BITCOIN IS NOT A COIN (!) (meaning it is not backed by the full faith and credit of any federal gov’t like a real coin is); and bitcoin cryptocurrency is not a currency (!) (meaning it is not regulated by any centralized authority like a real currency is); and a bitcoin exchange is not an exchange (!) (meaning outright trades of bitcoin are not taking place on an actual centralized and heavily regulated entity like the New York Stock Exchange).


“Think of bitcoin as just another pay pal for transaction purposes, but with a floating numeraire.” Warren Mosler (NOTE: Meaning from Day One, Mr. Mosler knew bitcoin was not a coin. The value of bitcoin, or the fractional ‘numerator’, does indeed change just like a fiat currency; but the outstanding float, the ‘denominator’ of bitcoin, unlike a fiat currency, is fixed, making bitcoin more like a ‘virtual’, or digital commodity more similar to a limited collectible, like precious metals).


“Bitcoin grew out of the global financial crisis that began in 2008. At that time, trust in institutions and the governments that regulated them were at an all time low. In the mist of this crisis, someone going by the pseudonym of Satoshi Nakamoto published a paper that outlined how a peer-to-peer electronic cash network could be created without the need to trust banks nor financial institutions. Shortly afterward the published software that allowed people to start building the network began.” (Bangkok Post 12/13/17)


In January 2009, the network came into existence with the release of the first issuance and first open source client…Bitcoin was born.


The market for bitcoin now has two sides. One side compares it to Tulip-mania, while the other thinks bitcoin and other crypto-commodity markets will continue growing. It is still hard to tell which one of these two competing narratives is right. To help you decide for yourself, here are some of the many milestones of bitcoin, as well as some of the many insights, during 2017:


04/01/17: 95% of the crypto-currency is traded on Chinese exchanges (better to not be an April Fool?).


05/24/17: Buyers have been piling into the digital currency amid speculation that the U.S. Securities & Exchange Commission may overturn its decision to ban the creation of a Bitcoin Exchange Traded Fund.


06/06/17: Bitcoin rose as much as 8 percent to an all-time intraday high of $2,875.34, eclipsing the previous peak reached May 25.


06/15/17: Bitcoin sank as much as 19 percent, putting the digital currency on pace for its worst week since January 2015


07/16/17: Bitcoin down 10% to $1833 and that ‘ethereum’ is puking too, down 25% to $135.


08/11/17: ‘BITCON?’: The price of a single bitcoin hit an all-time high above $3500 this week, dragging up the value of hundreds of newer, smaller digital rivals in its wake. Does the rising value of bitcoin continue to be based on little or nothing, except how much more the next person will pay for it (the definition of ‘Greater Fool Theory’) (?)


08/11/17: Coinbase raised another $100 million at a private offerings. The percentage ownership sold gave Coinbase a valuation of $1.6B meaning Coinbase became the first bitcoin ‘Unicorn’. NOTE: There is a fixed limit (a total amount of outstanding bitcoins) which has been set at 21,000,000 (why ‘gold bugs’ or any other haters of ‘fiat’ currency love bitcoin)…So far, only 17,000,000 bitcoins have been ‘mined’ (are in existence).
Also note: You don’t have to buy a ‘whole’ bitcoin, you can buy a fraction of a bitcoin for just a few dollars (you buy as little as 1/100,000,000th of 1 bitcoin = 1 Satoshi).


08/11/17: “When you look at the price of bitcoin and the google searches for bitcoin, the correlation is 1, so it just kind of shows you that people are doing a very thin analysis as to why they are buying bitcoin.” Scott Gamm of The Street.


09/04/17: China BANS Initial Coin Offerings (ICOs), calling it ‘illegal fundraising’. (NOTE: An ICO is a glorified ‘kick-starter’, a simple ‘crowd-funding’ increasingly used by blockchain teams to fund the development and scaling of decentralized projects). Bitcoin goes down 31% in the next 12 days. China is also considering shutting down bitcoin exchanges that operate in the country. Bitcoin is not regulated and used by shady people for things like money laundering…which the Chinese gov’t is not a fan of. Last week China banned businesses from raising money in the foem of bitcoin for investors (ICOs), now China is looking to put the kibosh on all Chinese bitcoin exchanges.


09/13/17: JPMorgan Chase chief executive Jamie Dimon doubled down on his past criticisms of bitcoin today, declaring it a “fraud” and saying he would fire any trader known to be trading the cryptocurrency for being “stupid”. Dimon later added that the cryptocurrency “will blow up”, according to CNBC. “It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed,” he added…

BUT, two weeks later, Goldman Sachs said they are considering the launch of a new trading operation focused on bitcoin and other digital currencies…

NOTE: Hmmmm, that is interesting (There is a good reason why Federal Reserve Bank policymakers are often alumni from Goldman Sachs, not JPMorgan Chase)…

What does Goldman know that Chase doesn’t (?)


09/25/17: Bitcoin, by and large, is made in China. The country makes more than two-thirds of all bitcoin issued daily. Bitmain China, one of the biggest bitcoin operations in the world, based on prevailing prices, issues about $300,000 a day which accounts for nearly 1/20th of the world’s daily production of the cryptocurrency.

“I do not think it’s going to be the money of the future. I think it’s the bubble of the present.” Peter Schiff


10/10/17: “The price of bitcoin will ‘collapse’ as cryptocurrencies face continued regulatory pressure from governments, Harvard economist Kenneth Rogoff said Monday.

“My best guess is that in the long run, the technology will thrive, but that the price of bitcoin will collapse,” Rogoff said.
Rogoff argued that increased efforts from governments to rein in virtual currencies could eventually contribute to a decline in speculative interest in the digital asset.

“The long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates,” he said.

“I have no idea where bitcoin’s price will go over the next couple years, but there is no reason to expect virtual currency to avoid a similar fate.”


10/11/17: Bitcoin exchange traded funds (ETFs) are struggling to get off the ground and receive approval from the U.S. Securities and Exchange Commission (SEC). Governments and traditional financial institutions are critical of Bitcoin and cryptocurrencies are being scrutinized carefully. In Europe there is currently an exchange traded note (ETN) available via the public exchange NASDAQ OMX in Stockholm, but clearing the bar in the US has been more difficult.

Laurent Kssis, Managing Director of XBT Provider, the Swedish company that actually launched the first Bitcoin ETN, and now a CoinShares Company, explains that the SEC has been fairly clear about its stance in recent months: “Until there is a professional grade futures market which has the liquidity and depth to supporting the hedging activities of a US based bitcoin ETF issuer, they will likely not be approving applications. So we are not surprised to see this (SEC rejections and registration filing withdrawals).” Laurent Kssis added that the three top reasons European clients like his bitcoin ETN is 1) that they don’t want to have a bitcoin ‘wallet’, just access via a normal broker/brokerage platform to invest, 2) they can invest bitcoin ETN in their tax-advantaged retirement account, and 3) because they are not experts in bitcoin they prefer that someone else is responsible for the security and storage of any bitcoin backing their bitcoin ETN investment.

Bharath Rao, CEO of of digital currency trading platform Leverj believes the SEC has been turning down applications for a Bitcoin ETF for some very solid reasons: “Bitcoin is correctly defined as a commodity and ETFs on other commodities such as gold are fairly standard. An ETF may choose to buy and hold the physical commodity held by themselves or a custodian. A cheaper alternative is to buy futures to back the ETF. A Bitcoin ETF that holds actual bitcoins is more likely to be approved than one that holds futures. This is because a regulated bitcoin futures market with sufficient history does not yet exist. Even a Bitcoin ETF with actual bitcoin is problematic without necessary operational readiness. The ETF would need to ensure that the coins cannot be lost or stolen and the shares issued reflect the amount of bitcoin held. This could be accomplished using multi-signature accounts with on-chain proof-of-audit. Eventually, these pieces will fall in place and an ETF could be approved. The advantage of holding a 100% backed ETF over actual bitcoin are minimal, since bitcoins do not have the transportation, security and storage costs of Gold or other commodities. However, a Bitcoin ETF is anticipated by the community as an endorsement and a fresh influx of capital, increasing value of each coin.”


10/12/17 “Bitcoin smashed through the $5,000 barrier for the first time ever on Thursday, jumping as much as 7 percent to chalk up its biggest daily rise in over two weeks. Bitcoin, the original and still the biggest cryptocurrency, has been on a tear recently, rallying nearly 75 percent in barely a month. It has chalked up a more than fivefold increase in price since the start of the year.” (Reuters)

NOTE: Of the two main groups in this mania: 1) Compulsive gamblers looking to get rich quick ‘trading’ in bitcoin, plus crooks looking to hide financial transactions by ‘settling’ in bitcoin; and 2) those that see the enormous potential and future applications of the blockchain technology, perhaps the greatest financial innovation in 500 years.

Case in point, the latter, Kasikorn Bank (KBank), Thailand’s fourth-largest lender by total assets, in collaboration with IBM, is the first bank in the world to introduce blockchain services (cheaper and quicker remittances, overseas fund wiring, etc etc). Another example, Omise, one of Thailand’s most successful payments start-ups, is an expert in online payment and blockchain technology. Omise secured $25M through an Initial Coin Offering (ICO). A subsidiary of the Bank of Ayudhya in Thailand and a member of the Mitsubishi UFJ Financial Group in Japan has invested in Omise. This collaboration is another solid step in Omise’s journey to build on its foundation of payment services and underpin its base not only in Thailand, but in other countries as well.

Is all this bitcoin mania just folks simply confusing bitcoin with blockchain technology, thinking that both are the same; just like many confused dot com stocks with information technology, thinking both were the same (?)…

Or is bitcoin just like that other widely-misunderstood phenomenon that is here to stay: Presidential candidate Donald Trump (the more people made fun of it, the higher it went) (?)


10/17/17: Robert Shiller weighs in: Bitcoin is a fad, just like bimetallism before it, according to one Nobel Prize-winning economist who compares the cryptocurrency to the bimetallism fad of the late 19th century when both gold and silver were accepted as legal tender. “I’ll take bitcoin, too, because I know I can sell it and get out of it. There seems to be some strange enthusiasm for it,” Shiller said on CNBC’s Closing Bell . “People get excited about things like new monetary standards. Remember bimetallism? It went into a fad, everyone was talking about it for a while. And then it faded.”


10/23/17: Bitcoin, which is unarguably the world’s most prominent digital currency, today just broke through one of the most important milestones ever, vaulting to over $6000 and over $100 billion in value, proving that cryptocurrency is, in all likeliness, here to stay. Let’s look at other reasons driving bitcoin demand. Today’s Bangkok Post had an article about Venezuelans mining bitcoin to escape inflation (that the IMF says could reach 720% this year) which has intensified since the collapse of oil prices in 2014 (which accounts for 96% of the country’s revenue). Having no confidence in the bolivar and struggling to get US dollars, many Venezuelans are buying machines (for $2800 online from China) which are basically modified computers to perform complex computations (essentially book-keeping for worldwide cryptocurrency transactions) for which they earn commissions in bitcoins. Caracas office worker ‘Veronica’ says her boss (neither a computer geek nor a financial wizard) installed 20 of these data-crunching machines, some of them bringing in as much as US$800 equivalent a month, very profitable, especially where electricity to run these power-hungry computers is heavily subsidized (practically free). Bitcoin gains are helping to buy food and medicine that are currently in acutely short supply there. The point being that many people are (legitimately) buying and/or mining bitcoin to simply escape a crippling economic and political crisis. Add citizens of Venezuela to the shady folks using bitcoin (to evade taxes), to the investors saving bitcoin in retirement accounts (to avoid taxes), to the action-craving speculators and to the hedging gold-bug ‘stackers’ to the growing, worldwide appeal of bitcoin which is increasing the price against the USD (and while you’re at it, throw in the Chinese bitcoin players, who would love to see ‘King Dollar’ get knocked down a peg or two from the top of the hill). When the facts change, so should your opinion. As we can see, there are socially conscious use cases alike to buy bitcoin. Another specific example, Africans in Paris use it to send money home to their families in crisis. There are other legitimate reasons. Remi Coux, 33, recently invested in bitcoin and other cryptos (ethereum & litecoin) to “repatriate my funds to France without paying those high bank fees”, said the New York University geneticist who explained he was dismayed at the cost (approx 3% of the amount) of conventional bank wire transfers overseas. Therefore, people are buying bitcoin as a store of value; as a currency hedge; as a payment method for economies without widespread credit card or banking access. These are not unsound, unethical nor nonsensical currency plays at all; these are, IMO, justifiable reasons to be holding bitcoin. Just like I shouldn’t insult people who buy gold (as long as it’s not much more than around 5% of their portfolio), neither will I any longer mock anyone nibbling on bitcoin as an alternative investment. So from now on I won’t call bitcoin a ‘bitcon’; that said however, we should still warn folks not to get conned into buying bitcoin because they think the “bitcoin” “cryptocurrency” is a coin or a currency. Bitcoin is an asset, yes; but bitcoin is neither a coin nor a currency. Bitcoin is a crypto-asset, or more specifically, a crypto-commodity, the same asset class as plain gold, or any other (precious) metal. An actual coin, an actual currency, is backed by the full faith and credit of an issuer. Just like gold, bitcoin is not backed by any issuer or any centralized authority like a monetary sovereign backing actual coins or currency. Bitcoin is just another variation of a digital commodity with a newfangled twist. The only difference between a DIGITAL commodity (aka ‘derivatives’) like a gold futures contract for example, is that all gold futures contracts are backed, or ‘derived’ from an underlying PHYSICAL commodity that would be ‘delivered’ if so desired. For that reason, a gold futures contract will never become worthless; and all coin & currency deposits under $250k held at commercial banks, because they are guaranteed by the federal gov’t, will also never become worthless (BUYER BEWARE, you can’t say that for any crypto-commodity).


