The permanent Job Guarantee proposal (a hijacked version of Mr. Mosler’s 2010 7DIF ‘Transitional JG’ proposal) was yet another Big Lie from today’s #FAKEMMTers who are desperately trying to fool us into thinking that we have a jobs shortage problem (that we need the gov’t to create jobs)…
The biggest lie was that their JG solved an actual problem (like Mr. Mosler’s JG that would have solved an actual jobs shortage problem which we had in 2010). The #FAKEMMTers, along with other MMT academic ‘scholars’ (who apparently forgot that they received degrees in economics, not politics) lie to you about ‘tens of millions’ of ‘involuntary unemployed’; or that ‘taxes don’t fund spending’; or that there is ‘no such thing as federal taxpayers’; or there is ‘no such thing as tax dollars on the federal level’; or push their nonsensical conspiracy theory that the Fed (and the Congress that the Fed is instructed by) are ‘intentionally targeting unemployment’. Just like those ‘lying’ ‘evil’ ‘neo-liberal’ ‘murderers-by-proxy’ that all #FAKEMMTers like to point their fingers at, the #FAKEMMTers constantly take advantage of their financially-ignorant choirs…
The Big #FAKEMMTer Lie is that, with their ‘JG’, you will be happy, doing an assigned ‘job’, getting a ‘guaranteed’ income, and PRESTO, all of your problems would be solved; PLUS, not to worry, all will be well everywhere, because a ‘buffer stock of employed’ gets our economy to ‘full employment’. However, the reality would be, while #FAKEMMTers are putting ‘full employment’ lipstick on a pig feasting on garbage inflation, YOU, while inside THEIR Job Gulag, are becoming a sharecropper, toiling away on a modern gov’t job plantation, scraping gum off sidewalks, watching the world go by, even faster than ever before (meaning you become more dependent, faster than ever before, on the future empty promises of #FAKEMMTers)…
The chance that #FAKEMMTers will get you happily employed into a ‘guaranteed’ job is about the same chance that the gov’t (or any other organization) can ‘guarantee’ that you will get into heaven. There’s an old saying, ‘God helps those who help themselves’, and I’m not just talking about America’s unemployed or underemployed helping themselves, I’m also talking about America’s employers helping themselves by helping those Americans help themselves too…
The #FAKEMMT ‘Job Guarantee’ was Dead On Arrival because we don’t have a jobs shortage problem like we did in 2010. The JG is product marketing, not economics. Today, the economic facts, data and math clearly show that we instead have a job SKILLS shortage, or more specifically, a jobs SKILLS mismatch between the employer and the potential employee. The #FAKEMMTer JG was DOA because it didn’t sound like this:
“One of those causes of stagnant wages is stagnation of educational achievement (the leveling out of educational attainment). When US educational attainment was rising, technology was coming in, which needed more worker skills and people were getting them. So you had productivity rising, you had incomes rising and you had inequality declining. US educational attainment flattened out in the 1970s, while everywhere else in the world it has been going up. The only way for real incomes to go up over a longer period of time is through higher productivity. Higher productivity is in part a function of higher education, better skills and increased aptitude of the workforce.”—Chairman Jerome H. Powell, 07/17/18, Semiannual Monetary Policy Report to the Congress before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.
“Nearly 1 in 5 working Americans has a job that didn’t exist in 1980. Such rapid change is one reason 6.6 million U.S. jobs are currently unfilled. Many of these jobs require skills training, not a college degree. Yet for too long, both the public and the private sectors have failed to develop innovative and effective training programs.”— Ivanka Trump, 07/18/18, Advisor to the President, in a Wall Street Journal op-ed.
“To continue this economic miracle, we must invest in job training and vocational education. The task is to develop a strategy to equip workers at all stages of their career with the skills they need to thrive in the modern economy. Whether it is a high school student looking to land their first job or a late-career worker who wants to learn a new trade, we want every American having the chance to earn a living with a great job THAT THEY LOVE DOING. We have been asking businesses across the nation to sign our new pledge to America’s workers. Today 23 companies and associations are pledging to expand apprenticeships (I can’t get away from that word ‘apprentice’, it’s a great word) for on-the-job training and vocational education. They signed the pledge committing to train, re-train and upskill more than 3.8 million American students and current workers for new jobs and rewarding careers. This is only Day 1. In the days and months ahead, we hope that hundreds of businesses will join us in this effort. I want to thank all the companies who are about to sign the pledge. I applaud your civic leadership.”—President Trump, 07/19/18, before signing an Executive Order that establishes the National Council for the American Worker, which includes top administration officials and industry leaders tasked with developing a national strategy to address workforce development and to help expand the number of apprenticeships available to Americans today.
P.S. Don’t hold your breath waiting for any #FAKEMMTer to give this administration any credit for this job training and vocational education initiative (nor any of the other MMT-compliant results delivered so far).
ATTN: Real Progressives (those wearing the ‘taxes don’t fund spending’ floaties in the mmt kiddie pool):
What Ellis is still not grasping is the difference between surplus spending (a ‘swap’ where there is no addition of dollars, or Net Financial Assets, going into the banking system) v. deficit spending (where there is an ‘outright’ addition of dollars, or Net Financial Assets, going into the banking system).
More specifically, #FAKEMMTers love the ‘there is no financial constraint’ part of the Modern Monetary Theory, but hate the ‘there still is a political constraint’ part of the Modern Monetary Formality.
