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.

Thanks for reading,

Pure MMT for the 100% https://www.facebook.com/PureMMT/

Real Macro for the 100% https://www.facebook.com/InvestingMMT/

Pen Strokes Not Keystrokes

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“The Treasury issues bonds, sells them to the private sector and those ‘loans’ (bonds) serve to fill Treasury’s account at the Fed—from which the government spends. The net number of dollars (both reserves and account balances) does not change; those dollars are just moved from savers (bond buyers) to whomever earned that government spending. The net result of Treasury bond issuance (of deficit spending) is a net addition of Treasury bonds to the private sector, plus the additional aggregate demand (from the spending) that stimulates the economy, of course.”—John Biesterfeldt, ‘Intro To Modern Monetary Theory’ Facebook page administrator, 11/13/19

AGREED…and let’s plug the US federal government’s annual budget figures from fiscal year 2017 to that:

FY 2017

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

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

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

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

Note: So far it’s all a ‘wash’…

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

Note: THAT is a CREATION which is ALSO an ADDITION of Net Financial A$$et$ (NFAs denominated in dollars), going into the banking system. Even better, as Jim ‘MineThis1’ Boukis (correctly) puts it, those Treasury bond sales—just like federal tax collections—are a FEEDBACK LOOP of dollars taken out from the nonfunctional ‘financial’ economy (where capital just creates more capital for the 5%) going back into the productive ‘real’ economy (where capital creates more goods & services for the 100%). Rather than being needed as a ‘financing’ function in the gold-standard era collecting gold-backed dollars; in the post-gold-standard era collecting fiat dollars, those feedback loops ‘stir the tanks’ to help maintain price stability. 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.

Or if you prefer, you can switch Step #3 with Step #5 and it would also be correct to say THAT is a CREATION which is ALSO an ADDITION of High Powered Money going into the banking system. In other words, you shouldn’t say “the gov’t finances all of its spending through the direct creation of new (high-powered) money.* That’s not entirely accurate because there’s a difference between surplus spending (that is not adding high-powered money/NFAs) and deficit spending (that is).

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. Those collections are ‘deleted’ from money-supply circulation, yes; from the banking system, no. 

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

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

Scenario #1) ‘Printing Money’: Deficit spending is ‘Printing money’ which adds Net Financial Assets (newly-created promissory notes/IOUs called Treasury bonds denominated in dollars).

Scenario #2) ‘Unprinting Money’: Collecting enough federal taxes to balance the federal budget/run a federal budget surplus AND THEN PAYING OFF Treasury bonds (subtracting the newly-created bonds that went hand in hand with previous year’s deficit spending) is ‘Unprinting money’—the opposite of ‘Printing money’ (which added those bonds).

Scenario #3) ‘Not Printing Money’: Collecting federal taxes AND NOT PAYING OFF Treasury bonds (not paying down the national ‘debt’) is NEITHER ‘Printing money’ NOR ‘Unprinting Money’ BUT IN BETWEEN ‘printing’ and ‘unprinting’.

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

Those pesky appropriations laws, those accounting rules, that modern monetary formality (where there’s a ‘political’ constraint to spending) keeps getting in the way of the modern monetary theory (where there’s no ‘financial’ constraint to spending). As a result of their frustration, ideological MMTers have become their own worst enemy. If these MMTers can’t get the ‘description’ right, then how can they expect constituents to trust that they are getting their ‘prescription’ right? How can they expect policymakers to fund—read: APPROVE—their pet proposals?

There’s a paradigm difference between a scoreboard (used for political MMT metaphors to pretend taxes are ‘destroyed’) and an excel spreadsheet (used by the consolidated balance sheets of the United States federal gov’t to reconcile where taxes ‘drain’). Which is why it is INCORRECT to say “The national debt is the historical record of all the dollars that were spent into the economy and not taxed back that are held in the form of Treasury bonds” *** because it’s one thing if the federal gov’t is collecting taxes (which DOES NOT make the national ‘debt’ decrease) and quite another thing if the federal gov’t is collecting taxes and then using them to pay off Treasury bonds for good—instead of rolling them over (which DOES make the national ‘debt’ decrease).

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

*SOURCE: Stephanie Bell, Sept 2000, ‘Do Taxes and Bonds Finance Government Spending?’

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

***SOURCE: Stephanie Kelton (Tweets)

To be fair, even The Great Ones swing and miss sometimes.

Thanks for reading,

Pure MMT for the 100%

Real Macro Trading for the 100%



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

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

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



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



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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

The solution?

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



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



H/T Charles ‘Kondy’ Kondak

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



Their Deficits = WHOSE savings?

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

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

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



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

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

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

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



Charles Kondak: Sanders ran into the salaried worker dilemma often found in retail management / supervision. He was paying his organizers as salaried employees at $36K/year (which is well north of $15/hr for a 40 hour work week); but as salaried employees, his campaign was not required to pay more if his staffers worked in excess of 40/hrs per week, which could likely take them below $15/hr if they worked 50 or 60 hours in a week. This happens all the time, especially in retail with those who are classified as salaried management personnel. In retail, when an employee gets in a management role, the employer can ‘choose’ not to provide extra pay for any hours above 40/hrs (and not be bound to the Fair Labor Standards Act to pay overtime). This whole Bernie brouhaha could have been avoided with some ‘bonus pay’ arrangement (not even necessarily as much as the OT rate) for hours worked above 40 hours. Someone in the Sanders campaign should have known about this salaried worker distinction contained in the Fair Labor Standards Act from the start. Once again, we are seeing the ‘free stuff’ MMT enthusiasts being so wrapped up in plans that pander to populist positions, that they are rather ignorant of the legal constraints of their own proposals. If the definition of salaried worker kicked in (as high as the last administration wanted which was over $47K roughly doubling the current level in place) you’ve used simple enforceable pen strokes to lift wages in many cases AND increased time off without loss of pay in others. In addition, you get the scarcity effect on wages by keeping labor markets tight by transferring people from the salaried worker pool to the entitled OT worker pool.

Jim ‘MineThis1’ Boukis: I think Charles answered it very well. Just give a bonus to the staffers to meet the $15 hr and they would have STFU. Instead, it all just blew up in their face. Now you see how the conservatives are spinning it? You see the damage it already has and will continue to do for the minimum wage, right? Instead of a ‘pen stroke’ solution, like running on limiting hours with the same pay to create job scarcity (to push up wages); they are running on raising the min wage, saying that ‘It won’t hurt the economy’, that ‘It’s what is best for all’ and ‘It’s economic justice’. Now try to explain to 330 millions Americans that raising the min wage means employers will hire more—after Bernie fucked it all up by saying they will limit staffer’s hours to reach $15—and see how that goes. Good Luck!



