The Job Guarantee: A Series of Contradictions

By Charles ‘Kondy’ Kondak

This analysis (it may turn out to be the first of my own series) will be based on the latest Proposal from the Levy Institute (4/18/18) entitled: “Public Service Employment: A Path to Full Employment” (PSE) which is linked below.

Let me begin with a little background. The “Public Service Employment: A Path to Full Employment” is the third rebranding of the Job Guarantee (JG) of which I’m aware. I have seen some formal academic work on it dating back to the mid-90s and beyond, chiefly by Paul Davidson of the University of Tenneesee.

The first popularization of a guaranteed Federally funded job I saw was in 2011 during the depths of the Great Recession. It was called the Federal Government as the “Employer of Last Resesort (ELR)”. It had a more transitional and temporary flavor to it. The suggested wage for the ELR was a very modest $8/hr in 2011, with some minimal benefits. At $8/hr most would likely have qualified for existing Federal Social Safety Net Programs, like Medicaid. We could have loosened the income restrictions for other Federal programs like food assistance, and increased the amount, but in my opinion we should be doing that anyway.

For a 40hr work week $8/hr amounts to Gross Earnings of $320/wk and would not be a huge threat to the current Unemployment Insurance program as the ELR wage is quite substantially lower than the maximum unemployment benefit in my State ($400/wk).

Actually, this incarnation is quite good and doesn’t come with many of drawbacks of the later more robust Job Guarantee proposal, especially if the temporary nature of the ELR is emphasized. This ELR proposal actually augments the current Social Safety Net, not threaten it. One has to wonder if the author who wrote the proposal, Warren Mosler, had this in mind when outlining his ELR proposal.

The next incarnation was a massive expansion of the ELR. It became known as the Job Guarantee. I won’t get into much detail as the link to the new rebranding of the JG called: “Public Service Employment: A Path to Full Employment (PSE)” report covers it. Briefly though, the JG wage is set at a “living wage” with liberal benefits. A person could stay in the Job Guarantee Program as long as they wanted, selecting from a smorgasbord of jobs at the one stop Employment Office. To quote the Eagles, “You could check in and never leave”. And if you didn’t like your JG assignment or grew tired of it you could select another.

This brings us to the first contradiction of the study. It begins right off the bat with the title: “”Public Service Employment: A Path to Full Employment (PSE)”. I spent almost my entire career working in State Government in Public Service Employment, it’s called a Civil job. Why are we talking about creating a second sub-class of Civil Service Worker with the PSE. A sub-class second rate Civil Servant. Current Civil Servants get little or no respect by some already. Who wants to be a clerk at the DMV? A job funded by Government is a Civil Service job, period!

Anyone hired temporarily or not should be hired into the existing Civil Service System at the current wage scale. That is to say a Civil Engineer hired temporarily should be paid the existing the wage scale for that position. The State does have some Temporary CE positions left, but not nearly as many as in the past. Goodness knows my State and the country could use Temporary Civil Engineers working for the Public Purpose. This goes all the way down the Civil Service job skill and pay scale, like teacher aides. Don’t freaking insult Private sector workers Civil Workers with your 15/hr, $600/wk JG job. Which by the way is higher than the maximum Unemployment Benefit in my State. Say Good-bye to the Unemployment Insurance Program so don’t claim the PSE will not replace the current Social Safety Net, but be an add-on.

To think otherwise is living in a fantasy world!

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“The ability of the Job Guarantee as a permanent program to control inflation is often misinterpreted as having no downside to workers. There are serious downsides as I will explain.

In the advent of inflation, without the Job Guarantee people drop from employment to unemployment thereby reducing demand and inflationary pressure, simple enough. With the buffer stock Job Guarantee idea, people will drop from employment to buffer stock employment. Consider the case where the Job Guarantee wage is higher than that of current automatic stabilizers such as unemployment insurance. This means that more people will have to fall into the Job Guarantee buffer stock to achieve the same inflation reduction as currently the case. The results of a Job Guarantee buffer stock results in more workers losing their jobs and suffering a reduction in pay to allow demand to fall the same amount to control inflation. In essence you’ve penalized one group of workers to benefit another.

Is this something I see as a knock on the Job Guarantee? Yes! Of course, and the cry from the #FakeMMT ‘Keystroke To Every Need’ crowd is: ‘You’re saying let some people starve so other people can keep their jobs!’ No, what I propose is bringing the PureMMT for the 100% prescriptive pen. Currently, unemployment and inflation are low—all we have to do is increase the automatic stabilizers now such that they would equal the proposed income from a Job Guarantee. Increasing automatic stabilizers now would add 0 inflationary pressure and then under the Job Guarantee we wouldn’t be issuing $500 billion into the Economy to set up a program that would trigger at least some garbage inflation.”—Charles ‘Kondy’ Kondak



“Recently, I outlined an aggressive series of proposals to reduce hours worked to die-hard members of the Job Guarantee cult as something we could do for workers without pumping $500 billion into the Economy that comes with the risk of at least some inflation. I went with every worker earning 1 hour paid time off for every 8 hours worked, lowering the OT threshold to 35 hrs, and requiring Employers to provide 90 days of paid Family Medical leave.

The JG cultists replied that big business could do it more easily but that would drive out small businesses. Oh, so a guaranteed job at $31K / yr with benefits wouldn’t be even worse in that regard? Then they shifted the ground yammering on about non-profits like Habitat for Humanity as a solution to affordable housing. Don’t they understand how many income based affordable housing units we could build with $500 billion in Govt seed money, we could even outfit the units with state of the art ‘Greener’ technology. No matter how one moves these folks around the chess board they sound like Charlton Heston, ‘You’ll have to pry the JG out of my cold dead hands.’ The JG is an endless loop of ‘capitalism relies on a reserve army of the unemployed to survive’.

Instead of let’s actually roll up our sleeves, get to work, and actually use the power of Government-directed MMT spending into the Private Sector to produce things that actually make a difference, like affordable housing. Of course, we’ll need a boatload of skilled trades people which we are short of right now (and that inconvenient truth really jolts their reality).”—Charles ‘Kondy’ Kondak



“One has to ask several questions about this Government sponsored Job Guarantee, as outlined in the announcement below. Who is eligible to participate? The 16 million unemployed/underemployed or wherever they conjured up that number Job Guarantee advocates cite? Why only 16 million? How many privately employed workers will resign into the ranks of the Job Guarantee?

Wages for 40% of the workforce are below $15/hr, and the benefit package almost certainly far more spartan. Likely we would see about 50% of the workforce migrate into the Job Guarantee right off the bat, until Private business sorted out the “micro-economic” effects and what it took to lure workers out of the Job Guarantee. That’s around 75 million workers, which makes sense if one considers the current Median Household income is around $62K/year. A two income Household working in the Job Guarantee Full Time puts them at the current Median Income.

Please don’t tell me that will only marginally add to inflation. Proponents of a Job Guarantee say the Private Sector would have to offer better to attract workers. How much better? If a worker can make $15/hr. with liberal benefits picking from a smorgasbord of jobs located in their community how much would it take to lure a worker to be a roofer sweating in the hot sun?