The Fed is the federal gov’t ‘swap’ desk. The Fed can create dollars only if it receives something in return, like Treasury bonds or Mortgage-Backed Securities (like during ‘QE’ which did not add NFAs to the banking system); or another example, the Fed can only create dollars if it receives some collateral, like toxic assets (like when the Fed loaned dollars to AIG in setting up the ‘Maiden Lane’ holdings which also did not add NFAs to the banking system). So, similar to any other bank that can create dollars only if it receives a signature on an IOU, the Federal Reserve Bank cannot create dollars if it is not a ‘swap’.
The Treasury is the federal gov’t ‘outright’ desk. If the Fed is not getting anything in return, then the Fed must be instructed by the Treasury (like when the Fed handed over $125B to the banks to bail them out, the Fed was instructed by the Treasury to ‘outright’ create those TARP dollars which did add NFAs to the banking system).
@28:15: “Let me show you where the money comes from Stephen. Right here, you see this little keyboard? This is where the money comes from. ‘How are you gonna pay for it?’, this keyboard, right here”—Ellis Winningham
(No, that’s #FAKEMMT. The dollars come from federal taxation or Treasury bond sales and without either taxes or bonds, no keyboard can prevent a government shutdown. Those are the only two ways that the ledgers of the Daily Treasury Statement accounts, where all federal spending is drawn from, gets filled with entries of dollars. That’s the law. Operationally, it DOESN’T NEED to be that way. That’s the Pure MMT.)
“The money the gov’t is collecting in taxes is being deleted, that’s it, it’s not paying for anything.”
(The money that is collected in taxes is debited from the money supply and is credited to the Treasury, or in other words, taxes are ‘funding’ the same Daily Treasury Statement account at the Treasury where all federal spending is drawn.)
“The Treasury will debit that account, the taxes are removed, the net money supply will drop just a bit.”
(…while an equal and opposite amount of dollars that is credited to the Treasury causes their reserves to increase just a bit, meaning that there is no change of Net Financial Assets in the banking system.)
“The Federal Reserve goes to the Treasury’s operating account and types the number into that account.”
(and because the Fed is the ‘swap’ desk, they cannot do that without knowing, or being instructed by the Treasury, that the same amount of taxes was received.)
“But the problem is there’s nothing in that Treasury account that counts towards the stock of money because it’s not money.”
(but those reserves in the Treasury account ARE still NFAs, they ARE still dollars in the banking system.)
“The gov’t has to spend it to become money, so the Treasury then credits an account and the Federal Reserve creates brand new liabilities by typing a number, they emit currency.”
(There you go again, whether you call them ‘liabilities’, or ‘money’, or ‘reserves’, still doesn’t change the fact that from the point of federal taxation to the point of federal spending, they are all Net Financial Assets, they are all dollars in the banking system.)
“By authority of gov’t the Treasury is giving instructions to the central bank to inject reserves into the banking system.”
(In other words, the Fed is only a swap desk, the Fed can only ‘outright’ inject reserves to the banks after the Treasury, the ‘outright’ desk, instructs the Fed that the Treasury has been injected with taxes)
“All gov’t spending is money creation, all national gov’t taxation is money destruction.”
(Surplus spending is a ‘swap’, meaning no change in Net Financial Assets from the banking system; deficit spending is an ‘outright’ addition of NFA, an increase of dollars in the banking system; and only when taxation goes towards paying off national bonds is there a ‘destruction’ of NFA.)
“There’s no taxation proceeds funding anything.”
(The federal gov’t is funding us and we are funding them right back…MMT isn’t ‘taxes don’t fund spending’…MMT is that, unlike the gold-standard era, the gov’t doesn’t NEED our taxes first…MMT is that, in the post-gold standard, modern monetary system, federal taxes are NOT NEEDED to fund spending—not that they don’t.)
P.S. Don’t just take my word for it: “I DON’T LIKE TO SAY ‘TAXES DON’T FUND SPENDING’ because the word fund is ambiguous, it means different things to different people and even though you can be right, you can be dead right, but it’s better to say the gov’t DOESN’T NEED your money to be able to spend…not that it DOESN’T FUND IT…taxes ARE NOT NEEDED to be able to spend.” Warren Mosler, at the MMT conference, September 24, 2017. ATTN ELLIS: What Mr. Mosler meant by saying “the word ‘fund’ means different things to different people” is that, beyond the MMT kiddie pool, ‘fund’ means more than just ‘finance’ (to people like bankers, lawyers, accountants, policymakers and other experts in the field).
The long awaited return of Ellis Winningham comes at the perfect time as we head into a season where progressives must understand economics and how to get past the objections lobbed by neoliberals and neocons who despise progress.Please help our Real Progressives efforts and become a monthly donor!At PayPalpaypal.me/RealProgressives/25At Patreonhttps://www.patreon.com/realprogressivesWrite for Real Progressiveshttp://www.realprogressivesusa.com/pages/submission-guidelinesLike our pagesFollow us on Facebook: https://www.facebook.com/RealProgressiveFollow us on YouTube: https://www.youtube.com/c/realprogressivesusFollow us on Periscope: https://www.periscope.tv/RealProgressUS/Follow us on Twitter: https://Twitter.com/RealProgressUSFollow us on Instagram: https://www.instagram.com/realprogressives/#RealProgressives#LearnMMT#EachOneTeachOne#ItsInOurHands#WeAreTheMedia#WeAreTheRevolution
Q) Is invading China the best way for the United States to fix its debt problem?