PURE ‘PRESCRIPTION’ MMT: Infrastructure and Green New Deal (GND) bonds

After the 2yr/10yr officially inverted (sounding the ‘recession’ alarm) and US stocks closed down 3% (the DOW’s biggest one-day loss of the year), Jim Cramer tweeted that “We need a $500 billion infrastructure bond right now!!!”


“With infrastructure (or ‘GND’) bonds, ‘Can the Fed simply use keystrokes to mark up the bank accounts that have an account at the Fed?’ Yes! 

‘Have we answered the question How Do We Pay For It?’ Yes!

‘Is there any risk of default?’ No! 

‘Does it get more people working and get us closer to max employment?’ Yes!

‘Are they productive jobs?’ Yes! 

‘So they wouldn’t cause garbage inflation (like a Fake Job Guarantee would)? No! 

Here comes the Pure MMT (keeping it real): ‘Do we currently have enough trades people (that are skilled enough) for large scale infrastructure projects?’ Not likely, but it might get more people working in our Civil Service and/or as Army engineers (that *actual* federal job guarantee program that pays a living wage + benefits).

‘What if next, the Fed does another QE—and instead of buying Treasury bonds the Fed buys infrastructure bonds?’ The money could have gone to build bridges, airports, and the like (in the functional ‘real’ economy), instead of making it ‘easy’ (instead of making interest rates lower to accommodate more borrowing) for corporations to buy back stock and borrow (in the nonproductive ‘financial’ economy).

‘With a Fed buying back private infrastructure bonds are the top 5% (are the savers) being stuffed with more federal-deficit money like it was during QE?’ No! 

“If we got the nose through the door with the purchase of infrastructure bonds by the Fed, I’d say we have gotten the mainstream closer to last stage Pure MMT. The thing is, I wouldn’t overplay the hand. The initial infrastructure bond issuance shouldn’t come with a ‘sticker shock’ price. I’d go with $50 billion and I could make a strong all around argument for it if a lot of the money was to be spent on water delivery systems.”—Charles ‘Kondy’ Kondak, 08/15/19

AGREED…and Logan Mohtashami would echo those same sentiments in a Facebook post on 11/03/19: “Here’s the thing about MMT. It’s not about borrowing as much as you want. MMT is about the economy not running at full capacity; so to get the economy running at full capacity, you can borrow unlimited if you have your own currency. Then they put in the Green New Deal (which is never going to get passed) and they lose the argument. The MMT people should take a realistic approach. Try for some deficit financing. Get a $200B infrastructure package. Don’t pay for it. See how that goes. Take it slowly.”


“The issuance of private infrastructure bonds, backed by the Fed—to ‘pay for it’—(or have the federal gov’t just issue public infrastructure bonds and then the Fed buys them back in a QE, whatever) has a Pure ‘Prescription’ MMT element to it because you are draining excessive private-sector wealth (profit/savings) back into the functional economy in an ecosystem feedback loop.”—Jim ‘MINETHIS1’ Boukis, 08/16/19

AGREED…Well said, and prophetic too—since two months later, incoming ECB President Christine Lagarde (replacing Mario Draghi) hinted about buying GND bonds during QE!

Source: https://www.bloomberg.com/news/articles/2019-10-23/ecb-asset-purchases-set-for-a-green-twist-under-lagarde-chart?srnd=markets-vp



H/T Jim ‘MineThis1’ Boukis:

G4 central banks have liquified a staggering $35 trillion in Bonds to cash reserves. #SAVINGSBUBBLE alive and well!

What does that mean? When the federal gov’t wishes to deficit spend, it issues bonds, collects cash savings and spends it back into the productive private sector economy—which eventually makes it’s way back to the unproductive savings part of the private sector. Think of dollars like this:

private sector 1 = the productive dis-savings (the 95%)
private sector 2 = the unproductive savings (the 5%)

Thus Gov’t issues newly-created ‘debt’ and ‘borrows’ from Pvt 2 that ‘lends’ to Gov’t with savings; then Gov’t spends in Pvt 1 that dis-saves to Pvt 2 and the cycle is repeated.

Rather than looking at all that federal gov’t debt/deficit spending as printing money (that expands the money supply), better to see it as the federal gov’t printing bonds (that expands the ‘bond supply’). So one more time, federal debt and deficits are an expansion of the federal bond supply and not the money supply—that most think of when they hear the words debt and deficits.

Gurus like MMTards and Austrian gold bugs like to confuse people with various definitions of what money is to push their crazy ideology. All you need to know (to never be fooled again) is that all money is money. Meaning a bond is $$$ that comes with a coupon attached to it. Bonds, just like reserves, may not be in money-supply circulation like bank demand deposits and paper dollar bills are; but just like ice and steam are all water in different forms, all those bonds, reserves, bank deposits and cash are denominated in $$$—they are all $$$ in the banking system whether it’s in electronic or paper form. Think of those bonds as a ‘solid’ (being in a solid state like ice). Think of those reserves at the Fed as ‘liquids’ (being in a liquid state). Think of those credits at your bank plus those paper bills in your wallet—that can move anywhere, anytime, to any place on the planet to purchase anything—as ‘steam’. This is important to understand because for example, you cannot buy a stock with a solid bond but you can with liquid reserves or steam credit in Germany, Japan, India, Brazil etc…

Now that we understand all dollars are dollars (and are much like water existing as ice, liquid or steam), let’s put it all together and better understand central bank Quantitative Easing and its effects.

As I mentioned prior, federal deficits/debt expand the federal bond issuance/supply. Again, the bond supply means those bonds (those $$$) with a coupon rate to be paid to savers who previously gave up holding their liquid state savings in unproductive Pvt 2 to hold solid state bonds in unproductive Pvt 2 instead. Although still water being held in unproductive Pvt 2, something happens when that water changes from liquid to solid (buying bonds) and back from solid to liquid again (Fed QE). The buying of bonds by the Fed (the QE) effected prevailing long-term interest rates (effected the yields of the remaining solid bonds in the secondary market).

For example, if a $100 face value 10-year bond with a 5% interest-rate coupon is initially issued in the primary market to an investor (to you) and is sold to you at ‘par’ (for $100), that means your bond yields 5% because you are collecting $5/yr for ten years (50 divided by 100). If fear about the stock market causes a lot of selling of stocks, money would flow out from stocks and into bonds—increasing the demand of all bonds. Let’s say that demand pushes the secondary market price of your 5% 10-year bond to $103, then that pushes your bond’s yield down from 5% to 4.85% (SOURCE: http://www.moneychimp.com/calcula…/bond_yield_calculator.htm). Note that is talking about the current ‘prevailing’ yield (not your yield if you keep holding your bond). In other words, if you were to sell that bond that day then the buyer’s yield is 4.85% (Since unlike you paying $100 to collect $50 over ten years, the buyer is paying $103 to collect $50 over ten years).

The opposite occurs when no one wants the bonds because the economy is booming and inflation fears (+/or greed) pushes money out bonds and into riskier investments like stocks.

