77DIF MMT MISINTERPRETATIONS #29: The Fed neither ‘has’ nor ‘doesn’t have’ dollars.
Fact: The Fed has dollars.
It’s comical to watch the MMT community twist and contort themselves while playing that fake MMT version of the game of Twister.
What part of those dollar signs on the Federal Reserve System Balance Sheet (Left Hand Blue!) or the Daily Treasury Statement account at the Federal Reserve Bank (Right Leg Yellow!) is confusing the MMTers who say ‘the Fed has no dollars’ (Right Hand Red!) or ‘there’s no such thing as dollars’ (Left Leg Green!) on the federal level?
Do MMTers using ‘the Fed neither has nor doesn’t have dollars’ logic forget why it’s called the federal RESERVE system? When banks transfer their required reserves to the Fed, do they think that’s not dollars (credits) being held at the Fed—because those dollars were ‘destroyed’ (just like they also think those federal tax dollars are ‘destroyed’) too?
This is just another MMT analogy (that it’s just ‘points on a scoreboard’) gone amok—to fit a politically-extreme ‘prescription’ MMT narrative.
“Of course the Fed has dollars. This is just more stupid s*** that pseudo-intellectuals come up with to sound smart.”—Jim ‘MineThis1’ Boukis
Agreed…The Fed sent 91 billion DOLLARS to the Treasury in 2016 and the Fed sent 80 billion DOLLARS to the Treasury in 2017. Derived from its bond holdings (like mortgage-backed securities) on their balance sheet, the Fed has handed over more than 700 billion DOLLARS since the 2008 financial crisis…
…and that’s the net amount, after, you know, all those ‘old’ bills, that were ‘shredded’, at the ‘IRS’ (as per that recently ‘modified’ yarn).
77DIF MMT MISINTERPRETATIONS #30: “Printing is a word that goes back to the gold standard.”
Fact: Printing is a word that goes way, Way, WAY back before the gold standard.
In that grand arc of monetary history, the gold standard was just a short blip. MMT (the currency analysis, the ‘chartalism’ and the fiat currency) goes back before the gold-standard era.
“Printing is a word that goes back to the gold standard. It meant the ratio between the printed money and the gold supply, it’s no longer an applicable term. When you have a non-convertible currency and a floating exchange rate, the spending is operationally independent of the taxing, so all government spending is merely changing numbers in banking accounts—there’s no operational constraint by revenues.”—Center for Economic and Public Policy’s Warren Mosler on Fox Business News with Stuart Varney discussing further government spending to improve the economy, May 7, 2011
To be fair, anyone dismissing your pet ‘prescription’ MMT policy (like Stuart Varney did to Mr. Mosler) by uttering ‘Oh you just want to print more money’—instead of debating the merits of the proposal itself—isn’t making a good-faith effort to understand your perspective.
That said, anytime anyone in the MMT community says ‘Don’t say print money’, that is borderline fake MMT.
Anyone with a basic knowledge of American history knows that ‘printing money’ goes back before the gold standard (and why they won’t fall for that ‘Don’t say printing money’ meme as easily as the MMT community does). Those ‘Continentals’ were NOT backed by gold (they were backed by the ‘anticipation’ of tax revenues), nor were those original ‘Greenbacks’ (at first as an ’emergency’ war measure they had no convertibility to gold), so ‘printing money’ simply refers to the days before the computer age, before ‘keystrokes’.
We all still say ‘printing money’ just like we all still say how much ‘horsepower’ a car has, or how much ‘shipping’ charge we have to pay to the person driving that brown delivery truck. The words ‘printing money’ (if not used sarcastically) simply refers to ‘deficit spending’, aka an addition of net financial assets, that is increasing the amount of $$$ in circulation (that is expanding the money supply)—what Fed Chair Eccles referred to as ‘High Powered’ (which is another thing that the MMT community gets completely wrong).
Most people today (correctly) associate ‘printing money’ with conjuring up money out of thin air—as opposed to using existing $$$ (as opposed to ‘surplus spending’).
