Pen Strokes Not Keystrokes

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FY 2017:

Step #1) Federal gov’t keyboards $3.315T & spends $3.315T. 

Step #2) Federal gov’t collects back $3.315T from taxpayers.

Step #3) Federal gov’t keyboards $.666T & spends another $.666T.

Step #4) Federal gov’t collects back $.666T from Treasury bond investors.

Note: So far it’s all a ‘wash’…

Step #5) Federal gov’t keyboards $.666T of Treasury bonds into existence and transfers those assets, denominated in $$$, to the bond investors.

Note: UNLIKE the ‘newly-created dollars funding all spending’, THAT was NOT a wash, THAT was a CREATION which is ALSO an ADDITION of Net Financial A$$et$ (NFAs), entering into the banking system.

Those tax & bond collections are not a ‘financing’ function, but are instead a redistribution of $$$ serving a ‘price-stability’ function. Furthermore, rather than being a ‘financial’ constraint, those Treasury bonds serve as a ‘political’ constraint—meaning that the federal gov’t can shut down if policymakers don’t agree on spending.

Those tax & bond collections are just dollar ‘drains’, ebbs & flows, from different parts of the banking system and NOT a dollar ‘destruction’ from the entire banking system. 

Same as the private sector when ‘deleveraging’, for the federal gov’t it’s not a destruction until the opposite of the creation (the ADDITION), which means it’s a destruction only if those bonds are paid off for good (if the bonds are put in the ‘shredder’)—and the last time that happened was in 1957.

This is not rocket science, this is ACCT 101, BANKING 101 and CIVICS 101.

Jim ‘MineThis1’ Boukis was right all along. 

#FakeMMT has it completely backwards.

The pure description MMT insight is that, operationally, federal taxes and Treasury bond sales ARE NOT NEEDED to fund spending—not that they don’t at all. Political ‘prescription’ MMTers saying ‘taxes don’t fund spending’ because ‘taxes are destroyed’ so ‘one of the things that MMT economists have advocated for a very long time is finding a way to take the fingerprints of Congress off of the decision making’* are trying to usurp the Constitutionally-enshrined Power of the Purse.

Those pesky appropriations laws, those accounting rules, that modern monetary formality (the ‘political’ constraint to spending) keeps getting in the way of the modern monetary theory (where there’s no ‘financial’ constraint to spending). As a result of their frustration, ideological MMTers have become their own worst enemy.

If some MMTers can’t get the ‘description’ right, then how can they expect constituents to trust that these MMTers are getting their ‘prescription’ right? How can they expect policymakers to fund—read: APPROVE—their pet prescriptions?

There’s a difference between a scoreboard (used for political MMT metaphors to pretend taxes are ‘destroyed’) and an excel spreadsheet (used by the consolidated balance sheets of the United States federal gov’t to reconcile where taxes ‘drain’).

“The ‘keystroke to every need’ crowd are nothing more than populists offering free candy to children that in the end rots their teeth. Resorting to a ‘keystroke-first’ approach shows a lack of thought and creativity. There are ways to get at the underlying problems with pen strokes not keystrokes.”—Charles ‘Kondy’ Kondak

*SOURCE: Stephanie Kelton, 9/26/18 to Planet Money #866: Modern Monetary Theory



In a Tweet to Stephanie Kelton (who also wants the federal gov’t to forgive student loans), Warren Mosler advised her that it…

“Seems student debt forgiveness advocates would be best served by working to relax/reform bankruptcy laws which were recently made creditor friendly.”—Warren Mosler reply to Stephanie Kelton, 02/20/18

In other words, knowing that debt forgiveness will never happen, Mr. Mosler was pragmatically suggesting to put the ‘key-stroking’ hammer down and try promoting a ‘pen-stroking’ tweak to student-loan legislation instead.



Sometimes more creative pen strokes, and not just more keystrokes (especially if trying to address modern monetary problems) makes better solutions. Not to take sides in this twitter feud between Stephanie Kelton and Paul Krugman, but note that same insight in this particular tweet:



The economic problem of wealth inequality will never be solved by ‘taxing the rich’ more—because those cows already left the barn—but saying you will ‘tax the rich’ more will always be used as a way to solve a political problem.

Furthermore, wealth inequality will never be solved with more deficits (more ‘keystrokes’) because rather than Federal Deficits = Our Savings, the reality is that deficits initially go to the 95% and eventually rise to the 5%—those deficits equal THEIR savings.