Under the new QE world where central banks buy bonds in the secondary market in exchange for newly-created dollars, the otherwise solid-state bonds that would have remained as such are now converted to highly liquid-state reserves that can flow anywhere. Even back to bonds—but remember—there is now a distortion that took place. More supply of liquid dollars with reduced supply of solid-state dollars.

The point being, that unlike the normal price action that comes with market fluctuations, QE (federal gov’t intervention) comes along and causes distortions in the bond market that has a number of side effects:

Liquid-state dollar supply up ($4.2T newly-created into the banking system).
Solid-state dollar supply down ($4.2T bonds out of the secondary market)
Bond prices up
Prevailing long-term rates down
Bonds paying interest to Pvt 2 down*

Some dollars may end up back in bonds to push prices up. Some may have remained as reserves in the banking system. The remaining liquid dollars will flow to other asset classes like stocks and push prices higher.

The lower rates spur on more loans which creates even more liquid dollars that also flow to Pvt 2 as savings (that also flow to asset classes like stocks). You see how the distortion is playing out right?

*While one can make a misleading yet factual argument that reduced interest rates = less interest payments to Pvt 2 (‘so the Fed has the pedals backwards when they lower rates’), they fool their listeners by not mentioning the extra $3 to Pvt 2 (the gain in value of the $100 bond to a $103 bond) that only happened because of QE. Not to mention that QE also pushes up the value of other riskier assets held by Pvt 2. That effect multiples, which creates is a massive spike in liquidity—which increases asset-price INFLATION (the other thing that never gets mentioned when fooling unsophisticated listeners).

So take a step back for a minute. Reread it all and take a good hard look at the chart below and think about it. Total federal gov’t ‘debt’ worldwide is $66 trillion and G4 Central banks own $35 trillion of solid state bonds that has converted solid $€£¥ to liquid form.

Wait! It gets better! On top of the $35 trillion of liquid dollars that would have never existed prior to QE, the lower long-term interest rates made it even more profitable to for companies to buy back their stock! How much stock was converted to liquid dollars? A) $6 trillion since the crisis of 2008.

I almost forgot, the recent ‘repo madness’ is due to BANKS SUDDENLY CLAIMING THAT THEY DON’T HAVE ENOUGH LIQUIDITY?! Really? We are told that this federal-gov’t intervention is ‘not QE’? Yeah sure right, it’s just ‘providing liquidity’ to the banks—that’s like the Fed helping a man waving frantically in the middle of the ocean and telling us he just needed a glass of salt water!

Along with this new QE (that ‘not QE’), lower interest rates, $1 trillion deficits, record-low unemployment with stocks at all-time record highs—yet still the global economy and US is slowing (Real GDP was only 1.9 percent in Q3 according to the latest estimate released by the Bureau of Economic Analysis). Then you have economic Perma Bulls like Logan Mohtashami claiming to be an economic guru with his ridiculous ‘back-tested model’ telling people how the U.S. ‘REAL ECONOMY’ (Good God!!) is beating up the bears! While on the other side of the spectrum you have Perma Bears like #MMT‘s Warren Mosler with his theories saying we have a CASH FAMINE! That right now we need the federal gov’t intervening with a $500B #fakejobguarantee program to create jobs in the middle of a LABOR SHORTAGE! Talk about disinformation being pushed on unsuspecting people of the world! I mean it is complete and utter insanity. Regrettably, it is the new norm. Over the airwaves today, Facts, Math & Data have been completely replaced by Feelings, Stories & Narratives. The sane educated people are now the outcasts—those who truly understand how the modern monetary system works are the 3rd class untouchables India style!

So if you are sitting there wondering why lately—during this 11th-year of the bull run—I have been jumping up and down pounding the table talking about a #SAVINGSBUBBLE and #MMT would only make things blow up much faster, look no further than this post.

In conclusion (the one last thing I ask of you),

1. Think of what the economy stocks bonds etc.. would look like today without QE.

2. Think of what it will take if and when we enter an recession to get out of it.

3. Think of how an economy/stocks/bonds etc.. will look like with an exponential growth of QE.

Don’t waste your time fighting it! Don’t be a MEATHEAD! Until that day of reckoning comes (when Then and ONLY then will we short that living schitt out of it) EMBRACE IT! Be comfortable with it! Then Profit from it! Go and take what is yours and bathe in Glorious Victory drinking fine wine and singing songs of valor!—Jim “MineThis1′ Boukis

AGREED…BRAVO and well done Jim ‘MineThis1’ Boukis…In order to grasp what is actually pumping the heart of the economy, MMTers need to wade a little deeper out from the Intro level and also see their Almighty federal-gov’t deficit spending from another perspective—as net additions into the banking system that is only adding to the ‘bond supply’. I really like the ice / water / steam analogy which is way better than the ‘gov’t dollars’ v. ‘lookalike dollars’ or whatnot that gets thrown around when MMTers routinely confuse reserves (Fed-created dollars) as being hermetically sealed / not fungible with the rest of those dollars in the banking system.

Thanks for reading,

Follow us at Pure MMT for the 100% https://www.facebook.com/PureMMT/

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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”.

Thanks for reading,

Follow us at Pure MMT For The 100% https://www.facebook.com/PureMMT/

P.S. If you want to learn how money works, then you need to learn how money trades, so follow MINETHIS1 at REAL MACRO:


Seventy Seven Deadly Innocent Misinterpretations (77 DIMs #1 – 7)


Modern Monetary Theory (MMT) offers many profound insights. Without a doubt, anyone who wishes to fully grasp how the post-gold standard, modern monetary system really works should lend an ear to MMTers (proponents of MMT). That said, however, MMTers are human and do occasionally hurt their cause by getting the MMT ‘description’ (their economics) wrong.

’77 Deadly Innocent Misinterpretations’ started as posts in October 2017 on the Pure MMT for the 100% webpage (administered by Nick ‘Jim MineThis1 Boukis’ Hionas, Charles Kondak and myself) whenever any incorrect MMT ‘description’ was overheard and challenged amongst the MMT community. Most of the credit for these 77 DIMs goes to all MMTers—for starting the MMT conversation in the first place. 

‘Those who do not learn history’ (those who don’t learn the mistakes of the past) ‘are doomed to repeat it’, so readers should take these 77 DIMs as SUGGESTIONS TO IMPROVE ON MMT and NOT A CRITICISM OF MMT.





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

Fact: Federal taxes are not a destruction.


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

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


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

Fact: This is a misinterpretation of Warren Mosler’s 7DIF#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’.


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.


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.


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.


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

Fact: Taxes ARE NOT NEEDED to fund spending (not that they don’t at all).


Deadly Innocent Misinterpretation #8: ‘Banks do not create Net Financial Assets (NFA)—only the federal government can create NFA.’

