker. Using the term “the Fed” for a Federal Reserve Bank enables our MMT friends to elide this distinction. “The Fed,” in popular understanding, is an arm of the US Government. So, in the MMT depiction, a tax payment reduces what MMT considers a government liability, reserve balances. Destroys money. Coincidentally, per MMT, USG “keystrokes” itself an asset: a TGA increment. Leading MMTers to reason that this is something USG could do anyway, without the hit to aggregate demand, production and employment that presumably comes from extinguishing reserves.

    But when USG maintains TT&L accounts at commercial banks, that careless depiction is impossible to maintain. How did those commercial banks — not “the Fed” — come to owe money to the US Government? Tax payments funded those accounts, and the USG draws them down electronically, just as you and I do as users of commercial bank money, making and receiving payments with no aggregate Reserve Bank liabilities thereby created or destroyed.

    1. Auburn Parks

      You really loused this one up.

      Any bank account that does not originate as a private bank loan, regardless of whose account it is aka TSY, Google, John Smith, at a private commercial bank has always been backed by a transfer of reserves to that account. Money is not given away for free. And all reserves originate out of thin air via keystroking on the Fed’s computer. So TT&L accounts in no way prove your point. The reserves that are transferred into the TT&L account as a residual accounting record of tax receipts were themselves a result of Govt keystroking those reserves into existence at some prevvious point. All CB Balances and cash in existence have come from the monopoly supplier, which is Congress via the authority channel.

      Its really just a tautology, which is why MMT is right and you are wrong. The Govt is the monopoly supplier of Govt currency.

      1. EconCCX

        @Auburn Parks:
        This is a Joe citation that I trot out here occasionally, possibly to the point of annoyance.

        The Treasury Bonds held by the Federal Reserve are not owned by the Board of Governors or the Federal Open Market Committee. They are owned by the regional Fed banks. Those banks are privately owned and the bonds are among their assets. Privately owned companies will not sacrifice their assets forgiving the Government’s debts. Nor should they! The Government is obligated to pay those debts by the Constitution!

        Joe Firestone (LetsGetitDone) | December 5, 2012 at 7:00 pm

        Privately owned companies, and clearly distinguished from the government. He’s saying something accurate and extremely important. For the US Government to clear checks drawn on these consortium-owned banks, it must relinquish assets to them. Whether bonds, coins, national parks (suggested by Wray) or the banks’ own IOUs, which are known as Reserve Notes and Reserve Balances. Obtained by USG via taxation.

        A Reserve Note in a Reserve Bank’s vault is not an asset to the Reserve Bank; it is that bank’s own unissued IOU. But a Reserve Note in USG’s vault is very much an asset to the US Government. Government prints these notes, but receives Reserve Bank credit only for its printing costs, about seven cents for a $100 bill. USG coins are assets to Reserve Banks; this is why Joe posits high-value coins as a solution to the US’s fiscal woes.

        Why is a USG coin an asset to a Reserve Bank, while a Reserve Note is not, if both are issued by the government?

        Now, when we read that Reserve Banks remit their profits to the Treasury, that does not mean they convey the keystroke value, less expenses. Keystrokes are merely the mechanics: the Reserve Banks are increasing their own liabilities when they issue notes or increase Reserve (or TGA) Balances. Remitting their profits to the Treasury means that they merely forgive a portion of the interest they are due as owners of Treasury bonds.

        For example: they’ve bought, for a $100 TGA credit to the government (their own $100 liability), a US Treasury bill worth $103 at some time in the future. They’ll credit back to the Treasury the major portion of the $3 they’ll earn. But they still own the bill, USG must still repay principal and interest, and the Reserve Bank can sell that bill to whomever they care to.
        Please read Joe’s quote again. Do you agree with it? Joe: do you stand by it?

        1. Joe Firestone (LetsGetitDone)

          Sure I do. So what’s your point, Econ? Are you saying that the FRBs are not components of a Central Bank system including the Board of Governors and the FOMC, and that they don’t derive their authority to create reserves out of thin air from Congress and are entirely subject to Congress’s will in respect of that authority?

          As for this:

          “Why is a USG coin an asset to a Reserve Bank, while a Reserve Note is not, if both are issued by the government?”

          Because both the Federal Reserve as the Central Bank system, and the Treasury Department are part of the Government and the CB’s FRBs have been delegated the authority to create reserves and currency, while the Treasury has been delegated the authority to create coins. Coins, reserves, and currency are all high-powered Government money even if the last two are created by privately owned agents of the Government rather than Government Civil Servants themselves.

    2. Joe Firestone (LetsGetitDone)

      The FRBs are privately owned banks; but they are not like commercial banks in that they are agents of the Government explicitly to whom has been delegated the Congress’s authority to create reserves, and who must remit their profits other than overhead costs back to the Treasury. In addition, when I use the “Orwellian” term “The Fed,” I am referring to the Federal Reserve SYSTEM as part of the Government. And even though the FRBs themselves are private, the system taken as a whole with its control by the Board of Governors and the OMG is more than the sum of its parts and is a governmental instrument ultimately responsible to the Congress of the United States whose authority it uses.

