Monetary Sovereigns, Monetary Subjects: Modern Money & The Criminal Legal System

By Raúl Carrillo. Originally published at New Economic Perspectives

I delivered the talk published below as part of a panel at Yale’s annual Rebellious Lawyering Conference, on February 17th, 2017. The panel, entitled “Financing Criminal Justice”, co-hosted by The Modern Money Network, focused on the connections between fiscal austerity and the horrors of the U.S. criminal legal system. I was joined on the panel by Thomas Harvey, Co-Founder and Executive Director of ArchCityDefenders, Judge Jaribu Hill, Director of the Mississippi Workers’ Center for Human Rights, and Mitali Nagrecha, Director of Harvard Law School’s National Criminal Justice Debt Initiative.

Together, we discussed how financially-strapped local government entities, charged with public safety, perpetuate social violence, especially upon low-income communities of color. My presentation focused on macroeconomic context. More specifically, I attempted to build a bridge between the insights of MMT and arguments asserted by opponents of mass incarceration, police brutality, and criminal justice debt.

Good afternoon, everyone. Buenas tardes. In my short legal career, I have had some hands-on experience with these issues. After law school, I joined the Enforcement Division at the Consumer Financial Protection Bureau. We did (some) work at the intersections of private consumer debt and criminal justice debt. I’m currently at New Economy Project, an anti-poverty organization, in New York City. Some of our clients do wind up behind bars because of failures to appear and failures to pay. Some do leave incarceration only to return home to frozen accounts and judgment liens in addition to the fees they were charged for their time in the system. I’m not here to speak about all that, though. I’ll leave it to the experts.

Today, I’m here on behalf of The Modern Money Network. MMN began as a group of rebellious students at Columbia Law who had some previous experience studying macroeconomics. In the past three to four years, we’ve grown into a national 501(c)3, hosting events in the U.S., Europe, and Australia. We first hosted a panel here at RebLaw in 2014. We essentially try to provide spaces for people interested in a more comprehensive counter-narrative to the Chicago School style Law & Economics. Specifically, we try to build an interdisciplinary “systems design” perspective, highlighted not only how law governs the economy, but constitutes and constructs it.

Perhaps most importantly, we try to provide auxiliary support for social justice lawyering. We don’t say people really should focus on capitalism or neoliberalism rather than white supremacy or cis-hetero-patriarchy. In fact, I don’t think it’s really possible to understand the economy without thinking about racial subordination, social reproduction, or the fact that our planet is baking. But also vice versa. A lot of us are here because we can’t afford to struggle in silos anymore.

So, I’m going to discuss a macroeconomic prism for looking at these issues. I’m going take us on a journey to the center of our monetary earth. We’ll first take a look at the core, then we’ll go to the peripheries and move back in again. So you know the main points I’m going to make on this journey, there are really just two. The first point is conceptual 1): lawyers need to be thinking in terms of balance sheets. Criminal justice debt means someone’s has criminal justice assets. The second point is programmatic, 2): without sufficient federal financing, the only way courts are going to fulfill their function in the criminal legal system is by imposing fines and fees, and this will inevitably disproportionately hurt poor communities of color.

Alright. So according to the Modern Money view, the core of any given economy is a legal entity known as a “monetary sovereign.” What is that? Monetary sovereigns have the power, to not only issue their own currency, but collect taxes, fines, and fees, in their own currency, float their exchange rates, and denominate their debts in their own currency.

Most monetary sovereigns are political states, but not all political states are monetary sovereigns. For example, Greece, which uses the Euro, does not have monetary sovereignty. The European Central Bank ultimately controls money in Greece. Senegal, which uses the CFA Franc, does not have monetary sovereignty. The French Treasury (and ultimately the European Central Bank) controls money in Senegal.

Who is sovereign? The governments of the U.S., the UK, Japan, are truly sovereign, for example. The U.S. issues its own currency, the U.S. dollar. It also taxes and fines in U.S. dollars. The payments that are due to the holders of U.S. Treasuries are all paid in dollars. Since the U.S. government abandoned the gold standard in 1971 and committed to not pegging the value of the dollar to anything else, it has achieved full “monetary sovereignty.”

This means as long as we’re talking dollars, U.S. government payments can be met. During the debt ceiling debates, even the crustiest, vanilla-iest elites pointed this out: Greenspan, Bernanke, Krugman, Buffet. As far back as 1945, in a talk delivered to the American Bar Association, New York Fed Chair Beardsley Ruml stated flat out, we do not collect federal taxes in order to spend federal money.

The U.S. government can never run out of money in the same way that the NBA can never run out of points. In 1995, Paul Samuelson, a Nobel Prize winning economist, acknowledged that the “superstition” that the federal budget must be balanced is part of an “old fashioned religion,” meant to hush people who might otherwise demand the government create more money.