Fact: Banks CAN and DO create Net Financial Assets (NFA)—as well as the federal government.


Deadly Innocent Misinterpretation #9: ‘Dollars are Tax Credits.’

Fact: Dollars are the sum of actual tax credits plus pending tax credits.


Deadly Innocent Misinterpretation #10: ‘Taxpayer dollars do not exist at the federal level.’

Fact: Of course taxpayer dollars exist at the federal level.


Deadly Innocent Misinterpretation #11:  ‘A Job Guarantee program would make the federal gov’t an Employer of Last Resort’

Fact: A Job Guarantee program would make the federal gov’t an employer of first resort.


Deadly Innocent Misinterpretation #12: ‘The Fed’s current policy is to ensure involuntary unemployment.’

Fact: It is not the Fed’s current policy to ensure involuntary unemployment.


Deadly Innocent Misinterpretation #13: “The American economy is a junk economy.”

Fact: The American economy is not a junk economy.


Deadly Innocent Misinterpretation #14: “Job Training would only be a micro solution that wouldn’t solve the macro problem of not enough amount of ‘bones’ (jobs) for the amount of ‘dogs’ (unemployed) that want them.”

Fact: The above statement by Mr. Mosler was correct for the time (2013) and place (Italy) and the circumstances (the Euro crisis), but is today being used to substantiate a federal Job Guarantee program here in the U.S. right now.


Deadly Innocent Misinterpretation #15: “Banks create IOUs denominated in USD and function like lookalike dollars.”

Fact: All money, including private bank-created dollars (denominated in USD) as well as federal gov’t-created dollars (denominated in USD), are DOLLARS IN THE BANKING SYSTEM—PERIOD.


Deadly Innocent Misinterpretation #16: “All money is debt by its very nature.”

Fact: All money is a unit of measure that measures debt.


Deadly Innocent Misinterpretation #17: “The Fed is the price setter.”

Fact: The Fed is the price ‘stabilizer’.


Deadly Innocent Misinterpretation #18: “The Fed has the pedals backwards—The Fed hiking rates is expansionary.”

Fact: The Fed hiking rates is expansionary for the financial economy (the 5%) but not for the functional economy (the 95%).


Deadly Innocent Misinterpretation #19: “Government deficits = Non government savings”

Fact: Federal Government deficits = Non federal government savings


Deadly Innocent Misinterpretation #20: “Trade deficits are a third source of money creation.”

Fact: Trade deficits are not a third source of money creation for monetary sovereigns using free-floating non-convertible currency.


Deadly Innocent Misinterpretation #21: “Imports are real benefits and exports are real costs.”

Fact: Imports and exports are both a benefit and a cost; however, imports are the position of strength.


Deadly Innocent Misinterpretation #22: Taxes ‘create unemployment’.

Fact: Taxes create another bill to pay.


Deadly Innocent Misinterpretation #23: Taxes ‘value’ the currency.

Fact: Production, not taxes, values the currency.


Deadly Innocent Misinterpretation #24: The federal gov’t is the sole monopoly ‘supplier’ of dollars.

Fact: The federal gov’t is not the sole monopoly ‘supplier’ of dollars.


Deadly Innocent Misinterpretation #25: Only bank money creation ‘nets-out’.

Fact: All money creation ‘nets-out’.


Deadly Innocent Misinterpretation #26: There is no such thing as a ‘Fractional Reserve System’—it does not exist.

Fact: There is such a thing as a fractional reserve system—it still does exist.


Deadly Innocent Misinterpretation #27: Paying federal taxes is a destruction of dollars.

Fact: Paying federal taxes has not been a destruction of dollars since 1957.

Deadly Innocent Misinterpretation #27a: “Federal tax remittance is subtracted from the US national debt on that big spreadsheet the gov’t runs.”

Fact: Federal tax remittance has NOT subtracted US national debt on the consolidated balance sheets of the federal gov’t since 1957.


Deadly Innocent Misinterpretation #28: “The public debt is nothing more than the $ spent by gov’t that haven’t yet been used to pay taxes, sitting in the economy as cash, as $ in reserve accounts and as securities accounts…It functions as the net money supply.”

Fact: The public debt is nothing more than the $ spent by gov’t that haven’t yet been used to PAY OFF THAT PUBLIC DEBT, sitting in the economy as cash, as $ in reserve accounts and as securities accounts…It functions as the net money supply. 


Deadly Innocent Misinterpretation #29: The Fed neither ‘has’ nor ‘doesn’t have’ dollars.

Fact: The Fed has dollars.


Deadly Innocent Misinterpretation #30: “Printing is a word that goes back to the gold standard.”

Fact: Printing is a word that goes way, Way, WAY back BEFORE the gold standard.


Deadly Innocent Misinterpretation #31: The Fed is the ‘scoreboard’.

Fact: The Fed is the excel spreadsheet.


Deadly Innocent Misinterpretation #32: Payment of federal taxes is a ‘destruction’ of dollars.

Fact: Payment of taxes is a drain of $$$ to the DTS (the same exact account where all federal spending is drawn).


Deadly Innocent Misinterpretation #33: “The Fed has raised rates to try to keep unemployment from dropping below 4%.”—MMTer with a Ph.D (name withheld to protect the innocent)

Fact: “It would not be appropriate to specify a fixed goal for employment.”—Federal Open Market Committee Statement on Longer-Run Goals and Monetary Policy Strategy, 01/29/19


Deadly Innocent Misinterpretation #34: “Japan is our MMT poster child that keeps exposing the myths.”

Fact: Japan is a pure MMT case study why, from the very start of economic troubles, PEN STROKES, not more keystrokes, make much better solutions to grow an economy.


Deadly Innocent Misinterpretation #35: “US taxpayers do not fund the US government. The US government funds US taxpayers. All dollars used by the US private sector to pay federal taxes come from the US federal government.”

Fact: All dollars used by the private sector to pay federal taxes DO NOT necessarily come from the US federal government.


Deadly Innocent Misinterpretation # 36: The Job Guarantee is like the WPA of yesteryear.

Fact: The Job Guarantee is NOT like the WPA of yesteryear.


Deadly Innocent Misinterpretation # 37: “Spending & taxation are separate & independent operations.”

Fact: Spending and taxation are interdependent operations that are intentionally coordinated.


Deadly Innocent Misinterpretation #38: “Don’t say ‘Federal taxes don’t fund federal spending’. Instead say, ‘Federal taxes do not need to fund federal spending’. Translation: Don’t tell me that I am an asshole. Instead say, I don’t need to be an asshole.”—Ellis Winningham, 09/06/18

Fact: “Don’t say that ‘federal taxes don’t fund federal spending’. It’s better to say that federal taxes are not needed to be able to spend, not that it doesn’t fund it.”—Warren Mosler, MMT conference closing remarks, 09/24/17


Deadly Innocent Misinterpretation #39: “If the private sector wishes to run surpluses, the federal gov’t must run deficits.”