Of course, now I’ll be called a Neo-liberal bastard. There are other prescriptive approaches to lift wages and the living standards for workers without some Employer of first resort Government Job Guarantee where the money would be ‘pried’ out of the Private Sector and leave it intact.”
—Charles ‘Kondy’ Kondak



OVERHEARD: During a discussion on the Libertarians + MMT page on Facebook:

Charles Kondak: Employers are somewhat hesitant to hire the unemployed when labor is plentiful. As labor markets tighten, they begin to become less picky. Using various fiscal levers to foster increased employment can be of great help to stabilize employment levels. Beyond that, use federal funding—at all levels of government (federal, state and municipal)—according to economic conditions; and hire those wanting to be temporarily or permanently hired into the existing Civil Service system at the wage/benefit set by the relevant Civil Service system that would provide a reasonable alternative to involuntary unemployment. Would it not be better for the worker to list a bona-fide Civil Service job on their work history rather than a Job Guarantee ‘job’ (which likely would be viewed as inferior by employers)?

Warren Mosler: Charles Kondak The employed transition buffer stock is a lot more ‘liquid’ than today’s unemployment, which means it functions as a superior price anchor, and likewise the transition job pool can be kept much smaller than the pool of unemployed for any given level of price stability, which is another way of saying that private sector employment can be that much larger. Just saying its a superior price anchor vs unemployment and a lot of the negative ‘externalities’ of unemployment are avoided as well. In a sense, the state has damaged the workers by creating excess unemployed by overly tight fiscal, and a transition job helps repair that damage as it facilitates a return to private sector employment.

Charles Kondak: Civil Servants are already government-paid employees working for the public purpose and hiring ‘excess’ workers into existing civil service systems as needed with federal dollars to get at involuntary unemployment does not require creating a second sub-class of government-paid employee working for the public purpose.



This was also overheard:

“Right now I see approx $3T spent on healthcare and out of that approx $1T is private-sector administration, meaning people who are like, digging one hole and filling in another. What they are doing, the administrative work, is valuable in its context, but the context has no value, that pretty much goes away if we go M4A.”—Warren Mosler, Discussion of Progressive Resource Allocation during a 2017 Real Progressives broadcast, explaining why the implementation of Medicare For All would be a highly deflationary event.

So right there, in Mr. Mosler’s very own words, is yet another problem with a federal Job Guarantee program. By design, the JG does not compete with the private sector (by design the federal program initially spends $500B to create ‘jobs’ that are unproductive and ‘have no value in context’).

Meaning that the same garbage inflation (that caused a $1T increase in medical costs) will also happen with other prices in the economy once a JG (that has people ‘digging one hole and filling in another’), is implemented.

Which will punish the very people who listened to all that MMT pillow talk (that ‘guaranteed’ them job security with a ‘living’ wage and are now stuck in a Job Gulag watching the world go by).

Not to worry though, because when that day comes, the political ‘prescription’ MMTers will whisper more sweet nothings into their ears and ‘solve’ that problem too.



“The proposed MMT Job Guarantee (JG) pays a fixed wage with benefits. The most quoted wage is $15/hr.. All workers in the JG are paid the same in all areas of the country. Aficionados of the JG are fond of comparing it to New Deal style work programs.

The Work Progress Administration (WPA) was the main program that was responsible for building the infrastructure, some of which is still in use today. Job Guarantee advocates will make sure to point that out to prove the overwhelming success of the New Deal 1930s Work Progress Administration. Yes, it did some excellent work in its time and place in history.

Job Guarantee supporters leave out one small detail. The Work Progress Administration (WPA) did not set a fixed Nationwide wage and the wage varied based on skills of the worker. The WPA Division of Employment selected the worker’s placement to WPA projects based on previous experience or training. Worker pay was based on three factors: the region of the country, the degree of urbanization, and the individual’s skill. It varied from $19 per month to $94 per month, with the average wage being about $52.50—$934.00 in present-day terms. The goal was to pay the local prevailing wage. Basically, the Job Guarantee is not like the WPA of yesteryear.”—Charles ‘Kondy’ Kondak

Agreed…To play along with proponents of the $500B federal Job Guarantee program, not only do you have to pretend that these fake ‘jobs’ would be like the WPA, one must also ignore all facts, math & data regarding record-breaking jobs figures (and only see 1930’s depression-era black & white images of *actual* involuntarily unemployed people standing in soup lines).

02/13/19: Another record made during the Longest Jobs Growth Expansion in United States History.

P.S.S.S.S.S.S.S. “Bad news for MMT’s Job Guarantee: The future is not more working hours, but fewer. People want happy lives. Minimum wage jobs are not the road to happy lives. Working for money seldom is a goal. The real goal is money and what money can buy. Ask any retired person.”—Rodger Malcolm Mitchell



“The battle rages on between Political Populist MMTers on the merits of a Job Guarantee (JG) as opposed to an Universal Basic Income. Some propose an unholy marriage of the two – the Job Guarantee and a Basic Income. Putting aside the fact that the Economy is in the midst of the longest Job expansion in our history, let’s take a look at the mechanics of each and how each scheme have more in common than each side realizes.

JGers are very fond of saying that an UBI is inflationary and provides no check on inflation should it arise and the JG is far superior in curbing inflation. Really? OK, let’s assume the Job Guarantee (JG) wage and the Universal Basic Income (UBI) stipend are equal. If inflation surfaces consumers begin to cut back on consumption and employment declines. Simple enough.

Under a JG workers fall into “buffer stock” warehouse Employment at a fixed wage as Employment in the Private Sector declines. With an UBI displaced workers lose their Employment Income and fall back on their UBI “fixed benefit” Government stipend. Since the fixed JG wage equals the fixed UBI stipend, inflation would be controlled to the same degree. You guys are arguing about identities.

Of course, I just committed heresy and I am bombarded with links on the JG (like I’ve never seen or given any thought to the 16 reasons)…/16-reasons-matt-yglesi…

I get no rebuttal on the Economic analysis from the Political Populist MMTers, only “guru” links, and some goobly-gook about we need a JG, the Green New Deal and the WPA (all of which has been covered here in various other posts). I’m pretty certain at least one or two of the Political Populist MMT gurus have seen it or been notified. Either I’m being dismissed as a crackpot or my Economic argument has at least some teeth in it.

As far as one being more inflationary than the other at the outset of the respective Programs the inflationary impact is larger with a UBI since it is a far larger injection of money into the Economy on the demand side than a JG. The benefit of an UBI is that as one travels up the Income distribution some of it might be saved, the JG has no such meaningful benefit in this area.

The main criticism of the JG faithful of the UBI is that the UBI produces nothing directly. However, the JG is subject to the same criticism, only it’s less obvious (likely because it contains the word JOB). A JG job produces no goods or services that are not currently being offered for consumption by the Private Sector or Public Service Employees beyond some ill defined Public Purpose (this is where the Green New Deal is brought up, like Mr Davis Bacon or the IBEW doesn’t exist). Inflation wise under a JG there is a distinct possibility we’d end up near or at the same place as we would with an UBI, only it might take a bit longer.

I hear the term “one time price adjustment” thrown around a lot. Why would it be a one time adjustment? Public pressure to increase the UBI or the JG wage would be immense. Looking at the JG inflation effect JG experts say the maximum inflation premium of the JG would peak somewhere between .63% to .74% in 2020 and decline over 7 years to around .1%). Of course, Politicians would run around pledging to raise the UBI or the JG wage, promising us the sun, moon and the stars along with it such that Politics almost certainly would add a greater inflation premium to the JG than expert forecasts predict, the same holds true for the UBI.