A) “The US does not have a debt problem. On the other hand, China has a big ‘tangible goods’ problem, so let us hope they do not decide to invade us to get their stuff back.” —Craig Foster, Teacher & retired CSFB trader
A monetary sovereign can keep handing over pieces of paper off a printing press all day long, but they can’t keep handing over (‘real’) tangible goods all day long. That’s what Warren Mosler (in 7DIF#5) means when he says “Exports are a ‘real’ cost” (when making the argument that trade deficits are not a problem either)…
However, Pure MMTers should be aware that ‘exports are a real cost’ oversimplifies the many other moving pieces involved in trade differentials. When saying that, you may get some push-back. Just like Steve Keen correctly did in that recent (05/06/18) Real Progressives broadcast:
Mosler: “Having a trade deficit doesn’t constrain investment.”
Keen: “(When Australia runs a trade deficit, it means) a lot of our (Australian) assets have gone overseas…it is going to foreigners.”
Mosler: “Assets are not going overseas by running trade deficits. If you sold your Australian Opera house, are they going to dig it up and take it away?”
Keen: “I’m talking about the financial transactions paying for imports that lead to the foreign sector then buying our assets. They have claims on our assets. You are saying that is good and that exports are the real costs, that by being a net exporter (running a trade surplus), that sending real goods for receiving credit balances at the central banks is bad.”
Mosler: “There is a only nominal payment for trade deficits.”
Keen: “There is nothing ‘nominal’ about foreigners owning our assets.”
Keen had a good point. Since there are both costs AND benefits, both bad AND good, for both importer AND exporter, in both trade deficit AND surplus, we should consider a qualifier to go along with ‘Exports are a real cost’ like ‘Trade deficits are the position of strength’.
For example, you (a nation running trade deficits) are the guy paying someone else to make stuff for you. In addition you (running trade deficits) are working in the Research & Design suite innovating the products instead of on the factory floor.
That said, imports are a ‘cost’, too. Free trade can become unfair trade. Or more specifically, can morph into unfair trade practices that pressures the transfer of sensitive intellectual property to overseas governments, undermines your proprietary technology by depriving you of the ability to license it at full value and weakens your global competitiveness. Not to mention that trade deficits dangerously depletes your manufacturing base wiping out millions and millions of middle class jobs.
Until you get to the point (US manufacturing less than 12% of GDP) when you say ‘enough is enough’ (hence the present ‘trade war’ by Trump and a separate filing of a WTO violation case against China by US Trade Representative Lighthizer).
THE HUBBUB ABOUT GITHUB is that the Microsoft Corporation is buying a champion of open-sourced platforms (an ethos of the free-sharing code movement) called GitHub, which is used by over 28 million programmers. The more programs on a company’s platform, the more software apps are created, attracting more customers and even more developers—a flywheel of growth and profit. Microsoft will acquire GitHub for $7.5 BILLION IN MICROSOFT STOCK.
What is Modern Monetary Theory?
Another good way to think about it, is that Microsoft had two choices how to pay that $7.5B. Microsoft, a user of dollars, could either go into debt and pay with borrowed dollars (similar to the state & local gov’t); or, Microsoft, also a sovereign issuer, could create fiat, a.k.a. ‘shares’ and pay with Microsoft stock (similar to the federal gov’t).
Those newly-created Microsoft shares will be liabilities, yes (they will be assets of the new shareholders); those Microsoft shares will be obligations, of course (Microsoft will give those new shareholders dividends and voting rights); but will those newly-created Microsoft shares ‘spent’ for GitHub be a ‘debt’ (?), no.
Don’t take my word for it. Ask any accountant and they will confirm to you that all debts are liabilities but not all liabilities are debts.
If you ask any of Microsoft’s accountants, or any publicly-traded corporation’s accountant, how many dollars that the company has borrowed (how much debt in dollars that the company is in), or how many dollars that the company has budgeted (for spending) this year, he or she can give you a figure to the penny.
However, ask that same accountant how much of their own stock that the company has ‘borrowed’ (how much in ‘debt’ of their own stock that the company is in), or how many shares that the company has ‘budgeted’ to issue (to create for spending) and they can’t answer those questions because there’s no such thing.
That paradigm difference between those two ‘currencies’ used by either the Microsoft ‘state & local government’ division or the Microsoft ‘federal government’ division…is MMT.
NOTE: The distinction between the ‘user of currency’ and the ‘issuer of currency’ is that when deficit spending, a user is adding to an outstanding amount of debt; while an issuer, when deficit spending, is instead adding to an outstanding amount of float.
Where it gets tricky for the ‘hyperinflation-sensitive’ mainstream to grasp is that when issuers of currency add to their outstanding float, it doesn’t necessarily ‘dilute’ the float of currency with the same precision that it would dilute a float of stock.
For example, if there are ten shares of Microsoft stock outstanding (each share equals 10% ownership of Microsoft), and Microsoft issues 10 more shares, then the previous outstanding float was diluted exactly 50% (each share now only equals 5% of IBM). Currency is a different story. There are many other moving pieces involved that determines whether the previous outstanding float of currency has diluted (has lost purchasing power, or more precisely, the holders of the currency have suffered inflation).
Why are federal gov’t deficits (additions of currency) sometimes inflationary and other times not? One answer is “it depends on productivity,” as per Jim Boukis, a co-creator of Pure MMT for the 100%. Another is that those deficit spending dollars are going into the ‘non-functional’ economy (blowing savings asset bubbles) which may have little effect on overall consumer price inflation in the real, ‘functional’ economy. “For example, in 2008 and 2009 deficits were 10% of GDP, and then every year the deficits decreased to 9%, 8, 7, 6, 5, etc, but the dollar didn’t weaken, there was no inflation,” Jim Boukis adds.