For example, if you are paying for a restaurant tab with money out of your pocket (paying with existing $$$), then that isn’t ‘printing money’ (isn’t adding dollar-denominated assets into the banking system); but if you are instead, paying with a credit card, if you are deficit spending, you are ‘printing money’ (adding dollar-denominated assets into the banking system). That newly-created little piece of paper, printed with $$$ signs on it, that you sign, that the restaurant retains, think of THAT as the financial asset, that you just created, which is a ‘notes receivable’, your ‘promise’, your ‘bond’, an ASSET, that increases NFAs; while in addition, that printed receipt, that you keep whenever paying on credit, whenever printing money, is the ‘notes payable’, the liability, that nets-out the creation.
The federal gov’t is of course not the same as a household using a credit card. The pure MMT insight is that, operationally, borrowing or tax collection is not needed to fund federal spending, BUT those formalities remain to maintain the Constitutionally-enshrined Power of the Purse of policymakers—only Congress can sign the ‘receipt’.
Furthermore, where the MMT community goes over the cliff is thinking that all spending is newly-created money (instead of knowing that all spending is newly-created money, yes; net additions of $$$ going into the banking system, no).
It’s pure MMT to explain that the newly-created (newly-printed) dollars (assets) that you just added into money-supply circulation to pay for that lunch at a diner probably won’t cause hyperinflation and destroy the economy; however, telling folks—especially the 2,000 employees at the Bureau of Engraving and Printing—not to say ‘printing money’, isn’t.
Fed Chair Bernanke: “It’s much more akin to printing money more than it is to borrowing.”
Scott Pelley: “You’ve been printing money?”
Fed Chair Bernanke: “Well, effectively, yes…we need to do that because our economy is very weak and inflation is very low.”
NOTE: In that 60 Minutes interview, Chair Bernanke was referring to the initial bailouts, early in the credit crisis, where the Fed lent newly-created (newly-printed) money to troubled banks in exchange for their toxic subprime assets, for the so-called Maiden Lane loans. The Fed did this so that these banks, suffering from a liquidity problem, would have the $$$ to spend into money-supply circulation—to pay their bills—to stay in business. In a follow-up 60 Minutes interview in 2011, Chair Bernanke explained that QE wasn’t printing money because, unlike the bailouts, QE was not about toxic bonds / changing the money supply, QE was about AAA bonds / changing long-term interest rates.
77DIF MMT MISINTERPRETATIONS #31: The Fed is the ‘scoreboard’.
Fact: The Fed is the excel spreadsheet.
“The federal gov’t spends money into existence … and deletes money out of existence when it taxes … the taxes don’t pay for anything, they are literally deleted. When you go to a baseball game … and a guy smacks a homer and they put a ‘1’, one run, on the scoreboard … but then on the replay they realize that the ball was foul, it was a foul ball, they take the ‘1’ off the scoreboard. Where did that ‘1’ go? Where did it come from? Did they have to tax somebody to get that run? Or did they just keystroke that run on the board? That’s how banking works.”—Steve Grumbine, Real Progressives broadcast, January 4 at 12:07 AM
No, that’s not how banking works.
That’s how folks (who take Mr. Mosler’s ‘scoreboard’ analogy too literally) pushing political ‘prescription’ MMT (under the guise of being about banking) works.
The person that hit that homer, that blood, that sweat, those tears that went into the effort (the production) to knock that ball out of the park, is what ‘funds’ that ‘1’ on the scoreboard.
If the ball was ruled foul, then that ‘1 Run’ (that ‘asset’) is ‘debited’ (‘drains’) from the ‘Run’ ledger, and then that ‘1’ is ‘credited’ (‘drains’) to the ‘Balls & Strikes’ ledger—that ‘1 Run’ becomes a ‘1 Strike’ instead. In other words, the ‘1’ goes from one part of the scoreboard to another, it doesn’t leave the scoreboard (it doesn’t leave the banking system).
That’s how banking works.