Fact: If the private sector wishes to run surpluses, the federal gov’t does NOT have to run deficits.


Deadly Innocent Misinterpretation #40: Federal gov’t deficits do not ‘crowd-out’ investment.

Fact: Federal gov’t deficits do ‘crowd-out’ investment.


Deadly Innocent Misinterpretation #41: The deregulation of natural gas prices—not Paul Volcker’s rate hikes—broke the back of the 1970s inflation.

Fact: Paul Volcker’s rate hikes—not the deregulation of natural gas prices—broke the back of the 1970s inflation.


Deadly Innocent Misinterpretation #42: Loans create deposits.

Fact: Bonds create loans create deposits.


Deadly Innocent Misinterpretation #43: The macroeconomics taught in Australian universities is ‘fake knowledge’—that academics are teaching ‘lies’ and the research produced by academic economists is neoliberal ideological ‘propaganda’.

Fact: “It’s not true. Sure, some things taught today are wrong and you need to unlearn them but the professor is asserting his theory to undermine the entire economics profession. He is trying to say that you’re all wrong and you need to think of something different.”—John Adams


Deadly Innocent Misinterpretation #44: A federal gov’t budget is not equivalent to a household budget.

Fact: “If the people see that the gov’t budget is not the same as a household budget (that there is no traditional constraints), then ultimately people won’t accept the unit of currency that the gov’t is paying (which is precisely what is happening in Venezuela). So in ‘theory’ the gov’t can continue to spend—until in reality it can’t.”—John Adams


Deadly Innocent Misinterpretation #45: A currency issuing gov’t can never run out of money and never has to fund its spending.

Fact: “Saying that a currency issuing gov’t can never run out of money and that it never has to fund its spending is making the point to advance a different set of priorities. When you get a gov’t that keeps spending money, it can become a problem.”—John Adams


Deadly Innocent Misinterpretation #46: For the non-gov’t sector to save, the gov’t needs to run continual budget deficits; and continuous deficits won’t be inflationary, as long as if it maintains that proportional relationship between spending and productive capacity.

Fact: “The gov’t does not necessarily have to spend in order for the non-gov’t to save.”—John Adams


Deadly Innocent Misinterpretation #47: The gov’t ultimately chooses the unemployment rate (because tomorrow the gov’t could engineer full employment by starting a federal Job Guarantee program but the gov’t chooses not to have full employment).

Fact: “There are a number of things that are wrong with the thinking that the gov’t can choose the rate of unemployment or reach full employment by spending willy-nilly.”—John Adams


Deadly Innocent Misinterpretation #48: Hyperinflation in Weimar and Zimbabwe was not caused because of excessive money printing but because of a fall in productive output.

Fact: The cause of hyperinflation is BOTH printing money AND productive collapse—they run hand in hand.


Deadly Innocent Misinterpretation #49: Involuntary unemployment is a great economic evil and MMT solves that problem.

Fact: “Another specific problem that only MMT is most concerned about is ‘involuntary’ unemployment, meaning people who want a job who can’t get a job (or ‘forced’ to be unemployed).”—John Adams


Deadly Innocent Misinterpretation #50: Every time that the Federal Reserve Bank pays interest on excess reserves, they are subsidizing the banks.

Fact: Every time that the Federal Reserve Bank pays interest on excess reserves, they are not subsidizing the banks.


Deadly Innocent Misinterpretation #51: The Labor Force Participation Rate remaining roughly unchanged is a sign that the job labor market is terrible because disenfranchised people have given up.

Fact: The Labor Force Participation Rate remaining roughly unchanged is not necessarily a sign that the job labor market is terrible because disenfranchised people have given up.


Deadly Innocent Misinterpretation #52: The Fed is trying to fight inflation by creating unemployment.

Fact: The Fed is not trying to fight inflation by creating unemployment.


Deadly Innocent Misinterpretation #53: Higher rates = higher interest payments to the economy.

Fact: Higher rates = higher interest payments to the bondholders (to the top 5% of the economy).


Deadly Innocent Misinterpretation #54: A monetarily sovereign gov’t can issue all the bonds that it needs in its own local currency without the worry of default risk.

Fact: Even if issued by a monetary sovereign and denominated in their own local currency, there is still a default risk of bonds.


Deadly Innocent Misinterpretation #55: US Treasury bond coupon rates are not determined by market forces, they are instead set by the Treasury.

Fact: All US Treasury bond coupon rates are determined by market forces at origination.


Deadly Innocent Misinterpretation #56: When a Non-bank (a ‘non formal bank’) lends EXISTING money to a borrower, it is NOT a credit creation. Only when a Bank (a ‘formal or traditional bank’) lends newly-created money is it a credit creation.

Fact: ALL borrowing is a credit creation (an expansion denominated in dollars).


Deadly Innocent Misinterpretation #57: “Actually, we can [‘print’ $100 trillion]. We did it last year and the year before and the year before, etc. Check the Daily Treasury Statement. Over $100 TRILLION redeemed last year. The nation didn’t blow up.”                

Fact: Over $100 trillion of federal bonds are redeemed every year but the NET CHANGE—how much was ‘printed’ (newly-created and added into existence)—was under $1 trillion last year.


Deadly Innocent Misinterpretation #58: “Only after the government spends its new currency does the population have the funds to pay the tax. To repeat: the funds to pay taxes, from inception, come from government spending (or lending).”                                   

Fact: The monetarily-sovereign federal government doesn’t necessarily have to spend its new currency so that the population has the funds to pay federal taxes. To repeat: the funds to pay taxes, from inception, do not necessarily come from government spending or loans from the Fed.


Deadly Innocent Misinterpretation #59: First it was ‘Deposits Create Loans’ and now it is ‘Loans Create Deposits’.

Fact: It was always ‘loans create deposits’…’Deposits create loans’ was just a historical blip, a subset, within ‘loans create deposits’.


Deadly Innocent Misinterpretation #60: “There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.”—Mosler’s Law

Fact: “Mosler’s Law assumes that all spending can be beneficial by decree, regardless of whether such spending translates productively to real economic benefit or no—it de-emphasizes the importance of real economy impacts in favor of playing up a trivial point.”—Jack Litle 


Deadly Innocent Misinterpretation #61: During the gold-standard era, the constraint on the federal gov’t—same as on any household—was a lack of gold-backed dollars to finance spending. Today, since there is no longer that financial constraint for a monetary sovereign because the only constraint to deficit spending in fiat currency is real resources, the federal gov’t can create money as long as there is a lack of inflation. 

Fact: The constraint on deficit spending in fiat currency is a lack of production.


Deadly Innocent Misinterpretation #62: The Federal Job Guarantee will increase wages for those right below the ‘anchor’ wage. 