One of the great MineThis1 insights is the concept of ‘economic feedback loops’ (federal taxation and federal bond sales being the most glaring examples) where nonproductive $$$ (stuck in the nonfunctional part of the economy) ‘drain’ / ‘redistribute’ / ’recycle’ / ‘transmute’ (whichever word you are most comfortable with) back into the functional ‘real’ economy to become productive $$$.

The Investment Act of 1940 began the mutual fund industry, which opened investment choices to everyone (who previously could only save money in a local bank +/or give it to an insurance company). The establishment by federal legislation of IRA accounts in 1974 offered Main Street savers a ‘tax shelter’ (previously offered only to the ‘elite’ who could afford to do that). The 1978 provision that was added to the Internal Revenue Code —Section 401(k)—creating the Traditional 401k account and then the Roth 401k account in 2001 allowed everyone to take even more ‘ownership’ of these retirement savings (with even more tax advantages).

Another example of a feedback loop is the Required Minimum Distribution (RMD). Rather than allowing savings $$$ to accumulate any further (rather than allowing capital to just keep producing capital in the nonfunctional economy); the federal gov’t instead forces savers, at age 70.5, to start withdrawing $$$ from tax-advantaged retirement accounts. The idea is that savers will spend those $$$—that those $$$ will feed back into the functional economy before they die.

Perhaps a simple solution (a creative ‘pen stroke’) would be more feedback loops.

For example, a pure ‘prescription’ MMT proposal could call for legislation that tweaked this RMD rule so that in addition to anyone reaching age 70.5, any account reaching a certain amount would also be required to start withdrawing $$$. Meaning that large amounts of savings $$$ would then, regardless of age, be subjected to the ordinary-income tax (the feedback loop) plus the after-tax income would also be spent into the real economy (the feedback loop).



“This ‘low inflation’ myth is a meme that is absolutely everywhere now. It’s causing economists to demand that interest rates stay low, for too long, even as asset prices are bubbling up to the moon. Economists are completely ignoring asset bubbles.”—Jesse Colombo (@TheBubbleBubble)

“If your bread or milk goes up it’s inflation; but if your mortgage payment doubles it’s called investment growth and not ‘inflation’ (even though what you pay for shelter is proportionally many times more important).”—ctindale (@ctindale) Replying to Jesse Colombo’s Blog

“Inflation is so not dead. Health Care, Housing, College and you have said it, asset prices.”—Bill Simpson (@bsimpson45) Replying to Jesse Colombo’s Blog

BINGO…Look at Health Care, Housing, and College in the ‘real’ economy—what do they all have in common?

The gov’t subsidizes them (allows you to make pre-tax deductions for health insurance / allows mortgage interest tax deductions / allows 0% student loans) to encourage everyone to get those things.

The inflation in those prices is the unintended consequences of good intentions (the unintended consequences of DEFICITS).

The same goes for asset prices like stocks, bonds, real estate and commodities in the ‘financial’ economy—the gov’t also subsidizes our purchases of those as well (allows tax-free interest / tax-free dividends / tax-free capital gains in investment vehicles like index funds, ETFs, and REITs in tax-sheltered retirement accounts) to encourage savings habits during our working years.

Again, the ‘inflation’ in those prices, plus the increasing wealth inequality, is the unintended consequences of good intentions (the unintended consequences of DEFICITS).

The solution?

Instead of more ‘keystrokes’ (more federal deficits that initially go to the 95% but eventually wind up with the 5%); perhaps more ‘pen strokes’ creating feedback loops ($$$ going out from the non-functional ‘financial’ economy back into the productive ‘real’ economy), so that the current feedback loops (like federal taxation & Treasury bonds sales) are no longer outnumbered.



