This is the sequel to ‘The Seven Deadly Innocent Fraudulent Misinterpretations’ that I posted in October 2017 which talked about how some ‘prescription’ MMTers (using personal ‘feelings’ and anecdotal ‘stories’) were getting confused with pure ‘description’ MMT (which only uses facts, data & math). Since then there have been more online examples from ‘prescription’ MMTers that are either not fully grasping pure MMT; or who do, but are promoting their ideological narratives (under the guise of promoting pure MMT).
Deadly Innocent Fraudulent Misinterpretation #8: ‘Banks do not create Net Financial Assets (NFA), only the federal government can.’
Fact: Banks can and do create Net Financial Assets (NFA), as well as the federal government.
Whenever we say ‘federal gov’t deficits equal our non gov’t savings’, or we say ‘the gov’t red ink is our black ink’, our technical term for that ‘black ink’, those ‘non gov’t savings’, is Net Financial Assets (NFA). Those that are uninitiated to MMT don’t use the term NFA, whenever the mainstream groupthink talks about the cumulative amount federal gov’t deficit spending to date, their technical term for it is ‘The National Debt’.
Net Financial Assets (NFA) are USUALLY only created by the federal gov’t when deficit spending, and not by banks, HOWEVER, there is an exception. In a 05/18/17 RP broadcast, Mr. Mosler pointed out that banks CAN and DO, on many occasions, actually add Net Financial Assets (unintentionally) when they have negative capital (when a bank loan defaults). A bank loan default or outright bank failure acts as ‘synthetic’ federal gov’t deficit spending adding NFA because monies were lent out and never paid back (same effect as money creation without attached debt).
The Bush economic ‘expansion’ was fueled by ‘synthetic federal gov’t deficit spending’ (questionable private sector subprime loans and financial derivatives that all defaulted).
The Clinton ‘boom’ was fueled by ‘synthetic federal gov’t deficit spending’ (private sector loans that defaulted because of the dot-com bust).
The Reagan ‘miracle’ was fueled by ‘synthetic federal gov’t deficit spending’ (almost a trillion dollars in defaulted private sector loans during the S&L debacle, THE ENTIRE SIZE OF THE TOTAL NATIONAL DEBT AT THAT TIME).
The ‘roaring’ twenties was fueled by ‘synthetic federal gov’t spending’ (private sector loans using leverage that financed stock speculation without margin requirements that all went bust).
Mr. Mosler muses that he “can’t think of a single boom year that WASN’T attributable to either out of control or outright fraudulent bank lending to the private sector that would never have been allowed with proper hindsight!”
In other words, instead of ‘synthetic’ federal gov’t deficit spending (additions of ‘synthetic’ NFAs into the banking system), “we could have had those economic booms legally, easily, and simply, by just increasing federal gov’t deficit spending with proper foresight,” Mr. Mosler added.
MMTers can go beyond the ‘NFAs can only be created by the federal government’ meme if MMTers can accept that synthetic NFAs like in the examples above are possible.
MINETHIS1 (‘Jim Boukis’) a co-creator of Pure MMT for the 100%, makes an interesting posit that synthetic NFAs, or as he calls them, ‘Net Debt Financial Assets (NDFA)’ are created in the non federal gov’t, by the rest of us, when we borrow dollars (when we deficit spend). The default instances mentioned above, since they were all created by the non federal gov’t (by the banks in the private sector), are all great examples of ‘NDFA’ (that, just like actual NFAs created by the federal gov’t), are dollars still existing in the banking system today (because they weren’t paid back).
Although it is true that non federal gov’t borrowing has actual debt attached to the loans, and it is fact that all non federal gov’t loans ‘net-out’, the insight here is that the moment bank loans create those dollars, as soon as those dollars go into circulation, they are ‘NDFA’. When the loan is paid off, they are not NDFA.
Keep in mind that similar to an unhealthy consumer loan that defaults (becomes permanent NDFA), even the normal loans that do not default (temporary NDFA) are still not paid off for quite awhile. These assets are circulating in the economy for a very long time. Just like a consumer 30-year mortgage in the hundreds of thousands of dollars, or an institutional debt obligation rolling over in the hundreds of millions of dollars, many healthy loans take many years to ‘net-out’.