This would be especially true if the General Public accepts the simplified Political Populist MMT mantra that Federal Government is not constrained by anything except the very inflation which is devastating them. Might the overriding temptation be to print (OK keystroke) money into the teeth of inflation. After all poor people are dying in the street because of the lack of keystrokes that a Monetary Sovereign can create at will. History does indicate that this is more likely than increasing taxes or cutting spending in the face of inflation.

The JG looks back to the political heyday of the 1930s Democratic Party. The UBI is a bit newer. It was born in the backwaters of libertarian free market thought in the 50s and 60s and has seeped more into Republican solutions (Earned Income Tax Credit (EITC) – Negative Income Tax was Milton Friedman’s term). IMO, the EITC is a rather elegant application of the Negative Income Tax). Now I’m a Koch Brother Fascist in the eyes of Political Populist MMTers. I just call it like I see it. It doesn’t mean I vote a certain way.

How about we do something a bit different this time? Increase paid time off, preferably in a way that has Employers pay for it (or at least part of it). If this technological takeover of the Economy really does occur this time making jobs scarcer (one of the big reasons both JGers and UBIers cite for their need) everybody works fewer hours at the remaining jobs, with no loss of pay (balances the scales of work and leisure).

Hell, machines were perceived as a threat to jobs all the way back to the very early 19th Century (Luddites), perhaps further back. I was told by my Elementary School teachers back in the mid-60s that when we got older the biggest “problem” we’d have is how to spend our leisure time, because the robots are coming. I’m still waiting…”—Charles Kondak



“On CNBC (3/1/19) Stephanie Kelton certainly ‘tailored’ the Job Guarantee message to fit the audience. However, her interview finally outlines the true impact of a Job Guarantee on the entire workforce. This is one aspect where the JG benefits one group of workers while penalizing another.

Kelton argues that ‘what MMT would do is actually use full employment 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,’ she adds. That sounds awful neo-liberal to me.

The quote describes wage suppression to benefit Employers anchoring the price of the entire labor force wage scale downwards towards the lower bound of $15/hr. I have said it many times, here and elsewhere, that the JG is one giant Temp Agency that will be used to suppress wages. Now one of the ‘gurus’ says it.

Further, the JG sets up the Government as ‘chief negotiator’ of wage/benefit packages nationwide, and will likely have a chilling effect on the existence of remaining Unions.

Can’t these #FakeMMTists read and understand what she is actually saying. The #FakeMMTist followers are goose-stepping their way back into the 1930s!”— Charles Kondak

Agreed Kondy…they are goose-stepping their way back into the 1930s:

“First they came for the socialists,* and I did not speak out—
Because I was not a socialist.
Then they came for the trade unionists,** and I did not speak out—
Because I was not a trade unionist.
Then they came for the Jews,*** and I did not speak out—
Because I was not a Jew.
Then they came for me and there was no one left to speak for me.”—German Lutheran pastor Martin Niemöller on his opposition of the Nazi Party during the 1930s

*Under the guise of promoting pure MMT, the reason why Professor Mitchell ‘billy-blogged’ that ‘Progressives Are Neoliberals In Disguise’ and called The Greens ‘neoliberals on bikes’ is because he feels that progressives (left-leaning socialists) aren’t Far Left (radical extremist) enough…

**The advocates of a fake ‘job’ guarantee program suggest creating more ‘Public Service Employee’ jobs (like Division of Motor Vehicle positions that are already permanent Civil Service jobs) to achieve utopian ‘full employment’…

***Using the same-old class-warfare tactic in a different bottle, fake MMTers want to pitchfork the rich while insisting that it’s not ‘to pay for anything’ but only because the rich ‘have way too much money’ and that we need to make the rich ‘pay their fair share’ to ‘solve’ wealth inequality.



When I first encountered the Job Guarantee (JG) in 2011 my first response to it was quite favorable. The proposed wage was $8/hour with “some benefits”. I immediately saw that at this wage level many participants in the Job Guarantee (JG) would still qualify for current Social Safety Net Programs and if we adjusted the notoriously low Poverty level definition just a bit from $11,000/year to $16,000/year the rest of the workers in the JG would also be covered. At this level the Job Guarantee would be an add on not a subtraction to current Social Safety Net Programs, not like the current incarnation of the Job Guarantee.

Even with two people working Full-Time in Job Guarantee at $8/hour their combined income would be $32,000/year which was substantially below the Median Household Income in 2011 of $50,054/year. Today, two people working in the JG at $8.00/hour ($32,000/year) would put them just a touch below the Median Household Income of $63,688 in January 2019 . Paying a JG wage of $8.00/hour would become the effective minimum wage which is not a steep increase from $7.25 and should have been done at the time anyway. Of course, some States and Municipalities have since increased the minimum wage above the Federal minimum wage and the Job Guarantee would have to be higher. Basically, the JG wage should track the Minimum wage not set it.

The 2011 version of the JG listed the benefits as getting people used to show up on time, take a shower, learn how to work well with others, and remedial Education. Job Guarantee participants would join the ranks of workers at the bottom of the wage scale and it would be up to them to use these basic work skills to take it from there. Those benefits of a Job Guarantee are enough for me and any “productive” work a bonus, not the goal. The aforementioned benefits of the scaled back 2011 JG would be targeting at the proper portion of the population, those who have dropped out of the workforce, deteriorated into such a state that they have given up, many of whom are functionally illiterate. I could live, even support this type of Job Guarantee as it is clearly a transitional work program targeted at those who could be termed as unemployable.

I still don’t like the Federal Government effectively setting up a one stop Temporary Agency. Setting up a one stop Temp Agency concentrates workers into one place where Employers would have “perfect knowledge” to recruit the person willing to work at the lowest wage above the Job Guarantee wage, but that downside is manageable and very easy to greatly mitigate by increasing Unemployment Insurance benefits upwards when the Economy is doing well, like it is now. For example, in my State the maximum benefit is $400/week, and if we increased the maximum Unemployment Insurance Benefit a bit there would be few if any, higher skilled workers in the JG for Employers to poach as very few, if any, would take such a cut in Income by participating in the JG willing and give up their Unemployment Benefit Income. In this case the Job Guarantee would not compete with current Unemployment Benefits for higher wage more skilled workers. The temptation and very real risk of the elimination of Unemployment Benefits would not exist as with the current $15/hour “living wage” proposal.

The more robust Job Guarantee is something far different. It sets a wage floor and a price anchor. When I heard Professor Randall Wray say the phrase “wage floor and price anchor” coupled with the application of the buffer stock idea from Agricultural Economics I interpreted price anchor to mean a way to suppress and compress the price of labor wages. After all that is what an Agricultural buffer stock does. The concept of the Agricultual buffer stock is If there is a good harvest the Government buys up the “excess” of an agricultural product to keep the price artificially high that allows farmers to stay in business and when there is a bad crop the buffer stock is released to the market to prevent shortages and prices lower than they would have been otherwise. An agricultural buffer stock smooths out the price of commodities. In agricultural Economics it’s a solution to what is called “The Farm Problem”.