      That said, I’m sorry to have said that the tax and loan deposits cause the Fed to generate reserves in the TT & L accounts. You are right to point out that the deposits are made in commercial banks all over the US and are in the private banking system. But even so the reserves credited to the TT & L are reserves that were originally created by the Fed banks as Auburn Parks indicates. In addition, I think Eric Tymoigne has recently stated the MMT position on this clearly:

      “One conclusion of MMT is that Treasury spending always involves monetary creation as private bank accounts are credited, while taxation involves monetary destruction as bank accounts are debited. The question becomes how the Treasury acquired the funds it has in its TGA; the answer is through taxation and bond offerings. While usually economists stop here, MMT goes one step further and wonders where the funds for taxation and bond purchases came from; the answer is from the Federal Reserve. This must be the case because, leaving aside TT&Ls, taxes and bond offerings drain reserves, so the Federal Reserve had to provide the funds. The logical conclusion then, is that reserve injection has to come before taxes and bond offerings. More broadly, the theoretical insight that MMT draws is that government spending (by the Treasury or the central bank) must come first, i.e. it must come before taxes or bond offerings. Spending is done through monetary creation ex-nihilo in the same way a bank spends by crediting bank accounts; taxes and bond offerings lead to monetary destruction.

      As the following shows, in practice, injections of reserves related to the Treasury have
      come in several forms: monetary creation by the Treasury, funding of the Treasury by the
      central bank, funding of primary dealers by the central bank, and maturation of treasuries. The injection of reserves allows banks to buy treasuries or to complete tax payments.”

      The quote is from Eric’s recent Levy Institute Working Paper No. 788, pp. 11-12.

      1. EconCCX

        Thanks, Joe. Eric’s depiction contradicts Stephanie Kelton’s, which we discussed here a couple of weeks ago. And it contradicts your own.

        The question becomes how the Treasury acquired the funds it has in its TGA; the answer is through taxation and bond offerings.

        (Really? What part of “Federal taxes don’t pay for anything” does Tymoigne not understand? h/t Lambert.)

        Paying taxes destroys money. It doesn’t give the government anything. It doesn’t get anything. It eliminates those liabilities. They are, for all intents and purposes, destroyed. [00:18:06]

        When we pay our taxes, whether by cash or by check, all we’re doing at the end of the day, is returning to the government its own liabilities. That’s all we’re doing. And they say, ‘Thank you very much’, and the transaction is done. They don’t get anything that they can turn around and spend. They get their own IOU back from us. That’s the end of the transaction. [00:19:40]

        Nor does Kelton’s depiction comport with primary evidence. Cash, including coins, reserve notes, and reserve balances, is an asset to government, per the very first line of the Summary Report of General Ledger Balances for the US Government FY2013.

        Tax payments don’t extinguish the liabilities of Reserve Banks; they reapportion them from commercial banks’ Reserve Balances to the TGA. Paying a reserve note to the Reserve Bank itself, for clearance services or the Gold Vault tour, does extinguish those liabilities. That’s what may have confused Dr. Kelton.

        Is MMT walking back her depiction these days? Tymoigne’s is more accurate.

        1. Nathanael

          Her description is correct. You have to pay attention to the meaning of “money”.

          I can keep an account book claiming that I have lots of money. It means nothing; what matters is whether other people will accept my money.

          In the case of the government, people will accept its money whether or not it’s listed in the government’s account book. Essentially the government’s account book is a fiction, a piece of uselessness, because the government can print money whenever it wants, and can destroy any money it receives, with no impact on how much the government can “spend” or “tax”.

          The US makes a pointless distinction between the accounts of the Federal Reserve Banks (who are allowed to print money) and of the Treasury (which actually physically prints the money, but officially isn’t allowed to). This is a stupid scheme designed to confuse people and to prevent the government from functioning properly. Consolidate the accounts of the Federal Reserve System and the Treasury — which are under the same management when push comes to shove — and you see what’s really going on.

  28. Gustavo

    I would like to believe the professor’s argument that government spending is not constrained by tax revenue. I accept all of the wondrous machinations by which the Fed can cause reserves to appear in accounts at the Treasury, and through appropriations, into the accounts of citizens. My concern is that the whole arrangement seems to require faith or belief by all concerned that the contents of such accounts represent value. Suppose this arrangement were tried in, for example, Nigeria. Suppose they issued Treasury securities and conjured platinum coins of large denomination, sufficient to pay for social security and medicare for all retired Nigerian citizens. I am guessing that at some point a retiree would try to spend this money abroad and find that no one would accept it in exchange for dollars, or euros, or yuan. Why would they not accept it? Probably because the requisite faith and belief had not been established that it was worth anything.

    So if the credibility of anyone’s currency rests on faith and belief, cannot that faith and belief be diminished by perceived mismanagement? Don’t we also have maintain what appear to be prudent management practices about things like deficits and coins of overstated value?