Politicians may act like the U.S. government has the same constraints as a household or business, but the U.S. government can’t go broke. It can impose silly constraints on itself, like the debt ceiling, but people who actually know how monetary operations work know the U.S. government cannot run out of dollars. If you’re unlucky enough to take a Corporate Finance class at a law school, one of the first things they’ll tell you is to assume zero risk when accounting for U.S. Treasury bonds. This is because U.S. government can “inject” too much money into the system and destabilize prices, but the payments are always going to clear.

This is true financial power. And we’ll return to it later.

What about the rest of us? Monetary sovereignty implies that there are monetary subjects.

Monetary subjects need to collect legal tender. We can’t just print it or mint it or create it in on a spreadsheet with keystrokes. Just as we exist in a field of white supremacy, of patriarchy, we also exist in a field of monetarily-driven coercion. In the United States, you need dollars to eat, and unless you steal the dollars, you generally have to find a way for someone to give them to you. The government also protects property rights with cops, courts, and the clink, so most of us can’t just go get some land and live off it. Generally speaking, you’ve gotta hustle for the almighty dollar, because the strong men with the guns have told us “you have to pay us with dollars and dollars only when the time comes.”

This is how contemporary economies work. For better or worse, this is just the air we breathe. How do we deal with this?

Modern Money encourages people to think of every actor as having a balance sheet. Balance sheets can help lawyers understand the essence of money, because they are two-sided. It’s give and take, simultaneously reciprocal and adversarial. If we have financial liabilities (debt), they correspond to someone else’s financial assets. Everything nets to zero.

Many legal problems, especially ones we are discussing today, occur when your personal balance sheet is lopsided, when your liabilities outweigh your assets. Or in an immediate sense, you may not be liquid enough to satisfy an obligation enforced by the state. You may be stuck with medical debt; you may just be walking too noisily in the wrong part of town. To avoid problems, you need cash inflows to meet cash outflows. The economist Hyman Minsky called this problem a “survival constraint.”

Some entities’ survival constraints are more dire than others. Very wealthy entities can often get forgiveness from the state. We saw this during the Wall Street bailout. In a pinch, some of us in the middle might be able to liquidate a car or a house. Some of us are not so lucky at all.

Monetary subjects on the periphery must often rely on whatever credit they can get it. Throughout American history, power has been wielded by those who can play on people’s survival constraints. In the era of Jim Crow, Jane Crow, Juan Crow, farmers could only get necessary equipment from one person: the local traveling merchant. A white farmer might call him “the furnishing man,” a black farmer might call him another simpler name, “the Man.” And people would go into debt to “The Man”, who was not the sovereign, but someone further up the hierarchy. Today, some things haven’t changed. If you’re on the periphery, you deal with pawn shops, check cashers, payday lenders, or whoever happens to have financial power on your block, in whatever terms they dictate.

If you’re lucky you deal with the national banking system. You have access to banks, chartered, licensed, enfranchised by the sovereign to make legal tender available. They’re not merely financial “intermediators”, as many people will tell you. Banks do not lend out of a pile of deposits or even necessarily key their lending to a pile of deposits. What they do is generate credit and because they have special legal privileges, their IOUs are very valuable. They lend and borrow whenever they see a profitable opportunity to do so, knowing the state will back them up if things go really poorly. They’re higher up on the food chain.

Just as banks create asset-liability pairs out of thin air, so do other creatures of the state. In our federal system, state and local government entities do not have full power to issue currency. Mississippi has police power, but it can’t issue Mississippi Marks and is in fact constitutionally prohibited from doing so. It has some legal sovereignty, but not monetary sovereignty.

Likewise, courts. Most people think about courts “moderating” the payments system by settling disputes. They indeed do this. If you are a monetary subject and you have a dispute with another monetary subject, you can go to court. There are obviously exceptions. If you have a contract for illegal drugs or sex, for example, you may not be able to seek redress, but for the most part a court will settle your beef with another subject.

Like banks, courts have certain privileges. Just as a bank can create a debt for you and an asset for someone else, so can a court. The court may hold that asset, that money might go to another government entity or a private corporation. Unlike banks, though, courts can even generate new obligations between you and the state itself. And they can often take advantage of their power to load up their own balance sheets, which they do all over the country.

Why? Part of this is because courts face their own survival constraints. No matter how they do that, whether it’s by preying on poor people or via some other method, they are faced with this balance sheet logic at the core of the system. As even Chief Justice Roberts admitted during the sequestration, courts face particular pressures “because virtually all of their core functions are constitutionally and statutorily required.” If they do not get money from the sovereign, they will get it from other monetary subjects.

Other people will get much more into this, but since the financial crisis, we have seen how courts and other municipal bodies have turned to bleeding the poor. Poor folks are in the carceral system partially because cash-strapped entities cannot fund basic operations. Financial crisis begets austerity, which exacerbates the criminalization of poverty. The Ferguson Report made it crystal that the City relied upon cops as collectors. Even though it’s not even clear that some other municipalities are actually making any money this way, the driving logic remains. Courts, cops, and the clink try to get blood from stones, money from empty pockets.