Recently there has been bipartisan concern about companies buying their own shares in the stock market and holding them on their own balance sheet (aka ‘Treasury stock’).
Senator Marco Rubio (R-FL) plans to offer legislation to curb share repurchases. Senator Chris Van Hollen (D-MD) argued that company insiders should be prohibited from selling their own shares for a period of time after their firms announce buybacks. Senator Tammy Baldwin (D-WI) introduced a bill that would ban open-market buybacks.
Simply put, buybacks allow companies to distribute money to the shareholders. Most companies do that by paying dividends.
What does the person who probably knows more about stock buybacks than anyone have to say?
Warren Buffett, chairman and CEO of Berkshire Hathaway (who has pledged to give away 99% of his $83B fortune to philanthropic causes via the Bill & Melinda Gates Foundation), acknowledged that some people will misbehave in any activity. “American business should distribute money to its owners, occasionally…but we don’t do it through dividends…we do it through buybacks. We’ve done some,” he said. “We will buy Berkshire shares when we have lots of excess cash, AFTER all the needs of the business are taken care of. We spent $14 billion on property plant and equipment last year…then we have excess cash…[If] I think the stock — and my partner Charlie Munger thinks the stock — is selling below intrinsic business value, we will buy-in [buyback] stock,” Buffett told Yahoo Finance on 04/19/19.
What does Warren Mosler have to say?
On 10/11/17 he said that “Once a company decides it has ‘excess cash’ the options are dividend payments or share buybacks. After a dividend payment, the company has that much less cash and shares outstanding remain the same. After a share buyback, the company has that much less cash and shares outstanding [the supply of shares available to buy in the secondary market] are reduced. Now consider that after a reverse-stock split [done when a company simply wants to intentionally increase the price of shares], the company has the same cash and shares outstanding are reduced.” What Mr. Mosler was getting at—an excellent insight—was that “for executive compensation related calculations”, a stock dividend payment or a reverse-stock split doesn’t change the executive’s current ownership nor doesn’t change the executive’s chances of more ownership with a stock-option strike which is recalculated higher after a reverse split (so it isn’t advantageous to the executive); while buybacks also doesn’t change the executive’s current ownership but DOES increase the executive’s chances of more ownership with a stock-option strike which isn’t recalculated after a buyback (so it IS advantageous for the executive). The more stock options that the company’s executives have been given under contract as an incentive to increase the stock price, the more advantageous that buybacks become. As per Mr. Mosler, “it seems the accounting process should disclose any increases in executive compensation due to share buybacks, make those adjustments to compensation agreements, and claw back any excesses previously paid?”
Finally, the MINETHIS1 insight is that federal deficits are feeding the ‘savings bubble’. He (correctly) points out that deficits, which initially go to the 95% but eventually wind up with the 5%, have created ‘inflation’, in assets prices in the nonproductive (‘financial’) economy—albeit not the traditional kind in the functional (‘real’) economy that shows up in Headline CPI data.
So are stock buybacks resulting in unintended consequences, like outnumbering the economy’s built-in feedback loops (like federal taxation and Treasury bond sales), at best; or are stock buybacks egregiously advantageous forms of financial engineering that are worsening wealth inequality and exacerbating the saving bubble, at worst?
Just like many of the economy’s problems today that could be easily solved with ‘pen strokes’ (and not just more ‘keystrokes’), perhaps policymakers could tweak the current buyback rules.
Perhaps with some simple ‘pen strokes’ we can level the playing field (by curbing the use of buybacks to game executive compensation); and create another feedback loop of dollars going back into the functional economy (spreading out to all parts of the balance sheet), instead of capital just creating more capital (instead of heading to only one part of the balance sheet).



H/T Charles ‘Kondy’ Kondak

“The Federal Job Guarantee (FJG) is considered by most in the Modern Monetary Theory (MMT) community to be an integral part of MMT. The Federal Job Guarantee is said to provide ‘Price Stability at Full Employment’.

One favorite throwaway line of #FakeMMT is that the Federal Job Guarantee will improve the ‘well-being of all workers’ by providing a wage/benefit floor such that Employers would have to offer better wages to lure workers away from Government Employment.

Some prominent Economists disagree on that effect of a Federal Job Guarantee and argue it will have a dampening effect on wages for workers higher up the Income ladder. One Economist says MMT would use ‘full employment [FJG] to fight inflation’ by giving companies that want to hire a better option:

‘They don’t have to bid wages up trying compete with one another for employed workers. They can hire from this pool, this ready-pool of skilled workers who are employed in public service jobs.’ (MMT Economist Professor Stephanie Kelton).

Based on this statement we’ve established the wage suppression effect of a FJG, at least for skilled workers—with Kelton’s commentary. Two other Economists write:

‘Would the incumbent workers use the decreased threat of unemployment to pursue higher wage demands? That is unlikely. … [T]here might be little perceived difference between unemployment and a JG job for a highly-paid worker, which means that they will still be cautious in making wage demands.’ (MMT Economists Professors L. Randall Wray and William Mitchell).

Who are these highly-paid workers that would still be cautious in making wage demands?

We are not only talking about a highly-paid (higher educated and higher-skilled) worker, but also a highly-paid (but not so higher-educated nor higher-skilled) worker like a doorman in NYC making $49K. To hire a NYC doorman, Employers ‘would not have to bid wages up trying to compete with one another’ according to Kelton; and the employed doorman on Union scale ‘would still be cautious in making wage demands’ according to Wray and Mitchell.

In other words, according to Kelton, the FJG compresses wages towards the FJG wage (rather than having ‘to bid wages up’ an employer simply combs the FJG pool for a person willing to work at $45K as a NYC doorman); and in addition, according to Mitchell/Wray, to at least some degree, the FJG compresses wages immediately above the FJG wage (the NYC doorman making $49K ‘will still be cautious in making wage demands’) as well.