In the meantime, these NDFAs created in the non federal gov’t are working their magic, which is helping the bottom line of US households which at last count have $100T in NET worth. Note that is a “T” as in trillion and that is a NET amount. That is the amount that US households have AFTER all their loans ‘net-out’ (which is a far greater amount than the current running total of actual NFAs created by the federal gov’t).
Deadly Innocent Fraudulent Misinterpretation #9: ‘Dollars are Tax Credits.’
Fact: Dollars are the sum of actual tax credits plus pending tax credits.
MMTers should not take the ‘all dollars are a tax credit’ analogy too literally when speaking outside their choirs because one day they may bump into an accountant who will interrupt them (while that MMTer is lecturing on how taxes and spending in the monetary system works) to inform them that there is such a thing as an actual tax credit.
If you have taxes withheld from your pay, then a percentage of every paycheck is debited by your employer (those dollars leave private sector circulation) and is credited to the IRS (The US Department of Treasury’s account in the monetary base) against your future federal tax bill for the year. In addition, even more of your pay may also be getting withheld and sent to your state & local (city) gov’t as well. These dollars withheld from your paycheck, that’s an actual tax credit. The dollars left over, the dollars that have not been debited from your paycheck for federal, state & local gov’t taxes are not tax credits. Sticking to the analogy however, we could say that those remaining dollars are ‘pending’ tax credits and therefore all dollars are ‘actual’ tax credits plus ‘pending’ tax credits.
The point being, there are many kinds of actual tax credits that the IRS and other gov’t tax authorities give to individuals and to businesses (for example, under the Tax Cuts and Jobs Act signed in December 2017, the child tax credit was doubled to help families; and under the Affordable Care Act signed in March 2010, you qualified for subsidized Obamacare in the form of an advanced premium tax credit if your annual income fell below 400% of the federal poverty level). So rather than get into an argument over semantics here, this is just a friendly reminder to those ‘prescription’ MMTers (to those who add their political ideology to their MMT unlike pure ‘description’ MMTers who don’t); that you have to be careful, that you have to go beyond the memes, if you don’t want to sound too silly when speaking to experts in the field.
In addition, keep in mind that the other designations for money like ‘bank credit dollars’, ‘reserves’, ‘Fed settlement dollars’, ‘base money’, ‘M1’, ‘M2’, ‘HPM’, ‘NFA’, ‘exo’, ‘endo’, etc., etc. (which like ‘tax credits’ are all true terminology and all absolutely correct to use), are also all denominated in DOLLARS. So when explaining the concepts of MMT, perhaps it’s better to just keep it simple and stick to calling those dollars ‘dollars’.
Even better, call money ‘dollars in the banking system’. Whether money that was paid for federal taxes has gone out of private sector circulation (it has detoured out of the money supply and into the monetary base at the Fed) or even paid to an overseas merchant (it was deposited into a US relationship bank and either saved as dollars or promptly transferred into a counter-party’s US dollar account a.k.a. ‘exchanged’ by that merchant for foreign currency); that money is ALWAYS in the US dollar dominion. All US money is dollars in the banking system. If ‘prescription’ MMTers say it that way, that accountant above will be less confused. Furthermore, there will be less deadly innocent fraudulent misinterpretations by many others who so often struggle separating their political ideological ‘prescriptions’ from their economics.
Deadly Innocent Fraudulent Misinterpretation #10: ‘Taxpayer dollars do not exist at the federal level.’
Fact: Of course taxpayer dollars exist at the federal level.
What part of the words “Treasury”, “Taxes”, and those dollar signs on the Daily Treasury Statement is confusing anyone?
Taxpayer dollars are debited from one ledger and that debit of taxpayer dollars from the money supply (the ‘private sector level’) simultaneously triggers an equal and opposite credit of dollars (also known as reserves) to the monetary base (the ‘federal level’) into another ledger. That ledger is this Treasury general funding account at the Fed, which is the same account where federal spending is drawn, the same account that, by US appropriations law, must be replenished (MUST BE ‘FUNDED’) in order for the federal gov’t to keep spending.
Rather than not existing anymore, taxpayer dollars simply take other forms, on other ledgers, and are NOT an actual ‘destruction’ (only an annual federal budget surplus would result in paying off Treasury bonds—an actual destruction of dollars in the banking system).