10/25/17: Similar to the launch of ‘Bitcoin Cash’, bitcoin further split yesterday, starting the process of creating a new currency called ‘Bitcoin Gold’. In principle, bitcoin users on the bitcoin exchange bitFlyer Inc will receive an equal number of Bitcoin Gold (BTG) and the exchange will start supplying and trading BTG from Nov 1. The aim of BTG is to decentralize bitcoin transaction records processing (aka ‘mining’).

NOTE: All these so-called ‘forks’, and not to mention a new crypto going online practically every week, is punching a hole in that ‘scarcity trade’ thesis (yet another misconception).


10/28/17: China’s crackdown in September (ordering Beijing-based crypto-‘exchanges’ trading crypto-‘currencies’ to close) has resulted in Japan regaining its title as the world’s largest crypto-market winner in the past weeks (Japan’s crypto-friendly decision in April allowed bitcoin as a legal payment method and officially recognized eleven crypto-‘exchanges’ as long as they register with the gov’t). Japan, South Korea, HK and Singapore (safe havens because of favorable gov’t policies) are now where startups (where their servers) are being newly located. “Making up to half the global trading volumes, digital currencies are very popular with many retail investors in Japan and S. Korea who have given up their jobs to trade them full time.” Bangkok Post

NOTE: Newspapers calling bitcoin a ‘coin’ or calling crypto a ‘currency’ only adds to the crypto-buying frenzy. Online articles saying that Japan recognized bitcoin as ‘legal tender’ also adds to the confusion that bitcoin is a ‘currency’. Just because the gov’t of Japan allows bitcoin to be used to settle debts (the definition of ‘legal tender’) or just because Thailand allows bitcoin to be used to pay a tab at a noodle shop in Bangkok doesn’t mean that those countries have declared that bitcoin is a ‘currency’ (for the same reason why the American colonies which allowed commodities like beaver skins, wampum necklaces, cotton & tobacco bales as legal tender to settle tax debts were not considered ‘currency’ either). Another reason why bitcoin is a commodity and not a ‘currency’: Washington DC allowed the trading of bitcoin futures at the Chicago Board Options Exchange (Cboe) and the Chicago Mercantile Exchange (CME), which are regulated by the Commodity Futures Trading Commission. Which brings up yet another questionable thing. All the worldwide voices over mainstream media calling the online websites where bitcoin trades an online ‘exchange’ is another dubious stretch. An actual exchange, where outright buying and selling takes place, is a centralized, heavily regulated entity that, by law, is fully compliant with local securities laws and ‘knows its customer’, like the CME, like the Cboe, or like the New York Stock Exchange (so as to prevent criminal activities or a fiasco like the collapse of an entity posing as a real exchange —like Mt Gox).


10/29/17: “I believe there is still a nontrivial chance bitcoin goes to zero, but each day it does not, that chance declines as more venture capital flows into the bitcoin ecosystem and more people become familiar with bitcoin and buy it.” Bill Miller, whose ‘cryptocurrency’ position has been a major contributor to this year’s very strong performance in his Miller Opportunity Fund (up 19% YTD). 


11/01/17: The world’s largest futures exchange, the Chicago Mercantile Exchange (CME), announced today that it plans to launch bitcoin futures by the end of the year, pending regulatory review. “We have decided to introduce a bitcoin futures contract which will be cash-settled and based on the CME CF Bitcoin Reference Rate (BRR),” Terry Duffy, CME Group chairman and CEO, said in a statement. Bitcoin rose to a record high above $6,400.


11/07/17…More insight on CME’s decision to launch bitcoin futures: “Bitcoin is a new asset class, not a crypto-currency…it is likely to become a new asset class in its own right, such as gold or stocks, which can be traded by major investors and regulated, not simply a crypto-currency,” as per Chicago Mercantile Exchange (CME) group’s Chairman Emeritus Leo Melamed. While he was initially skeptical about bitcoin, “I too went from not believing (in bitcoin) to wanting to know more,” he said. We will regulate, make bitcoin not wild, nor wilder. We’ll tame it into a regular type instrument of trade with rules,” Melamed, 85, told Reuters.


11/13/17: In the news today, bitcoin had extended its recent drop to 29 percent from the record high (due to a cancellation of a technology upgrade to increase its block size). At the heart of the debate is how bitcoin’s underlying technology can accommodate rising transactions as its popularity booms. While increasing its block size would help, opponents argue it would only concentrate mining power, undermining the decentralized nature of bitcoin.

NOTE: Just to give you an idea of the roller coaster ride bitcoin is, the next morning bitcoin was recovering, it was up $557.93 (UP 9.05%).


11/17/17: It took just four days for bitcoin to make back last week’s loses and reach another record high close of $7843 on 11/16/17. In the news today: In anticipation of the launch of bitcoin futures trading by establishment firms (Cboe and CME) which will give bitcoin even more legitimacy as an alternative asset for investors, bitcoin trading firms are aggressively seeking top Wall Street talent, from back office to front office, to build-out infrastructure for the now-booming ‘cryptocommodity’ space.


11/21/17: “Bitcoin’s ‘market cap’* just passed McDonald’s, the McDonald’s with 37,000 locations, 375,000 employees, and $24 billion in revenue).”
Logan Mohtashami / Charlie Bilello‏

*NOTE: Great click bait, but keep in mind that it’s kinda silly to compare the ‘market cap’ of bitcoin to an actual market cap (of a real business). For an apples to apples comparison, you should measure bitcoin’s ‘aggregate value’ against other commodities. For example, gold has an aggregate value of approx $10T (h/t Warren Buffett: “The world’s gold stock is about 170,000 metric tons. If you molded all of it into a cube, it would be about 68-feet per side, about the size of a tennis court, which would fit comfortably in the middle of a baseball infield).”


11/22/17: ‘BITCOINS ARE THE LADYBOYS OF INVESTMENT’: Another head’s up for anyone considering hooking up with bitcoin or any of the other cryptos: BEWARE especially of the other ‘coins’ out there as well. I attended a seminar hosted by Paul Gambles, Managing Director of the MBMG Group investment advisory held at the Foreign Correspondents Club in Bangkok last night. Before the main speech on Artificial Intelligence and ‘Machine Learning’ portfolio management applications in legitimate Digital Financial Analysis services, Mr. Gambles warned that there are signs of ‘pump & dump’ price action taking place in the crypto space. Sites like ‘Pump My Coin’ that are QUOTE a “Cryptocurrency voting community that will choose the next coin to pump” UNQUOTE are ‘flourishing’. Remember folks, none of these ‘coins’ are regulated, meaning that any pumping and dumping, painting the tape, churning, and/or manipulating is NOT illegal (yet) (!) “I just keep trying to make the point that I see the scope for blockchain…I can’t envisage a way to design cryptos that rely on the trust of the users AND ensure absolute anonymity – if they’re totally anonymous, I just don’t see how they won’t get gamed – especially if (unregulated) therefore perfectly legal! Bitcoin, I’m afraid, is just as much a pump & dump as any other manipulated crypto. That doesn’t mean there aren’t opportunities to profit, but just as here in Bangkok after dark, things aren’t always as you’d expect. The lack of regulation is evident. Our research led us to discover that there are quite open pumping and dumping websites, and that users of Russian communication App ‘Telegram’ are actively and brazenly banding together to choose which crypto to pump & dump each week. These scams typically involve parties with hidden identities, who are acquiring a low value amount in assets and then bid up the price in such a way that genuine investors get tempted to part with hard earned cash for fake promises. Sometimes these actors are shells, registered for the sole purpose by pumpers; sometimes they can be legitimate innocent actors suffering setbacks causing the value of their assets to fall sufficiently that allow the bad actors to acquire a sufficient float to further manipulate the price” said Mr. Gambles


11/26/17: Bitcoin prints $9,000. In the news, Coinbase, the largest bitcoin exchange in the U.S., added about 100,000 accounts around Thursday’s Thanksgiving holiday, bringing their total customer base to 13.1 million…

…Also in the news, remember ‘Blue Horseshoe loves Anacott Steel’ (?) Now it looks like Ms. Watanabe* loves bitcoin. The bitcoin (BTC) / Japanese yen (JPY) pair has the largest share of total trading in the ‘cryptocommodity’ space. The bitcoin / U.S. dollar (USD) pair trading volume accounts for 24 percent and the bitcoin / South Korean won pair comes in third at 10 percent.

*NOTE: In Japan, housewives make up approximately 25% of the nation’s vast retail forex-trading market. They are such a force, that during the prolonged recession of the 1990s, the market gave them a name: ‘Mrs. Watanabe’, a common surname.


11/29/17 Bitcoin prints $10,000 (that’s a 945% YTD) at 10AM during Asia morning trading hours, and then at this writing, was already up another $1200 (12%+) to $11,156 only 12 hours later at 10PM (Bangkok time)….

In the news today, Vanguard Founder Jack Bogle Says “Avoid Bitcoin Like the Plague”…

…”Did I make myself clear?”

“Bitcoin has no underlying rate of return,” said Jack Bogle, 88, who started the first index fund in 1976. “You know bonds have an interest coupon and stocks have earnings and dividends. There is nothing to support bitcoin except the hope that you will sell it to someone for more than you paid for it.”

“It’s crazy to invest in the digital asset”, he added. “Bitcoin may well go to $20,000 but that won’t prove I’m wrong. When it gets back to $100, we’ll talk” Jack Bogle added.

HOWEVER, Max Keiser, born in NY in 1960, who went to New York University, and is now a journalist living in London, hosting The Keiser Report, has this take: “Bitcoin is unique…It answers two questions at the same time. Gold is the case study. Gold is also used as a store of value and a means of exchange as well…Bitcoin is gold 2.0…It does the same functions as gold…It’s true it takes a lot of electricity to mine bitcoin, but it also takes a lot of energy to produce gold as well. Everything in the protocol to make bitcoin, the proof of work, everything involved, makes bitcoin the perfect crypto-currency over the other coins (which are like the silver, bronze, and the other collectibles that are not as popular as gold). Bitcoin is the motherload…It is taking over global finance…It’s putting fiat money out of business and it has the bankers on Wall Street running scared. Jamie Dimon is peeing in his pants at this point because he knows he’s going to be out of a job in five years. We don’t need the Jamie Dimons of the world ripping us off…We don’t need Wells Fargo stealing money out of everyone’s accounts…We don’t need HSBC funding drug lords in Mexico to the tune of billions…We don’t need those bad actors in society and bitcoin gets rid of all those financial terrorists. It’s about time that someone stood up and did battle because the government is not doing it, the academics aren’t doing it, so we have bitcoin to do it.” Keiser is the creator, co-founder, and former CEO of HSX Holdings/Hollywood Stock Exchange, later sold to Cantor Fitzgerald. Alongside Michael R. Burns, he co-invented the ‘Virtual Specialist’ platform on which the Hollywood Stock Exchange operates. This technology allows traders to exchange virtual securities, such as “MovieStocks” and “StarBonds”, with convertible virtual currency called the “Hollywood Dollar”.

NOTE: I doubt bitcoin ‘gets back to $100’ nor will bitcoin ‘put fiat money out of business’ and if anyone actually believes that bitcoin gets rid of the ‘bad actors’ then they better google ‘Mt. Gox’ ‘NiceHash’ ‘Youbit’ or ‘Silk Road marketplace’.


12/08/17 “A dizzying week for bitcoin, with the price soaring 82% during the past seven days (2,200% during the last year). The action has been so volatile lately that by the time you read this, any price changes I note as I’m writing it will assuredly be obsolete.” Rick Newman Yahoo Finance. “At one point today (Dec 7) various exchanges quoted bitcoin prices that varied by more than $2,000, from a low of $15,592 to a high of $18,259 — all at the same time. On established financial markets, there can be very minor discrepancies in prices quoted simultaneously on various exchanges— but never in the range of 15% of a security’s entire value” he added.


12/10/17: Bitcoin futures begin trading on the Chicago Board Options Exchange (Cboe Global Markets Inc’s Futures Exchange) tomorrow. Chicago’s two largest derivatives exchanges are battling for the US bitcoin futures trade market. Both companies say that deals will be settled in cash the day after the contracts expire. It remains to be seen what the introduction of US futures trading will do to bitcoin. The speculative buzz is that the influx of institutional investors could spur bitcoin even higher; while others say that the ability to short bitcoin will crash the market. Brian Quintenz, the CFTC Commissioner, has warned that “it is incumbent on market participants to conduct appropriate due diligence to determine whether these products, which have at times exhibited extreme volatility, are appropriate for them.”

What’s the difference between the two exchanges? First, CME plans to limit investors to 1,000 contracts, while the Cboe will set the limit at 5,000. Second, CME prices will derive from four different Bitcoin exchanges, while Cboe contracts will be based on prices from Gemini, the crypto-commodity exchange run by the Winklevoss twins. Cameron Winklevoss is the chief executive officer and co-founder; his brother Tyler Winklevoss is the chief financial officer and co-founder of Gemini Trust Company LLC. The Winklevoss twin brothers (portrayed in the movie ‘The Social Network’) sued Mark Zuckerberg, claiming he stole the idea for ‘The Facebook’. They settled the legal battle for $65 million ($20 million in cash, $45 million in Facebook stock) and invested $11 million of the cash payout in 1% of the entire float of bitcoin in 2013 (then trading at $120). When the price of bitcoin traded over $11,500 recently, it was reported that with a combined net worth of $1.2 billion, the Winklevoss twins could be the first ‘bitcoin billionaires’. However, even the twins themselves have noted that older bitcoin aficionados probably have larger holdings. A likely candidate: the mysterious father of bitcoin, known as Satoshi Nakamoto. It is estimated that the person behind the Nakamoto pseudonym holds about 980,000 bitcoin (Today that would be worth over $11 billion). Cameron Winklevoss thinks the crypto-commodity’s blazing gains this year are just the start. He predicts it will rise as much as 20-fold as investors come to view it as an upgrade to gold.