Other examples, if the prevailing economy is soft, if demographic changes are weakening the economy, if geopolitical events are creating deflationary winds against the economy, then the inflationary bias of those additions of federal gov’t deficit-spending dollars may not be causing any inflation at all because it is vaporizing on impact.
“This game is a practical demonstration of the present system of land-grabbing with all its usual outcomes and consequences, as it contains all the elements of success and failure in the real world, with the object being the same that the human race in general seems to have, ie, the accumulation of wealth.” Elizabeth ‘Lizzie’ Magie, 1903, creator of the ‘Landlord’s Game’ (the predecessor of the ‘Monopoly’ game).
What is Modern Monetary Theory (MMT)? Well, like most people, if you’ve played ‘Monopoly’, then you’re already familiar with the core concepts of MMT, and you are already an ‘MMTer’.
MMT is a currency analysis, it describes how our federal gov’t creates fiat money. The federal gov’t, the issuer of fiat dollars, creates money the same way as the Monopoly game does.
The Monopoly game rules were written around the same time when President FDR initiated our country’s switch from gold-backed dollars into fiat dollars (ending the gold standard era). As per the Monopoly game rules, “The Monopoly Bank never goes broke, if the Monopoly Bank runs out of money, the Monopoly Bank may issue as much as needed by writing on any ordinary paper.” Which is the same as our federal gov’t today, the federal gov’t, the issuer of fiat dollars, is the same as the Monopoly Bank. The federal gov’t (the Monopoly bank) simply prints “$1”, “$5”, “$10”, “$20″, $50” and “$100” on pieces of paper, or the more prevalent, most modern way, they just tap them into electronic existence with a keyboard.
In addition, there is absolutely no mention in the Monopoly game rules about the Monopoly Bank going into ‘debt’ when it creates the Monopoly Money; nor is there any mention whatsoever in the rules about the Monopoly Bank having to ‘borrow’ Monopoly Money. Which is the same as our federal gov’t today, or any monetary sovereign issuing their own non-convertible, free-floating, fiat currency. Anyone who says otherwise doesn’t understand the rules. Anyone who has played Monopoly and does understand the rules easily grasps that rather than ‘borrowing’ or going into ‘debt’ like a household that needs to balance its budget and maintain prosperity; the Bank (the issuer) is merely supplying the Players (the users) with more needed currency to balance the Game and widen prosperity.
Unlike the Monopoly Players (the users of Monopoly money), the federal gov’t (the issuer), is not going to ‘run out’ of its own Monopoly Money. No Monopoly game that you ever played ever ended because the Monopoly Bank ran out of Monopoly Money. The Monopoly game only ended for Monopoly Players (households like you & me), when WE ran out of money.
In 1903, Elizabeth ‘Lizzie’ Magie, a bold and progressive woman, created two sets of rules for her ‘Landlord’s Game’: An anti-monopolist set, in which all were rewarded when wealth was created (to pay homage to Lizzie’s political hero, economist Henry George); and a monopolist set in which the goal was to crush opponents (to highlight the contradictions between the opposing ideologies).
Three decades later it was the cutthroat version that players preferred. Her monopolist version eventually caught on with a community of Quakers in Atlantic City, who customized it with the names of local neighborhoods, and in 1932 it found its way to Charles Darrow.
The next year, in 1933, FDR began the process of ending the gold standard era of ‘sound money’ and replacing it with fiat currency. Darrow dusted off Elizabeth Magie’s patent, created another game based off her monopolist version, and incorporated the monetary concepts of modern fiat currency in the rules of the game.
When Darrow’s ‘Monopoly’ game started to take off in the mid-1930s, Parker Brothers bought up the rights to his game plus all other related games created by Elizabeth Magie. However, Elizabeth Magie got nowhere near what Charles Darrow got (for the patent to the ‘Landlord’s Game’ and two other game ideas of hers, Lizzie reportedly received $500 — and no royalties). Lizzie, who felt cheated and became distraught, was afterwards quoted in The Washington Post saying, “There is nothing new under the sun.”
To this day Hasbro (a Parker Brothers subsidiary), still downplays Magie’s status. Hasbro credits the official Monopoly game produced and played today to Charles Darrow, and on Hasbro’s website, a timeline of the game’s history begins in 1935.
“The Monopoly case opens the question of who should get credit for an invention, and how. Most people know about the Wright brothers (who filed their patent on the same day as Lizzie Magie), but don’t recall the other aviators who also sought to fly. The adage that success has many fathers rings true, but says nothing of success’s mothers. Like Lizzie’s original innovative board, circular and never-ending, the balance between winners and losers is constantly in flux.”
Beardsley Ruml, the guy that wrote ‘Taxes For Revenue Are Obsolete’ in 1946 which is quoted by every single ‘prescription’ MMT ‘academic’ from Pavlina Tcherneva to Bill Mitchell, also said this: “The corporation income tax must go, taxes on corporation profits have three principal consequences and all of them are bad.” As chairman of the Federal Reserve in New York, Mr. Ruml insisted that the case for ending the corporate tax was overwhelming. “It is evil…it should be abolished,” he said.
Which begs the question: Why don’t the same MMT ‘scholars’ that love to quote Beardsley Ruml, ever mention that, or ever give the current administration any credit for dropping the corporate tax rate to 21% from 35% which Beardsley Ruml would have approved of (?)
Why don’t MMTers that want a reduction of payroll taxes for the working class, ever give the current administration any credit for the Tax Cuts and Jobs Act that lowered individual income tax rates (?)