Federal taxes ‘fund’ federal surplus spending (which ‘prescription’ MMTers are still confusing with the ‘financing’ of spending at the household level). At the federal level, ‘fund’ means that federal taxes ‘approve of’, or more specifically, as per laws and the rules of accounting, ‘appropriate’ federal surplus spending (not in a financial sense but in a political sense to maintain the constitutionally-enshrined ‘power of the purse’ of Congress).
Claiming that ‘Taxpayer dollars do not exist at the federal level because all federal spending is the issuance of tax credits’ is another reason why MMTers should heed the advice of #9 above.
Whether MMTers like it or not, the modern monetary formalities (the accounting constructs on the consolidated balance sheets that, albeit unnecessary, are still in place) are getting in the way of the modern monetary theory.
‘Prescription’ MMTers who regurgitate this ‘taxpayer dollars do not exist at the federal level’ meme outside their MMT kiddie pool do so at their own peril. Even if their true motive has nothing to do with promoting pure ‘description’ MMT, but rather to dismantle capitalism and replace it with a Marxist utopia (under the guise of promoting pure ‘description’ MMT), they shouldn’t keep waving ‘bye-bye’ to the facts, data and math. Otherwise they will never know just how ridiculous they sound to tax, law and accounting experts in the field.
Deadly Innocent Fraudulent Misinterpretation #11: ‘A Job Guarantee program would make the federal gov’t an Employer of Last Resort’
Fact: A Job Guarantee program would make the federal gov’t an employer of first resort.
The federal JG program proposal calls for changing our present day unemployment office into an ’employment’ office, meaning the JG facility would be open all-year-round, like a convenience store. That doesn’t sound like the JG is only in the event of an emergency, as a ‘last resort’ (like when the Fed is the ‘lender of last resort’ during an economic crisis), that sounds like the JG will be more like an ’employer of first resort’.
Which is one of many reasons why a federal Job Guarantee program, during The Longest Jobs Growth In US History, is a dopey idea. Imagine disgruntled people waltzing into their friendly neighborhood ’employment’ office (local convenience store) to do some impulse shopping because they don’t like the cubicle at their present employment, and so they’ve come in for a different ‘guaranteed’ job (What could possibly go wrong)?
‘Prescription’ MMTers have not thought through their JG program. The JGers think that they are helping the unemployed, but in reality that worker would only be bringing the same skill set, without any new training (resulting in a ‘job’ that is totally redundant, totally unnecessary, ‘make-work’ labor).
Some might counter that and retort if Walmart posts a ‘Now Hiring’ sign, nobody says ‘Hey wait just a damn minute here, what jobs are we talking about, are these useful, valid jobs, or are they a bunch of make-work jobs?’; but propose that the federal gov’t guarantee a good paying job in communities across the nation for anyone who is willing and able to work and suddenly people scream ‘Hey wait just a damn minute here, what jobs are we talking about, are these useful, valid jobs, or are they a bunch of make-work jobs?’ My response to that accusation of hypocrisy is, if I see a Walmart greeter saying “Hello Welcome To Walmart” for 8 hours a day, I’m thinking heck, if he or she is getting a check from the private sector for only doing that then ‘good for you’. However, if I walk into a Post Office and a greeter says “Welcome To The PO”, I’m not thinking that.
JGers think that the salary for a federal Job Guarantee program would be a “Living Wage”, but in reality it would condemn them into the same debt trap as other low-wage workers (the same process that JGers like to accuse ‘neoliberals’ of doing).
JGers have resorted to taking Mr. Mosler’s comments out of context (Deadly Innocent Fraudulent Misinterpretation #14) and are blatantly lying about the current unemployment figures in the labor market to fit their ‘doom & gloom’ narrative to justify a JG program.
JGers are convinced that by having a ‘buffer stock’ of Americans in a ‘guaranteed’ (crap) job, this will act as an automatic stabilizer. That sounds great in a classroom and looks good on a blackboard. However, has any JGer thought about how a person with one of these ‘guaranteed’ (soviet-style) jobs are going feel about being part of a ‘buffer stock’ (like pieces of corn tucked in a silo on a farm to buffer, to backstop, the other corn, going to market)?
Let’s assume they don’t mind, but has any JGer considered that this ‘buffer stock’ that a federal JG program would be creating, these ‘workers’, are going to be just as productive as those ‘buffer stocks’ of surplus corn sitting in silos around the country doing nothing.