12/12/17: “This is a very big victory for bitcoin last night,” said CNBC’s Jim Cramer, who like many folks, has been a vocal critic of bitcoin, warning investors that it’s like ‘Monopoly Money’ and people would be better off going to Las Vegas….

The Winklevoss twin’s claim that bitcoin could eventually replace gold as a repository also helped “mightily”, he added.

Meanwhile, U.S. Securities and Exchange Commission Chairman Jay Clayton warned investors of the dangers of putting money into ‘cryptocurrencies’, as crypto-mania swept markets with the launch of bitcoin futures. Clayton said in a statement that trading and public offerings in the emerging asset class may be in violation of federal securities law. The warning came as the SEC intervened to halt a $15 million initial coin offering. Munchee, a food review app, on Monday cancelled its ICO which was aiming to raise $15 million, after the company failed to register it as a security.

Overheard on LinkedIn: “The bitcoin ‘bubble’ argument seems weak…The global shifts to cheaper, transparent and efficient payment methods is real. I’ve stopped watching stock and bond markets because of the ridiculous ‘bubbles’ created in those markets by global central banks. Boy, if there were a ‘bubble’ anywhere that’s where it is.” Ken Yagami


12/18/17: After bitcoin set a new record of $19,666 on Sunday, Singapore’s central bank joined other central banks worldwide and issued their own warning the next day. “Cryptocurrencies are a digital commodity rather than a digital currency” the central bank said. ( READ :  B I T C O I N   I S   N O T   A   C O I N )


12/22/17: BITCOIN BULLS V. BEARS: In the worst selloff since 2015, bitcoin plunged 30% on Friday, as the frenzy surrounding it faced one of its biggest tests yet. Bitcoin and most other crypto-commodities clawed their way upward the next day on Saturday, halting the four-day tumble that drew worldwide attention to the unregulated $500 billion market that is frequently being called a bubble.

(NOTE: Many of the recent news stories and market moves connected to bitcoin and the crypto-space continues appearing to carry hallmarks of garden-variety, bubble mania; while at the same time more news keeps coming out that the crypto-craze is here to stay. For example, also this week, shares in Long Island Ice Tea Corporation, a ready-to-drink iced tea company, rose as much as 289% after the unprofitable, Hicksville NY-based company renamed itself  ‘Long Blockchain Corp’; while at the same time Goldman Sachs confirmed that they are setting up a trading desk that will be operational by June to make markets in crypto.)


12/28/17: BOTTOM LINE: Here’s my last entry (since this post is just for the bitcoin highlights of 2017). I hope there was enough information above for readers to make their own decision whether to be a bitcoin bull or a bitcoin bear (and like all the rest of your financial decisions, not let someone else make them for you). I hope one of the takeaways readers get out of this post is that if anyone is a bitcoin bull, hopefully they aren’t confusing buying bitcoin with ‘investing’. Buying bitcoin only appears as if they are investing (the main takeaway of pretty much everyone else and why they are bitcoin bears). IMO, the rising price of bitcoin is mainly due to 1) Short-term speculating (folks driven by greed, Fear Of Missing Out, or an endless craving for ‘action’, etc etc); 2) ‘Investors’, another stretch, more like long-term speculators (folks buying and holding because they believe bitcoin is here to stay which could very well be true); and 3) Hedging (folks with ‘gold-bug mentality’ that don’t have faith in fiat currency). I personally have no problem with anyone buying bitcoin. There is nothing wrong with going to the track, picking horses and having fun watching them run (as long as they know they are gambling, and as long as they are only using ‘play money’). Full disclosure, after hearing both sides, I am personally leaning slightly bitcoin bullish but I never bought any. I presently live in Bangkok, I tried to buy bitcoin, but so far the online sites I tried will not yet accept Americans to open accounts (most likely because they have not yet met US regulations & compliance requirements). My understanding, the only way for a citizen of the US to buy bitcoin in Thailand is by cash, a so-called ‘cash exchange’, after which your bitcoin goes into your bitcoin ‘wallet’ (instead of going into your account at a so-called ‘online exchange’). Meaning that a ‘cash’ bitcoin trade is a person-to-person (P2P) transfer, which is sort of like a glorified ‘Craigslist’ or ‘eBay’ arrangement that you make with people that didn’t need to show any ID to become my counter-party (which I’m not comfortable with). So for now, I will keep watching bitcoin from the sidelines and wishing I was long bitcoin (especially when that day in the not-too-distant-future comes when that 21st millionth bitcoin is ‘mined’ and the scarcity games actually begin). I will end this post with a quote from Andrei Popescu, co-founder of the Crypto-One-Stop-Solution (COSS) exchange. This is my favorite bitcoin quote of all of 2017, especially the last line, which goes for any market (heck for life itself): “There is no right current price to reflect the current right valuation of bitcoin. Buying bitcoin into a long term projection is right. Selling bitcoin and taking profit is also right. You don’t have to be right, just less wrong than the rest.”

Happy New Year!

Thanks for reading,


Photo of Gemini Trust CEO & co-founder Cameron Winklevoss with twin brother CFO & co-founder Gemini Trust Company Tyler Winklevoss


Pure MMT

Pure ‘hawk’: “I judge that it is appropriate to continue to remove monetary policy accommodation (RAISE RATES) gradually.” New York Fed president William Dudley

Pure ‘dove’: “If we go too far in our zeal to normalize (RAISE RATES) we might push inflation expectations down further and that might hinder our ability to hit our target.” St Louis Fed president James Bullard

Pure ‘moderate’: Others were more on board with the December rate increase, though they also offered some skepticism. Atlanta Fed president Raphael Bostic, the newest of the 12 Fed presidents, believes the US central bank should (RAISE RATES) by the end of the year, though he is “not wedded” to that position and continues to track the data closely. Robert Kaplan, chief of the Dallas Fed said inflation “is likely building” given the low unemployment rate, which would make the case for further hikes (RAISE RATES).

‘Pure’ MMT is the day when all fiscal policymakers talk like this too. All that fiscal policymakers need to do is to take the above thought processes and replace ‘raise rates’ with ‘INCREASE SPENDING‘…

Rather than clinging to the old-outdated-idiosyncrasies from a bygone debt-denominated-in-gold-backed-dollars era (like the amount of the quote-US-National-Debt-unquote), the main determinate of fiscal policymaking decisions in our modern monetary system (where there is no such thing as the US federal gov’t, a monetary sovereign, being in debt of their own fiat US dollars) should be inflation expectations (same as in all monetary policymaking thought processes and decisions)…

In a perfect (‘pure’) MMT world, all the households, businesses, local & state gov’t, any ‘user of currency’, is concentrating on balancing their budget (to maintain prosperity); while all federal monetary policymakers, all federal fiscal policymakers, any ‘issuer of currency’, is concentrating on balancing their economy (to widen that prosperity).


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The Seven Deadly Innocent Misinterpretations

Deadly Innocent Misinterpretation #1: ‘Federal taxes are a destruction’…


Fact: Only federal taxes paid after a certain point has been reached is an actual ‘destruction’.


Saying ‘taxes is a destruction’ is not entirely accurate. It misses a much more important concept that only MMTers who are fully grasping the distinctions between deficit spending, which adds dollars to the banking system (adds net financial assets because they are not funded by taxes); and surplus spending, which doesn’t add dollars to the banking system (doesn’t add net financial assets because it is funded by taxes).

After federal taxes (usually paid with a check made payable to ‘The Treasury’) are ‘destroyed’ (debited), there is an equal and opposite ‘creation’ (credit) of reserves to the Treasury’s General FUNDS Account (GFA) at the Fed, the same Treasury account that all federal spending is drawn from.

There are two ways that injections of newly-created reserves to the GFA are decreased:

1) Those reserves are debited from the GFA and newly-created dollars are spent towards on-budget federal expenditure (a bygone remnant known as ‘surplus spending’). If those reserve amounts have accumulated to the point where there is no deficit spending needed at all for the fiscal period (the Clinton years), then…

2) …those reserves are also debited from the GFA and newly-created dollars are credited to individual Treasury bondholders INSTEAD of to people that provided goods or services provisioning the gov’t. In other words, the reserves are ‘spent’ towards ‘paying off’ the national ‘debt’ (that idiosyncratic, gold-standard-era throwback to the fiscal-year ‘budget surplus’).

NOTE that in the first scenario, there is NO permanent ‘destruction’ of net financial assets from the banking system (the surplus spending ‘refunds’ a temporary ‘destruction’); and in the second scenario, there IS a permanent destruction because there are less of those non-federal gov’t savings accounts. Sustained fiscal year budget surpluses result in less of those non-federal gov’t assets that we still call US Treasury bonds (aka the national ‘debt’ by those still using not-so-modern monetary ‘mentality’)…

If at the end of a fiscal year, the federal gov’t had a budget deficit, that means that there was a creation of net financial assets. If at the end of a fiscal year, the federal gov’t had a balanced budget, that means that there was no creation. If at the end of a fiscal year, there was a budget surplus, there was a destruction.

This crucial distinction, this ACTUAL DESTRUCTION, is why all six depressions in US history were preceded by sustained, fiscal year federal gov’t budget surpluses.


Deadly Innocent Misinterpretation #2: ‘Gov’t deficits equal non gov’t surpluses’…


Fact: Gov’t deficits can also equal non gov’t deficits.


Gov’t deficits equal non gov’t surpluses’ isn’t entirely accurate because the non gov’t is comprised of two sectors, so in the post-gold standard, POST-NAFTA, modern monetary system, we need to be careful when blurting that out.

First of all, I suggest never saying ‘gov’t v. ‘non government’ because it is too easy to confuse a local gov’t or a state gov’t as being part of the ‘government’ rather than being part of the ‘non government’. Whenever explaining MMT to the uninitiated, I always say ‘federal government’ v. ‘non federal government’. Once you have hard-wired ‘federal government’ v. ‘non federal government’ into your MMT thinking (into your student’s MMT thinking), trust me, it is much easier to separate out the federal gov’t and everyone else (the households, the businesses, the local governments, the state governments, and even the foreign governments) in the non federal gov’t.

As all MMTers are aware, the non federal gov’t consists of two sectors, the ‘non federal gov’t / Domestic’ (aka the private sector) and the ‘non federal gov’t / International’. As per the Sectoral Balances chart, the federal gov’t deficit always equals the two non federal gov’t sectors COMBINED, yes; but sometimes a federal gov’t deficit results in a deficit for the non federal gov’t / Domestic as well. Case in point, in each of these following years, while the federal gov’t had run a fiscal year budget deficit, the ‘non federal gov’t / Domestic’ had run a deficit as well (h/t Chris Brown ‘Sectoral Balances info-graph of US Private Sector Dollar Drains & Dollar Adds Since 1992′)…


$107B federal gov’t deficit in 1996:

$170B surplus to the non federal gov’t / International

(-$63B) deficit from the non federal gov’t / Domestic


$22B federal gov’t deficit in 1997:

$181B surplus to the non federal gov’t / International

(-$159B) deficit from the non federal gov’t / Domestic


$157B federal gov’t deficit in 2002:

$532B surplus to non federal gov’t / International

(-$375B) deficit from the non federal gov’t / Domestic


$378B federal gov’t deficit in 2003:

$532B surplus to non federal gov’t / International

(-$154B) deficit from the non federal gov’t / Domestic


$412B federal gov’t deficit in 2004:

+$655B surplus to non federal gov’t / International

(-$243B) deficit from the non federal gov’t / Domestic


$318B federal gov’t deficit in 2005:

$772B surplus to non federal gov’t / International

(-$454B) deficit from the non federal gov’t / Domestic


$248B federal gov’t deficit in 2006:

$647B surplus to non federal gov’t / International

(-$399B) deficit from the non federal gov’t / Domestic


$161B federal gov’t deficit in 2007:

+$931B surplus to the non federal gov’t / International

(-$770B) deficit from the non federal gov’t / Domestic


$458B federal gov’t deficit in 2008:

+$817B surplus to the non federal gov’t / International

(-$359B) deficit from the non federal gov’t / Domestic


The private sector also had a deficit in 2013, 2014, and 2015 (but not to worry…the accumulated private sector deficit since 2008 is no way near the level before the credit crisis).

However, NOTE that in all these years above, the non federal gov’t / International’s ‘black ink’ was the non federal gov’t / Domestic’s ‘red ink’. If you think about that, in effect, all those years above, from the perspective of the US private sector, those years had the same exact debilitating consequences as if the federal gov’t, by proxy, ran sustained budget surpluses.

All previous depressions in US history were preceded by sustained federal gov’t surpluses. As per Warren Mosler, using old metrics (before the 1990s when the federal gov’t sliced up unemployment into multiple ‘tranches’ from U1 to U6), the definition of a depression used to be if unemployment hit (averaged over) 10%. According to the Bureau of Labor Statistics (BLS), a unit of the US Department of Labor, at the end of the last (‘Great’) recession, in June 2009, unemployment (the ‘U3’ official unemployment rate) was 9.5 percent. In the months after the recession, the unemployment rate peaked at 10.0 percent (in October 2009). Mr. Mosler was onto something. Calling the last economic downturn a ‘recession’ was sugar-coating the reality. The ‘Great’ recession, the ‘Worst Economic Downturn Since The Great Depression’ (as we were told), was a depression, and for practically the same reason as all the others (sustained private sector deficits).