A robust Job Guarantee at the proposed wage/benefit package would almost certainty cause Unemployment Insurance to be abolished and higher skilled workers would fall into buffer stock Job Guarantee employment and be able to be poached by Employers at a flatter wage scale than would otherwise be the case (remember the effect on farm prices of an Agricultural buffer stock). Further, why wouldn’t Employers avail themselves of the JG option to find the worker that would accept the lowest wage above the JG wage? For example, might the owner of an apartment building scour the JG for a doorman willing to work for $43,000/year rather than the current $49,000/year.

Proponents of the current Job Guarantee incarnation might be able to bamboozle most people by saying: “No, the phrase price anchor as it concerns the Job Guarantee refers to the price of goods and services in response to inflation”. We here at Pure MMT for the 100% aren’t as stupid as not to ask questions. Why would Employers only hire from the Job Guarantee worker pool when there is inflation? Why would a buffer stock of workers work any different than an Agricultural buffer stock? How does a JG control inflation? I’ll tell you by suppressing/compressing wages.

The Job Guarantee is a wolf in sheeps clothing that shears workers not empowers them, but try to warn brain washed #FakeMMTers. I’ve been accused of using twisted logic quite a few times. They have no knowledge and don’t understand the the true implications of using the Agricultural buffer stock concept in labor markets. They cannot begin the fathom the following quote buried under the flowery language of a JG :

On 3/1/19 on CNBC Professor Stephanie Kelton argued that MMT would use ‘full employment 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.’

Perhaps, the #FakeMMTist are not fake and want to have people to slowly turn to the Government for their sustenance as the Government can print (OK, keystroke) to every basic need. Basic need? Is that like everybody gets a Voltswagen, the Peoples electric car.”— Charles Kondak



“The Federal Job Guarantee cannot be used for large scale Federally funded construction projects of over $2,000 lest it run afoul of prevailing wage Legislation (the Davis/Bacon Act). The MMT political polemic sheep have been sheered by their own words.”—Charles Kondak

AGREED…and that’s why Charles Kondak remains the ‘go-to’ guy for pure MMTers on the Job Guarantee—and not anyone peddling ‘prescription’ MMT (under the guise of promoting ‘description’ MMT). Case in point:

“I think MMT economists would see the ELR [the job guarantee] as providing a superior anchor to prices and as a more effective means of controlling inflation than today’s policy of using unemployment for that purpose.”—Warren Mosler’s response to the Thomas Palley critique of MMT [of the job guarantee]. 

Hmmm…Mr. Mosler (and all MMT ‘academics’ like Stephanie Kelton) keep repeating that ‘anti-Fed’ yarn that plays well with their listeners; however, the facts, math and data doesn’t fit that ‘policy of using unemployment’ narrative.

The Fed’s mandate is price stability and MAXIMUM employment. The Fed is mandated by Congress. Do MMTers regurgitating this ‘evil Fed policy of using unemployment’ think all of Congress is also in on this Fed conspiracy to throw people out of work?

The Fed does not ‘use unemployment’ to ‘control inflation’. The Fed uses adjustments in short-term overnight interest rates to attempt to INFLUENCE inflation. In other words, the Fed is the automatic ‘price’ stabilizer that REACTS (that is counter-cyclical) to incoming inflation readings. It is actually the many moving pieces of a dynamic economy—it is capitalism—that ‘controls’ inflation. So whenever you hear the MMT political polemic say they want to replace ‘the Fed’ from controlling inflation, what they are really saying is that they want to replace capitalism from controlling inflation.

The MMT political polemic sheep are indeed being sheered by their own words (and what the world is now seeing in 2019) is that under their wool was a radical plan to dismantle capitalism and replace it with a Utopian cradle-to-grave neomarxist welfare state. A plan that calls for a society where individuals have their needs met NOT by the person in the mirror, but instead by willingly subordinating themselves more and more to the state.

Meanwhile, outside of the MMT academic lecture halls, a federal job-apprentice guarantee program, that actually solves the nation’s current jobs problem (addressing a skills mismatch so that unemployed Americans can get trained and then get hired at one those record-breaking amounts of available job openings) continues to take shape:



“When the Government as Employer of Last Resort (ELR) ‘for 5 million or 10 million or 1 million low skilled workers’ morphs into a diversified pool of workers of various skill sets (including various ’employability’ / ‘marketability’), then serious implications for the wage structure will arise.

Stephanie Kelton either knowingly or unknowingly outlined the harmful effects of a differentiated pool of workers in buffer stock Employment:

Kelton argues that MMT would use ‘full employment 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,’ she adds. I would call that wage suppression for workers higher up the Employment ladder that keeps wages lower than they would have otherwise been.

Once the Employer of Last Resort wage exceeds Unemployment Benefit payments, then Unemployment Insurance ceases to exist de-facto; thereby swelling the ranks of skilled workers in the Employer of Last Resort Program. The ELR then becomes the Employment Agency of first resort for Employers rather than bid up wages among themselves—just as Kelton points out.

The Employment Buffer Stock—borrowed from Agricultural Economics—begins to fall apart the more varied the work force in buffer stock Employment becomes. Wool is wool, and workers in a Job Guarantee who are above the lowest rung of the wage structure are not.”—Charles Kondak



Pure ‘prescription’ MMT proposal


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

‘Heads’ (gov’t deficits), the top 5% wins; ‘Tails’ (gov’t surpluses), the 95% loses.

H/T Jim ‘MineThis1’ Boukis

In an attempt for the Political FAKEMMT Party to promise people free stuff from gov’t for a vote, these ‘academics’ take that 7DIF ‘Gov’t Deficit = Private Surplus’ (or private assets or private savings which all mean the same) and twist it in such a way so as to fool people into believing that we can just print print print, which will stuff us all with savings.

Maybe these economists went to university, jumped through hoops, got a Masters, or even a PhD, but they never understood a damn thing of what they were supposed to learn. For example, I have never once seen any of these PhDs ever forecasting the economy properly other than just to say it is a “junk economy” and something bad will happen eventually. In other words, the typical Useless Information like the Peter Schiff, Max Kieser bullschit.

That is like a fireman not knowing how to put out a fire but telling people how to put out a fire. A very strange bunch of people these MMT ‘scholars’, who were trained to forecast the economy and can’t do it but can tell you something bad will happen or is happening and can offer you the Fix All solution. How can that be? It can’t! Because that’s Twilight zone schitt! A dimension of their imagination where they still confuse their political economics with the actual economics; and peddle their fake ‘prescription’ MMT under the guise of promoting the pure ‘description’ MMT. Then they get all pissed off when exposed for the con artists that they are.

Federal gov’t deficits, if not productive, devalues the currency. Ie Venezuela.

The only time printing is valuable is during a crisis which caused fear in the economy and the govt has to step in for a period of time until the economy gets going again. But not forever and the economy has to be strong enough prior to the crisis to be able to afford such deficits. If not, deficits are a problem. Ie Argentina.

If deficits create productivity, then debt to GDP should not be rising, debt to GDP should be falling. If debt to GDP is rising either we are in a crisis or we are stuffing the top 5% with more $ savings with no production.

70% of GDP is consumption, 20% is gov’t and 10% is investment.