Fact: The Federal Job Guarantee will increase wages for those right below the ‘anchor’ wage while decreasing wages for those right above it.


Deadly Innocent Misinterpretation #63: Article 1 Section 8 mandates Congress to mint money to provide for the general welfare.

Fact: Federal gov’t spending with newly-minted gold coins is not the same thing as federal gov’t spending with newly-created fiat dollars.


Deadly Innocent Misinterpretation #64: “The Job Guarantee is a specific and intrinsic element of MMT rather than a policy choice that might reflect progressive Left values.”—Bill Mitchell, ‘Critics of the Job Guarantee miss the mark badly…again’, 04/26/18

Fact: Core MMT is the description (“MMT is descriptive and from there”) the Job Guarantee (“the Transition Job”) is a prescription (“is a base case for analysis”) which then you can change if you wish (“which you can do or not do”).


Deadly Innocent Misinterpretation #65: “MMT should not be seen as a regime that you ‘apply’ or ‘switch to’ or ‘introduce’. Rather, it is a lens which allows us to see the true (intrinsic) workings of the fiat monetary system.”—Bill Mitchell, Seize the Means of Production of Currency Part I, 06/11/19

Fact: MMT is the analysis of a dynamic currency.


Deadly Innocent Misinterpretation #66: MMT is macroeconomics.

Fact: MMT is not macroeconomics.


Deadly Innocent Misinterpretation #67: If you are a monetary sovereign, MMT is going to work.

Fact: Modern Monetary Theory is easier said than done for countries other than the US because the modern monetary reality is that the US has a much more complex and integrated banking system than the one that existed in the 20th century.


Deadly Innocent Misinterpretation #68: ‘The private sector will never provide jobs for everyone that wants them. With a Federal Job Guarantee program we can instead directly provide jobs for anyone the private sector does not want to employ so that those people can participate in our economy too.’

Fact: A federal Job Guarantee would lead to less productivity and a lower GDP because there will be less economic incentive to work.


Deadly Innocent Misinterpretation #69: (I – S) + (G – T) + (X – M) = 0

Fact: (I – S) + (G – T) + (X – M) – (Qm – Yd) = 0 


Deadly Innocent Misinterpretation #70: “Right now, we got that tariff man, you know, ‘agent orange’ I call him. Look, we all know that when we go shopping, you win when you get a better price. If you can get the lowest possible price, you’re the best shopper. Meanwhile, he’s complaining to China because they’re not charging us enough for the stuff they’re selling to us. He is saying that China is taking advantage of us by not charging us enough!”—Warren Mosler, The MMT Podcast With Patricia Pino & Christian Reilly, 07/10/2019

Fact: “You can move your car factory south of the border, pay a dollar an hour for labor, don’t have health care—that’s the single most expensive element in making a car—have no environmental controls, no retirement plans, and you don’t care about anything except making money, there will be a giant sucking sound going south.”—Ross Perot, The Second Presidential Debate, 10/15/1992


Deadly Innocent Misinterpretation #71: “Under a state currency system with floating exchange rates, the natural, nominal, risk free rate of interest is zero.” 

Fact: Under a state capitalist system with floating exchange rates, the natural, nominal, risk-free rate of interest (the prevailing ‘price’), is determined by supply & demand—just like any other price


Deadly Innocent Misinterpretation #72: The Green Party Chose Mainstream Economics Over MMT.

Fact: The Green Party chose Pure MMT over Fake MMT.


Deadly Innocent Misinterpretation #73: When the federal gov’t spends money, they are actually creating the money that they’re spending. The very act of spending by governments is the primary source of money in the economy.

Fact: The primary source of money in the economy is the very act of DEFICIT spending by the PRIVATE sector.


Deadly Innocent Misinterpretation #74: When you have 7 million unemployed as reported by the BLS, that’s a reserve army of unemployed that lowers wages below $31k/year, so that’s why you need to spend $500 billion on a federal Job Guarantee program to anchor wages at $31k/year.

Fact: When you have 7 million job openings (7M JOLTS as reported by the BLS), you have 7 million ‘sellers’ of jobs & wages (looking for ‘buyers’ of jobs & wages) acting as a ‘reserve army’ of job openings (acting as a buoy growing jobs & wages).


Deadly Innocent Misinterpretation #75: The ‘crowding-out effect’ does not exist. The money to finance federal deficits and private sector investment comes from two different places.

Fact: When the federal gov’t spends there is a crowding-out effect of private sector labor, resources and productivity—which may ultimately crowd the value right out of the currency. 


Deadly Innocent Misinterpretation #76: The FJG is counter-cyclical. The UBI is not.

Fact: The FJG is a UBI with a make-work requirement and both move people to the same counter-cyclical degree.


Deadly Innocent Misinterpretation #77: There is ‘The Deficit Myth’.

Fact: There is the pure ‘description’ deficit myth and the political ‘prescription’ deficit myth.


Seventy Seven Deadly Innocent Misinterpretations (77 DIMs #1 – 7)


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

Fact: Federal taxes are not a destruction.

Only federal taxes paid after a certain point where federal bonds are paid off is it an actual ‘destruction’ of dollars from the entire banking system. Saying ‘taxes are a destruction’ is not entirely accurate. It misses a much more important concept that only MMTers who are fully grasping the distinctions between ‘surplus’ spending, which doesn’t add dollars to the banking system (which doesn’t add Net Financial Assets because it is funded by taxes); and ‘deficit’ spending, which adds dollars to the banking system (which does add NFAs because it is not funded by taxes). NOTE: ‘Funded’ in a political constraint sense, which is not to be confused with funding in a financial constraint sense like household spending.

After federal taxes are paid, those taxes are ‘destroyed’ (debited) from ONE ledger, sure; but that also triggers an equal and opposite ‘creation’ (credit) of dollars to ANOTHER ledger, the Treasury General Account (as seen on the Daily Treasury Statement)—the same account that all federal spending is drawn. NOTE: I purposely didn’t say a credit of ‘reserves’ to the TGA because those reserves are denominated in dollars and to help grasp this concept easier (and most other MMT concepts), it’s best to keep it simple.

There are two ways that those injections of dollars into the TGA are decreased:

1) Those dollars are debited from the TGA and credited towards on-budget federal gov’t expenditure, known as ‘surplus’ spending. If no more spending is needed for the fiscal period and there is still ample amounts of dollars in the TGA, then…

2) …if Congress decides to, those dollars can be debited from the TGA and credited to individual Treasury bondholders INSTEAD of to people that provided goods or services provisioning the gov’t. In other words, the dollars are ‘spent’ towards ‘paying off’ Treasury bonds known as the national ‘debt’.