So, there’s financial domination intertwisted with carceral domination. So what? Why should we care about looking at things this way? Because it affects our strategy. As the saying goes, “if you don’t know where you’re going, you’ll end up somewhere else.”

In an article in the Boston Review last fall, Donna Murch, a Professor of History at Rutgers, said that we need:

“…a larger reexamination of the economic and extractive dimensions of mass incarceration… apart from establishing more equitable means testing of people brought before the courts.”

I strongly agree. I would obviously propose the Modern Money view as the method of reexamination. Ultimately, we need to argue the case that monetary subjects should not be footing the bill for either punishment or rehabilitation. Who should be footing the bill? The monetary sovereign.

Looping back, unlike you or me, the monetary sovereign does not face a survival constraint. It can always pay. On the asset side of the federal government’s balance sheet is essentially a massive INFINITY sign. It not only has the Article I, Section 8 power to tax and spend for the general welfare, it has the operational capacity to spend or lend as much money as it wants. Although it has a price stability constraint it does not have a survival constraint. So why doesn’t it spend more money?

It’s a mix of malice, miseducation, and misunderstanding. There is a myth that the sovereign cannot afford certain things. Even if you look at things through the Modern Money view, this is often ludicrous. When Cheney went to go to war, he said deficits don’t matter. Bannon also believes in deficit spending. Indeed, the Trump administration has proposed to almost triple federal outlays to state and local governments for policing and civil asset forfeiture. Yet when earnest liberal bureaucrats or even rebellious lawyers make demands on the state they get caught up with the question, “How are you going to pay for it?” as if the government were a household that must collect or borrow before it can spend.

The answer for monetary subjects is to seize control of the monetary sovereign. It is, in essence, just more democracy. I am not pressing for it to pay for more prisons, more cops, more immigration detention centers, but it can spend enough money in a targeted fashion.

The move is to simultaneously push for decarceration, for demilitarization, etc. AND to push for federal funding of what we do want. We have to claim rights vis-a-vis the monetary sovereign, which partially means marching to the capitol and demanding our checks, like Dr. King said. The monetary sovereign should fully fund the machinery of due process, should spend the money to make sure everyone has employment, decent income, housing, education, healthcare, safe streets, safe water, safe air, etc. Back to the Freedom Budget and the kinds of programs proposed by BLM. Get some “Fiscal Feminism” in the mix. Make the monetary sovereign pay for things that actually make us safe.

Stopping austerity is not going to eliminate the drive to subordinate women and people of color generally. But the anti-austerity struggle can at least remove a great lie used to justify certain horrors.

To some people this seems like common sense. But a lot of people are going in a completely different direction:  there’s a bipartisan effort to decarcerate as a cost-cutting mechanism to protect the federal budget. I see this as a trap, as does Dr. Murch. Not only does this buy into the framework that the rightwing turns around to use to gut social services, but it does something even more sinister. In the world of financial regulation, there is something called the Bootlegger-Baptist strategy. The Koch Brothers and Rand Paul are fiery preachers saying that the carceral system is bad because it’s expensive, it’s unthrifty, it’s imprudent etc. But they’re doing this to make room for privatization. They are making space for the “bootleggers” to come in and do the dirty work. They’re making room for CCA, J-Pay, Sentinel, and all the vultures on Wall Street. (This isn’t just a theoretical concern. Gary Johnson did this in my home state of New Mexico).

Holding the monetary sovereign accountable is where it’s at. The struggle against the carceral system must also be a struggle against the cycle of austerity and crisis, which is a large part of why we’re in this mess. From 2010-2016, federal outlays of “state and local law enforcement assistance”, “juvenile justice programs”, “community oriented policing services” all dipped significantly. There all kinds of horrors going on with respect to financing the criminal legal system. But if we’re really to strike at the root, we also have to confront a funding structure that requires subjects to pay for the punishments imposed by the sovereign.

That’s the thesis. Just on a final note, my colleagues and I are trying to connect the dots between struggles and we’re here for anyone who wants to join in on that. Many people study law so as to avoid being tricked by lawyers. We think lawyers should study money so as not to be hoodwinked by financial elites. I hope that people at least consider our type of thinking as we move along and we’re here to join up with anyone who wants to team up.

Print Friendly, PDF & Email


  1. Disturbed Voter

    The purpose of taxation is social engineering. The purpose of money is to facilitate taxation on the uptake, and expenditure is also facilitated on the outtake. The purposes of expenditure are also social engineering, though not necessarily for laudatory purposes. In between the two liquidity is created. The public using the liquidity is a secondary effect, not a primary effect. The monopoly of government would be happy to crowd out society instead of serve it .. same as the finance industry relative to the main street economy.

    Given government monopoly of violence, and the tendency to use propaganda (aka MSM) against the public, not for it … usually government wins over time.