Why don’t MMTers that want to raise the standard deduction, ever give the current administration any credit for doubling the standard deduction to 24K for a household (?)
Why don’t MMTers that want to address wealth inequality, ever give the current administration any credit for pinching the rich with a 10K cap on State and Local Tax (SALT) deductions (?)
Why don’t MMTers that want the federal gov’t to deficit spend more, ever give the current administration any credit for substantially growing the deficits now projected to top $1 trillion by 2020 (?)
Why don’t MMTers that know that we won’t default because we can always print the money, who gave then-candidate Trump credit for saying “We won’t default because we can always print the money”, then turn against any MMTer who suggested we call him an ‘MMT candidate'(?)
Why are MMTers saying that we should have the federal gov’t spend $500B creating non-competitive ‘jobs’ in a Job Guarantee (JG) program, right now, in a labor skills shortage, during The Longest Private Sector Jobs Growth In US History, with record-breaking-low unemployment rates, the lowest jobless claims in 50 years, or in other words, IN THE HEALTHIEST JOBS MARKET IN DECADES? Why do these MMTers prefer that the unemployed become permanent* sharecroppers on a modern-day plantation (a soviet-style Job Gulag which is a UBI with a forced-work requirement) instead of as potential shareholders on a capitalist launchpad? *Yes, Dr. Bill Mitchell actually said, quote, “Even if that person stays in that Job Guarantee position forever and no private employer would ever take them on…Huge success”, unquote.
The answer is…because mommy picked the wrong cereal brand on November 9, 2016 they’ve since ignored the Facts, Math & Data and have become #FAKEMMTERS (!)
Fake MMTers are now promoting their political ideologies with empty promises of free ‘ponies’ (for votes) under the guise of promoting Pure MMT. As a result, FAKEMMTers are now only pandering to problems (pandering to their choirs) instead of actually solving problems (instead of actually helping them).
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 of 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 03/25/17 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 endogenously and never paid back (same effect as exogenous 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 money’, ‘commercial money’, ‘federal money’, ‘reserves’, ‘Fed settlement funds’, ‘base money’, ‘M1’, ‘M2’, ‘HPM’, ‘NFA’, ‘outside’, ‘inside’, ‘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, the largest share of US GDP in 2017 (20.9%), 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.
Gold Standard Airlines flew in the air, in an airplane, and they were flying while ‘fixed’ to gravity.
Post-Gold Standard Era ‘floats’ in space, in a space craft, and they’re floating because they are no longer fixed to gravity like Gold Standard Air.
Post-Gold Standard Era is not as concerned about pitch, roll and yaw in space the same way as Gold Standard Air was. Post-Gold Standard Era doesn’t have to worry about where you are in relation to the horizon, because in space there is no ‘horizon’. Post-Gold Standard Era is not as worried about how much fuel is being used as Gold Standard Air did because Post-Gold Standard Era creates its own fuel on-board. It’s two different paradigms…two different crafts…two different instrument panels…everything is different.
Mainstream thought is that the federal gov’t is still the same as a household, which is like thinking that an astronaut is the same as a pilot.
The US National “Debt” is a liability, is an obligation, but is not an actual ‘debt’ to the federal gov’t (the issuer of $$$) like an actual debt is for a household (the user of $$$).
Federal gov’t ‘debt’ is nothing more than a running total of how many additional $$$ the issuer ‘supplied’ to the users.
Rather than thinking of the rising amount of the federal gov’t ‘debt’ as a bad thing, think of it as a measure of our incremental growth.
(Not wanting to supply the $$$ needed for that growth, and thinking that we need to ‘offset’ higher federal gov’t spending on the private sector with ‘cuts’ elsewhere in the private sector is the same as telling your child that you won’t buy him bigger pants unless he agrees to wear a smaller shirt).
NOTE: This is only talking about FEDERAL GOV’T fiat money creation (a.k.a. ‘vertical’ or ‘exogenous’ creation of dollars authorized by Congress that is facilitated by the public-sector central bank) when the federal gov’t deficit spends; and this is NOT talking about the rest of us, the non-federal gov’t money creation (a.k.a. ‘horizontal’ or ‘endogenous’ creation of dollars facilitated by the private-sector financial institutions) when households, businesses, state & local governments deficit spend.
In other words, this is a focus on fiat money creation by the ISSUER of fiat money, same as the Monopoly Game, where only the Monopoly Bank (the US federal gov’t) issues and enters additional Monopoly Money (issues and enters additional US dollar ‘Net Financial Assets’) into the Monopoly Game (into the US banking system), and not anyone else (as per the Monopoly Game rules, “No player may borrow from or lend money to another player”).
In addition, similar to the US federal gov’t (or any monetary sovereign issuing its own free-floating, non-convertible fiat currency), the Monopoly Game doesn’t ‘borrow’ Monopoly Money (as per the Monopoly Game rules, “The Monopoly Bank never goes broke, if the Monopoly Bank runs out of money, the Monopoly Bank may issue as much as needed by writing on any ordinary paper”). For both the US federal gov’t and the Monopoly Bank, there is no ‘financial’ constraint to spending.
The only difference is that the US federal gov’t has a ‘political’ constraint to spending and that’s why it still performs the idiosyncratic formality of ‘borrowing’ (only to maintain the constitutionally-enshrined Power of the Purse of Congress because on the federal level, ‘funding’ pertains to the appropriation of, or more specifically, the ‘approval’ of deficit spending).