Simply put, there is no other way to describe the effects of a Federal Job Guarantee as alluded to here: Wage suppression further up the Income ladder. The part the macroeconomic role the FJG plays here is more in the interest of price stability and less in the interest of worker well-being. Now I can see how some early MMT advocates broke from the herd based on this issue.

Further, it is also said by #FakeMMT that the Federal Job Guarantee would be ‘Federally Funded but Locally Administered’. Here at this juncture, one group of MMT Economists describe their proposal this way:

‘The PSE [Public Service Employment Program, aka FJG] would be under the jurisdiction of the DOL [Department of Labor], as UI [Unemployment Insurance] is today. Similar to UI, states will participate in the program’s administration. Congress would appropriate funding for the PSE program through the DOL. The DOL budget would fluctuate countercyclically in a manner consistent with hiring anyone who wants work over the course of the business cycle. The DOL would supply the general guidelines for the kinds of projects authorized under the PSE program. Municipalities would conduct assessment surveys, cataloguing community needs and available resources. In consultation with the DOL, states, and municipalities, One-Stop Job Centers (discussed below) create Community Jobs Banks—a repository of work projects and employers that offer employment opportunities.’

Thus, without the flowery language of serving the priorities of the State (sic Public Purpose), it sure does sound like the FJG is marshalling labor.

In conclusion, it is my contention that only with very strong trade unions can the Federal Job Guarantee system be given some consideration but this is certainly not the case in the USA.

Perhaps the beginning point could become changing US Labor Laws that gives workers countervailing power (like in Northern Europe), another possible Pure MMT for the 100% PRESCRIPTIVE proposal? Meaning that unlike the current FJG proposal, this would be a proposal that would be taken seriously by policymakers because it doesn’t need a single deficit-money keystroke.”—Charles Kondak



Their Deficits = WHOSE savings?

In many years prior to the Great Recession (the greatest recession since the Great Depression), massive US trade deficits—that were higher than US budget deficits—resulted in ALL of the federal gov’t ‘red ink’ going to the foreign sector (resulted in foreign sector’s ‘black ink’ and private sector’s ‘red ink’). In effect, if you take a step back from that picture, from the perspective of the US non-federal gov’t domestic sector, those years (1996, 1997, 2002, 2003, 2004, 2005, 2006, 2007, 2008—SEE 77DIF#2) had the SAME debilitating consequences for US households as if the federal gov’t, by proxy, ran sustained budget surpluses—just like the US federal gov’t did right before all six depressions in US history. In other words, the ‘users’ of dollars were essentially forced to rely on borrowing (like using their homes as ATMs) to sustain spending—which always ends badly for ‘users’ because that’s the deficit spending that’s unsustainable.

MMTers—especially the ones who love to wave that ‘Sectoral Balances’ chart around—should know more than anyone else exactly why policy seeking fairer trade that lowers US trade deficits and bring some manufacturing jobs back to the USA is a good idea (because ‘Imports are a benefit’—until they’re not).

The choice for federal policymakers is to either keep ‘key-stroking’ to overpower the trade imbalance (which keeps worsening wealth inequality and repeats ‘boom/bust’ cycles); or ‘pen-stroking’ a fairer trade deal with China—that moves both budget & trade back towards ‘balance’.



The Pure MMT insight is that federal taxation and Treasury bond sales are a feedback loop from the nonproductive ‘financial’ economy (from the 5%) where capital ONLY just produces more capital; to the functional ‘real’ economy (to the 95%) where capital produces capital, goods, AND services.

Many problems today—like the worsening wealth inequality—are the result of these feedback loops to the 95% now being outnumbered by feedback loops to the 5% (SEE P.S.S. 04/02/19 ABOVE).

Rather than the typical ‘keystroke’ solutions of more deficit spending on more free this and on more free that, a good example of ‘pen stroke’ prescriptions would be policy that eliminates ways where $$$ wind up stuck in the savings bubble. In other words, create more feedback loops of $$$ going out from the 5% back into the 95%.

The SECURE Act was passed out of the Democrat-controlled U.S. House of Representatives yesterday (05/24/19) by near-unanimous vote (by 417 to 3) and it is expected to move forward in the Senate. This retirement-savings bill eliminates the so-called ‘Stretch IRA’ tax loophole which is estimated to raise $15.7B in federal revenues over 10 years (Pure ‘prescription’ MMT translation: which is estimated to create a feedback loop of $15.7B from the 5% to the 95%).

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