Consumption is households spending 100% of income plus credit to produce profit/savings for businesses. Vast majority of those savings end up in asset speculation stocks bonds commodities real estate.

In a perfect economy those profits would be invested back into the functional economy in a feedback loop within the private sector of the sectoral balances (pvt sector = households & businesses) and produce income/savings or income/debt reduction for the 95%. This real wealth would increase GDP, unemployment would be at it’s natural rate 2 to 3%, wages would be growing, deficits would be appropriate to economic growth and no monetary inflation would follow. If anything a strong currency for the 100% would be the problem relative to other currencies and trade would be effected as a result. In other words a rich mans problem that can be easily remedied. This is the goal that MMT and all economists should be striving for. Instead we get incoherent PhDs telling people just PRINT PRINT PRINT, we can all be rich, have free ponies, and vote for us. Laughable voodoo economics.

The FAKETMMT Party fix all ideological solution is that we increase gov’t from 20% of GDP, while shrinking or even removing all the burden of business investment currently at 10% of GDP. This voodoo economic trickery will provide a ‘Neo Liberal’ solution to the top 5% with infinite Profit/savings to businesses. In other words the same old tired trickle down economics flipped on its head to make it seem it’s for the 95%. Trickle up economics. That is why they always appeal to morality and compassion to push this agenda, because it cannot hold its weight with pure economics alone.

Lastly the quote [the Tweet above] is idiotic for the following reasons. Money flows one way with deficits starting from Govt, then private bank $ creation, = Household income/debt, = household dissavings, = profit/savings for Businesses & the Top 5%, = inflation, = higher asset prices like for stocks, bonds, real estate and commodities. Essentially, savings is the graveyard of $$$, never to see the light of day in the functional economy (the 95%). Thus…

Gov’t Deficits = private profit/savings for the top 5%

Now lets run it backwards.

Gov’t Surpluses = private deficits

Just like gov’t deficits only help the top 5%, gov’t surpluses only hurt the 95% (‘Heads’ the top 5% wins; ‘Tails’, the 95% loses). The top 5%, the savers, they have savings. Savings which can be easily moved out of assets denominated in local currency and reinvested into other global investments with more favorable tax benefits (and better prospects for those other currencies). The 95%, the borrowers, they pay taxes, they need tax breaks too, they are worried about their currency too, but they don’t enjoy that luxury, they don’t have a savings cushion because they live paycheck to paycheck relying on income/debt to survive every month.

The results are very clear in the EU in economies such as Greece, Cypress where the 95% got stuck paying for their gov’t surpluses from their € savings and the 5% not only took the 95%’s €, the 5% also sold their own € bonds, converted out of the € currency and bought German bonds…American bonds…etc etc…resulting in a collapsing € economy. Even if these countries could print their own currency and not force govt surpluses as in the case we are talking about now, the massive printing would collapse the value of the currency. Except the top 5%’s savings of course, which would be invested elsewhere prior.

Thus Steven Hail saying yeah Govt surplus = private deficits. Meaning that just like he thinks Gov’t Deficits = Our Savings, he also thinks Gov’t Surplus = Our Deficits, the 100%, equally. That is fallacy too.

The reality is that Gov’t Surpluses = the 95%’s Deficits. The 95%, the borrowers, the one with debt burdens (unlike the 5%) will have to pay off their debt with no excess savings (with no ‘dollar add’ from gov’t deficits). To make matters worse, the foreign sector keeps getting theirs while the 95% fall further behind and then the 95% (unlike the 5%) start getting cut off from credit. Welcome to a collapsing economy thx to MMT.

Why MMT? because MMT is very clear that we must print to inflation. When inflation hits then what? What is the MMT solution? Not an economic solution but rather a political one. Which is, to solve the problem, just do austerity. Meaning raise taxes, run gov’t surpluses and pitch fork the already-fled-out-the-barn-doors top 5%. In short Voodoo Economics. By FAKEMMT logic, Venezuela, Argentina, Egypt, all they have to do is increase taxes, cut & govt spending, pitch fork the none existing top 5% and problems solved. Clearly a laughable, ridiculous economic political assertion.

Richard Feynman hated pseudo-intellectual philosophers trying to do physics. In the same way, I hate pseudo-intellectual philosophers trying to do economics.

We can achieve most if not all economic goals without without a ‘Neo Liberal’ agenda (printing and stuffing the top 5% with endless $ savings). Don’t be fooled by #FAKEMMTERS promising you a world of free stuff under the guise of being a ‘prescription’ MMT agenda.

Keep MMT pure. See it as what it is. The ‘description’ that CAN be used as an economic tool LIKE IT HAS BEEN USED for decades now!

Thanks for reading,

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(…and Logan’s take on why the ‘prescription’ MMT people keep getting the economy wrong):

“The yield on the 5-year Treasury note fell below the yield on the 3-year note today [12/03/18] the first yield inversion of this cycle [of this economic expansion]. We are only 15 basis points away from a 2yr/10yr inversion and also another major one [with as much recession-predictive power as the 2yr/10yr] is the 1yr/10yr [or the 3MO /10yr] inversion, but that doesn’t get as much media play.

So this inversion [this inflation-expectation drop—even though it is not an entire full-curve inversion like a 2yr/10yr inversion] is the third signal [out of a total of six recession signals] that has happened so far. Only 3 of my 6 recession flags are up—and we have never once had a recession post 1960 until all 6 are up. So the 3 recession flags that are already up are, #1) the Fed started raising rates, and #2) was when lower unemployment rates reached a certain ratio, and #3) is this inversion.

The other three signals that haven’t happened yet are: #4 Over-Investment like tech in 90s, housing in the 00s and then all those oil rigs [in 2014 that preceded a manufacturing slowdown]. Student debt is NOT over-investment. Average student debt is 9k. That is not over-investment, that is just another ideological extreme-left theory like the extreme-right’s trade deficit theory.

#5 is when Housing Starts fall and the sixth recession signal, this is the simplest signal, it’s when Leading Economic Indicators fall. LEI historically fall for 4 – 6 months before recessions.

I am shocked that MMT people with Econ PhDs were calling for a recession while LEI was rising. They just don’t know how to read data. They still don’t realize that understanding actual economics comes from outputs on a much higher level than ideological beliefs and their political economics.

For example, they actually thought that the Labor Force Participation rates were bad, but they were not bad, they looked perfectly normal. They were just reflecting a demographic shift, not people ‘sitting at home because there are no jobs’—or only ‘crappy jobs’.

If these recession bears, using their political economics, only knew how to read data they would understand that people age 23-29 are the biggest labor group right now so 2019 will be the first Prime Age Labor Force growth (25- to 54-year-old) we’ve had since 2007.

So we are on track for continued economic expansion.

Remember that job growth numbers come down due to wage growth inflation and we are still nowhere near that. This year has been the best job creation in my 22 years following the data. We have seen 97 straight months of job growth, the lowest unemployment rates, the lowest civilian labor force unemployment claims, the highest job openings, and our job growth is THREE TIMES more than our population growth.

America has never done this before.