  2. animalogic

    ” The struggle against the carceral system must also be a struggle against the cycle of austerity and crisis, which is a large part of why we’re in this mess. ”
    Yes, absolutely.
    But, the carceral system is but part of the whole “gloves-off” class warfare of the last 30-40 years. The punitive state is, like austerity, the cutting edge of the 0.01% assault on society.
    The point is not that MMT is not true, wont work etc. The point is that a philosophy of austerity & punitiveness & warfare is a a system that vacuums resources from the bottom to the top. It’s irrelevant that another “system” might be more efficient, productive, even more just. Elite’s don’t merely want wealth in an absolute sense; they want it in a relative sense.
    Your weakness is their power. Its not enough to have more, unless you have less. In short, it’s NOT just about “money”. It’s about power.
    This is not socially novel: most aristocracies have functioned on such a philosophy. Nietzsche, documented it over 100 years ago — he called it “the pathos of distance”, I believe. (though, he sympathised with the aristocrats, not the 99.9%)

  3. craazyman

    plus ça change, plus c’est la même chose . . .

    “I saw the best minds of my generation destroyed by madness, starving hysterical naked, dragging themselves through the negro streets at dawn looking for an angry fix angelheaded hipsters burning for the ancient heavenly connection to the starry dynamo in the machinery of the night.” –Allen Ginsburg

    This post was getting off to a good start and I was thinking “Whoa, this is gonna be pretty good!” then I hit these potholes and broke both my mind axels faling into a ditch where the digging was too hard to get back on my feet (That was an attempt at Thomas Friedman metaphorical mayhem but it wasn’t very good I admit. . . .

    “We don’t say people really should focus on capitalism or neoliberalism rather than white supremacy or cis-hetero-patriarchy . . . In the era of Jim Crow, Jane Crow, Juan Crow . . . Just as we exist in a field of white supremacy, of patriarchy . . . even the crustiest, vanilla-iest elites ”

    Honestly, this is a mental illness. To think and write like that. It’s a reductionist destruction of true perception. It’s a mind blindness. It’s a Hegelian becoming of one’s opposite. It’s a compulsive neurotic transfixiation on a Jungian shadow projection. It’s not the Forms in the cave — which should be the true object of consciousness — it’s the shadows on the wall.

    Yves really. This kind of commentary doesn’t merit publication. is this what Ivy League colleges do to kids these days — to the “best minds” (or at least the ones who did their high school homework and got “A”s )– pump their heads full of illusion, delusion, reductionism and hate.

    The problems this Post relates are serious and ubiquitous human problems and they exist all over the world, even where there aren’t any rich priveledged (I don’t even know how to spell privileged) white people. Why is that? Ecce Homo sed Fred.

    When all these kids have to face reality, after the angry fix of their mind drug wears off and they realize that everybody is people, maybe they’ll See for the first time just what a bag of shlt they were Fed. Or they Fed themselves.

    Here’s another famous poet on how to really see:

    I stood stone-like at midnight, suspended in my masquerade
    I combed my hair till it was just right and commanded the night brigade
    I was open to pain and crossed by the rain and I walked on a crooked crutch
    I strolled all alone through a fallout zone and come out with my soul untouched
    I hid in the clouded wrath of the crowd, but when they said, “Sit down,” I stood up
    Ooh…growin’ up

    -Bruce Springsteen

    1. Jim Haygood

      He only has the moves of a knight
      But he wants the absolute freedom of a queen
      Too bad the only money he’s got is coming in
      Colored American green

      You know it’s worthless paper you can spend or save
      Go ahead and count that by yourself but look out
      Somebody’s looking

      — Jefferson Starship, Devil’s Den

      When you’ve lost Grace Slick … ;-)

      1. Alejandro

        munch on the
        ” CARRION my wayward son,
        there’ll be a piece when you are done
        May your greedy hands do rest,
        Don’t you lie no more…
        …And if you claim to be a wise man, well
        It surely means that you don’t know…
        CARRION, you will always remember
        CARRION, nothing equals the splendor
        Now your bank’s no longer empty
        Surely MAMMON waits for you!”

      2. craazyman

        Ya know Jim it’s already “the future” and soon people won’t even understand a lyric like that — referring to money coming in “colored American green.”

        When I use cash now I get weird looks! I took a cab in DC a few weeks back and the driver said, for his whole 8 hour shift, only 2 people paid cash.

        The “Long Green” is becoming an antique. It’s not like Madonna said anymore “cause the boy with the cold hard cash is always Mr. Right”. Now he’s “Grandpa Right” ahhahahahahahahahaha!!!!

        He’s like the Grandpa in the Munsters, some fossil from the 20th century. What is that weird paper in his pocket? Why can’t he just use his phone (for which some 23 year old with no money pays $100/month for). What’s wrong with him??

    2. Adam Eran

      Sorry, no comprendo. You say the first two paragraphs are OK, then you object to the third? Huh?

      Yes, the problems are ubiquitous, but what’s wrong with focusing on some particulars?

      My own objection to the post is in its naive insistence that we (whoever “we” are) just “seize control of the monetary sovereign. It is, in essence, just more democracy.” Yeah, but first, let’s just snort this piano.