By eliminating horizontal ‘endo’ creation, the Monopoly Game is a perfect example that helps us distinguish the paradigm distinctions between the vertical ‘exo’ creation of fiat dollars by the issuer (without attached debt) vs. the totally separate creation of dollars by the users (with attached debt). (with attached debt).
So what is meant by ‘Pure’ MMT (Pure Modern Monetary Theory) (?)
The US monetary system began the phase-out away from the gold standard regime in 1933
when President FDR ended gold convertibility to domestic holders of US dollars;
and then the United States completed the process
when President Nixon ended gold convertibility to international holders of US dollars as well in 1971.
However, some remnants of that bygone gold standard era,
some old processes, like federal gov’t accounting constructs and US appropriations laws, still remain in place.
Meaning that the phase out from the gold standard era is NOT totally complete, not quite yet.
Not until these pesky laws and accounting rules are changed.
Not until the mainstream has completely accepted MMT,
and the economics books are being rewritten.
Not until then is the gold standard era completely ended,
and a full-blown MMT, or a ‘Pure’ MMT, is firmly in place.
That’s when our monetary system officially enters the ‘After’ phase.
Meanwhile, there’s still a difference between that ‘After’ phase,
the ‘theory’ in Modern Monetary Theory;
and the “now”, existing, modern monetary ‘reality’’.
Those not-so-modern monetary ‘formalities’, like political constraints,
that are still here in the ‘now’ whether we like it or not.
J.D. Alt, author of ‘The Millennials’ Money’,
has a video that visualizes nicely how our monetary system works using a ‘bathtub’ analogy,
with both a ‘before’ diagram (using gold standard era mentality);
and an ‘after’ diagram (using post-gold standard era mentality).
The first diagrams show ‘Before’,
meaning the gold standard era,
when the federal gov’t was a USER of dollars,
same as a household, and like a household the federal gov’t had to GET dollars first, before spending.
Only once the federal gov’t first collected revenues from taxation or borrowing by selling Treasury bonds,
could the federal gov’t then spend and pay interest on those bonds, pay them off,
and the largest federal gov’t expense being those nasty entitlements;
and the largest revenues coming from someone else,
like China, which adds to that even nastier US National Debt.
Again, the main point is the order of operations, that ‘before’, during the gold standard era,
it all has to start with the federal gov’t getting the money from the private sector FIRST
and then the federal gov’t spends it back to the private sector,
which like just households, puts a squeeze on spending if revenues fall.
Therefore, ‘Before’, during the gold standard era when the federal gov’t was a USER of dollars,
the federal gov’t has a constraint because it has to get the dollars first before spending;
and, there is a solvency risk, of default, because there’s that chance the federal gov’t may not get the dollars.
In his ‘after’ diagrams J.D. Alt shows the paradigm difference after President Nixon closed the gold window,
completely ending the convertibility of dollars.
On that day in August 1971, the federal gov’t was no longer a USER of dollars,
no longer like a household.
After the gold standard era ended, the order of operations switches.
The federal gov’t no longer needs to get its own dollars to spend,
so the beginning step is that the federal gov’t now spends first.
Financing the federal gov’t with taxes takes the back seat.
After the gold standard era ended,
federal tax collections perform other functions,
like maintaining price stability to control inflation.
The key point being that after the gold standard era ended,
rather than being a USER of GOLD BACKED DOLLARS,
the federal gov’t became the ISSUER of FIAT DOLLARS.
The federal gov’t began spending its own fiat currency and most importantly,
the federal gov’t doesn’t need to first get its own fiat dollars from anyone.
The federal government’s power to levy taxes is what creates the initial need for dollars.
Rather than wanting dollars because they are convertible to gold,
households still need dollars to pay taxes which can only be paid in dollars.
Rather than the private sector first needing to supply the federal government’s sovereign spending,
in the post gold standard era, the federal gov’t, the issuer of dollars,
is the sole monopoly ‘supplier’ of dollars to the private sector.
Again, the main purpose of federal taxes now are to prevent bathtub overflow,
to control inflation, they are NO LONGER NEEDED to finance spending…
…and the same goes for federal gov’t bond sales,
they also perform much more important functions,
like defending the target overnight interest rate,
so bond sales as well are NO LONGER NEEDED to finance spending.
The key takeaway,
the MMT pillar is that because the federal gov’t is the issuer of dollars,
there is no financial constraint on federal gov’t spending nor is there any federal gov’t solvency risk.
Federal taxes and bond sales are no longer needed to finance federal spending,
but not that they don’t because even though the gold standard era ended,
and even though the federal gov’t no longer has a financing constraint,
there still remains a political constraint to spending.
So we have the JD Alt ‘Before’ diagram,
and the ‘After’ diagram,
and where we are ‘now’.
AFTER we start calling deficit spending something like “Net Spending Achievement”,
AFTER we start calling the national debt something like “The National Savings”,
AFTER we stop saying ‘deficit spending’
and instead the federal gov’t simply announces how many additional dollars they supplied to the banking system,
AFTER we stop saying ‘surplus’ spending
and instead the federal gov’t simply announces how many dollars they relieved from the banking system,
THAT is the MMT endgame, AFTER, when we are at ‘pure’ MMT.
But we’re not there yet,
there are some remnants,
like a debt ceiling,
that’s our present modern monetary ‘reality’.
So what does would a diagram look like NOW?
In the next video, I’ll add that third diagram, a ‘now’ diagram.
END OF PART ONE
So what is meant by ‘Pure MMT?