When explaining MMT to the MMT uninitiated, the 7DIF scoreboard analogy—a great analogy—should only be used as a simple example of the paradigm difference between ‘metalism’ (coins from precious metals in a gold-standard era) v. ‘chartalism’ (fiat currency from keystrokes in a computer era).
In other words, our monetary system went from mostly using a limited amount of ‘hard’ currency (kept in secure vaults) to mostly using an unlimited amount of ‘soft’ currency (kept in secure ledgers).
Of course the Fed ‘has’ dollars…More than just being electronic ‘points’, dollars are still ACTUAL Assets & Liabilities (credit & debit flows)—postings that reconcile those ledgers.
Of course dollars exist on the federal level…What part of those little dollars signs on the Fed’s balance sheet or on the Daily Treasury Statement is confusing MMTers who take the scoreboard analogy too literally and say that?
The very least that all MMTers should have taken away from The Longest Shutdown In US History was the pure MMT insight, which is that, those accounting constructs (those pesky funding rules & appropriations laws), albeit unnecessary, still exist—not as much as a ‘financing’ constraint but more as a ‘political’ constraint.
Despite the pillow-talk MMT promises that keeps getting whispered into your ear, you can’t have anything YOU want—‘because MMT’—that’s not how it works.
Do yourself (and the MMT cause) a favor and don’t confuse a scoreboard (an analogy) with an excel spreadsheet (the consolidated balance sheets of the United States federal government).
77DIF MMT MISINTERPRETATIONS #32: Payment of federal taxes is a ‘destruction’ of dollars.
Fact: Payment of taxes is a drain of $$$ to the DTS (the same exact account where all federal spending is drawn).
The payment of federal taxes is a ‘destruction’ of the taxpayer’s federal tax liability, but not a destruction of $$$.
The payment of those taxes is a ‘destruction’ of $$$ from the money supply (they are ‘deleted’ from your bank account), but not from the banking system.
Only Congress can ‘destroy’ $$$ (reduce the NFAs that Congress created).
Even if you burned a dollar bill to a crisp, you wouldn’t change the numbers on that ‘scoreboard’. However, same as Congress, if you burned your mortgage (your ‘bond’ that you previously created), THAT’S A DESTRUCTION.
Think about a pumping heart. The blood is flowing out of that heart—to somewhere else—it’s not getting ‘destroyed’.
Rather than ‘keystrokes’ that fund surplus spending followed by the subsequent collection of federal taxes, what actually expands & contracts money supply circulation (the pumping heart of the economy) is the creation & destruction of bonds (aka leveraging v. deleveraging).
Rather than being ‘bulletproof’, political ‘prescription’ MMT is rendered with bullet holes—and they are all self-inflicted. Here’s some more holes:
MMTers (who are supposed to be good at being ‘chartalists’) are confusing credits & debits (‘postings’ that are consolidations of ledger charts) with creation & destruction (net ADDITIONS into the banking system v. the deleveraging of that leveraging).
When deficit spending, the Treasury is ‘fronting’ the ‘newly-created’ money via its Daily Treasury Statement account at its central banking agent, the Fed. For example, if deficit spending $1B today, the equal and opposite ledger entry to reconcile (to balance) that +$1B that is credited from the DTS to the accounts of whomever provisioned the gov’t is a debit of -$1B to the DTS. Next, the federal gov’t collects $1B in Treasury bond sales, meaning that tomorrow $1B is coming back out from money supply circulation—which is the main reason to sell the bonds (to maintain price stability by neutralizing the potentially inflationary-bias of deficit spending). That ‘newly-created’ $1B, credited to the DTS, brings both the DTS and the money supply back to where it was—meaning that so far it’s all a ‘wash’. The final step, the ADDITION, is when the federal gov’t keyboards $1B in ‘newly-created’ Treasury bonds to those investors who just paid for them. Those assets are the Net Financial Assets that are added (that are ADDITIONS) into the banking system.