    I don’t think that generational warfare accomplishes anything, but getting back to serious progressive tax policies seems to me the ideal approach.

    1. Auburn Parks

      Increasing taxes on the wealthy has nothing to with funding Govt programs. It is good for income inequality. It is bad as an inflation hedge. Your confidence boogeyman is invalid. People will have faith in the national currency as long as they must pay taxes into and as long as they can use it to acquire desired real goods and services. Thats the point your Nigerian examplee is missing, what can you buy domestically with Nigerian currency? The Nigerian output, and what is the Nigerian output? Do they make Fords? Ipads? The Greenn Bay Packers? Merrill Lynch financial services? Google? Ebay? Grass fed longhorn beef?

      An average deficit of 10% to 13% of GDP instead of a 4% of GDP is not going to negatively change the dollar’s dynamism wrt purchasing power. Especially is bank credit continues to grow slowly.

    2. Calgacus

      Yes, money is backed by trust. But by RATIONAL trust, trust in the government’s taxing power, not believing in some con game. Death and taxes are proverbially inevitable. People who think that neither will ever apply to them are not usually considered very wise.

      The thing is, the platinum coin is the older type of system. States have been coining money for millennia. Government bonds are novelties. And while there are many effects going on, the evidence is that zero or low interest money – “printing money” is less inflationary than high interest money – “government borrowing”. The mainstream gets everything backwards. It – and many “Keynesian” – even post-Keynesian economists – some who even knew Keynes himself! – accept without question the lunatic mainstream dogma that the sort of money called “bonds” has magical “sterilizing” disinflationary properties compared to the sort of money called “currency”.

      A Nigeria that “just printed money” might have a problem at first because of the irrational beliefs on money and bonds are so widespread. But if it were well-run otherwise, had a sound tax system, a reasonably honest government etc. – the Nigerian currency would soon enough become a quite strong one. And the standard economic textbooks and journals would simply react by – never talking about Nigeria.

      MMT is all about prudent money management. Spend the money on real, beneficial economic activity – employing the unemployed – every single one. Or on definite public purposes. MMT says tight-fistedly spend public money on something of great and increasing value – human labor. The mainstream – the insanestream – says NO, NO no – it is much more prudent to shower much more public money on rich people for doing nothing, through bonds, and the numberless and usually destructive welfare for the rich programs like the military. Because then the magic happens. Does that make sense to you?

    3. Nathanael

      ” My concern is that the whole arrangement seems to require faith or belief by all concerned that the contents of such accounts represent value”

      So does all money. Money consists *entirely* of trust that other people will take the money.

      There have been some studies as to what ACTUALLY causes people to lose trust in the money.

      It’s stuff like lying the country into war, having the Supreme Court steal an election, etc….

      Or allowing bankers to steal millions of houses and get away with it…

      Nothing to do with printing money really. It seems that printing money is not one of the things which causes people to lose trust in the money. It’s general distrust in the government which causes distrust in the money.

  29. Charles Hayden

    The TT&L accounts are there to govern the flow of reserves to the government from bond and tax revenues, and prevent disruptions which could inhibit the FED’s ability to hit its target rates. And this way the tax and bond revenues don’t get drawn down and moved out of the nongovernment to the TGA, until they are needed to just be moved right back out. So in a sense, when government spends it just moves funds from its accounts at commercial banks to our accounts at commercial banks. If Treasury just piled up the tax and bond revenue at its account at the FED, the FED would have to do more work to hit its target rates (not like it would be hard).

    And when you consider FED operations, it is still the case that government spends/lends first, and then we can pay the tax bill and/or buy government securities, despite the stupid restrictions on Treasury overdrafts at the FED that create the appearance of a revenue dependent federal government. This political decision has to be overcome indirectly by the FED or it would lose control of the target rates the FOMC decided on.

    Also, the FED and the district banks are described in law as “fiscal agents” of the government.

    1. rob

      Wasn’t Bernie Madoff someone’s “fiscal agent”. by law.assuming they had a contract of some sort.
      If the fed is a private consortium of “fiscal agents”, then they are not “THE” government. And therefore our government is not “THE” “monetary sovereign”, some would have us believe.
      despite the “rules” ad nauseum, they are supposed to follow….. we are still talking about a bunch of lying crooks/bankers, who use power and capital streams to pervert basic economic psychology and fundamentals; as well as our political system. The markets are rigged.and the money is still the reason.

      Sure, this is too broad a brush,But it’s true.
      Our system was built wrong. It is what we have, but it sucks.
      Now while MMt’ers and all want the gov’t to have these abilities of the realities of the money construct. They don’t. The banker’s do.
      The construct needs to be changed.
      Now if we were discussing how to nationalize the fed, as was proposed by the
      ” NEED act” HR 2990 112th congress… then we would be talking.
      Simply, get the banks out of the money creation racket, and let the banks do banking.

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