Similar to what JD Alt describes in his ‘After’ gold-standard-era diagrams,
Pure MMT is that ‘After’ phase,
when the mainstream stops using gold standard thinking,
such as calling Treasury bonds, ‘debt’,
as if federal ‘debt’ was the same thing as an actual household debt.
Pure MMT is AFTER, when we stop using gold standard terminology like federal ‘deficit spending’
because everyone understands that unlike the deficit spending of a household,
which is a user of dollars,
any deficit spending for the federal gov’t, the issuer of dollars,
just means how many additional dollars was SUPPLIED by the issuer, to the users,
to accommodate a growing economy.
Pure MMT is that day in the not-too-distant future,
when MMT, or modern monetary theory,
how the post-gold-standard, modern monetary system really works,
has gone completely mainstream and a full-blown, or ‘pure’, MMT is firmly in place.
In the book The Wonderful Wizard of Oz,
an allegory that promoted staying on the gold standard,
Dorothy and the others get to the end of the gold-standard era
and enter the fiat-greenback-dollar era. There they find themselves in front of a curtain,
a screen projecting fear mongering narratives that makes Dorothy terrified.
The same goes for today regarding our monetary system
except that curtain is a screen,
like a modern television or a computer screen,
that serves as a façade,
that ‘masks’ the more important functions of federal taxation and bond sales,
as if the federal gov’t was still financed the same way as during the gold standard era.
Same as Dorothy then, groupthink today is easily frightened
and will continued to be played,
by this outdated, ‘federal gov’t is the same as a household’ narrative used by unscrupulous policymakers,
until Toto pulls back that curtain.
MMT is the dog.
Until then, while here in the “Now”,
we still have to play the cards that are dealt,
so similar to that curtain in Oz,
the “Now” diagram,
recognizes the processes from the old system except without the overdramatic bluster.
The paradigm difference between the gold standard era, and “Now”,
is that the federal gov’t doesn’t have to collect dollars before surplus spending or deficit spending.
Since the federal gov’t stopped spending gold-backed dollars, the order of operations switched.
For example, “Now”, the federal gov’t is like the Monopoly Game.
Before starting any game of Monopoly,
the ‘Bank’ passes out $1500 in Monopoly money to each ‘Player’ first.
That is exactly the same as the modern monetary system “Now”.
“Now”, the federal gov’t, the issuer of their own monopoly money,
spends into the private sector first,
and then collects it back from us when we pay taxes.
Same as the modern monetary system “Now”,
the Monopoly ‘Players’ are paid to provision the federal gov’t,
just like at the start of every Monopoly game,
the ‘Players’ are paid $1500 each,
to set up the board, to shuffle the Chance cards, and whatever other work is needed to start the game.
That initial spend by the Monopoly ‘Bank’ is deficit spending that adds Monopoly money to the Players,
which is exactly the same as the modern monetary system “Now”.
Only ‘Bank’ or federal gov’t deficit spending adds additional dollars to the Private Sector,
also known as Net Financial Assets,
only deficit spending adds Net Financial Assets to the banking system.
Let’s say that first Monopoly Player rolls a seven, lands on Chance, and has to pay a $50 tax to the Bank,
meaning $50 is ‘destroyed’ or in other words, ‘defunded’ from the Players,
out from the Private Sector.
So, taxes ‘defund’ Net Financial Assets.
Then the second Player, also lands on Chance and gets paid $50 from the Bank.
That $50 the Bank pays is surplus spending.
Surplus spending does not add dollars to the Players.
Rather than a net addition of dollars to the Private Sector like when deficit spending,
Bank surplus spending only ‘refunds’ a tax destruction of dollars out from the Private Sector.
This is why the newly-created surplus spending dollars does not have an inflationary
bias like the newly-created deficit spending dollars. Furthermore, another key
distinction, is that because surplus spending is ‘offset’ by tax collection,
it does not need to be authorized by Congress, like deficit spending does.
So does that $50 the Bank collected in taxes subtract from a Bank ‘debt’ of $6000 (?)
In the Monopoly rule book there is no mention of the Bank ‘selling bonds’ and going into ‘debt’ to ‘fund deficit spending’
nor the Bank ever having to ‘pay back’ anything.
The Monopoly game is the “After” phase,
where you no longer go through the charade that deficit spending is ‘bond-financed’.
Instead, the Monopoly game is Pure MMT, all federal deficit spending is ‘cash-financed’.
The main takeaway, the MMT pillar,
is that the order of operations has switched,
that because the federal gov’t issues and spends its own fiat dollars,
there is no longer any ‘solvency risk’.
For the federal gov’t, the issuer of dollars, same as the ‘Bank’ in the Monopoly game,
you can never run out of dollars,
there is no ‘financial constraint’ on federal gov’t spending.
in the “Now”,
in the modern monetary reality,
there still remains those formalities,
those political constraints,
the appropriations laws,
the accounting construct that governs federal spending.
As a result, even to this day,
many have a failure of the imagination,
to see past those idiosyncratic formalities being projected on the screens.
In 2017, total federal gov’t spending was just under $4T
and total tax revenue was $3.3T.
Now to just say that 4T came out of the ‘faucet’,
3 trillion odd in taxes went down the ‘drain’
and the difference was added to the bathtub is fine if talking about the “After” diagram,
the modern monetary THEORY,
but that’s too much of an oversimplification for the “Now” diagram,
the modern monetary REALITY.
Since MMT is the unorthodox,
the “Now” diagram needs to help make the MMT case to professionals in the field,
like the lawyers, the accountants, and most importantly, the constituents,
the ones that will help change those pesky laws and accounting rules
to finally get the monetary system from “Now” to “After”, to that Pure MMT.