Same goes for when a household deficit spends (wants to pay on credit), the financial intermediary (the bank) is ‘fronting’ the ‘newly-created’ money in exchange for your ‘newly-created’ promise to pay back the money with interest (your ‘bond’). Your newly-created bonds create loans create deposits.
MMTers shouldn’t confuse ALL these ‘newly-created’ assets flowing back & forth above as being ADDITIONS of NFAs.
Furthermore, it’s only a ‘destruction’ if Congress decides to pay off those federal bonds for good; and the same goes for a household, it’s only a ‘destruction’ if they pay off their ‘bond’—the opposite of the creation.
Just like all debts (household debt) are liabilities but not all liabilities (Treasury bonds) are debt; all destruction (paying off Treasury bonds) are debits but not all debits (federal tax / Treasury bond collections) are a destruction.
77DIF MMT MISINTERPRETATIONS #33: “The Fed has raised rates to try to keep unemployment from dropping below 4%”—MMTer with a Ph.D (name withheld to protect the gullible innocent)
Fact: “It would not be appropriate to specify a fixed goal for employment”—Federal Open Market Committee Statement on Longer-Run Goals and Monetary Policy Strategy, 01/29/19
Many Misery-loves-company folks of the fake MMT community are anti-Fed people, or doom-and-gloom perma-bears, or anti-capitalists (or all of the above). As a result, they routinely misinterpret basic economic concepts. For example, many fake MMTers (some with Ph.Ds) hear ‘The Fed’s Mandate Is Maximum Employment’ and conclude ‘The Fed is Intentionally Targeting Unemployment’.
The reason why, is because the FOMC Committee estimates the neutral (or ‘normal’ or ‘natural’) rate (aka ‘r star’) as the unemployment rate that ‘is neither increasing nor decreasing inflation’. The Fed posts this in their Summary of Economic Projections (aka the ‘dot plot’). Fake MMTers confuse that as meaning that the Fed is specifically ‘targeting’ that rate.
“We don’t look at the neutral rate of unemployment because it moves too slowly”—Fed Chair Powell, in Jackson Hole, Wyoming, 03/21/18
Rather than the fake MMT narrative that the Fed sets the unemployment rate, the Fed sets the ‘price’—or the interest rate—of money to attempt (to the best of its ability) to influence the rate of inflation (as mandated by Congress).
What the Fed is doing is inflation ‘targeting’ (setting interest rates to discourage price instability) and that is NOT to be confused with unemployment rate ‘targeting’ (setting unemployment rates to discourage more employment).
The pure MMT is that the Fed NEVER wants less employment. The Fed is ALWAYS trying to keep the jobs growth party going for as long as possible. Come this July, THE LONGEST JOBS GROWTH IN US HISTORY will officially become THE LONGEST ECONOMIC EXPANSION IN UNITED STATES HISTORY (which is more proof of just how brilliantly the Fed’s monetary-policy handling of the financial crisis has been).
Until that day, as usual, fake MMTers will keep ‘targeting’ gullible folks and will keep telling them that the reason why the masses are unemployed is all the government’s fault. They also ‘target’ those ‘evil’ fiscal policymakers, the ‘plotting’ Fed, and that ‘murdering-by-proxy’ Congress who is in on this ‘conspiracy’ to throw the person out of employment. As per the MMT ‘academics’ (who are better at politics than they are at teaching), unemployment is NEVER the fault of the person in the mirror.
The real reason why those lies are spread is because that person in the mirror that might not have a good job or any job at all will ALWAYS have a vote.
77DIF MMT MISINTERPRETATIONS #34: “Japan is our MMT poster child that keeps exposing the myths.”
Fact: Japan is a pure MMT case study why, from the very start of economic troubles, PEN STROKES, not more keystrokes, make much better solutions to grow an economy.
To be fair to Professor Bill Mitchell (where the above quote is derived) Japan first experimented with QE way before the US did, and that was good (that was a good step in the ‘Pure’ or ‘end-game’ MMT direction); but to paraphrase Jim ‘MINETHIS1’ Boukis, what political ‘prescription’ MMTers today aren’t grasping, is all that Debt / GDP in Japan, like many things, is fine—UNTIL IT ISN’T. To understand more about Debt / GDP, let’s take a step back into history.