Charles ‘Kondy’ Kondak, another creator here at Pure MMT for the 100%, has federal civil service experience (an actual ‘job guarantee’ program, like the US military, that is already in place, which any ‘new’ JG program would only be bolting on to), making him my ideal go-to guy on the proposed federal Job Guarantee program. Here’s what Kondy had to say in a recent thread debating the unintended consequences of a JG:
“The angle on the buffer stock is that in good times companies would hire more workers from the JG, obviously placing them into entry level positions from the buffer stock; and in lean times company workers would go back to the JG in standby mode for company entry level positions. Also during those good times, companies would hire from their best current entry level employees needed for higher-level positions on a provisional level; and throttle back in lean times. If the JG was paying $15, to attract entry level employees, let’s say companies would have to pay $17.50 to lure workers away from the JG. The company would be under immense labor cost pressures. Since the company cannot lower entry level pay, to try to make up the difference, the next higher level positions will take the hit to contain labor costs. For example, a higher level position might pay $22.50 so the company would set the new wage for that higher level position at $20. In a union shop that would anger employees and the union could face decertification by its membership (withdrawal of the labor union as a collective bargaining agent). Bottom line, what does a JG do? It compresses the wage structure for skilled positions and it busts up whatever is left of unions.”
Deadly Innocent Fraudulent Misinterpretation #12: ‘The Fed’s current policy is to ensure involuntary unemployment.’
Fact: It is not the Fed’s current policy to ensure involuntary unemployment.
Normally this kind of statement would be filed under ‘MMT Kids Say the Darndest Things’, but what makes this particular misinterpretation SO deadly is that it is even regurgitated by the so-called ‘scholars’ of MMT. Thinking that ‘the Fed’s current policy is to ensure involuntary unemployment’ to maintain the labor force is also like thinking that students are being forced to take Fs, to involuntarily fail classes, because the school is targeting a certain level of dropouts to maintain the student body. Where does this bizarre misinterpretation that ‘Fed policy is to ensure involuntary unemployment’ come from?
Charles Kondak: “JGers are blaming stagnant wages on the Engels/Marxist interpretation of capitalism needing a pool of unemployed workers” (from the 1848 political pamphlet, The Communist Manifesto, written by German philosophers Karl Marx and Friedrich Engels).
The ‘Fed is targeting a certain level of unemployment’ may also be a misinterpretation of the Fed’s routine Summary of Economic Projections on future unemployment figures that the FOMC announces after meetings. Perhaps these SEPs and a penchant for Karl Marx have convinced ‘prescription’ MMTers into believing that the Fed is ‘targeting’ unemployment to ‘ensure involuntary unemployment’ (especially because it fits their narrative that the Fed, the free market and the ‘unfair’ capitalist system needs to be dismantled and replaced by a ‘fairer’ Marxist utopia).
Whenever these ‘prescription’ MMTers say that the Fed is behind some secret policy to ensure unemployment, it’s obvious that they have waved ‘bye-bye’ to the fact that the Fed is only taking orders from Congress. The Fed’s dual mandate of price stability and MAXIMUM EMPLOYMENT is a statute of Congress.
Have these ‘prescription’ MMTers also been deluded into believing that Congress is in on this conspiracy to ‘ensure unemployment’ too?
Deadly Innocent Fraudulent Misinterpretation #13: “The American economy is a junk economy.”
Fact: The American economy is not a junk economy.
In a Feb 28, 2018 piece entitled ‘The Radical Theory That the Government Has Unlimited Money’, Stephanie Kelton erred. Although she did a nice job promoting ‘description’ MMT as usual, she also went into ‘prescription’ MMT mode as usual, and was quoted as saying that the US economy is “a junk economy”. Perhaps this was another reason why the article called MMT the “radical theory”. What doesn’t fit this “the US economy is a junk economy” thesis is that 48 hours earlier Fed Chair Powell said “The US economy grew at a solid pace over the second half of 2017.” Powell also added that “there are signs of job market strength, and the strong job gains in recent years have led to widespread reductions in unemployment across the income spectrum for all major demographic groups.” Not to mention a myriad of other record-breaking milestones that the U.S. economy, the world’s largest, has recently reached.