My guess, when MMT goes mainstream, focusing on the accumulated amounts of these private sector deficits (instead of focusing on the accumulated amounts of federal gov’t deficits) will not only be considered another leading economic indicator, but will serve as a much better guide for fiscal policymakers when making deficit spending decisions.


Deadly Innocent Misinterpretation #3: ‘The subway token doesn’t fund the subway’…


Fact: This is a misinterpretation of 7DIF Fraud #1. The subway token and the stadium ticket analogies only mean that the monetary sovereign issuing its own pure fiat currency won’t ever run out of tokens or tickets (no solvency risk, no constraint on spending), not ‘the tokens don’t fund the subway’.


This misinterpretation is a classic example of MMT ‘academics’ confusing the modern monetary ‘theory’ (where we will be in the not-so-distant future) with the not-so-modern monetary ‘formalities’ still existing (albeit unnecessarily) in our not-so-modern monetary ‘reality’ (where we are right now). Of course subway systems don’t pay subway employees in tokens (which makes the utterance *technically* correct), but instead of saying ‘the tokens don’t fund the subway’, perhaps it’s better to say something like, “The tokens are part of the transfer mechanism and the subway company controls the transfer mechanism by feeding it with tokens at will” (h/t Teo Teodorescu).

The MMT ‘academics’ that keep using this meme have no idea how ridiculous they sound when they say this outside their choir (to someone who has actually bought a subway token or a stadium ticket). “They insist on reducing MMT to useless platitudes, all over this stupid term ‘fund’” (h/t Vernon Etzel).

My question to these ‘academics’ who wave bye bye to double entry accounting each time they say ‘the subway token doesn’t fund the subway’ is: Does the subway rider also get ‘destroyed’ when he puts the token in the turnstile?

Of course not.

The ‘destruction’ (The debit) of tokens (of tax credits) triggers a ‘creation’ (triggers a credit) of riders (of reserves) into the subway car (into the Treasury’s General FUNDS account at the Federal Reserve Bank) and travel (and are electronically key stroked) in a special tube underneath the city (via the monetary base) which those riders soon exit (which soon get debited) out from the subway (out from the GFA) and go back into (and credited to) the city (the money supply) from whence they came (from whence they came).


Deadly Innocent Misinterpretation #4: ‘All federal spending is financed by High Powered Money’…

Fact: ‘Newly-created’ money finances all spending, but ‘newly-created’ money is not the same as ‘High-Powered’ Money.

While a Ph.D. candidate in 1998, Stephanie Bell wrote a paper entitled ‘Can Taxes and Bonds Finance Gov’t Spending?’ As per Stephanie Bell (now Dr. Stephanie Kelton), “Modern federal governments finance all of their spending through the direct creation of new ‘High Powered Money’.


The Federal Reserve Bank is independent, and the reason why, was the result of a public spat in 1948 (the end of WWII / beginning of the Korean ‘conflict’) between the Fed and the Treasury that was eventually resolved in the ‘51 Fed-Treasury Accord. That argument, between the Fed (Marriner Eccles, Chair of the Federal Reserve since 1934) and the Treasury (Secretary of Treasury Henry Morgenthau) started because the Treasury didn’t understand the difference between ‘newly-created’ money and ‘high-powered’ money (HPM). The Fed won that fight but it cost Eccles his job.


At the time Eccles had this rift with Treasury, the Fed (unlike today as a result of the ‘51 Accord) could buy Treasury bonds directly from the Treasury. In those days, instead of holding auctions, the Treasury would simply set the coupon rate of new Treasury bonds as low as possible. If the public didn’t buy them (with existing dollars), the Treasury would tell the Fed to support the interest rate peg (buy the bonds) with newly-created dollars. While the Treasury was only concerned about cheap financing for the war, Eccles was only concerned about stoking post-war inflation (which would ultimately increase the cost of the war).


As per Chair Eccles, the inflation between VJ Day and the Korean War was NOT caused by armament production (most of the weapons were already made), nor large deficits (the gov’t was in near surplus), it was caused ONLY by the Treasury department’s low rate easy money debt management policy.


Saying ‘all federal spending is HPM’ is similar to saying ‘all federal spending is endogenous money’, another misinterpretation. The Exo (‘exogenous’-created, or ‘vertically’-created money) v. Endo (‘endogenous’-created, or ‘horizontally’-created money) question comes down to whether money is newly-created by the former, in other words, by the issuer (no corresponding liability attached); or by the latter, one of the users (corresponding liability attached). All federal gov’t spending is ‘newly-created dollars, yes, and when the federal gov’t adds newly-created dollars, that’s the Fed’s doing (aka ‘Inside Money’), sure, but that only appears to be endogenous. Keep in mind, when the Fed creates reserves that are added to the Treasury’s spending account (GFA), that’s just the Fed acting as the agent (for the Exo guys over at Treasury & Congress).


For instance, all federal gov’t spending is newly-created money (newly created reserves into commercial banks which in turn become newly-created dollars into the money supply), absolutely; but the newly-created money of surplus spending is only making whole a previous destruction (‘defunding’) of net financial assets (or a future destruction, whatever). Only deficit spending adds dollars to the banking system, only deficit spending increases net financial assets, so we should only be calling the newly-created money of deficit spending (only 15% of total spending in 2016) ‘high powered money’, not total spending (100%). Unlike surplus spending, only deficit spending has the inflationary bias, and why Eccles feared HPM in 1948.


Another for instance, during the credit crisis after the Lehman bankruptcy, should those $4.2T in ‘newly-created’ reserves that financed all that federal government spending on Treasury & MBS bonds that the Fed bought from banks for quantitative easing (QE) have be considered HPM?

That answer would have depended on which MMT ‘academic’ (or which bond ‘king’, or which hedge fund ‘star’) you asked.


If you asked me, I would have said that those newly-created reserves for federal gov’t spending during QE were not HPM (they did not have an inflationary bias), because those newly-created reserves were merely a ‘swap’ trade (same as the newly-created money for any surplus spending).


On the other hand, unlike QE (and unlike surplus spending), deficit spending is not a ‘swap’ trade. Deficit spending is an ‘outright’ trade. Unlike QE (and unlike surplus spending), only Congress can authorize an outright trade. Deficit spending is an outright increase in net financial assets, meaning that ONLY deficit spending, unlike QE (and unlike surplus spending), results in an outright addition of ‘hot’ money into the banking system that has an inflationary bias, and that’s why Fed Chair Eccles coined that money ‘HPM’.

I highly recommend all MMTers, after reading Warren Mosler’s 7DIF, next read Beckoning Frontiers by Marriner Eccles, our Fed system’s first chairman, from whom all the ideas of FDR’s New Deal came from, and whom the Federal Reserve System’s building in Washington, D.C. four blocks from the White House, is named after.


Deadly Innocent Misinterpretation #5: ‘Banks don’t lend reserves’…


Fact: Banks don’t lend reserves as loans to retail clients, not that they don’t lend reserves at all.


Saying ‘banks don’t lend reserves’ was accurate before the credit crisis (when there was only $42B in non formal bank reserves), but not entirely accurate post-LSAP.

Banks do, in fact ‘lend reserves’ all the time. It’s called the overnight market” (h/t Vernon Etzel).

Agreed…Trading desks at non formal banks are *literally* lending their Fed reserves in the repo market to the tune of a half a trillion in notional value today:


Statement of Condition of Each Federal Reserve Bank (The Fed balance sheet):


06/26/08 Before LSAP (‘Q.E.’)

Fed total liabilities = $1.044T ($989B cash currency in circulation ;

$42B Non formal bank reverse repurchase agreements;

$13B Formal bank reserves held on account at the Fed)


09/28/17 After LSAP (‘Q.E.’)

Fed total liabilities = $4.2T ($1.533T cash currency in circulation;

$0.455T Reverse repurchase agreements with the Fed which are reserves being “lent out” for collateral at 1.00% aka the FFR ‘floor’;

$2.178T Formal bank reserves at the Fed earning 1.25% aka the FFR ‘ceiling’)

Banks don’t need deposits from outside the banking system to make loans to the private sector. Bank lending to the private sector creates reserves within the banking system. These reserves are traded through interbank bank lending (overnight market) to meet the reserve requirements (of other commercial lenders). Perhaps, the defensible ‘meme’ is: “Banks don’t need deposits to make loans” (h/t Charles Kondack).

“The phrase is meant to attack fractional reserve lending– and in that sense it’s true; but it is not a tautology without further qualification. Platitudes like ‘banks don’t lend reserves’ are useful in a brawl with the radical fringe, but useless in persuading common people to a pro-deficit position” (h/t Vernon Etzel)


Deadly Innocent Misinterpretation #6: ‘Bank reserves held at the Fed don’t enter the economy’…


Fact: Bank reserves held at the Fed do enter the economy.


Banks in aggregate can reduce their reserves which can actually enter the economy only to the extent that they initiate new lending and the public demands more physical currency (cash) that flow into the economy as new banknotes.


Statement of Condition of Each Federal Reserve Bank (The Fed balance sheet):


06/26/08 Before LSAP (‘Q.E.’)

Fed total liabilities = $1.044T ($989B cash currency in circulation;

$42B Non formal bank reverse repurchase agreements;

$13B Formal bank reserves held on account at the Fed)


09/28/17 After LSAP (‘Q.E.’)

Fed total liabilities = $4.2T ($1.533T cash currency in circulation;

$0.455T Reverse repurchase agreements with the Fed which are reserves being “lent out” for collateral at 1.00% aka the FFR ‘floor’;

$2.178T Formal bank reserves at the Fed earning 1.25% aka the FFR ‘ceiling’)


Deadly Innocent Misinterpretation #7: ‘Taxes don’t fund spending’…


Fact: In the post-gold standard, modern monetary system, because taxes now perform other more important functions, taxes ARE NOT NEEDED to fund spending (not that they don’t at all).


This is the worst of the seven deadly innocent misinterpretations. It is often regurgitated by MMT ‘academics’ and those in their choir especially because Dr. Bill Mitchell, Professor L. Randall Wray and Professor Stephanie Kelton love to say it too. Don’t get me wrong, Mitchell, Wray & Kelton are the great ones; however, even the great ones do swing and miss sometimes, and saying ‘taxes don’t fund spending’ is a miss.

Warren Mosler has explained many times before why MMTers shouldn’t say ‘taxes do not fund spending’. The MMT pillar is ‘taxes ARE NOT NEEDED to fund spending’ (not that they don’t). Warren Mosler doesn’t say ‘taxes don’t fund spending’ because in his words, “it’s ambiguous.” Furthermore, Mr. Mosler also says “tax liabilities are not…revenue PER SE” (he doesn’t say that they aren’t AT ALL).

Saying ‘taxes don’t fund spending’ shows a lack of banking experience and a confusion with simple financial concepts like funding (which gets ironically weird if MMTers are saying ‘taxes don’t fund spending’ while lecturing other people on banking and finance).

Whether we like it or not, the simple fact that doesn’t fit the ‘taxes don’t fund spending’ narrative is that all federal taxes paid are a ‘destruction’ (debit) from our commercial bank account, yes; but that’s only the half of it (only one ledger side of the double entry ledger). Those taxes simultaneously trigger an equal and opposite ‘creation’ (credit) to the Treasury’s General FUNDS Account at the Fed (which is the exact same account where all federal spending is drawn from). Until those accounting rules and appropriations laws are changed, ‘taxes don’t fund spending’ remains the ‘theory’ in Modern Monetary Theory, so if you say it, you are jumping ahead at best; or at worst, you are unwittingly admitting that you haven’t fully grasped MMT.

“The whole bit about taxes not funding spending is this: Reserves are destroyed upon receipt by the Fed, and newly created upon spending. That is the thrust of the (Stephanie Bell) paper, and I’m not disagreeing with that. It’s just an accounting thing; reserves don’t “exist” in the interim between receipt and spending, so the reserves used to pay taxes cannot be used to spend. It’s an esoteric point, because the numbers do show up as an addition to Treasury’s account. I think that it’s important to understand what ‘taxes don’t fund spending’ really means, and I think the discussion should have been a useful exercise – but people are getting up in arms about it, instead of learning” (h/t John Biesterfeldt, Founder of Intro to MMT – Modern Monetary Theory).

Sure, saying ‘Taxes don’t fund spending’ is *technically* correct, so why don’t MMTers instead say ‘Taxes don’t *technically* fund spending’ (same as it says in the Stephanie Bell paper)? Even better, if an MMTer really wants to sound like they are truly comprehending both ‘pure’ modern monetary theory plus the not-so-modern monetary reality, say this:


  1. Surplus spending ‘refunds’ a future decrease of net financial assets…
  2. Taxes ‘defund’ net financial assets…
  3. Deficit spending ‘funds’ net financial assets…


Saying ‘taxes don’t fund spending’ also shows a lack of understanding, that, even though we left the gold standard, and we are now a monetary sovereign, some remnants, several old processes, many accounting constructs, US appropriation laws, of the past monetary system, ARE STILL IN PLACE. We need to recognize these complexities. Remember, MMT is the heterodox. We cannot afford to make mistakes when explaining MMT (especially to folks that are suspicious of our intentions). If we want to make the MMT case to experts in the field (the folks we need to change these pesky accounting rules and US laws), oversimplifications are not good enough for them.