END OF PART TWO
So, how does the shape of the “Now” bathtub,
meaning the economy, where the dollars are sloshing around, look like “Now”?
The “Now” ‘bathtub’ is not that cozy-looking, evenly-shaped one like in the J.D. Alt diagrams.
The bathtub in the “Now” is quite uneven, so that’s how we show it in the “Now” diagram.
A graph of US household wealth distribution, with a very small part of it being very deep with plenty of water at one end,
and the other end is not so liquid, that graph upside down, that’s your actual bathtub shape in the “Now”.
On the “now” bathtub diagram,
to show those crucial distinctions between deficit spending and surplus spending,
which is as different as hot and cold water,
in addition to the ‘faucet’, the “Now” diagram also has the ‘shower head’.
The faucet is deficit spending. The showerhead is surplus spending.
The water, or the assets denominated in dollars, in the tub takes many forms
For this video, we’re just going to talk about two of these,
Treasury bonds, which has a coupon interest rate and a maturity date;
and cash, which has neither.
We pick up it up where that second Monopoly Player has just been paid $50 by the Monopoly ‘Bank’
which is surplus spending, the newly-created fiat-dollars coming out of the showerhead.
Again, the important difference between surplus spending and deficit spending
is that even though both are newly-created dollars,
these newly-created surplus-spending dollars are NOT net additions of dollars to the Private Sector,
to the Monopoly Players;
because an equal and opposite amount of dollars that are being paid in federal taxation are being ‘destroyed’,
are going down the drain, or more specifically, being debited out from the Private Sector.
Here at arrow 2, is why some MMTers like to say ‘taxes don’t fund spending’.
However, even though *technically* correct, saying that is jumping the gun to the “After” phase,
so Pure MMTers don’t say it that way.
To recognize that there still are political constraints in place in the ‘Now’,
Pure MMTers say ‘taxes ARE NOT NEEDED to fund spending.
As per accounting rules and appropriations laws from long ago,
yet still in place,
here in the “Now”, is the US Treasury’s General Funds Account,
at the Federal Reserve Bank, the same account where all federal taxes wind up
and where all federal spending is drawn from.
Thus, there is no longer any financial constraint to federal gov’t spending
but there is still a political constraint.
It is still US law that federal surplus spending must be “funded” by federal taxes, and by ‘funded’,
it means that the Treasury’s General FUND account must be replenished by federal taxes.
The exact amount of reserves are credited into the Treasury’s GFA
and those reserves are immediately debited
and go full circle when newly-created dollars are credited
and spent back into the banking system
to pay anyone that just provisioned the federal gov’t.
Which gives the appearance,
which continues the gold-standard-era narrative,
that surplus spending,
even in the “Now”,
is “funded” in a financial sense,
when in reality it is only being “funded” in a political sense.
after spending has reached the amount of federal taxes collected,
it is no longer surplus spending,
and deficit spending begins.
The biggest distinction of deficit spending is that UNLIKE surplus spending which,
once tax rates have been set, simply run on automatic pilot and does not need to be authorized by Congress,
all deficit spending must be authorized by Congress;
because also UNLIKE surplus spending,
only deficit spending adds ADDITIONAL dollars to the Private Sector,
only deficit spending increases Net Financial Assets.
This is why only the newly-created dollars of deficit spending has an inflationary bias.
Same as surplus spending,
there is no financial constraint to deficit spending
but there is still a political constraint,
which is, that it is still US law that federal deficit spending must be “funded” by selling Treasury bonds.
Again, this added federal ‘debt’ is not an actual debt like a household,
just a traditional formality to maintain the Constitutionally-enshrined ‘Power Of The Purse’ of Congress.
Same as the separate Treasury Bond pot that is connected to the bathtub pot in the JD Alt diagram,
when you buy a Treasury bond those dollars do not leave the Private Sector,
those dollars simply take a different form.
A crucial distinction with deficit spending is that no dollars are ‘destroyed’,
none are debited out from the Private Sector.
nothing goes down the drain when Treasury bonds are paid for.
Meanwhile the hand of Congress is opening the faucet
and the newly-created deficit-spending dollars being added to the Private sector
are net additions of dollars that adds Net Financial Assets to the banking system.
Same as taxes,
the financing function of Treasury bonds takes the back seat to many more important federal gov’t operations,
like controlling inflation, defending the target overnight rate set by the Fed,
and providing a liquid, risk-free, safe haven for global savings desires.
No matter whether you are talking about “Now” or “After”,
it’s still a charade,
an outdated formality,
a bygone idiosyncrasy,
that the federal gov’t has to ‘borrow’ money to fund deficit spending like a household
END OF PART THREE
P.S. What’s also meant by PURE MMT?
A PURE MMTer plays the cards that are dealt,
and never bothers with ‘feelings’ or ‘hunches’.
To formulate opinion,
rather than relying on anecdotal ‘stories’
or gloom & doom ‘narratives’,
a PURE MMTer uses FACTS, MATH, and DATA.
WHATEVER specific proposal,
from whichever side of the political aisle,
for a policy initiative that you believe
would serve the common good
for the public purpose,
if that gets approved,
if that gets passed and signed in law,
a Pure MMTer avoids having a ‘bias’
towards an ideological proposal promising economic and social justice,
especially a POPULAR one,
disguised in MMT wrappings;
because a Pure MMTer,
just like the person
who is more a parent than a friend to their children,