Due to the inflationary measures undertaken to finance the US Civil War, it was too difficult to pay back debt in gold or silver, so the US gov’t suspended payments of obligations not legally specified in specie (gold bonds or gold certificates). This led banks to suspend the conversion of bank liabilities (bank notes and deposits) into specie. In 1862 paper money was made legal tender and as a fiat money (not convertible on demand at a fixed rate into specie) as a temporary ‘emergency’ war measure. These notes came to be called ‘greenbacks’. After the Civil War, Congress wanted to reestablish the metallic standard at pre-war rates; but, the market price of gold in greenbacks was above the pre-War fixed price ($20.67 per ounce of gold) requiring an intentional, gov’t-induced deflation to achieve the pre-War conversion price. This could be accomplished by growing the stock of money less rapidly than real output. The coinage act of 1873 (aka the Crime of ‘73) deflated the money supply. This act removed the 412.5 grain silver dollar from circulation leaving only silver coins worth less than $1 able to be used. It worked. By 1879 the market price matched the mint price of gold. With the resumption of convertibility on June 30, 1879 the gov’t went back to paying back its debts in gold and redeemed greenbacks on demand in gold. Greenbacks became perfect substitutes for gold coins.
Fast forward to today, as per MINETHIS1, a good way to predict currency appreciation / depreciation is to watch the stock of money (to watch the rate of money creations via federal ‘DEBT’), against the real output (to GDP).
Monetary policymakers today (who studied those monetary-policy actions taken in 1873) know that if you want deflation / currency appreciation, then grow the stock of money much less rapidly than real output: and conversely, if you want inflation / currency depreciation, then grow the stock of money much more rapidly than real output.
Japan is a ‘homogeneous’ nation (read: prefers racial ‘purity’—but not in a racist way, just in a way that cherishes & seeks to preserve its ancient customs & culture); which, like ‘anything’ (which like everything else) ‘is fine until it isn’t’. For example, as a result of wanting to embrace demographic purity, Japan today now has the most aged population among the G20.
Meaning that Japan’s labor force has been *literally* dying off which (among other moving pieces) has been causing deflationary forces, hurting the Japanese economy (suffering from ‘Lost Decades’). So Japan, which isn’t crazy about immigration (growing the ‘people stock’), has instead been fighting that deflation by growing the money stock (debt) more rapidly than real output (GDP). In other words, Japan’s monetary policymakers will keep trying to ‘keystroke’ their way out of a perilous economic situation (while blaming the Japanese citizens for having a ‘deflationary mindset’).
Rather than being an ‘MMT poster child’ and ridiculously saying ‘We Can Do That Too #learnmmt‘, Japan is a prime example of what NOT to do.
Here’s how political ‘prescription’ MMTers sound while whispering their sweet-nothings (their promises that you can have ‘anything’ because there is no financial constraint) in your ear (the pillow talk MMT):
“Japan has been a gem for demonstrating the neo-liberal myths about government deficits, debt and central bank debt purchases, inflation and bond yields. Japan is a living laboratory that should give you confidence that MMT is a much more robust explanation of what happens in a monetary economy where the government is sovereign (issues its own currency) than the mainstream economics approach.”—Bill Mitchell, ‘Our poster child keeps exposing the myths’, September 9, 2014
Here’s how they sound afterwards (after you-know-what-went-you-know-where): “Japan’s QE is a sideshow. While the Bank of Japan can accumulate JGBs in whatever volumes they choose and can never go broke if the price of those bonds in the secondary markets create ‘losses’, the policy will not deliver the inflationary spike that the IMF and the Bank of Japan is seeking. Inflation will accelerate only if fiscal policy pushes the growth rate and the demand for real resources above the potential growth rate and the resource availability.”—Bill Mitchell, ‘Bank of Japan’s QE strategy is failing’, April 24, 2018
No professor, Japan’s QE is not a ‘sideshow’. Nor is America’s QE a ‘sideshow’. Perhaps MMTers should stop listening to the pillow talk and pick up a copy of ‘The Only Game in Town’ by Mohamed El-Erian, which posited that if fiscal policymakers choose to ‘sequester’ (read: cower in foxholes and let others do the fighting against the enemy forces of deflation) then monetary policy, like QE, albeit not as effective as fiscal policy, is the ‘Policy of Last Resort’.