The proponents of a Job Guarantee believe that the US economy is a ‘junk’ economy that only offers ‘garbage’ jobs. They have waved ‘bye-bye’ to the facts, data and math that tells us that our economy is not only strong, we are currently in the Longest Job Growth In US History. The Job Openings and Labor Turnover (JOLTS) figures are now saying that there is approximately just as many job openings as there are unemployed people (an almost 1:1 ratio). If this trend continues, America may find herself having the same problem Japan is having right now, an actual labor shortage (1.5 job openings : 1 unemployed). What the JGers are not grasping (or refuse to believe), is that rather than a lack of jobs, a big part of the problem (as the Fed has said repeatedly) is a SKILLS MISMATCH (read: the unemployed people’s skills are ‘junk’ and the unemployed are ‘garbage’ job applicants). The solution to this devastating problem is NOT to just get the unemployed employed in a ‘guaranteed’ soviet-style job scraping gum off sidewalks and have them become more dependent on another federal gov’t program. The solution is to get the unemployed skilled (‘Give them a fish and they eat for a day, teach them to fish and they eat forever’).
Calling the U.S. economy a ‘junk economy’ may also be a deadly innocent misinterpretation of Michael Hudson. In his book, ‘Killing the Host—How Financial Parasites and Debt Bondage Destroy the Global Economy’, he was talking about one sector of the economy. More specifically, Hudson was referring to the financial, insurance & real estate (FIRE) sector, as them being the ‘parasite’ feeding off the ‘host’ with ‘junk economics’ (NOT that the entire economy was a ‘junk economy’). For example, according to the financial talking heads over the airwaves, the recent Spotify IPO (Initial Public Offering) went well. The headlines screamed that the IPO “Shined In Wall Street Debut” because shares in Spotify went up 13% in their first day of trading, which sounds wonderful (what everybody at cocktail parties were talking about). However, that 13% gain in price really meant something else, that wasn’t so wonderful (what nobody at cocktail parties was talking about). As Hudson (correctly) points out in his book, most IPOs are exploiting the company’s founders, employees and early investors (the original stakeholders) with a ‘predatory’ form of economics. “The underwriting firm, and the speculators it rounds up, get more in a single day than all the years it took to put the company together”, Hudson adds. Fast forward to today, what really happened was that those Spotify shares were under-priced 13% by the IPO syndicate (parasites) to feed off easy profits at the expense of Spotify (the host) under the guise of a ‘successful’ IPO.
Don’t take my word for it, as per the preface of ‘Killing the Host’, “The aim of this book is to pierce this illusion and replace junk economics with economics based on reality.” Note that Michael Hudson isn’t saying to replace junk economies, he is *literally* saying to replace junk economics. “The financial sector has succeeded in depicting itself as part of the productive economy, yet for centuries banking was recognized as being parasitic.” Again note that Michael Hudson isn’t saying the economy is a junk economy, he is saying the economy is a “productive economy” with only a sector of the economy as being part of some “junk economics”.
Deadly Innocent Fraudulent Misinterpretation #14: “Job Training would only be a micro solution that wouldn’t solve the macro problem of not enough amount of ‘bones’ (jobs) for the amount of ‘dogs’ (unemployed) that want them.”
Fact: The above statement by Mr. Mosler was correct for the time (2013) and place (Italy) and the circumstances (the Euro crisis), but is today being used to substantiate a federal Job Guarantee program here in the U.S. right now.
This one really puts the ‘fraudulent’ into the deadly innocent fraudulent misinterpretation because it is being deceptively said by ‘prescription’ MMTers who have not only waved ‘bye bye’ to the current economic data, they are now really taking advantage of their listener’s naivete and have resorted to taking Mr. Mosler’s comments out of context. The above statement comes from a presentation during the Mosler Barnard Tour 2013 ME-MMT at Cagliari (where Mr. Mosler was explaining how Italy could help solve their economic troubles during the Euro crisis).
This is also a misinterpretation of Mr. Mosler’s transitional job guarantee PROPOSAL (the ‘prescription’) written in Part III at the end of his brilliant 2010 book ‘The Seven Deadly Innocent Frauds’ (7DIF) which is found AFTER the pure MMT parts I & II (the ‘description’). At the time of that writing, the US was in an economic crisis. If Mr. Mosler also said what he said in Italy, that we need more ‘bones’ (jobs), for the unemployed (‘dogs’), 10 years ago, during the Global Financial Crisis, the Greatest Recession Since The Great Depression, OK fine; but now (?), in an expanding economy (?), in a strong labor market (?), with 6 million untouched ‘bones’ (Job Openings and Labor Turnover a.k.a. JOLTS) due to a skills mismatch (?)