Regarding the Fed, when job creation starts to fall, it’s not because there are no jobs opportunities out there, it’s because of wage growth pressures. That’s what the Fed is seeing, they see full employment, they see wage growth rising, so only until you see wage growth pressures lowering job growth, that’s when (and why) you’ll see the Fed wanting to start hiking more.”—Logan Mohtashami

First yield inversion in more than a decade and 2/10 basis point spread down to 15 basis points #Economics#Inversions #Bonds #Recession

Posted by Logan Mohtashami on Monday, December 3, 2018

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P.S. Also note that there’s a difference between (Monday’s 3yr Treasury note / 5yr Treasury note) “discrete part” yield curve inversion (what spooked the markets Tuesday) and “the most closely watched” yield curve inversion. A 3s/5s inversion is the ‘short-end’ and the ‘belly’ of the curve, but if it’s an inversion of 2s/10s, meaning if it is including the ‘long-end’, then it’s an ‘entire’ yield curve inversion, “thought to be the best predictors of recession.”

Net Financial Assets v. ‘Net Debt Financial Assets’

Whenever MMTers (proponents of Modern Monetary Theory) say that the ‘gov’t deficit equals our non gov’t savings’, or ‘the gov’t red ink is our black ink’, the technical term for that ‘black ink’, those ‘savings’, is Net Financial Assets (NFA). Those that are uninitiated to MMT don’t use the term NFA—whenever the mainstream talks about the cumulative amount of all federal gov’t deficit spending-to-date, their technical term for it is ‘The National Debt’.
Net Financial Assets (NFA) are USUALLY created ONLY by the federal gov’t (‘exogenously’ / ‘vertically’) when deficit spending, and not by banks (‘endogenously’ / ‘horizontally’); BUT, there is an exception. In a 03/25/17 RP broadcast, Warren Mosler pointed out that banks CAN and DO, on many occasions, actually add Net Financial Assets (unintentionally) when they have negative capital (when a bank loan, +/or a bank itself, defaults). A bank loan default or an outright bank failure acts as ‘synthetic’ federal gov’t deficit spending adding NFA because monies were lent out endogenously and will NEVER be paid back. In other words, banks occasionally go out of their lane and bank money is (unintentionally) created without *actual* debt attached, as if it was created like the federal gov’t, the sole monopoly ‘supplier’ of money, creates money—with very little intention of ever being paid back.
The Bush economic ‘expansion’ was fueled by ‘synthetic federal gov’t deficit spending’ (questionable private sector subprime loans and financial derivatives that all defaulted).
The Clinton ‘boom’ was fueled by ‘synthetic federal gov’t deficit spending’ (private sector loans that defaulted because of the dot-com bust).
The Reagan ‘miracle’ was fueled by ‘synthetic federal gov’t deficit spending’ (almost a trillion dollars in defaulted private sector loans during the S&L debacle, THE ENTIRE SIZE OF THE TOTAL NATIONAL DEBT AT THAT TIME).
The ‘roaring’ twenties was fueled by ‘synthetic federal gov’t spending’ (private sector loans using leverage that financed stock speculation with minuscule margin requirements that all went bust).
Mr. Mosler muses that he “can’t think of a single boom year that WASN’T attributable to either out of control or outright fraudulent bank lending to the private sector that would never have been allowed with proper hindsight!”
In other words, instead of ‘synthetic’ federal gov’t deficit spending (additions of ‘synthetic’ NFAs into the banking system), “we could have had those economic booms legally, easily, and simply, by just increasing federal gov’t deficit spending with proper foresight,” Mr. Mosler added.
MMTers can go beyond the ‘NFAs can only be created by the federal government’ meme if MMTers can accept that synthetic NFAs like in the examples above are possible.
Nick “MineThis1” Hionas, a co-creator of Pure MMT for the 100% (along with co-contributor Charles “Kondy” Kondak), makes an interesting posit that synthetic NFAs, or as he calls them, ‘Net Debt Financial Assets’ (NDFA) are created in the non federal gov’t, by the rest of us, when we borrow dollars (when we deficit spend). The default instances mentioned above, since they were all horizontally created by the non federal gov’t (by the banks in the private sector), are all great examples of ‘NDFA’ (or, ‘permanent NDFA’) that, just like actual NFAs created vertically by the federal gov’t, are dollars permanently existing in the banking system today because they weren’t paid back (nor will they ever be paid back).
Just to make sure readers are following all that, let’s take a step back. If you want to buy anything, you must use dollars, but what must you use if you want to buy dollars?
Whenever the federal gov’t deficit spends, it’s a two-part creation of newly-created IOUs, aka Treasury bonds, (created and given to those that bought the bonds) AND newly-created $$$ (created and given to those who provisioned the gov’t). Note that it is the same entity that created both. In other words, in the post-gold standard, modern monetary system, it is not an actual debt for the federal gov’t because the IOU is denominated in fiat $$$ (and it is easy for the ‘issuer’ to get more $$$). Also note that the par amount of the bond is the exact amount of the addition of NFA (Net Financial Assets) going into the banking system—to the penny.
The same goes for the nonfederal gov’t. Whenever you deficit spend and need to get a loan from a bank, or any other financial institution (whether it is to get a jumbo mortgage to buy a home or just to pay for a quick lunch with a credit card), it’s a two-part creation—you are getting newly-created $$$ in exchange for your newly-created IOU. Your IOU (your guarantee) is a promise, in writing (your signature on a 50-page mortgage document or on a tiny credit card receipt) to pay the loan back, with interest, aka ‘your bond’. If you don’t have any dollars and you want some dollars (if you want to ‘buy’ dollars), then you need to ‘sell’ your ‘bond’, to an entity, to a financial intermediary, that will ‘sell’ you dollars (if they want to ‘buy’ your ‘bond’). Your bond is the asset, the collateral, that you just newly created, that you just conjured up ‘out of thin air’ and handed over in exchange for the newly-created $$$. The borrower creates the IOU for the lender and the lender creates the $$$ for the borrower (to reconcile both sides of both counterparty’s balance sheets). In other words, also FOCUS ON THE BOND CREATION when thinking about any money creation by both the federal gov’t and the nonfederal gov’t that are net additions of $$$ into the banking system. Whether it’s the federal gov’t deficit spending (for a new Mars rover) or it’s the nonfederal gov’t deficit spending (for a fresh cup of Starbucks), both are creating a bond (an IOU that guarantees to pay the $$$ back with interest), and selling it, in exchange for money—aka ‘debt monetization’. Loans create deposits (creations of $$$), yes; however, don’t forget the part where YOUR creations of BONDS CREATE LOANS. When YOU (the nonfederal gov’t) create the IOU (the ‘bond’), that’s the creation—the financial institution, the mortgage bank, the Visa card company, etc, is not creating the $$$, THEY ARE FACILITATING YOUR creation of $$$. When you pay back the IOU, your creation is destroyed. So the takeaway is that rather than seeing all (federal gov’t & nonfederal gov’t) deficit spending as just money creation, remember to also see it as a bond creation, or quite simply, as just another bond trade; except that this bond trade is settled with newly-created bonds & newly-created $$$ that unlike all (federal gov’t & nonfederal gov’t) surplus spending, are net additions of financial assets going into the banking system. The difference between federal gov’t (vertically-created) NFA and nonfederal gov’t (horizontally-created) NDFA is that nonfederal gov’t attached debt—an *actual* debt—which is an actual problem for the nonfederal gov’t because it isn’t as easy for the nonfederal gov’t (user) to get more $$$ as the federal gov’t (issuer) that has attached quote ‘debt’ unquote.
When we are talking about either NFA or NDFA, remember that we are talking about an addition of Net Financial ASSETS or Net Debt Financial ASSETS into the banking system (and not talking about an addition of CAPITAL). The newly-created bond does not add capital. Your net worth doesn’t go up when you create money in exchange for your newly-created bond because any newly-created bond ‘nets-out’ with the newly-created money (assets minus liabilities equal capital). Although it is fact that nonfederal gov’t borrowing has actual debt attached to the loans (that all nonfederal gov’t loans ‘net-out’), the MineThis1 insight here is that the moment bank loans create those dollars—as soon as those dollars go into circulation—they are ‘NDFA’. More specifically, the instant those nonfederal gov’t dollars are newly-created, they are ‘temporary’ NDFA; and as soon as the loan is paid off, they are not NDFA anymore, those dollars are newly-destroyed. The key takeaway here is that while NDFA technically ‘nets-out’, that could take awhile (and in the meantime, those newly-created $$$, those ASSETS, are circulating in the economy).
If in the event, as Mr. Mosler described above, that the borrower, or the lender, defaults (negative capital), then they are never destroyed, they become ‘permanent’ NDFA.
Keep in mind that similar to the nonperforming loan that defaults (becomes permanent NDFA), even the healthy loans that do not default (temporary NDFA) are usually not paid off for quite awhile. These assets are ‘pumping the economic prime’ for a very long time. Just like a consumer 30-year mortgage on Main Street in the hundreds of thousands of dollars, or an institutional debt obligation on Wall Street that is perpetually rolling over in the hundreds of millions of dollars, many healthy loans take many years to ‘net-out’.
In the meantime, along with NFAs created by the federal gov’t, these NDFAs created in the non federal gov’t, they are also working their long-term magic (they are the ‘smoking gun’ of good economies too), which is helping the bottom line of US households—that at last count have over $100T in net worth.
Note that is a “T” as in TRILLION and that is a NET amount. That is the amount that US households have AFTER all their loans ‘net-out’ (which is a far greater amount than the current running total of NFAs created by the federal gov’t).
Thanks for reading,
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P.S. The sooner folks get Nick’s ‘NDFA’ insight, the better they will see the moving pieces. Here’s another way of explaining ‘NDFA’: Unlike SURPLUS spending (where $$$ received are a wash with $$$ spent), when both the federal gov’t and the nonfederal gov’t DEFICIT spends, they are creating a bond AND creating money. The creation of the federal gov’t bond is the NFA added to the banking system and the creation of the nonfederal gov’t ‘bond’ is the ‘NDFA’ added to the banking system. The crucial difference is that when the federal gov’t creates the bond and the money, it’s the same entity doing both; when the nonfederal gov’t creates the bond and the money, it’s separate entities (the ‘seller’ of the bond is creating the bond and the ‘seller’ of the money is creating the money). Meaning that, since the federal gov’t (Monopoly Bank) issues both the bond and the fiat $$$ (Monopoly Money)—that the federal gov’t Treasury bond is denominated in—it’s not an actual ‘debt’; versus the nonfederal gov’t (Monopoly Players), who do NOT issue the money, so any nonfederal gov’t bond (IOU, mortgage, loan, credit card balance, etc) is an actual debt. That the federal gov’t (or any monetary sovereign spending their own fiat money) is never in actual ‘debt’ nor ever ‘goes broke’ is what MMTers know today (and what Charles Darrow knew in 1933 when he wrote the rules for his version of The Monopoly Game). For example, servicing debt is an actual problem for the nonfederal gov’t (the Monopoly Players). The Monopoly Game doesn’t end because The Monopoly Bank (the ‘issuer’) runs out of money, the Monopoly Game ends because The Monopoly Players (the ‘users’) run out of money.