      My favorite comment in this connection comes from the head of planning in Perth, Australia: “You Yanks don’t consult the wisdom of democracy; you enable mobs.” Amen, sister.

      Anyway, IMHO, the post is a legitimate (and articulate) exploration of what MMT could do to our current “justice” system (mercy for the rich, merciless to the poor). Mark Blyth suggests that democracy is not possible with (deflationary) gold-backed currency. MMT takes that one step further.

  4. MonSov

    The fact that the US federal government refuses to use its monetary sovereignty to benefit the masses makes such a government illegitimate, a threat to one’s well-being and survival. It is one’s moral obligation to overthrow such a government and replace it with one which benefits all. By any means necessary.

    “If a law requires you to be the agent of injustice to another, break the law. Let your life be a counter friction to stop the machine.” Not all can achieve such a standard but those that can, must, or the suffering, repression, state-sanctioned violence is sure to continue, to increase, to doom us all.

    We are simply the latest generation of a culture which has murdered, oppressed, enslaved every other culture which sees the world differently, which has gotten in the way of the death cult’s idea of progress. It has done so for milennia and will not cease voluntarily, will not change simply because one asks politely.

    Those that make peaceful revolution impossible make violent revolution inevitable. Everyday, from occupied territories to hospital waiting rooms, from factory farms to oceanic dead zones, we needlessly murder more individuals, the body count unfathomable at this point. When do we say enough is enough? When do we admit that any action taken in response is morally justified self-defense or defense of another?

  5. financial matters

    Yes indeed. Further explored in Mary Mellor’s ‘Debt or Democracy: Public Money for Sustainability and Social Justice’ 2015

  6. financial matters

    “” Monetary sovereigns have the power, to not only issue their own currency, but collect taxes, fines, and fees, in their own currency, float their exchange rates, and denominate their debts in their own currency.””

    “”Generally speaking, you’ve gotta hustle for the almighty dollar, because the strong men with the guns have told us “you have to pay us with dollars and dollars only when the time comes.”””


    In light of the above, Mary Mellor has raised some important issues relative to flexible exchange rates.

    One of the important concepts of MMT is the importance of having a flexible exchange rate to have full power over your currency. This is fine as far as it goes but tends to put hard currencies against soft currencies where a hard currency can be defined as one that has international authority/acceptance. Having flexible exchange rates also opens up massive amounts of financial speculation relative to fluctuations of these currencies against each other and trying to protect against these fluctuations.

    “”Keynes’ proposal of the bancor was to put a barrier between national currencies, that is to have a currency of account at the global level. Keynes warned that free trade, flexible exchange rates and free movement of capital globally were incompatible with maintaining full employment at the local level””

    “”Sufficiency provisioning also means that trade would be discouraged rather than encouraged.””

    Local currencies can work very well locally to promote employment but can have trouble when they reach out to get resources outside of their currency space especially if they have a soft currency. Global sustainability programs need to take a closer look at how to overcome this sort of social injustice.


    I think this can also apply to policing and military power. The US is very strong in these areas which could be considered a ‘hard currency’. But just like with monetary policy in general they are using this power very irresponsibly and therefore probably not in a sustainable manner.

    The Sino-Soviet cooperation could be seen as a type of bancor.

  7. Jim Haygood

    So why doesn’t it spend more money?

    So why I can’t have another piece of birthday cake?“, as I shrieked at age 2, banging my little spoon on the tray of my high chair. That’s why we have adults.

    In a ranking of states by fiscal condition (page 55 in link), not a single blue state [based on 2016 electoral vote] makes the top ten. Four blue states make the top half, while 16 fall into the bottom half.

    When their public pensions default in the 2020s, immiserating millions, the folly of spending on consumption while failing to fund social promises will become apparent, after it’s too late.

    Before the magic money theocrats protest that the states aren’t monetarily sovereign, Social Security is equally insolvent. While it will be likely be bailed out, the bailout will come at a heavy cost — even slower growth or a state of near-permanent recession, as reproductive-age cohorts conclude that crushing debt and taxes make it irresponsible to bring children into a world wrecked by incontinent spenders.

    1. PKMKII

      A right-wing think tank thinks right-wing run states are more fiscally sound. Fancy that.

      The problem with this puritanical restraint morality posture towards deficit spending is that it is ignoring the fundamental truth that the economy only functions on debt. No debt, no economy. So if the debt burden isn’t taken by the State, it’s taken by the private sector. So this “We have to be responsible, pleasure-denying adults if we want to get into economic heaven” schtick is dishonest. The honest question is, where is the debt going to sit?

    2. Alejandro

      >”Social Security is equally insolvent”

      This can’t be a randian meme, because even Mr. Greenspeak seems to understand monetary sovereignty, as he struggles to Greensplain to a fellow Randian, who in turn seems stuck on “solvency”.

      —“I wouldn’t say that pay as you go benefits are insecure…”-@0:30

      1. Divadab

        It’s a pet lie of Mr. Haygood, who is smart enough to know better – so I conclude he has an agenda which he is advancing through lies.