“Saying ‘Taxes don’t fund spending’ is an excellent sermon to preach to the choir… not gonna fill the pews with new converts though” (h/t David Swan).

Agreed…but I’d be even more blunt. If you are having trouble keeping your listeners on the MMT bunny slope over at ‘academic’ hill awake during your lectures, then keep saying ‘taxes don’t fund spending.’ If you are promoting some product or promoting yourself under the guise of promoting MMT, then say ‘taxes don’t fund spending’. If you are selling some amateurish double-down trading system to compulsive gamblers trying to get rich quick, say ‘taxes don’t fund spending’. If you are speaking to a simplistic flock of lost souls and lonely hearts that ‘like’ you, ‘share’ you, and ‘heart’ you, (will vote for you) because you’ve sold them on the notion that their bad lot in life is someone else’s fault, and that you’re going to get them free stuff in a Marxist utopia, then say ‘taxes don’t fund spending’. If, however, you are truly speaking for the MMT cause, then take the hint from Warren Mosler, so for everyone’s sake (mainly yours), stop saying it.

Don’t get me wrong, by suggesting that MMTers go beyond the memes and use better verbiage, I’m just trying to help the MMT cause. Whatever politics someone has, whatever spending on public purpose anyone wants, for the common good, for the country, is fine by me. Please know that I understand when any MMTer says any of these seven gimmicky catchphrases (misinterpretations), they mean well. There is no doubt in my mind that all MMTers understand that description of “the workings of the monetary system, what’s gone wrong and how gold standard rhetoric has been carried over to a nonconvertible currency with a floating exchange rate and is undermining national prosperity.” Warren Mosler 7DIF

Thanks for reading,


Eddie D


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The funny thing about that Large Scale Asset Program (‘QE’)…

…is that if you think about it, it was a dry-run of a not-too-distant, completely-accepted-by-mainstream, full-blown modern monetary theory (MMT). During those years, one arm of the federal gov’t was selling $2.4T of so-called debt (as it it still known by those using not-so-modern monetary ‘mentality’ from a bygone gold-standard era) and another arm of the federal gov’t was buying it back. $2.4T of that federal gov’t deficit spending, usually ‘funded’ by bond sales, was *literally* not funded by bond sales. In other words, rather than going through the outdated, unnecessary and idiosyncratic modern monetary ‘formality’ of that $2.4T of federal gov’t deficit spending being ‘bond-financed’, every single penny of that $2.4T of deficit spending was just simply ‘cash-financed’ (it was ‘Pure’ MMT).

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The silliest substantiation for ‘taxes don’t fund spending’ ever

How Does The Federal Government Actually Spend

How Does The Federal Government Actually Spend?Professor L. Randall Wray, on with Steve Grumbine of Real Progressives, explaining what actually happens when the Treasury spends. Wray goes through a simplified version that leaves out some intermediate steps, but these intermediate steps all cancel out of the final process, and the end result is exactly what he describes. (Sort of like how if I gave something to you to give to your cousin for me, the net result is that I gave something to your cousin).When the Treasury goes to spend, it tells its bank, the Federal Reserve, to credit (turn a number into a larger number) the reserve account of a bank (banks all keep "reserve accounts" with the Federal Reserve, which they use to settle payments), and then the bank credits the checking account of whomever is receiving the payment. So, the Fed credits a bank's reserves and a bank credits a customer's account.The reverse happens when the Treasury receives a tax payment. The Federal Reserve debits (turns a number into a smaller number) the reserve account of a bank, and the bank debits the checking account of whomever sent the payment. The net result here is that federal government spending adds to the quantity of reserves and deposits, while taxing decreases from it (as do bond sales, aka government "borrowing"), and it all happens via keystrokes. Or in short, the government does all of its spending by simply crediting bank accounts. It is not "spending tax dollars," it is changing numbers on spreadsheets. There is no possibility of it being unable to make a payment, no possibility of it being forced into bankruptcy or default, no possibility of interest rates being forced up because of government deficits (on a floating exchange rate), and no purely financial limit on government spending, only real resource limits.If you want to know more details about the exact procedure, all of the steps, as well as citations to back it up, check out these links:The Greatest Myth Propagated About The Fed: Central Bank Independence (Part 2): And Central Bank Interactions: Debt Operations: see how this incorporates into a broader heterodox worldview on the nature of money, as contrasted with the establishment orthodox views:—Watch the whole video here: Deficit Owls on Facebook and Twitter: follow our sister page, Modern Money Memes:

Posted by Deficit Owls on Wednesday, August 2, 2017


If you hear an MMTer (proponent of Modern Monetary Theory) say ‘taxes don’t fund spending’, assume either the speaker is simplistic, or the speaker thinks the audience being spoken to is simplistic.


How do we know that what Professor L. Randall Wray says here is being ‘simplistic’? Here you go, right from the horse’s mouth, the very first line in the video: “It’s complicated, but it can be simplified”…”and so I’m going to simplify it but the way I’m simplifying it is not at all misleading.”…”What I’m saying is a simplification but it is not dishonest at all”…”it’s not misleading you.” (When someone says something like ‘no bullshit’, 3x in a row, right before saying something, take a wild guess what’s coming next).


“If you go back to the colonies, every time, say the Colony of Virginia, they would pass a law authorizing the colonial gov’t to print money (paper Treasury notes), they also would pass a law to impose taxes…and the tax they imposed was equal to, would generate the amount of revenue, equal to the amount of (paper Treasury) notes they were going to issue”…”Do you know what they did with the paper notes they got back in tax collection?”…”They burned them.”…”That makes it very clear how it worked.”…”Did the Colony of Virginia need the tax revenue to make their payments?”…”Clearly not.” (Bullshit…What happened in Virginia was ‘clearly’ the exact opposite of that. In 1755, not only did taxes have to fund spending in Virginia, they had to start funding spending in England for the Seven Years War (a lot of more spending). British pound sterling, personal bills of exchange, promissory notes, Spanish silver coins, other gold coin specie, and even tobacco, beaver skins or wampum, were all accepted for payment in the colonies, were all considered ‘real money’, ‘hard money’, or ‘commodity money’ (what all combined then we today call ‘legal tender’). So what would happen if money in the colonies was put on a boat and sent to England to fund spending in Europe instead of funding spending in the colonies? Any ‘drain’ like that can create destructive deflationary forces. The solution would be to introduce another form of legal tender money of an equal amount of these lost tax revenues to reflate the money supply. Which is exactly what other colonies had done while paying military expenses for England’s other military expeditions before, and is exactly what Virginia did for this one in 1755).


“They needed the taxes to get the money back to burn it, to remove the notes from circulation, to prevent inflation, it was not to allow them to spend the revenue, they didn’t spend it, they burned it”…”Taxes clearly didn’t fund spending in Virginia in 1755.” (Bullshit…Taxes paid in paper Treasury notes were burned to prevent price inflation, yes, but that’s not the whole story. The rest of the story is that taxes paid in hard money funded (Virginia commonwealth) spending and some taxes paid in hard money was also sent to England to fund (European military) spending. How this worked: When any Virginia tax was paid in hard money like British pound notes or tobacco, which was 20% of taxes paid during the Seven Years War, most of that hard currency would be sent to England to fund spending. So to resupply that lost money, new paper notes would be printed and spent into the economy to maintain the stability of prices. If any Virginia tax was paid with the paper Treasury notes, which was 80% of taxes paid during the Seven Years War, because those paper Treasury notes were only legal tender in Virginia, only spendable in Virginia, those paper Treasury notes wouldn’t be leaving Virginia. A payment of Virginia taxes in paper Treasury notes meant no ‘drain’ of hard money from Virginia (no *literal* voyage of hard money away from Virginia’s economy), meaning an unchanged local ‘money supply’ of hard money. Therefore, a payment of Virginia taxes in paper Treasury notes meant no new paper notes were immediately needed to be issued and spent into the economy (to re-supply anything lost); so since those notes served their purpose, they were burned, a.k.a ‘redeemed’ (similar to the IRS today shredding any tax payment made in cash). Unlike the urgent need to issue new paper notes if taxes were paid in hard money (to control deflationary forces), the Commonwealth of Virginia may or may not have needed to issue new paper notes to replace taxes paid in paper notes (to control inflationary forces). What was really happening here, the actual teachable moment, was that this was the prototype of 20th century Fed open market operations that maintains price stability. Depending on whether the Virginian taxpayer made a payment in hard currency or not, the issuing and burning, the adding and draining, the easing and tightening of colonial Treasury notes, of money, to maintain price stability in 1755, was the precursor to the Fed buying and selling modern day Treasury notes from the secondary bond market for a similar reason).


“It was NOT to allow them to spend the revenue, because they never spent the tax revenue”…”They burned all the tax revenue.” (Bullshit…Professor Wray leaves out an inconvenient fact that doesn’t fit the ‘taxes don’t fund spending’ narrative, which is that they ONLY burned the paper Treasury notes, and NOT the tax payments made in British pound notes or tobacco bales that was also collected. They didn’t burn the personal bills of exchange or promissory notes that was also used to pay Virginia taxes, nor did they ‘destroy’ the Spanish silver coins plus other gold coin specie, those hard money payments of TAXES, WHICH FUNDED SPENDING in both Virginia and England starting in 1755).


“The Fed was created in 1913, we were an unusual country, we didn’t have a central bank, we got by without one.” (Bullshit……We weren’t ‘getting by without one’. Our country was suffering numerous banking panics and prolonged economic depressions without one. The Fed was the fourth attempt at a central bank that finally stuck. Sure, there was not a central bank in 1913, but what about those three other central banks we had earlier, the precursors of the Federal Reserve System, that because of populist opposition, did not have their charters renewed? Alexander Hamilton, our first Treasury Secretary, oversaw the chartering in 1791 of the First Bank of the United States, our second attempt at a central bank, which assumed all the Revolutionary War debt, and started collecting excise TAXES, WHICH FUNDED SPENDING).


“The Fed was created to be the Treasury’s bank, so instead of the Treasury just printing up notes in order to spend, and then receive them back and burn them, what the Treasury will do is have the Fed make their payments for them, so the Fed, since 1913 makes all the Treasury payments”…”If you’re a contractor selling something to the gov’t, the Treasury, they tell the Fed ‘please make a payment to this guy’s bank account’, the Fed credits you, the Fed credits your bank’s reserves, that’s how the Treasury spends”…”Now when you on April 15th pay your taxes, you write a check to the Treasury, the Treasury then tells the Fed to ‘please debit this guy’s bank account’, the Fed debits you, the Fed debits your bank’s reserves”…”So the Treasury spends by the Fed crediting bank reserves and the Treasury receives tax payments by debiting bank reserves, it’s functionally equivalent to burning the paper notes, so nothing I just told you is misleading.” (Bullshit…When you pay your taxes to the Treasury, before your tax dollars are ‘burned’ from your commercial bank, the Treasury tells the Fed to credit, to FUND, the Treasury reserves account at the Fed in the exact amount, to the penny, of your tax payment. It is a misrepresentation at best, or you sound like a fool at worst, telling people that their federal tax dollars just go *poof* and don’t trigger credits to other accounts. The MMT pillar is that since the federal gov’t is no longer spending gold backed dollars, and now spending fiat dollars, those taxes ARE NOT NEEDED to fund spending…not that they don’t. The paradigm difference is that in the post-gold standard, modern monetary system, for any issuer of fiat dollars, revenues as a financing operation takes the backseat).


The last line in the video: “That was beautifully simple…” (AGREED…It was beautifully simplistic).


Thanks for reading,


P.S. Another thing, the Commonwealth of Virginia in 1755 was a USER of currency (just like the State of Virginia today), so any MMTer that likes to say ‘taxes don’t fund spending’, may want to rethink ‘going there’ when talking about Virginia (no matter what time in history). Don’t get me wrong, Professor L. Randall Wray is one of the great ones; however, even the great ones do swing and miss sometimes, and saying ‘taxes don’t fund spending’ is a miss. Please know that I understand when any MMTer says it, that they mean well. There is no doubt in my mind that all MMTers understand that description of “the workings of the monetary system, what’s gone wrong and how gold standard rhetoric has been carried over to a nonconvertible currency with a floating exchange rate and is undermining national prosperity” (Mosler 7DIF). Warren Mosler, the father of MMT, has explained many times before why saying ‘taxes do not fund spending’, is wrong because the MMT pillar is ‘taxes ARE NOT NEEDED to fund spending’ (not that they don’t). Warren Mosler doesn’t say ‘taxes don’t fund spending’ because in his words, “it’s ambiguous.” In other words, saying ‘taxes don’t fund spending’ shows a lack of banking experience and a confusion with simple financial concepts like ‘funding’ (which gets ironically weird if MMTers say ‘taxes don’t fund spending’ while lecturing other people on banking and finance). Saying ‘taxes don’t fund spending’ also shows a lack of understanding that even though we left the gold standard, and we are now a monetary sovereign, some remnants, several old processes, many accounting constructs, US appropriation laws, of the past monetary system, ARE STILL IN PLACE, and we need to recognize these complexities. If we want to make the MMT case to experts in the field (the folks we need to change these pesky accounting rules and US laws), oversimplifications are not good enough for them. Whatever politics someone has, whatever spending on public purpose anyone wants, for the common good, for the country, is fine by me. I’m just trying to help the MMT cause by pointing out how ridiculous any MMTer sounds when saying ‘taxes don’t fund spending’, no matter how simplistic the choir (and how silly that choir looks when not challenging anyone sounding ridiculous).

The ‘Debt Clock’ Strikes…Again

It doesn’t surprise me that about 97% of the folks out there get seriously worried about out-of-control federal government deficit spending every time they see this ‘debt clock’. This is why it also doesn’t surprise me that about 3% of the folks out there have as much wealth, if not much more, than those other 97% combined.