If alive today the 7th President of the United States would love this idea.

On January 1, 1835, Andrew Jackson, the founder of the Democratic Party, paid off the entire US national debt.

However, as most MMTers know, running federal budget surpluses, like President Jackson did, is asking for economic trouble.

Similar to a private sector ‘deleveraging’ of debt (‘destroying’ of dollars) which can create a ‘paradox of thrift’, it can also trigger a full-blown ‘deflationary spiral’. So it’s never a good idea for the federal gov’t to pay down debt (to ‘destroy’ dollars)—unless federal policymakers intentionally want to slow the economy.

That’s why it isn’t a coincidence that all six depressions in US history, including The Panic of 1837, were preceded (were started) by sustained federal budget surpluses that decreased debt. Furthermore, it also isn’t a coincidence that the 2008 Great Recession and those six depressions were succeeded (were ended) by sustained federal budget deficits that increased debt.

In the post-gold standard, modern monetary system, there’s another way to pay down federal debt that doesn’t ‘destroy’ dollars. Let’s call it ‘Quantitative Redemption’ (QR).

If alive today the 7th President of the United States would love this.

In a QR, the Fed would announce that the $2.4T in Treasury bonds presently on their balance sheet are, effective immediately, redeemed (‘called’ before maturity date). We are only redeeming the Treasury bonds (20yr< maturity) and Treasury notes (10yr – 20yr maturity) on their balance sheet, not the other $1.8T in Agency bonds and Mortgage Backed Securities (MBS) the Fed also bought and are also on their balance sheet.

How this QR works is ridiculously easy. There is nothing to actually do, except announce that instead of continuing to keep these Treasury bonds ‘impounded’ (held on the Fed’s balance sheet) from the Large Scale Asset Program (LSAP) / a.k.a. ‘Quantitative Easing’ (QE), the Federal Open Market Committee (FOMC) has declared all these Treasury bonds redeemed, and no longer exist (or the FOMC may decide to do this piecemeal, whatever). This QR wouldn’t be anything new. Redeeming bonds is not an exotic concept, it’s done all the time by everyone, the only difference being that this would be the first time the federal gov’t is doing it with Treasury bonds. For example, other bond issuers like businesses that issue debt (‘corporate bonds’) and municipalities that issue debt (‘muni bonds’) have called their bonds before maturity date. This happened a lot since the credit crisis (since the LSAP program) because prevailing interest rates fell way below the rates being paid out to bondholders, so these particular issuers exercised what is known as an embedded call option. Similar to an ‘assignment’ in any option trade that is exercised, if bonds are called by the bond issuer, the bondholder has no say in the matter. Bondholders are simply notified that their bonds are being returned to the issuer and the bondholders then receive a cash payment in full for the entire bond principal (‘par value’) plus any remaining accrued interest at the financial institution where the bonds are held (‘registered’). This is exactly what the Fed did to Wall Street bondholders during LSAP. A Main Street example of a bond call, if a homeowner decides to pay off a mortgage before the term (‘prepayment’), same thing, the homeowner called the ‘bond’ (the debt owed) from the issuer (the lender). What Ben Bernanke did during LSAP was also not much different from a company purchasing its own shares (‘buyback’), which if not retired, are held on the company’s balance sheet (‘Treasury stock’). In fact, as a US Treasury bond broker during the QE years, whenever I spoke to primary dealers or confirmed trades with their settlement departments, ‘buybacks’ is exactly what they called QE. Most of the folks on Wall Street (correctly) referred to QE as ‘Fed buybacks’ while The Very Smart People on cable news & talk radio (incorrectly) called it ‘debt monetization’. The beauty of this QR idea is that this buyback step is already done. There is *literally* nothing the Fed has to do. All of the $2.4T in Treasury bonds were already called; all of the Wall Street bondholders were already paid back their $2.4T; all of the markets already had their ‘temper tantrum’; and even though that net addition of $2.4T into the banking system (by the Fed to pay for those bonds) had an inflationary bias, it caused no inflation whatsoever (because the economy was so weak it vaporized on impact like a brief sun-shower at high noon).