        Social security is solvent, guaranteed as it is by the full faith and credit of the US Govt. As currently projected, it can pay out full benefits til 2035-2040, depending on assumptions, and then indefinitely at 75% benefits.

  8. Susan the other

    I almost liked this piece – because it looked at the lack of sovereignty for the 99%. Those of us who have no power are not the monetary sovereigns – we are the monetary subjects. Except for the long march of nation formation from feudalism to now. Nowhere in our constitution does it say “monetary power for the rich only” but that is the reality. All we have is our cooperation to participate. And we should make our cooperation much more expensive. It is uncharted territory to go against so much monetary tradition but nowhere in the constitution does it say “money is power” and that is the basic truth of our nebulous sovereignty. Monetary sovereignty is monetary cooperation. Price stability and exchange rates have nothing to do with anything. It’s all an accounting fiction. But it doesn’t really matter anymore because climate change is going to incarcerate us all and rehabilitate us . And any recidivist neoliberal capitalists will be clowns.

  9. gustav

    This article never gets into the actual mechanism of credit creation. Credit is injected into the economy by the Fed lowering short term interest rates. The Federal Reserve system is a private banking cartel so no elected official in the US government can veto its decisions. Government bonds are not money in a practical sense and they must have a buyer to be issued anyway. The 1918 Amendment to the 1913 Federal Reserve Act that allowed the Federal Reserve to buy US government securities through its “Open Market Operations” and thereby control short term interest rates was when the US government lost its “sovereignty” if you want to call it that.

    1. JP

      You missed it. Fed sets interest rates to banks. Banks create loans not the Fed. That’s where the money comes from in our system, Not from the tresuary

      1. gustav

        Maybe read a little slower next time because that’s exactly what I said. Therefore there is no “monetary sovereign.”

  10. Steven

    This was a pretty back-door approach to pitching MMT. As such I think it obscured several important questions:
    1- There is nothing wrong with attempting to insure crime doesn’t pay, e.g. confiscating the proceeds there from. This should of course apply at all levels of the social hierarchy, especially at the top among white collar criminals. But attempting to “get blood from stones, money from empty pockets” is inefficient and counter-productive. Attempting to turn justice and incarceration into a profit center all but invites a police-state run on behalf of those who most likely are responsible for the “empty pockets” in the first place.

    Of Course, the state should pay for the costs of justice to the extent those costs can not be paid out of ‘the wages of crime’. But it is a real stretch to connect this issue to MMT.

    2- the author’s assertion the U.S. government still enjoys a significant degree of monetary sovereignty is debatable. As I understand it, most (>90%?) of the ‘money’ here is created by privately owned U.S. banks.

    1. GrkStav

      Those privately owned U.S. (and non-US) banks whose U.S. denominated liabilities enter the payments system and are cleared at par (with HPM) are not creating U.S. Dollars ex nihilo and of their own authority. They are chartered, they’re effectively ‘licensed’ franchisees of the U.S. Treasury and the Federal Reserve (which is itself a creature of the U.S. Congress).

      The U.S. Government remains fully monetarily sovereign. It spends by issuing its own liabilities (its own fiat currency). It ‘borrows’ (it offers interest-bearing financial instruments denominated) (very nearly) exclusively in its own currency. It imposes (and reliably collects) tax and fee liabilities that are only payable in U.S. Dollars, which it issues on its own authority exclusively. It can never be forced to default, to ever miss a payment. It can (not that it ought to) purchase anything that is for sale in U.S. Dollars (as it has the capacity to outbid anyone in U.S. Dollars.

  11. Claire

    “The answer for monetary subjects is to seize control of the monetary sovereign. It is in essence, just more democracy.”

    It might be worthwhile to spell out exactly how we (the monetary subjects) are supposed to do this because at first glance it sounds like you end up with largely the same social system that we have now, only with no democratic restraints on expenditures, ceding absolute power to those bureaucrats who control the Federal Reserve and Treasury. The result appears to be structural support for even more unrestrained power by a few individuals in key institutional positions to do as they wish.

    Maybe the old argument is correct that the US (oligarchic capitalism) and the former USSR (bureaucratic collectivism) were closer than generally assumed, simply theoretical cousins squabbling over details.

    1. financial matters

      One of the big obstacles seems to be to get the electorate to realize that choices are being made.

      Belt-tightening applies to social services: medicine, education, basic legal services, retirement programs, childcare, etc.

      Unlimited money (literally trillions) for wars, bank bailouts etc.

      1. Sue

        I agree. Money, there’s plenty. For whom, for what and how much pays each institution and economic agent for it, that is a different matter

  12. Claire

    It certainly is a big obstacle to get the electorate to realize that choices are being made.

    But isn’t it also the case that for the average citizen there is no role in the implementation of monetary sovereignty just a blind trust that the intellectual bureaucrats who supposedly represent them would continue to fund expenditures that represent their best interests.