Fake news is not just confined to politics, this ‘debt clock’ is the monetary version of fake news, and just like any fake news, this ‘debt clock’ is pushing a narrative. Fake news is not a recent thing, it is everywhere, about everything, so the trick is to stand back from the picture, tune out the noise, and do your own research, do your own journalism, just like the real news used to do (Not a newsflash: the real news waved bye bye to journalistic integrity decades ago).


I noticed a recent posting on the popular Intro To Modern Monetary Theory (MMT) website on Facebook, with yet another worrisome query regarding the ‘debt clock’. What concerned this person (questioning the validity of MMT), was outstanding ‘total societal debt’. In particular, was the clock reading of ‘money’ (‘M2 Money Supply’) being outnumbered by ‘debt’ (‘US Total Debt’) by a factor of 5. “That would suggest that we,” the post said, “as a society, operate from a position of insolvency.”


Cue: “BONG” (The ‘debt clock’ strikes…again).


Let’s take a closer look at the ‘debt clock’. The first number that meets the eye is the ‘US NATIONAL DEBT’ of $19.9T on the top left. It’s wrong. Since 1971 (since the switch from gold backed dollars to pure fiat dollars was completed and made official) there is no ‘US National Debt’. There was a federal gov’t debt before the switch (because the federal gov’t could not issue gold-backed dollars out of thin air) but there is no debt after the switch (because the federal gov’t can now issue fiat dollars out of thin air). Today, in the post gold standard, modern monetary system, there is no such thing as the issuer of a pure fiat currency (any monetary sovereign nation using a non-convertible, free-floating currency) ever being in debt of that currency. The federal gov’t, the issuer of dollars, doesn’t need to ‘borrow’ its own dollars. Selling federal ‘debt’ is no longer needed as a financing operation. Rather than being needed to fund spending using gold-backed dollars, US federal gov’t Treasury bond sales, now denominated in fiat dollars, perform other vital fiat-currency functions (such as upholding demand for the currency, fulfilling savings desires, maintaining price stability, and defending the overnight interest rate target). So either the ‘US National Debt’ figure is wrong (s/b $0.00), OR, the word ‘debt’ s/b changed. Why? The federal gov’t is the sole issuer of fiat dollars. Those US Treasury bonds that make up the ‘US National Debt’ are obligations, yes (they are backed by the full faith and credit of the federal gov’t); they are liabilities, sure (the federal gov’t promises to pay semi-annual interest and pay back the principal at maturity); but a “debt”, no. For example, IBM has liabilities to pay dividends on all outstanding shares of IBM stock, yes; IBM has an obligation to honor the equity ownership to those IBM shareholders, sure; but those IBM shares are not a “debt” to IBM, the sole issuer of IBM stock. Ask any accountant and they will confirm that all debts are liabilities / obligations but not all liabilities / obligations are debts. The way to look at federal gov’t “debt”, the reality, is that those Treasury bonds, just like IBM shares, are investment holdings, they are savings, of the private sector. So on the ‘debt clock’, the ‘US National Debt’ figure is wrong, or the wording is wrong (s/b US National Savings).


The ‘US TOTAL DEBT’ figure ($67.5T) shown on the ‘debt clock’ is deceiving (domestic financial debt of $16T plus domestic non financial debt of $48T plus plus foreign financial debt of $3.5T). The ‘debt clock’ should not include ‘domestic financial debt’ ($16T) in this ‘total’ figure. Why? Domestic financial debt is double-counting the debt because domestic financial institutions borrow solely to re-lend, so it should not be included. Furthermore, the ‘US Total Debt’ figure in the ‘debt clock’ includes foreign financial debt ($3.5T) which is obvious why it also shouldn’t be included in a ‘US Total Debt’ figure.


Moreover, the ‘M2 MONEY SUPPLY’ figure ($13.5T) on the ‘debt clock’ needs to be changed. The federal gov’t breaks down ‘money’ into several classifications (monetary base, M1, M2, etc.) for the same reason that they break down employment numbers (U1, U2, U3, etc.). The federal gov’t does this because only one of these headline figures of ‘money’ or ‘employment’ has a significant effect on movements in the economy (economic indicators), so they just need to be watched more closely (NOT that the others are NOT ‘money’ or NOT ‘employment’). For a better read on the money supply figure on the ‘debt clock’, better to add back in all the money, including those US Treasury bonds. Warren Mosler, the father of MMT, argues (correctly) that US Treasury securities ‘held by the public’ ($16T) should be included as part of the money supply because like dollars in our checking, savings, and retirement accounts held at banks (the ‘M2 Money Supply’ figure on the ‘debt clock’), those bonds are also our savings at the Treasury via the Federal Reserve Bank.


Finally, the most eye-popping ‘red ink’ on the ‘debt clock’, that ‘US UNFUNDED LIABILITIES’ ($106T), is another deception. ‘Unfunded’ is not as sinister as it is intended to look. ‘Unfunded’ only means that these liabilities are ‘pending’, that they haven’t been funded because they simply haven’t come due yet (not that they are ‘unfunded’ because the federal gov’t will be ‘unable’ to pay them). For example, a young worker’s past withholdings to Social Security (off-budget) is not ‘saved’ in a ‘lockbox’ for the future. The federal gov’t automatically credits each contribution amount towards today’s federal gov’t (on-budget) expenditures. The way the federal gov’t records both that after-the-fact ledger entry and to also counter-post a future Social Security check that worker will receive at retirement age is called ‘unfunded liabilities’. ‘Unfunded liabilities’, a.k.a. ‘Intra-gov’t debt’, is merely the double-entry accounting construct on the consolidated balance sheets of the United States federal gov’t that reconciles today’s receipts vs. tomorrow’s payments. There is nothing at all to worry about because those ‘unfunded liabilities’ are denominated in dollars, and there is absolutely no problem for the federal gov’t to pay any amount of ‘unfunded liabilities’ in dollars. The federal gov’t, the issuer of dollars, the sole monopoly supplier of dollars, will not run out of dollars! Today, the federal gov’t will happily issue more fiat dollars and hand them over to you in exchange for your labor (your blood, sweat & tears) provisioning the federal gov’t. You, however, will run out of time on earth (finite resource) swapping it for those dollars (infinite resource) and why the federal gov’t will gladly do this trade


The key to making fake news believable, to give the scripted narrative some legs, is to make sure that you mix in enough real news, at least 40% (“I have the feeling about 60% of what you say is crap.” David Letterman to Bill O’Reilly 01/04/06). Aside from the figures I mentioned above, the rest of the figures in the ‘debt clock’, like ‘STATE DEBT’ and ‘LOCAL DEBT’, are legit. For example, because they are in the same boat as you & I, all US local & state gov’t debt is real debt (unlike the federal gov’t, the rest of us are all users of dollars, not issuers of dollars). Again, despite those figures adding up ominously on the ‘debt clock’, there is nothing to worry about. For all that debt of the 50 US state governments combined, the median debt-to-GDP ratio is an easily-serviceable 2.4%.




The USA is the #1 economy…


Local & state gov’t debt is under control…


There is no federal gov’t debt to worry about, and…


US National Household Assets are over $100T in Q1 2017…


(Keep this in mind the next time you hear the alarm from that ‘debt clock’).


Thanks for reading,

Eddie D  

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Quantitative Redemption

In a May ’17 speech (05/23/17) at the Bank of Japan (BOJ) entitled “Some Reflections On Japanese Monetary Policy”, former chairman of the Federal Reserve Bank Ben S. Bernanke suggested that Japan’s fiscal and monetary policymakers ‘coordinate’ their programs to improve the Japanese economy. What he was saying was that it would be great if somehow Japan could maximize fiscal spending while at the same time (with a ‘team effort’), minimize federal borrowing. If so it “could make fiscal policymakers more willing to act and increase the impact of their actions.”
On June 27, 2011, about a month before S&P downgraded U.S. federal gov’t debt (Treasury bonds) from AAA to AA+, former Republican (TX) congressman and then-presidential candidate Ron Paul was discussing Greece’s fiscal trouble with Iowa radio host Jan Mickelson. He offered a solution to the debt ceiling impasse which appeared five days later in a post on the New Republic website entitled “Ron Paul’s Surprisingly Lucid Solution to the Debt Ceiling Impasse” by Dean Baker, a Ph.D. in economics and co-director of the Center for Economic Policy Research in Washington DC. He wrote that during the radio show Ron Paul had suggested an idea that might give some reassurance to the markets and could make investors gain confidence. “If the U.S. were to wipe out (write-off) the debt (the Treasury bonds) that the Fed was holding on their balance sheet (bought during Quantitative Easing), they (the fiscal policymakers in Congress) will all say ‘Hey, they’ve just reduced the deficit by over a trillion dollars, now they can handle it, and they can go back to meeting their other obligations’.
What a fantastic idea…
Let’s call it ‘Quantitative Redemption’…
In a QR, the Fed would announce that the $2.4T in Treasury bonds presently on their balance sheet are, effective immediately, redeemed (‘called’ before maturity date). We are only redeeming the Treasury bonds (20yr< maturity) and Treasury notes (10yr – 20yr maturity) on their balance sheet, not the other $1.8T in Agency bonds and Mortgage Backed Securities (MBS) the Fed also bought and are also on their balance sheet.
The Fed’s holdings (the Fed’s ‘balance sheet’) of these Treasury bonds are in the System Open Market Account (SOMA), with an approximate combined 120 month average maturity (‘duration’). The duration of the Fed’s US Treasury bond portfolio hasn’t changed much since the Large Scale Asset Purchases (LSAP) program ended, because to this day when any of those Treasury or MBS bonds mature, the Fed automatically reinvests (‘rolls over’) the proceeds in new securities of the same type and the same maturity. Of the $2.4T of the SOMA Treasury bond holdings, approx 92% have a 10-year maturity or more.
Effective June 15, 2017, the Rate on Required Reserves / Rate on Excess Reserves (IORR / IOER) is 1.25%. The amount of reserves sitting at the Fed is approx $2.3T, meaning that to target the Fed’s desired level of overnight rates (‘Federal Funds Rate’), the Fed is paying out 1.25% interest costs on that $2.3T of reserves. The average weighted coupon of the Fed’s Treasury bond portfolio on its balance sheet is approx 1.75%, meaning the Fed, which is a part of the federal gov’t (‘independent within the federal gov’t’), is getting ‘paid’ from the federal gov’t about 1.75% interest income on that $2.4T of Treasury bond holdings. Two more quarter-point rate hikes by the Fed, which could happen within a year, and that so-called profit from that difference (‘spread’) disappears so it is no coincidence that the Fed is now jawboning about unloading (‘unwinding’) these bonds (selling them back to the secondary market) starting at the end of the year. Furthermore, redeeming the Fed’s Treasury bond portfolio and losing this annual interest income the Fed earns, would not cause a liquidity (‘negative equity’) problem. QR is not redeeming any of the Agency bonds. The Fed would still have $1.8T of MBSs throwing off approx $54 billion/yr, and that’s using a conservative 3% rate, so if they did QR there would be plenty of cash (‘fiscal space’) and no problem at all for the Fed to keep paying IOER.
How this QR works is ridiculously easy. There is nothing to actually do, except announce that instead of continuing to keep these Treasury bonds ‘impounded’ (held on the Fed’s balance sheet), the Federal Open Market Committee (FOMC) has declared all these Treasury bonds redeemed, and no longer exist. (The FOMC may decide to do this piecemeal, whatever). This QR wouldn’t be anything new. Redeeming bonds is not an exotic concept, it’s done all the time by everyone, the only difference being that this would be the first time the federal gov’t is doing it with Treasury bonds. For example, other bond issuers like businesses that issue debt (‘corporate bonds’) and municipalities that issue debt (‘muni bonds’) have called their bonds before maturity date. This happened a lot since the credit crisis (since the LSAP program) because prevailing interest rates fell way below the rates being paid out to bondholders, so these issuers exercised what is known as an embedded call option (bonds without this option are called ‘bullet’ bonds, meaning that they cannot be called). If bonds are called by the bond issuer, the bondholder has no say in the matter. Bondholders are simply notified that their bonds are being redeemed and the bondholders then receive a cash payment in full for the entire bond principal (their ‘par value’) plus any remaining accrued interest at the financial institution where the bonds are held (‘registered’). This is exactly what the Fed did during LSAP. Another example of a bond call, if a homeowner decides to pay off a mortgage before the term (‘prepayment’), same thing, the homeowner called the ‘bond’ (the debt owed) from the issuer (the lender). What Ben Bernanke did during LSAP was also not much different from a company purchasing its own shares (‘buyback’), which if not retired, are held on the company’s balance sheet (‘Treasury stock’). The beauty of this QR idea is that this buyback step is already done. There is literally nothing the Fed has to do. All of the $2.4T in Treasury bonds were already called, all of the bondholders were already paid, and all of the markets already had their ‘temper tantrum’.
If the Fed did a QR this year, it’s actually not a redemption of the Treasury bonds this year, it’s only making it official that there was a redemption of Treasury bonds during the LSAP years. On December 29, 2008 the Fed began QE1, and after a combined total $2.4T of Treasury bond buybacks, the Fed ended QE3 on September 24, 2014. Now let’s step back from the picture and take another look at what happened. Prior to the 2008 credit crisis, one arm of the federal gov’t (the Treasury department) sold $2.4T in Treasury bonds, and then after the crisis another arm (the Federal Reserve Bank) bought them back. Except unlike any regular Joe Blow who buys back his own IOUs, instead of ripping them up, the federal gov’t didn’t rip them up. The federal gov’t put those IOUs, their own IOUs, in their own pocket. Then the federal gov’t started making semi-annual interest payments to itself, from itself, on all $2.4T of these Treasury bonds, on its own IOUs (and still does to this day). The point is, that all those Treasury bonds could have been declared ‘paid off’ the day Ben Bernanke created dollars (‘reserves’) and credited the sellers of those bonds long ago, but the Fed didn’t do that.
The difference between Chairman Ben Bernanke and Joe Blow was that Ben did not have the authority from Congress to pay those bonds off. The Fed is only a ‘swap’ desk. The Fed can only create or destroy reserves in a swap of assets which is not a net increase of dollars in the banking system (not an addition of net financial assets). The Congress is the ‘outright’ desk. Only Congress can authorize deficit spending which is a net increase of dollars in the banking system (an addition of net financial assets). Only Congress can allow any action that would outright change the cumulative count of previously authorized deficit spending (the ‘national debt’). The Fed cannot usurp the ‘power of the purse’ from Congress, hence impounding the bonds during LSAP on the Fed’s balance sheet for a future unwinding (another swap that is ‘printing’ bonds back into the secondary market and simultaneously ‘unprinting’ reserves). So in reality a QR would just be the Fed going through the formality of getting permission to formally declare that the bonds were already redeemed.
If QR was done and the Fed redeems (debits) the Treasury bonds, there must be an equal and opposite ledger entry (credit) to replace them. In other words, something must replace these Fed assets (‘balance sheet repair’). Congress could authorize the Treasury to mint a $2.4T coin to be transferred to the Fed. Again, this would not be anything exotic nor unprecedented (The Gold Reserve Act of 1934 authorized the Fed to transfer all of its gold to the Treasury in exchange for gold certificates denominated in dollars). This would effectively replace the Treasury bonds (dollars with a coupon and a specific maturity date) with a coin (dollars without a coupon and a perpetual maturity date) without needing to create and enter reserves into the banking system (it was already done).
Here’s the best part. This QR, this redemption, this removal of $2.4T of previous ‘Debt Held By The Public’ will mark down the national debt from approx $20T to $18T, a TWELVE PERCENT DECREASE, not a bad day’s work. Furthermore, this partial removal of federal debt at the same time removes that financial specter which would give more fiscal policymakers the latitude to spend (and give more Americans the confidence to spend). Just the initial news leaks of this QR even being considered would encourage fiscal policy makers to quickly enact productive, counter-cyclical measures to boost the economy and get back to ‘serving the common good’ for a change (QR is a fiscal policyMAKER stimulus).
QR helps the Fed speed up the process of returning the Fed to business as usual (‘normalization’). After QR the Fed’s balance sheet no longer has all these Treasury bonds that were put there as a result of the credit crisis. This would be a dramatic signal that the US central bank is closer to being back to pre-crisis conditions, an important optic that helps assuage consumer concerns. As Ben Bernanke suggested in his BOJ speech, this QR, this ‘coordination’, between Congress and the Fed, would compliment future rate hikes and continued jawboning from Fed Chair Janet Yellen as per her March 15, 2017 statement that “the simple message is that the economy is doing well.”
Another point, that Treasury General Funds Account (GFA), where all federal spending is drawn (debited) from, that becomes overdrawn if federal gov’t spending exceeds taxes, which must be replenished (credited) with Treasury bond sales (which increases the national ‘debt’), that’s yet another bonus of doing a QR. Deficit spending was about $0.5T in FY16, so that means if you redeem $2.4T of the so-called national ‘debt’ in a QR anytime soon, that’s at least another four years of not hearing about the (nonsensical) ‘debt ceiling.’
QR is an idea that could be done quickly. As quickly as the Fed bailed out those banks in 2008. As quickly as the Fed facilitated AIG so they could honor their outstanding trades to Goldman Sachs. As quickly as AIG was made whole so they could send their Financial Products Desk executives on junkets to celebrate still getting bonuses. As quickly as those credit crisis measures back then that helped make some problems of the few go away, policymakers could right now make other problems of the many go away.
If the US did this, perhaps Japan, a country with a national debt of over ONE QUADRILLION yen, might follow suit. In a single day, the BOJ could announce a quantitative redemption amounting to approx 425 trillion yen of Japanese Government Bonds (JGBs) presently held on their balance sheet as of May 20, 2017. That would be an overnight reduction of their national debt of 43%…
Which would get people around the world thinking that the big bad national ‘debt’ problem might not be such a big bad problem after all (What MMTers have been saying all along)…
There’s just one problem with this idea. The only thing missing from this bold, actionable, idea, is a bold, actionable, policymaker.
Thanks for reading,
Eddie D
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h/t CHRIS BROWN ‘bonds & battleships’ graph