Right now, in the US, in an expanding economy, with a strong labor market, we have 6 million untouched ‘bones’ (JOLTS) because of a skills mismatch problem with some of the ‘dogs’ (unemployed), NOT A LACK OF JOBS. In 2013, Mr. Mosler proposed the transitional JG idea to Italy, which was in the middle of the Euro crisis. Fast forward to today, anyone proposing a JG program now, during The Longest Jobs Expansion In U.S. History, The Lowest Civilian Workforce Unemployment Claims In History, in what next year may become The Longest US Economic Expansion In U.S. History has a serious timing problem to say the least.
‘Prescription’ MMTers have reduced Parts I & II of Mr. Mosler’s 7DIF to kitschy catchphrases, cherry-picked the proposals they like in Part III, and are now passing that off as ‘MMT’. In other words, MMT has been hijacked. The old saying ‘MMT is the description, not the prescription’ went out the window.
‘Prescription’ MMTers, now peddling a JG (which by the way is not intended for them, it is for ‘THE OTHER’ people), want to treat the other people like children. If you are unemployed today, they want to send you back home (to a JG office) where mommy & daddy (a federally-funded program) will take care of you, your health care, everything, and you are given a chore (a ‘Job Guarantee’) for which you will be paid an allowance (a ‘living wage’) in order to help transition you (help you become an adult).
Meanwhile, ‘prescription’ MMTers will tell you that with their JG program, they’ll reach ‘full employment’, but that won’t be real full employment, that will just be full employment lipstick on a pig.
Furthermore, since the JG cannot ‘compete’ that means the JG creates some inflation with no productivity increase.
Put those together and what have you got? You’ve got a full employment pig WITH garbage inflation; but wait there’s more, the bonus is that while our ‘buffer stock’ is scraping gum off sidewalks watching the world go by, they are falling deeper into consumer debt that will be easily available to them because they have a ‘guaranteed’ income.
The irony is that while all this is happening, the ‘prescription’ MMTers will still be warning us against those plotting, evil neoliberals who are the ones to blame for our bad lot in life.
In conclusion, there is no question that there is ever-increasing wage disparity, and many folks will keep slipping through the cracks, even at full employment if we ever get there, everyone understands that; but only pure ‘description’ MMTers can see that ‘guaranteed’ paychecks scraping gum off sidewalks doesn’t solve their problems (it only panders to them).
Improve America’s problems where necessary, yes; but do not dilute America’s unique greatness. The more you keep handing things out the more you drain the urgency, the enthusiasm, the innovative can-do spirit of We The People, and the more you risk killing the golden goose (or put another way, the more you risk murdering it by proxy). Which is exactly what the premeditated intent of ‘prescription’ MMTers is, to dismantle capitalism and replace it with a marxist utopia.
A big reason for today’s unemployment is the ‘mismatch’ between the skills of the unemployed and the skills needed by employers, not because we need ‘more’ jobs (and bullshit ones at that). Don’t take my word for it, here’s what Logan Mohtashami, who always keeps it pure, has to say:
“We can’t really have job growth openings beyond this point, beyond today’s (Friday 03/16/18) print of 6.3 million JOLTS (Job Openings and Labor Turnover) because we have so many Americans working (155 million people). It means we may soon not have enough labor, not enough people to fill jobs. If job openings grow higher at this late a stage in the recovery part of this cycle (where even high school dropouts and people coming out of jail are getting jobs), we will have a serious job market problem unless we find a way to get those people who still, after all these years since the last recession, prefer to stay home instead of going to work. The excuse that there are no jobs out there or that the wages are not good enough is no longer the reason.”
Rather than a Job Guarantee program, perhaps a better approach would be a Job Training program (where people go in unemployed and come out with vocational certifications) that helps the unemployed cope in a hyper-competitive reality. Let’s give them more dignity and help them become shareholders in a capitalist system instead of condemning them to be sharecroppers on a Marxist plantation.
Thanks for reading,
Pure MMT for the 100%