    I would argue that history tends to support the assumption that political/economic apparatchiki
    are as capable as capitalists of becoming exploitative unless they are placed under genuine structural constraints.

  13. Sound of the Suburbs

    The world is full of independent bodies that are supposed to ensure things run well but fail miserably because of the neoclassical economics they use.

    They always think austerity will work.

    The IMF predicted Greek GDP would have recovered by 2015 with austerity.
    By 2015 it was down 27% and still falling.

    Greece was pushed into debt deflation by ECB and IMF economists who didn’t know any better.

    The problem is the repayments of private debt in the economy but being neoclassical economist they don’t look at that.

    Richard Koo explains the problem to the IMF and tries to explain it to the ECB but they are not very receptive:

    These bodies always think austerity is the answer because of the bad economics they use.

    1. Sound of the Suburbs

      The Central Banks were supposed to ensure financial stability but this has been an era of boom/bust capitalism gone mad.

      Again it’s the economics they use that doesn’t look at private debt in the economy.

      1990s – UK, Japan, Australia, Canada and Scandinavia real estate busts.

      2008 is just another real estate bust, leveraged up and transmitted internationally by complex financial instruments. As the global bust hits the Euro-zone, it crumbles.

      Irish, Greek and Spanish real estate crashes.

      Australia, Canada and Scandinavia are queuing up for their second real estate bust.

      It’s getting ridiculous.

      Look at private debt in the US economy:

      1929 and 2008 stick out like sore thumbs; bank credit going into financial speculation and stocks (1929) or real estate (2008). Leveraged financial speculation with bank credit.

      You can even see the sharp rise in non-productive debt in the 1980s as the S&L crisis takes hold.

      The FED see nothing until it blows up, they are neoclassical economists and not fit for purpose.

      1. Sound of the Suburbs

        To ensure financial stability we could get a programmer to write a program to plot out the debt-to-GDP ratio and ask secondary schools children to monitor the output once a week during their lunch times.

        They just need to sound the alarm when the graph starts rising sharply.

        It will work much better than the Central Bankers models.

        1929 and 2008 stick out like sore thumbs; bank credit going into financial speculation and stocks (1929) or real estate (2008). Leveraged financial speculation with bank credit.

        You can even see the sharp rise in non-productive debt in the 1980s as the S&L crisis takes hold.

        Those school children would have seen the S&L crisis and 2008 building unlike the FED who see nothing until it blows up.

  14. washunate

    Uh, what? This is a great example of MMT overstepping its usefulness, claiming to solve grandiose problems when it’s largely irrelevant or even actively part of the problem.

    Or said more diplomatically, this is a complicated mess obscuring some simple truths. For example, the main problem in the legal system is that government is too powerful, not too weak. We don’t spend too little; we spend too much. Austerity has no meaning in the legal system. The US spends so much vastly more on the legal system than our industrialized peers that it is openly laughable to claim not enough money gets spent on this. Distribution, not aggregates, is the problem.

    Furthermore, the single simplest thing we could do has nothing to do with financial needs at all. It merely requires the stroke of a pen to deschedule recreational drugs. Ending the drug war requires fewer currency units, not moar. Local predation of low-income communities is premised upon the national foundation of empire abroad and the police state at home. MMT doesn’t solve this. Quite the opposite, MMT is the funding mechanism for our global oppression, from Detroit to Damascus and Ferguson to Fallujah.

    In addition to completely missing the boat on our oversized, bloated legal system, this article is littered with debatable opinions presented as if they are incontrovertible facts of the natural world. For example, running out of currency units and “going broke” are two very different things. Of course currency units are infinite. But people’s time is finite. Government spending does have to be paid for. That which isn’t covered by taxation is covered by inflation. High income MMT advocates may not be personally affected by the rampant increase in the cost of living in this country over the past few decades, but most American workers feel the pain of the separation of productivity from wages quite dearly.

    Wake me up when the MMT JG pays the same wage as Econ professors. And as prosecutors – the government employees at the heart of our racist and classist application of racist and classist laws.