What The Great Recession, The Great Depression, and the Previous Depressions in US History All Had In Common

When it comes to US federal government spending, we are constantly told how ‘unsustainable’ federal gov’t deficit spending is, yet the opposite is true. History has shown, time and again, that only US private sector deficit spending can ever reach a point of being ‘unsustainable’…


The reason is simple. It is because the federal gov’t is the issuer of dollars, and the rest of us are not. We are users of dollars, we all have to ‘get’ dollars from somebody, from somewhere, while the federal gov’t, the issuer of dollars, the sole monopoly ‘supplier’ of dollars, does not…


The one thing that the 2008 Great Recession, the 1929 Great Depression, plus the five previous depressions in US history (the ‘Panics’ of 1893, 1873, 1857, 1837, & 1819) all had in common, was that each of them were preceded (started) by sustained US private sector deficit spending. In addition, there was also that one thing in common that ended the Great Recession and those six other depressions. Each of them were followed (ended) by sustained federal gov’t deficit spending…


For the US private sector to avoid being forced to consistently deficit spend (forced to deplete savings which leads to US private sector deficit spending), the US private sector depends on the deficit spending of the US federal gov’t to consistently ‘supply’ newly-created US dollars, known as a ‘dollar add’ that finance newly-created federal gov’t demand (that finance ‘demand-side’ economic policies like new spending in conjunction with ‘supply-side’ policies like tax cuts). However, what we learned from the 2008 Great Recession was, just because the federal gov’t is deficit spending, just because federal gov’t deficit spending is supplying newly-created dollars entering into the banking system that increases non federal gov’t net financial assets (federal gov’t deficit = non federal gov’t surplus), that still doesn’t necessarily mean we in the US private sector are good to go…


The non federal gov’t is divided into two sectors, the Non federal gov’t / domestic and the Non federal gov’t / international. If in any given year the US trade deficit is as much as, or even larger than, the US budget deficit, that means all those newly-created federal gov’t deficit spending dollars that year, that ‘dollar add’, skipped right over the US private sector and went straight into the US bank accounts of overseas interests. Those dollars were promptly converted to foreign currency to pay overseas workers, factories, shipping, plus any other expenses and profits generated from that product sold in America (Note: US dollars never ‘leave’ the US banking system, however, the damage is already done because the entire production of said goods took place overseas, instead of here in the US, causing what is known as a US aggregate ‘demand leakage’). Those ‘dollar adds’ all going to the non federal gov’t / international sector, that’s the same difference, that’s just as bad, for the non federal gov’t / domestic (US private sector) as if the federal gov’t ran a surplus, meaning no newly-created federal gov’t deficit spending dollars, no ‘dollar-adds’ for the US private sector in that case either. This is EXACTLY what happened for thirteen straight years in a row from 1996 (cough *nafta* cough) to 2008…


Let’s check out exactly how those dollars from the federal gov’t to the non federal gov’t for the first of those thirteen years got divvied up. In 1996 the US budget deficit (total federal gov’t deficit spending funded by newly-created dollars which were a net increase of dollars entering into the banking system) was $107B. Meaning there was a $107B addition of net financial assets, a ‘dollar add’ to the non federal gov’t (the domestic US private sector and the international sector combined). So far so good for both non federal gov’t sectors in 1996, but the US trade deficit in 1996 was $170B. The US trade deficit in 1996 was larger than the US budget deficit in 1996. Meaning that the domestic US private sector paid $170B for imported goods that they bought from the international sector over and above the amount they were paid for goods that they sold to the international sector. That means that every penny of that $107B ‘dollar add’ from the federal gov’t all went to the non federal gov’t / international sector, and that news got worse for the US private sector in 1996. The difference (170 – 107 = 63), was a transfer of dollars, a ‘dollar drain’, that also went to pay the remaining balance, of $63B, for those imports, in 1996, from the non federal gov’t / domestic (US private sector) to the non federal gov’t / international (overseas sector). In other words, because the non federal gov’t / domestic (US private sector) had a ‘dollar drain’ of $63B in 1996, the effect on the US private sector was the same as if the US federal gov’t had run a $63B surplus in 1996. After 1996 comes the fatal blow to the non federal gov’t / domestic (US private sector). Those US private sector ‘dollar drains’, those US private sector deficits, continued (they were sustained), for thirteen straight more years. When looking at these sustained US private sector deficit figures below, these final fiscal year results, keep in mind that all six depressions in US history were preceded by sustained federal gov’t surpluses (same as saying that all six depressions in US history were preceded by sustained US private sector deficits):

$107B ‘dollar add’ from the federal gov’t in 1996:

$170B surplus to the non federal gov’t / International

(-$63B) deficit from the non federal gov’t / Domestic


$22B ‘dollar add’ from the federal gov’t in 1997:

$181B surplus to the non federal gov’t / International

(-$159B) deficit from the non federal gov’t / Domestic


(-$70B) ‘dollar drain’ to the federal gov’t in 1998:

$230B surplus to the non federal gov’t / International

(-$300B) deficit from the non federal gov’t / Domestic


(-$126B) ‘dollar drain’ to the federal gov’t in 1999:

$329B surplus to the non federal gov’t / International

(-$455B) deficit from the non federal gov’t / Domestic


(-$235B) ‘dollar drain’ to the federal gov’t in 2000:

$439B surplus to the non federal gov’t / International

(-$674B) deficit from the non federal gov’t / Domestic


(-$128B) ‘dollar drain’ to the federal gov’t in 2001:

$539B surplus to the non federal gov’t / International

(-$411B) deficit from the non federal gov’t / Domestic


$157B ‘dollar add’ from the federal gov’t in 2002:

$532B surplus to non federal gov’t / International

(-$375B) deficit from the non federal gov’t / Domestic


$378B ‘dollar add’ from the federal gov’t in 2003:

$532B surplus to non federal gov’t / International

(-$154B) deficit from the non federal gov’t / Domestic


$412B ‘dollar add’ from the federal gov’t in 2004:

+$655B surplus to non federal gov’t / International

(-$243B) deficit from the non federal gov’t / Domestic


$318B ‘dollar add’ from the federal gov’t in 2005:

$772B surplus to non federal gov’t / International

(-$454B) deficit from the non federal gov’t / Domestic


$248B ‘dollar add’ from the federal gov’t in 2006:

$647B surplus to non federal gov’t / International

(-$399B) deficit from the non federal gov’t / Domestic



$161B ‘dollar add’ from the federal gov’t in 2007:

+$931B surplus to the non federal gov’t / International

(-$770B) deficit from the non federal gov’t / Domestic



$458B ‘dollar add’ from the federal gov’t in 2008:

+$817B surplus to the non federal gov’t / International

(-$359B) deficit from the non federal gov’t / Domestic


(H/T Chris Brown ‘Sectoral Balances info-graph of US Private Sector Dollar Drains & Dollar Adds Since 1992′)

We all remember what happened in 2008. Policymakers quickly ended those significant amounts of sustained non federal gov’t / domestic (US private sector) deficits, and ended the Great Recession with even more significant amounts of sustained US federal gov’t deficits (sustained US private sector surpluses), the same that was done to halt the previous six depressions:

$1.413T ‘dollar add’ from the federal gov’t in 2009:

$544B surplus to the non federal gov’t / International

$869B surplus to non federal gov’t / Domestic


$1.294T ‘dollar add’ from the federal gov’t in 2010:

$636B surplus to the non federal gov’t / International

$658B surplus to non federal gov’t / Domestic


$1.300T ‘dollar add’ from the federal gov’t in 2011:

$726B surplus to the non federal gov’t / International

$574B surplus to the non federal gov’t / Domestic


$1.087T ‘dollar add’ from the federal gov’t in 2012:

$730B surplus to the non federal gov’t / International

$357B surplus to the non federal gov’t / Domestic


2013 to present: The non federal gov’t /domestic (US private sector) deficits have returned again, but the accumulated amount of US private sector surpluses since 2009 until 2013 (+$1.770T) is still safely far away from the level of accumulated US private sector deficits prior to the 2001 recession (-$1.787T) and the critical level of accumulated US private sector deficits prior to the 2008 Great Recession (-$2.754T)…


Keep in mind that US trade deficits are not to blame. US trade deficits are good. It is better that the US leads the innovation of new goods & services, while most of the factory floor work is delegated elsewhere. It is better that the US depends less on export-led growth and that the US depends more on organic, consumer-led growth (which inoculates you better from economic downturns). However, like the saying goes, ‘It’s not what you make, it’s what you keep’, and the same goes regarding US trade deficits. It’s not what the federal gov’t makes (how many ‘dollar adds’ they are creating into banking system existence), it’s how much the non federal gov’t / domestic (US private sector) keeps…


From 1996 to 2008, the US private sector kept nothing, and even worse, sustained deficit spending by the US private sector kept up. In the post-gold standard, post-nafta, modern monetary system, policymakers need to understand that the federal gov’t must overcompensate for those US private sector deficits that larger US trade deficits cause. Policymakers with outdated gold standard mentality fear those US trade and US budget ‘twin’ deficits, and they believe that they should bring them both down, but that is out-of-paradigm thinking. Policymakers need to ‘use’ the positive effects of US budget deficits to control the negative effects of US trade deficits. What really happened prior to the 2008 global financial credit crisis was that, in order to continue lifestyles that they had grown accustomed to, the non federal gov’t / domestic (the US private sector) had no choice but to keep deficit spending year after year (first borrowing against their dot com stocks and then against their home equity) in lieu of no ‘dollar adds’ from the federal gov’t. UNLIKE the deficit spending of the federal gov’t (the issuer of dollars), the deficit spending of the non federal gov’t / domestic US private sector (the users of dollars) does have a real and attached actual debt. Counter-intuitive to mainstream thought, THAT is the deficit spending which is unsustainable…


P.S. That was the not-too-distant past. In the not-too-distant future, policymakers may enact a ‘US Federal Balanced Budget Amendment’. Meaning if policymakers actually do this, then they think the federal gov’t (the issuer of dollars) which only needs to balance their economy, should instead be treated the same way as a household (the users of dollars), which only needs to balance their budget. A US federal balanced budget amendment, if passed, would legislate, or in other words, would guarantee, sustained US private sector deficits (and now you know what THAT could mean).  