NOTE: In that first scenario, there is NO permanent ‘destruction’ of NFAs from the entire banking system. The surplus spending immediately ‘refunds’ (credits) a momentary ‘destruction’ (a debit) out from money-supply circulation; and in the second scenario, there IS a permanent destruction because there are now less of those Treasury bonds—which is the opposite of the creation of those bonds (which is the opposite of the deficit spending that originally added those Net Financial Assets denominated in dollars). By saying ‘taxes are a destruction’, MMTers are confusing the payment of federal taxes with deleveraging.  

At the end of any fiscal year, if the federal gov’t had a deficit, that means that there was a creation (the national ‘debt’ went up). If at the end of a fiscal year, they had a surplus AND Treasury bonds were ALSO paid off, then there was a destruction (the national ‘debt’ went down). NOTE: The last time the latter happened (the last time that Congress decided to spend a surplus on paying down debt rather than lowering taxes/increasing spending) was in 1957. Yes, you read that right, during the Clinton surpluses in the late 1990s, the national ‘debt’ did NOT go down (because Congress decided NOT to use the money to pay off Treasury bonds). 1957 was literally the last time that ‘taxes are a destruction’ was true.

This crucial distinction, this ACTUAL DESTRUCTION, is why all six depressions in US history were preceded by sustained and prolonged fiscal year federal gov’t budget surpluses (‘dollar drains’) that paid off Treasury bonds (‘dollar destruction’).

Paying federal taxes is a ‘dollar drain’ (a transfer of dollars out from and back into money-supply circulation).

Paying off Treasury bonds is a ‘dollar destruction’ (an unwind of their creation).

In other words, same as in the private sector, dollars are only destroyed when that bond—not those taxes—goes into ‘the shredder’.



Don’t take my word for it. When asked why there was a recent liquidity crunch affecting the overnight repurchase agreements (the ‘repo’ markets), Bill Dudley’s answer is a real-time example of a dollar DRAIN:

Bloomberg Markets: “So what happened last week?”

“There were two things that happened. September 15th there were corporate tax payments and settlement of Treasury bond sales. Both those things basically drained bank reserves—it meant more money going from the private sector to the Treasury.”—Bill Dudley, Senior research scholar at Princeton University and former New York Fed President, explaining the upwards pressure on repo rates causing the federal funds rate to trade outside of its range, 09/23/19



 “The MMT narrative is that taxes destroy money and spending creates money. Of course, this isn’t what actually happens. When the Fed settles a payment with the US Treasury they mark down a bank’s reserve account (from existing reserves, reserves that were created specifically by the Fed for the purpose of Monetary Policy and interbank payment clearing) and that debit equals a credit at the Treasury’s TGA. The size of the Fed’s balance sheet doesn’t change. There is no creation of liabilities and no destruction of Fed liabilities. It merely transfers Fed liabilities from a bank to the TGA. And when the Treasury spends the Fed credits a reserve back to a bank. There is no creation and destruction of anything here. There is nothing but transfers. You can even see the credits and debits in real time every single day via the Treasury’s daily statement.”—Cullen Roche, Stop Saying MMT Describes Reality – It Doesn’t, 01/08/20

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 ‘government 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 listener’s MMT thinking), trust me, it is much easier to separate out the federal gov’t from the households, the businesses, the local governments, the state governments (and even the foreign governments) in the non federal government.

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

We all remember what happened in 2008.

The result of sustained private sector (non federal gov’t / domestic) deficits.

Unlike federal gov’t deficits, counter-intuitive to mainstream belief, only private sector deficits are the deficits that are actually unsustainable.

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 take a step back from the picture and 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 Warren Mosler’s 7DIF#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 MMTers would be better off saying something like this:

“The tokens are part of the transfer mechanism and the subway company controls the transfer mechanism by feeding it with tokens at will”—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’”—Vernon Etzel

My question to the political MMT ‘academics’ who wave bye-bye to double-entry accounting each time they say that ‘the subway token doesn’t fund the subway’ is: Are subways tokens free where you live? If so, 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 Daily Treasury Statement 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 DTS) 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”. In an 04/21/09 Billy Blog titled ‘Money multiplier and other myths’, Dr. Bill Mitchell writes that HPM “is the sum of the currency issued by the state (notes and coins) and bank reserves”. In other words, he thinks that all of the reserves in the monetary base is HPM; and they both think that all federal gov’t spending—financed by ‘newly-created’ dollars—is HPM.

First of all, the fact that all federal gov’t spending is financed by newly-created dollars isn’t MMT—it’s only because we are in the digital (computer) age. Secondly, here’s why thinking that all reserves are HPM (that all spending is HPM) isn’t entirely accurate: 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 (Treasury Secretary Henry Morgenthau) started because the Treasury wasn’t fully grasping the difference between ‘newly-created’ money and ‘high-powered’ money (HPM) either. 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 (with newly-created dollars a.k.a. reserves). Those newly-created dollars were High Powered Money because same as during federal deficit spending today, before 1951 when the Treasury instructed the Fed to buy Treasury bonds at initial primary offering, that was both an addition of newly-created Treasury bonds AND newly-created dollars entering the banking system (additions of Net Financial Assets, a.k.a. NFAs).

In those days, instead of holding auctions, the Treasury would simply set the coupon rate of new Treasury bonds as low as possible while the Fed fumed (because the Treasury was only concerned about cheap financing for the war, while Eccles at the Fed was only concerned about stoking post-war inflation which would ultimately increase the cost of the war). If the public didn’t buy them (with existing dollars), the Treasury would tell the Fed to support the interest rate peg and buy the bonds (with newly-created dollars), which Eccles knew was a dumb idea.

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 financed through the direct creation of new HPM” is similar to saying ‘all federal spending is endogenous money’, another deadly innocent 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 (with quote unquote ‘debt’ attached—which is ‘debt’ that is not intended to be paid-off/‘net-out’); or by the latter, one of the users (with actual debt attached—which is debt that is intended to be paid-off/’net-out’). 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 where all federal spending is drawn, that is the Fed acting ONLY as the agent (for the Exo guys over at Treasury & Congress).

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, unlike deficit spending, the newly-created money of surplus spending is not an addition of net financial assets, it is only making whole a future ‘destruction’, a federal tax collection (‘defunding’) of net financial assets (NFA). Rather than thinking high-powered money (HPM) equals all federal spending and HPM equals the monetary base, better to think HPM = NFA. Only deficit spending is a net add of dollars (is a net add of Treasury bonds denominated in dollars) into 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 (only additions of NFAs), has the inflationary bias and that’s why Eccles feared HPM—aka ‘hot money’—in 1948.

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), sitting in the monetary base, be considered HPM? That answer depends on which MMT academic you ask; however, I would say no, because UNLIKE the bonds bought by the Fed prior to the ‘51 Accord, those Treasury bonds bought by the Fed during QE were previously bought with EXISTING dollars at initial offering in the primary market by the private sector (thanks to Chairman Eccles).