    1. Barni

      The Rothchilds have financed both sides of every major war since Napoleon when the Rothchilds manipulated the market for British Consuls (bonds) and virtually bought the Bank of England and the entire British government debt and consequently the British government, Rothchilds own the U.S. Federal Reserve, and control the business end of the World Bank and the IMF. The Rothchikds HATE MMT because it involves government spending debt and interest free money into the economy.
      Currently ALL money exists because of debt – regrettably when the debt money is created the interest money is never created, which means there can never be enough money in the economy to pay all consumer debt plus interest. This guarantees that many consumers will be unable to pay their debts plus interest and will have to go bankrupt and forfeit all of their property. MMT allows the government to spend interest and debt free money into the economy which can at minimum provide enough money in the economy for consumers to pay all of their debts plus interest – ending the middle to poverty class downward economic escalator..
      MMT helps families keep their homes because government has created debt and interest free money and spent it debt and interest free into the economy to create jobs and the resulting jobs as well as injecting enough debt and interest free money into the economy to createi/support consumer demand , which is specially important in times when the private sector is either shedding jobs or leaving the country entirely for slave wage jurisdictions. Under elitist corporate manipulation, governments have facilitated the transfer of jobs and economic growth from developed to developing economies where workers have no rights and get paid starvation wages and have nets around factories and dormitories so that workers cannot end their slavery by committing suicide.
      As long as we have bankers wantonly and continuously extracting wealth from working and middle class families we will either have middle class families disappearing into desperate poverty and/or the complete collapse of the middle class and our consumer society.
      BTW your economic notions are nailed to notions which have never in 30 plus years predicted a single serious economic downturn and which have facilitated the greatest theft of wealth from middle/working class families by the wealthiest families on earth. Your curled lip nasty comments are not only completely incorrect they display zero understanding of MMT.
      If you ever awoke in your dream world you would go screaming for the door in less than 24 hours!!. Your world is the world of the desperate and the damned.
      Yes the legal and political systems have been greatly corrupted by bankers and their avarice and mendacity is doing severe financial and social damage to families, however if sovereign governments recover their sense of responsibility to all citizens and end the corporate corrupt pollution of democratic institutions and begin to exercize their sovereign rights before debt not only swallows up democracy but also the vast majority of wealth earned by middle/working class families resulting in a two class society – uber wealthy and the poor.

      1. washunate

        Hi, I’m not sure we’ve talked before? Your post doesn’t address my comment, seems to be full of rather nonsensical exaggerations, and you don’t seem to be familiar with the discourse over the past few years. I don’t follow your point, so I thought I’d address two specific components.

        First, your comment is confused about the difference between aggregate spending and distributional consequences. Of course government can emit enough currency units into the economy to allow consumers to pay all their debt. That in no way suggests average consumers is who will receive them. On the contrary, government has spent the past few decades giving currency units not to average citizens but rather to connected insiders. You speak of hypothetical worlds. I speak of the actual budget practices of the USFG. Are you familiar with the tax and spending policies of the USFG over the past few decades?

        Second, you think my comment is nasty. That may be true, I suppose taste is in the domain of the taster. But what I find interesting is that you don’t actually refute my comment. Perhaps you don’t like it because what I wrote is accurate? I understand MMT quite well. I don’t critique it from ‘the right’, if such a continuum exists. I critique it from ‘the left’. MMT isn’t a solution to the power structure. It’s a tool employed by the power structure for decades now.

      2. washunate

        FYI, Barni, this kind of conduct illustrates why MMT has trouble in the wild, outside the carefully crafted confines of MMT advocacy. I’ve moved from curious about MMT to openly suspicious of it due in no small part to interactions like this over the years. MMT is fragile. Unlike genuine scientific endeavors, MMT breaks down under scrutiny rather than being enhanced by it. MMT proponents tend to view criticism as a disrespectful challenge rather than an opportunity to explore and explain.

        Specifically here, you ignore my perspective, provide irrelevant commentary, and call me nasty and ignorant. Then, when I answer substantively rather than taking the bait and getting upset with you, you disappear, as if this exchange never happened.

        It makes me laugh that MMT advocates are so insecure and unwilling to address criticism that these are the tactics employed. If you ever want to engage on the substance, I’m happy to do so. But I take it by your silence that a substantive discussion probably isn’t what you have in mind. It reminds me of an NC commenter a few years ago who described discussing MMT as being like boxing a ghost.

  15. Sue

    “Throughout American history, power has been wielded by those who can play on people’s survival constraints”

    Very true

  16. Barni

    The unmentioned problem with our current debt based capitalist monetary system is that all existing money is based on debt. However, the problem is that when the “debt money” is created the interest money is never created!? This means that there is never enough money in the economy to pay all of the debt plus interest!? This virtually guarantees that there will always be individuals going bankrupt – and this is an economic certainty. In fact it is this feature of privatized debt based money which allows the holders of debt and their financial/banking corporate structures to acquire private mortgaged assets which can then be “rented” back to individuals and families – rentier economies. The only way this imbalance can be righted so that there is indeed enough money in the system to at minimum pay all debts plus interest is for sovereign government to create and spend into the economy debt and interest free enough money to at minimum allow all debts and interest to be repaid.
    International elite controlled money systems will always subjugate and impoverish the vast majority; indeed that is their very purpose.
    Corporate elitist control of democratic governments through exclusively privately created debt money means the death of democratic institutions and democracy itself, to be supplanted by fascism. Troublingly, the world is on the brink of world-wide fascism which can only be averted by energetically removing the power to create money (by creating deposits) from private banking and financial institutions and real financial regulation with severe consequences to executives and owners of financial institutions. The second necessary step is to use taxation (which can be aimed at those sucking up all the money) to remove inflationary pressures NOT higher interest rates which extract wealth from the middle class and give it to the wealthiest individuals. .

    1. washunate

      Hey Barni, FYI, MMT advocates oppose taxing the wealthy :) They believe government should run large deficits rather than taxing the wealthy.

Comments are closed.