Thanx for reading,

Eddie D


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The Hypothetical US National Debt v. The Actual US National Debt


The Hypothetical US National Debt: The FEDERAL GOV’T is hypothetically in debt of $19T, but it is actually zero because all those outstanding US Treasury bonds are denominated in fiat (no longer backed by gold) dollars. The federal gov’t is the sole issuer of dollars. Those US Treasury bonds are obligations, yes (they are backed by the full faith and credit of the federal gov’t); they are liabilities, sure (the federal gov’t promises to pay semi-annual interest and pay back the principal at maturity); but a ‘debt’, no. For example, IBM has liabilities to pay dividends on all of the outstanding shares of IBM stock; however IBM, the issuer of IBM stock, is not in actual debt of IBM stock. Ask any accountant and they will confirm that all debts are liabilities but not all liabilities are debts, nor does IBM have a ‘budget’ (any constraint whatsoever) of how many shares of IBM it can issue.


The Actual US National Debt: The NON FEDERAL GOV’T is actually in debt of about $30T, and that’s a real debt because the non federal gov’t (you, me, all households, all businesses, all local and state gov’t) are not issuers of dollars. We are users of dollars, meaning that unlike the issuer of dollars, when we borrow dollars to deficit spend, there is a real debt attached. The reason being, because we are only users of dollars, the attached debt we take on when deficit spending is denominated in a currency that we cannot issue, and why unlike the federal gov’t, the issuer of dollars, we are going into actual debt. For example, if IBM, a user of dollars, sold bonds for dollars, that is IBM going into actual debt; however, if IBM, the issuer of IBM stock, sold IBM shares for dollars, that is not IBM going into debt, it is a different paradigm.


Furthermore, when any US local gov’t, a user of dollars, or any US state gov’t, also a user of dollars, sells bonds denominated in dollars to deficit spend, they are going into actual debt because they are not the issuer of dollars; unlike the US federal gov’t, when they sell bonds denominated in dollars to deficit spend, they are not going into actual debt because they are the issuer of dollars. Groupthink does not see this difference. Mainstream thought still sees the federal gov’t, the issuer of dollars, as being the same as a household, a user of dollars. The Modern Monetary Theory (MMT) enlightenment is the realization and understanding of these two separate paradigms.


Here’s a breakdown of the Actual US National Debt:

$12.7T of US household debt (most of that, $8.6T is mortgage debt, plus $1.3T in student loans, $1.1T in auto loans, and the balance is in credit card or other consumer debt).

$12.8T of US business debt (outstanding non-financial corporate bond market).

$3.7T of US local & state gov’t debt (outstanding municipal securities bond market).


Takeaway: There is no federal gov’t debt to worry about, and for all of the 50 US state governments combined, the median debt-to-GDP ratio is an easily-serviceable 2.4%.


P.S. The Actual US National Household Assets (gross worth) was approx $100T in Q4 2015 (adding that household debt back to $86T of US household net worth). Factor in household, business, plus local, state & federal gov’t assets and you’re looking at Actual US National Assets in the quadrillions.

That’s a lot of Benjamins.
Happy Spring,


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Modern Monetary Theory (MMT) Will Be On The Right Side of History

Perhaps a bit of the 2016 election was some of the 1896 election history repeating itself:


In The Wonderful Wizard of Oz, (the American children’s novel, not the movie), the ‘cowardly lion’ character was based on William Jennings Bryan. The entire story, published in 1900, and written by author L. Frank Baum, was a political allegory. Officially, any similarities of the book and actual events was a ‘coincidence’ (Just like all episodes of South Park open with the tongue-in-cheek disclaimer that “All characters and events in this show – even those based on real people – are entirely fictional”). While writing the book in 1896, Baum had been a political activist and wrote on behalf of William McKinley, the Republican candidate for president in that year’s election. McKinley ran on a platform calling for prosperity for everyone through industrial growth, high tariffs on imports, and the continuation of the gold standard…


McKinley’s opponent was William Jennings Bryan, the Democratic candidate for president, who campaigned for the average working man against the rich, and he blamed the rich for impoverishing America, by intentionally limiting the money supply (by keeping just gold as the only metal backing of the dollar). Bryan and his followers, called ‘Silverites’, wanted a bimetallic-standard redux (a return of silver) with it tied to gold at a 16:1 conversion rate. Bryan argued that restoring silver, which was in ample supply, if once again coined into money, would restore prosperity while undermining the illicit power of the ‘big-city business owners’ and the ‘money trust’. Bryan’s moralistic rhetoric included his crusade for ‘reflation’ (a slight and intentional, federal-gov’t orchestrated inflation, generated by an increase in money supply by including silver with gold). Bryan convinced many that the ‘Free Silver’ movement was the best solution that would get more purchasing power into the hands of consumers and ending frequent depressions caused by the deflationary shortage of dollars due to the monetary constraint of the gold standard. Silver, or the ‘people’s money’ as it was referred to in his politically-charged speeches, became increasingly associated with populism, unions, and the fight of ordinary Americans…


Fast forward to today, MMTers (enthusiasts of Modern Monetary Theory) are certainly not calling for currency to be backed by metals, but the main themes of William Jennings Bryan’s presidential campaign do rhyme with the MMT movement (actually it is more like an ‘enlightenment’ than a movement). Which is that we need to pull the curtain back and expose the facade that the federal gov’t is monetarily ‘constrained’ (federal taxes are not actually needed for spending); that there is nothing to worry about if inflation is ‘slight’ (is contained to < 2% / yr); that policymakers could easily get desperately-needed purchasing power into the hands of consumers; and finally, that despite the group-think narrative otherwise, we have the financial means already at our disposal to solve many of the country’s (perhaps most of the entire world’s) problems…


To be fair, in 1896, the Republican Party steadfastly opposed Democrats and their silver movement, arguing that the best road to national prosperity was ‘sound money’, backed only by gold, which they felt was crucial to continued success in international trade. Republicans pleaded that by adding silver, that just meant guaranteed higher prices for everyone, not just for farmers and the steel workers who needed the extra cash. Republicans criticised William Jennings Bryan by arguing that the real net gains of his plan to spur the economy would chiefly go the silver interests (who Republicans claimed Bryan was cowardly shilling for)…


Despite William Jennings Bryan’s inspired campaign effort and his impassioned ‘Cross of Gold’ speech (“We will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold”), the ‘Silverites’ lost to William McKinley in the 1896 election. By 1900, the silver market had completely collapsed. The gold dollar was declared the standard unit of account and a gold reserve for government issued paper notes (existing legal-tender greenbacks) was established…


However, in a nod to William Jennings Bryan (in a nod to his voters and to see if maybe he was right), silver dollar coins went back to being legal tender. Also included as legal tender were silver certificates (paper bills that on demand could be redeemable to silver dollar coins). Some silver standard countries began to peg their silver coin units to the gold standards of the United Kingdom and the United States, but both Bryan’s ultimate goals to become US president and to garner national / worldwide support for the continued acceptance of silver failed miserably. In short, throughout American history, in the trials of remaining as an additional backing of currency, silver had its fits and starts and simply came up short. A centuries-long era of silver as a world currency was ending. Bryan also lost to McKinley a second time, in the 1900 US presidential election (McKinley was assassinated six months into his second term and succeeded by Vice President Theodore Roosevelt), and Bryan again lost the 1908 US presidential election to William Howard Taft. Meanwhile, other countries moved away from silver and began adopting only a gold standard. By 1910, only China and Hong Kong remained on any kind of silver standard…


Getting back to the book The Wonderful Wizard of Oz, why was William Jennings Bryan portrayed as the ‘Lion’? Most likely it’s because he roared tirelessly like a lion. At the age of 36, Bryan became (and still remains) the youngest presidential nominee of a major party in American history. In just 100 days in the 1896 campaign, Bryan gave over 500 speeches to several million people. His record was 36 speeches in one day in St. Louis. Why a ‘Cowardly Lion’? Politics makes strange bedfellows and Bryan often found himself in alliance with the same folks he roared against. For example, while supported by William Randolph Hearst, plus other powerful figures in the silver mining industry, Bryan also associated with industrialist Andrew Carnegie, as well as others who had fought against silver, and for that, the press mocked Bryan as an indecisive coward…


Other metaphors in the book include ‘Dorothy’, who was the naïve, young and simple person. She was all of us, the American people at that time, led astray and seeking a way back home…


The ‘Scarecrow’ was the wheat and cotton farmers and the ‘Tin man’ was the blue collar industrial worker, especially those of the American steel industry. Both were overworked and both were poor debtors needing relief…


The four of them set off on the yellow brick road (the gold standard) towards OZ (the abbreviation for ounce as in a troy oz. of gold) in the hopes of adding silver to the gold standard, at a conversion rate of 16:1. This rate is represented by the four of them skipping twice to the left and twice to the right on the yellow brick road, meaning a total of sixteen (silver) steps equals one (gold) step forward…


The ‘Good Witch of the North’ represented pure kindness, an extremely gentle character, who stood against the oppression and subjugation of people. In the book, she deposed her predecessor, the Wicked Witch of the North, and because she was good, it renders her, the new Good Witch of the North less powerful, yet loved by her own subjects and others in Oz…


The ‘Wicked Witch of the East’ was the eastern moneyed class, mainly the banks. The banks (underwriters of bonds plus any outright bondholders) feared William Jennings Bryan’s plan because the effects of inflation would hurt them. In the book, the Wicked Witch of the East wears silver slippers unlike the movie that used ruby slippers (the movie is intentionally apolitical). After Dorothy deposes the Wicked Witch of the East (killed by Dorothy’s house landing on her), the dead witch’s silver shoes transfer to Dorothy and the Good Witch of the North tells Dorothy that “there is some charm connected with them.”…


The ‘Wicked Witch of the West’ was the mountain-states robber-barons, mainly the railroad monopolists and the gold-mining interests out west. Like banks in the east, the railroad monopolists were also creditors and feared any plan that would devalue the dollar, making their investments, denominated in greenbacks less valuable. In addition, gold mine owners feared any plan that would put silver mines back in business (more competition). In the book, the witches carry umbrellas, not brooms, and the witches are not sisters, they are not related at all, only that the witches are both leagued together to stop any plan that would mean a loss of their powers…


The ‘Flying Monkeys’ were Native American Indians that the Wicked Witch of the West used to harass anyone on her turf posing a threat. Why author L. Frank Baum would call them ‘monkeys’ in his book could be because Baum had a dark side as a hard-core, blood-thirsty racist. In several editorials for his local newspaper, the Saturday Pioneer, Baum recommended the total genocidal slaughter of all remaining indigenous peoples in America. “The Whites,” Baum wrote in 1890, “by law of conquest, by justice of civilization, are masters of the American continent, and the best safety of the frontier settlements will be secured by the total annihilation of the few remaining Indians, so why not annihilation?”


The ‘Wonderful Wizard of Oz’ was the scheming politician of green ‘Emerald City’ (greenback dollars). The Wizard uses publicity devices and tricks to fool everyone into believing he is benevolent, wise, and powerful when in reality he is a selfish, evil humbug. When Dorothy arrives, the Wizard can’t be bothered to see her (to consider adding silver), so to get rid of her, he tells her that he would help her if she killed the Wicked Witch of the West. The Wizard can’t do this himself because as he admits to Dorothy, “I’m a very bad Wizard”…


Dorothy does kill the witch, by melting her with plain water (the long held belief amongst major religions is that water is effective for purifying the soul and combating evil). When Dorothy returns, the Wizard isn’t pleased to see them again. He continues his scripted narrative, projected on a screen, until Toto pulls aside the curtain…


After Toto’s reveal, The Wizard is abashed and apologetic, and offers help to Dorothy and her friends. When the day comes to help Dorothy return back home, there is a mishap, and all seemed lost, until the Good Witch of the North appears. The Good Witch reassures Dorothy that she always had the power (“You had the power all along to return home to Kansas”) by simply clicking her heels together (meaning the country had the silver all along, and it could solve many of everyone’s needs, by simply jingling the silver coins).


The messenger, William Jennings Bryan (Bernie Sanders) fell on the wrong side of history…


Pulling back the curtain and revealing the macroeconomic reality (the MMT enlightenment), so that our federal gov’t can fully serve public purpose without constraint, will be on the right side of history.  



Thanks for reading,

Eddie D


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