Right now QE is the only thing that is stopping the Japanese economy from falling into a deflationary death-spiral. In other words, Japan’s monetary-policymaker anesthesiologists must keep the patient in an induced coma until more effective fiscal-policymaker surgeons show up.
Meanwhile, Japan keeps losing steam. Japan’s GDP last year ($5.17T) was less than it was in 1995 ($5.45T). Japan was passed as the world’s second-largest economy by China in 2010 and today China keeps passing Japan in other ways (larger UN contributor, larger importer of natural gas, etc).
Note: Don’t get me wrong, I’m rooting for Japan. After living in the paradise city of Tokyo while working for a ‘shoken kaisha’ for 14 years; and even better, meeting my wonderful wife of 25 years there, I would love to see Japan make a comeback. Until then, fellow MMTers, let’s not kid ourselves.
Rather than being a fake MMT poster child, Japan is a pure MMT case study of why, from the very start of economic troubles, PEN STROKES, not more keystrokes, are the lasting solutions needed to grow an economy.
P.S. If you’re looking for a real ‘poster child’ of MMT, here you go:
“There’s no economic reason for raising taxes—and that’s been our position all along. To say you can’t do anything, because everything has to be ‘payed for’, or that ‘you are going to have to raise taxes’—meanwhile, these guys, are running the tables.
They’re doing defense spending—no ‘pay fors’.
They’re doing a trillion in tax cuts—no ‘pay fors’.
They’re going to come along with a tax cut 2.0—no ‘pay fors’.
They’re going to give money for a wall—no ‘pay fors’.
They’re already there.” /
“One of the funny things that happened is that in a way, the Republicans…kind of advanced the MMT agenda.”—Stephanie Kelton, The Second International Conference of MMT, Sept. 28, 2018 / Presidential Lecture Series Oct. 15, 2018
77DIF MMT MISINTERPRETATIONS #35: “US taxpayers do not fund the US government. The US government funds US taxpayers. All dollars used by the US private sector to pay federal taxes come from the US federal government.”
Fact: All dollars used by the private sector to pay federal taxes DO NOT necessarily come from the US federal government.
Unbeknownst to those in the MMT kiddie pool who wear those ‘all dollars used to pay taxes come from the government’ floaties, under the Taxpayer Relief Act of 1997, federal taxpayers can pay with a credit card.
The federal gov’t is the sole monopoly ‘issuer’ of dollars, but the MMT community often misinterprets that with meaning the federal gov’t is the sole monopoly ‘supplier’ of dollars.
Using their logic, if the total national ‘debt’ (all 22 trillion dollars that was created and entered into existence by the federal gov’t), was all completely ‘destroyed’ (taxed back), then there would be no money left to pay taxes. Which is nonsense—and why fake MMTers cannot get the ‘prescriptions’ taken seriously by experts in the field (because they can’t get the pure ‘description’ MMT right).
The pure MMT insight is that, when switching from a gold-backed currency to a fiat currency, the order of funding operations also switched. Unlike a ‘user’ of dollars, the monetary sovereign now doesn’t have to ‘collect’ (its own) money first. In fact, the federal gov’t doesn’t even have to collect any of its own dollars at all to fund spending; however, the paradigm difference is that the funding function took a back seat to other functions—like maintaining demand for the currency, maintaining price stability and the political functions.
The US government funds the US taxpayers first and then the US taxpayers fund the US government right back. That’s it—there’s no need to ‘create’ anymore MMT out of that.
Fellow MMTers: Be an MMT user, not an MMT issuer.
Thanks for reading & keep it pure,
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