When ‘Chartalists’ (aka MMTers) confuse credits & debits with creation & destruction

The payment of federal taxes is not a ‘destruction’ of dollars.

The payment of taxes is a drain of $$$ to the Daily Treasury Statement (DTS)—the same exact account where all federal spending is drawn.

Only Congress can ‘destroy’ $$$—only Congress can reduce the Net Financial Assets (NFA) that Congress created.

Even if you burned a dollar bill to a crisp, you wouldn’t change the numbers on the ‘scoreboard’.

However, if you burned your mortgage (your ‘bond’ that you previously created), THAT’S A DESTRUCTION.

Think about a pumping heart. The blood is flowing out of that heart—to somewhere else—it’s not getting ‘destroyed’.

Rather than ‘keystrokes’ that fund surplus spending followed by the subsequent collection of federal taxes, what actually expands & contracts money supply circulation (the pumping heart of the economy) is the creation & destruction of bonds (aka leveraging v. deleveraging).

Rather than being ‘bulletproof’, political ‘prescription’ MMT is rendered with bullet holes—and they are all self-inflicted. Here’s some more holes:

MMTers (who are supposed to be good at being ‘chartalists’) are confusing credits & debits (‘postings’ that are consolidations of ledger charts) with creation & destruction (net ADDITIONS into the banking system v. the deleveraging of that leveraging).

When deficit spending, the Treasury is ‘fronting’ the ‘newly-created’ money via its Daily Treasury Statement account at its central banking agent, the Fed.

For example, if deficit spending $1B today, the equal and opposite ledger entry to reconcile (to balance) that +$1B that is credited from the DTS to the accounts of whomever provisioned the gov’t is a debit of -$1B to the DTS. Next, the federal gov’t collects $1B in Treasury bond sales, meaning that tomorrow $1B is coming back out from money supply circulation—which is the main reason to sell the bonds (to maintain price stability by neutralizing the potentially inflationary-bias of deficit spending). That ‘newly-created’ $1B, credited to the DTS, brings both the DTS and the money supply back to where it was—meaning that so far it’s all a ‘wash’. The final step, the ADDITION, is when the federal gov’t keyboards $1B in ‘newly-created’ Treasury bonds to those investors who just paid for them. Those assets are the Net Financial Assets that are added (that are ADDITIONS) into the banking system.

Same goes for when a household deficit spends (wants to pay on credit), the financial intermediary (the bank) is ‘fronting’ the ‘newly-created’ money in exchange for your ‘newly-created’ promise to pay back the money with interest (your ‘bond’). Your newly-created bonds create loans create deposits.

MMTers shouldn’t confuse ALL these ‘newly-created’ assets flowing back & forth above as being ADDITIONS of NFAs.

Furthermore, it’s only a ‘destruction’ if Congress decides to pay off those federal bonds for good; and the same goes for a household, it’s only a ‘destruction’ if they pay off their ‘bond’—the opposite of the creation.

Just like all debts (household debt) are liabilities but not all liabilities (Treasury bonds) are debt; all destruction (paying off Treasury bonds) are debits but not all debits (federal taxation / Treasury bond sale collection) are a destruction.

Pen Strokes Not Keystrokes

FY 2017:

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


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


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


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

 
Note: So far it’s all a ‘wash’…


Step #5) Federal gov’t keyboards $.666T of Treasury bonds into existence and keyboards those assets, denominated in $$$, to the bond investors (Note that is a CREATION which is ALSO an ADDITION of Net Financial Assets into the banking system).

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


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

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

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

Jim ‘MineThis1’ Boukis was right all along. 

#FakeMMT has it completely backwards.

The pure MMT insight is that, operationally, federal taxes and Treasury bond sales ARE NOT NEEDED to fund spending—not that they don’t at all because tax & bond collections are ‘destroyed’. Fake MMTers saying ‘taxes don’t fund spending’ because taxes are ‘destroyed’ are trying to usurp the ‘Power of the Purse’ of Congress, at best; or they’re confused about how the post-gold standard, modern monetary system really works, at worst.

Fake MMTers are their own worst enemy—If you can’t get the ‘description’ right, then how can you expect constituents to trust that you are getting your ‘prescription’ right (How can you expect policymakers to fund—read: approve—your ‘prescription’)?

There’s a difference between a ‘scoreboard’ (used for political ‘prescription’ MMT metaphors) and an excel spreadsheet (used by the consolidated balance sheets of the United States federal gov’t).

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

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Once upon a time when MMT was the description not the prescription…

MMT & the Fourth Spark Plug: Descriptive vs. Prescriptive revisited

Once upon a time, before MMT was hijacked by ‘scholars’ that put themselves in charge of ‘solving’ your problems and ‘helping’ people, MMT was the description not the prescription.

As they keep trying to self-fulfill their gloom-and-doom prophecies (while capitalism solves our problems and people help themselves), political ‘prescription’ MMTers, who want to dismantle capitalism and replace it with a cradle-to-grave welfare state, keep pushing fake narratives like ‘The US economy is a junk economy’. Just like the stereotypical (untrustworthy) used-car salesman, they keep using slick stories, like the ‘unconnected spark plug’, to make their sale for the ‘Job Guarantee’ (a Universal Basic Income with a soviet-style, make-work requirement).

Rather than condemning those unemployed spark plugs into a $500B federally-funded Job GUARANTEE program (during a labor shortage and that by ‘prescription’ MMT design doesn’t compete with private sector jobs); perhaps a better idea would be to connect them with a job TRAINING program (that gives them the needed skills to get private sector jobs). Which is exactly what the current administration is doing right now AND we are seeing good results (i.e. record-low unemployment, increasing wage growth —above 3% —not seen since the recession and all this Fed unwinding because the economy is getting stronger).

NOTE: Just to keep this post apolitical, it’s fine if you don’t credit Trump for that (and let’s just instead credit all the presidents plus We The People because we are all in this together).

The political ‘prescription’ MMT notion of a ‘free lunch’ (don’t worry about How Are We Going To Pay For It…’because MMT’) ignores the unintended consequences of good intentions.

Do you really think that if tomorrow, the federal gov’t started assigning the unemployed with a ‘guaranteed’ chore and gave them a ‘living’ allowance (giving them a fish so they eat for a day), that *poof* they would be better off (versus teaching them the skills how to fish so they eat forever)…because MMT?

Do you really think that if tomorrow, the federal gov’t started paying for an uninsured’s healthcare, that *poof* they would start taking better care of themselves and begin living a healthier lifestyle (versus a plan where the federal gov’t annually funds your own personal tax-advantaged Health Savings Account starting at age 19 which creates a greater incentive to live a healthy lifestyle)…’because MMT’?

Do you really think that if tomorrow, the federal gov’t forgave someone’s student debt, that *poof* they would become financially responsible, make sound spending decisions and no longer rack up personal debts (versus having the federal gov’t relax/reform bankruptcy laws on nondischargeable debt)…’because MMT’?

If so, then I have a used car to sell you that’s “running terribly, sputtering and with little power” but don’t worry, the only thing wrong is that “one of the spark plug cables is simply unconnected”.

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