Those newly-created reserves ‘spent’ by the federal gov’t for QE (those 4.2 trillion dollars created by the Fed—that were indeed net-additions going into the banking system—to pay for those $4.2T in AAA-rated bonds) were not considered ‘printing money’ (were not considered HPM) by Fed Chair Bernanke because those newly-created dollars were by design NOT INTENDED to enter money-supply circulation. However, unlike his QE, Bernanke DID consider his lender-as-last-resort money creation that was loaned using toxic assets as collateral in those Maiden Lane transactions as ‘printing money’ (as HPM) because those newly-created dollars (those net adds into the banking system) WERE by design INTENDED to enter money-supply circulation (intended for those banks with only liquidity problems to pay their bills and keep their lights on). That’s why QE did not have an inflationary bias—because it had nothing to do with money-supply circulation (because those newly-created dollars were just a glorified ‘swap’ trade that only changed the composition of bank assets from dollars with a coupon, to dollars without a coupon). Deficit spending is ‘vertical’ money creation designed to enter money-supply circulation; AND deficit spending is both an ‘outright’ trade that is also done in addition to a ‘swap’ of something like first collecting Treasury bonds (for QE) or collecting subprime collateral (for bailouts) or collecting federal taxes (for surplus spending). Unlike surplus spending, only deficit spending is ‘hot’ money (is HPM) because only deficit spending is both a swap of dollars collected from Treasury bond sales AND an outright net-addition of dollars going into the banking system that ALSO enters money-supply circulation—which has an inflationary bias—and that’s why Fed Chair Eccles coined that money ‘high-powered’.

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.



Even the Great Ones swing and miss sometimes.

In a YouTube video titled ‘All gov’t spending is money printing…And it doesn’t cause inflation’, Mike Norman makes this deadly innocent misinterpretation that often sends many political ‘prescription’ MMTers (and ‘MMT Trader’ subscribers) over the cliff. There’s a paradigm difference between newly-created dollars that adds Net Financial A$$et$ going into the banking system (‘deficit’ spending) and newly-created dollars that doesn’t (‘surplus’ spending). Furthermore, there’s also a difference between the money creation going into money-supply circulation (‘printing money’) and the money creation that doesn’t (which is not considered ‘printing money’). Gov’t spending doesn’t cause inflation? Maybe that’s why Mike was so fooled by that ‘inflation’ * (that rising US dollar in the f/x market) in 2018, along with the ‘inflation’ in all those other assets (in the savings bubble) while mistakenly predicting a ‘Great Unwinding’ in US stock prices the year before.

[*Unlike ordinary ‘Headline’ inflation that would be seen in Consumer Prices (in the retail marketplace catering to the 95%), there is also other ‘inflation’ that we ARE seeing in asset prices (in the financial marketplace catering to the 5%) and both are caused by the exact same thing: More buyers than sellers.] 

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”—Vernon Etzel

Agreed…Trading desks at non formal banks are *literally* lending their Fed reserves in the repurchase agreement (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”—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”—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: Taxes ARE NOT NEEDED to fund spending (not that they don’t at all).

‘Taxes don’t fund spending’ is the worst of the 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.”—John Biesterfeldt, Founder of the Intro to MMT – Modern Monetary Theory page on Facebook

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 formality, say this:

—Surplus spending ‘refunds’ net financial assets ($$$) that are / that will be drained from money supply circulation during taxation…

—Taxes ‘defund’ net financial assets ($$$) out from money supply circulation…

—Deficit spending ‘funds’ net financial assets ($$$) into the banking system (newly-created $$$ that are ALSO ‘newly-added’ net additions of $$$ to the banking system / increases of NFA)

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.”—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, and 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—the more proposals, the merrier. 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



“MMTists make dubious semantic claims, such as that taxes and borrowing don’t actually ‘fund’ government spending. In a modern banking system, all credits require debits. The only entity that can credit without debiting is the one authorized to issue the money. Expenditure is carried out by the Treasury, so let’s start there. The Treasury is not authorized to issue the money that is actually used for spending—called bank reserves—and I believe MMTists will agree with me so far. The Treasury has to secure this money in order to spend it [or else there’s a gov’t shutdown]. Which it does by debiting its spending account [its Treasury General Account] at the central bank [at the Fed] in order to credit other accounts. An important point is that the Treasury cannot overdraw from its account [from its TGA]. It is currently illegal [since 1981] for the Treasury to have an overdraft with the Fed. The Treasury can only spend by first ensuring it has adequate funds in its account with the central bank. How does it do this? By collecting taxes and selling bonds. Thus, taxing and borrowing does indeed fund Treasury spending specifically. MMTists dismisses such legal obstacles as ‘self imposed constraints’, but this is a red herring. Ultimately all economic institutions are largely composed of ‘self imposed constraints’. It is by these constraints that we define how our present economic institutions govern [it’s our modern monetary reality that keeps getting in the way of their modern monetary theory]. For the sake of argument, since money is ultimately created by the government (by the central bank) in the first place, it didn’t need those taxes or borrowing—so does it then make sense to say that taxes/borrowing funds spending? The answer is yes, in practice, it does make sense. Whether MMTists want to admit it or not, while the central bank is an agent of the government, it does still operate independently. When the government wishes to spend, it cannot simply demand funding from the central bank directly or even indirectly—it has to engage in borrowing and taxation. Now let’s move onto ‘real’ funding. By this I mean providing the real resources necessary to purchase or deploy real goods and services. Both MMT (and most of the mainstream) essentially agree that governments have finite fiscal space—that is the ability to utilize idle resources to achieve its goals without competing with and bidding up already utilized resources. Here again many MMTists tend to argue then that government spending is simply the process of acquiring and utilizing resources and that the purpose of taxation/borrowing is for when the government is close to an idle resource constraint but needs more resources. To claim that taxation or borrowing here should not be considered funding is manifestly absurd. It is quite clear that in a real sense, a government’s ‘funds’ ARE its fiscal space (defined as idle resources in real terms); and the only way to acquire more fiscal space than is already available—without reducing its own outlays—is to take it from others. In other words, either by taxing them or by borrowing from them. Ergo, in real terms, taxing and borrowing unequivocally funds the government.”—Upholding Economics, Feb 25, 2019, ‘What’s wrong with MMT?’ https://blog.usejournal.com/whats-wrong-with-mmt-a41e10c7203b

For a completely wonkish and WAY-TOO-LONG-to read (haha)—however a COMPLETE deep dive on this, check out:

‘Q) Federal Taxes Do Not Fund Spending, Right? A) Wrong.’

SOURCE: https://thenationaldebit.com/wordpress/2017/02/27/q-federal-taxes-do-not-fund-spending-right-a-wrong/

Thanks for reading,

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CONTINUED: Seventy Seven Deadly Innocent Misinterpretations (77 DIMs #8 – 14) http://thenationaldebit.com/wordpress/2018/04/11/another-seven-deadly-innocent-fraudulent-misinterpretations/