If the Fed did a QR this year, it’s actually not a redemption of the Treasury bonds this year, it’s only making it official that there was a redemption of Treasury bonds during the LSAP years. On December 29, 2008 the Fed began QE1, and after a combined total $2.4T of Treasury bond buybacks, the Fed ended QE3 on September 24, 2014. Now let’s step back from the picture and take another look at what happened. Prior to the 2008 credit crisis, one arm of the federal gov’t (the Treasury department) sold $2.4T in Treasury bonds, and then after the crisis another arm (the Federal Reserve Bank) bought them back. Except unlike any regular Joe Blow who buys back his own IOUs, instead of ripping them up, the federal gov’t didn’t rip them up. The federal gov’t put those IOUs, their own IOUs, in their own pocket. Then the federal gov’t started making semi-annual interest payments to itself, from itself, on all $2.4T of these Treasury bonds, on its own IOUs (and still does to this day). The point is, that all those Treasury bonds could have been declared ‘paid off’ the day Ben Bernanke created dollars (‘reserves’) and credited the sellers of those bonds long ago, but the Fed didn’t do that.

The difference between Chairman Ben Bernanke and Joe Blow was that Ben did not have the authority from Congress to pay those bonds off. The Fed is only a ‘swap’ desk. Just like any other bank, the Federal Reserve Bank can only create dollars as long as it’s in exchange for a swap of assets. The Congress is the ‘outright’ desk. Only Congress can allow any action that would outright change the cumulative count of previously authorized deficit spending (the ‘national debt’). The Fed cannot usurp the ‘power of the purse’ from Congress. Hence the Fed impounding the bonds during LSAP on the Fed’s balance sheet for a future unwinding (another swap that is ‘printing’ bonds back into the secondary market and simultaneously ‘unprinting’ dollars). So in reality a QR would just be the Fed going through the formality of getting permission to formally declare that the bonds were already redeemed.

If QR was done and the Fed redeems (debits) the Treasury bonds, there must be an equal and opposite ledger entry (credit) to replace them. In other words, something must replace these Fed assets (‘balance sheet repair’). Congress could authorize the Treasury to mint a $2.4T coin to be transferred to the Fed. Again, this would not be anything exotic nor unprecedented (The Gold Reserve Act of 1934 authorized the Fed to transfer all of its gold to the Treasury in exchange for gold certificates denominated in dollars). This would effectively replace the Treasury bonds (dollars with a coupon and a specific maturity date) with a coin (dollars without a coupon and a perpetual maturity date) without needing to create and enter dollars into the banking system (it was already done).

Here’s the best part. This QR, this redemption, this removal of $2.4T of previous ‘Debt Held By The Public’ will mark down the national debt from approx $21.8T to $19.4T, an ELEVEN PERCENT DECREASE, not a bad day’s work. If the US did this, perhaps Japan, a country with a national debt of over ONE QUADRILLION yen, might follow suit. In a single day, the BOJ could announce a quantitative redemption amounting to approx 425 trillion yen of Japanese Government Bonds (JGBs) presently held on their balance sheet as of May 20, 2017. That would be an overnight reduction of their national debt of 43%.

Which would get other people (Swiss National Bank’s Balance Sheet to GDP as of November 2018 is 125%, the ECB’s is 41% and the Bank of England’s is 20%) around the world thinking that the big bad national ‘debt’ problem might not be such a big bad problem after all.

What MMTers have been saying all along.

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P.S. ‘QE unwind’ is Wizard of Oz type stuff. It’s a prototype of end-game Pure MMT. It’s just a matter of time before they pull back the curtain and just level with everyone that federal gov’t DEFICIT spending (that isn’t ‘funded’ by taxes) is ‘cash-financed’—that bonds never have to be issued and sold in the first place. Treasury bonds are needed to be issued and sold to fulfill savings desires, yes; to help keep inflation in check, yes; to keep a running count of and to keep Congress having the ‘power of the purse’ on deficit spending, yes; but to ‘fund’ deficit spending, no. Something like a ‘QR’ is what it will take to change mainstream thinking from where we are now—from today’s MMT phase (where federal deficit spending is cash-financed under a guise of being ‘bond-financed’)—to the after, fully post-gold standard, end-game Pure MMT phase (where we stop saying ‘federal debt’, federal ‘deficit’ spending or even trade ‘deficit’).

(‘Progressive’) good intentions that may have (‘neoliberal’) unintended consequences

Why the student loan debt crisis didn't collapse America ?‍??‍????#Economics#BearsCantReadDataCorrectly

Posted by Logan Mohtashami on Sunday, November 18, 2018


Bill Mitchell was pointing out an inconvenient truth when he said “Progressives are neoliberals in disguise / Greens are neoliberals on bikes”!

One of the Pure MMT for the 100% insights is that political ‘prescription’ MMTers are unwittingly peddling policies that an actual ‘neoliberal’ would love too.

For example, the unintended consequence of the progressive ‘Wipe Out The Student Debt’ agenda is more dollars flowing to the top 5%.

In the enclosed video, Logan (who refers to the prescription MMTers as the ‘extreme ideological people’) explains. By the way, just in case you are wondering if Logan understands MMT, read this quote and decide for yourself:

“Student loan debt was never a crisis in terms of macroeconomics. If we had a high percentage of home loans delinquent, of credit cards delinquent, if we had 30% of auto loans in delinquency, we would see it, in the economy; but not for student loan debt, why, because those loans are tied to the federal gov’t and the federal gov’t is a bank that has unlimited ability to borrow —so there’s no concern about that, there’s no runs on private banks with student loan debt.”—Logan Mohtashami

Also note that Logan is NOT bashing the Wipe Out The Student Debt ‘prescription’. In fact, he goes on to say that it’s for the voters to decide (and he actually does think that over time the federal gov’t will provide some form of free college because it’s not expensive compared to the rest of the federal budget). What Logan concludes here, however, is what Pure MMT has been saying all along (warning about feeding $$$ into the saving bubble —instead of creating a feedback loop out of the savings bubble).

“Here’s the problem with ‘Wipe Out The Student Debt’. If you don’t understand how data works, student debt looks like this daunting thing and you believe that college-educated Americans are sitting in little tents eating ramen.”

“Here’s the breakdown, 70% of all student loans is actually under $15k—not so daunting. People with over $70,000 of student loan debt is a very small portion of society. Of these people who do have 70k – 100k of student loan debt, they are usually rich people.”

“These are the people that make money, that have healthcare, that have homes, cars and a 401k. Don’t worry about these people. Trust me. They are the people that make the most money, the people that work the most, and the people that have the lowest unemployment.”

“The ones that have the highest student loan debt are the people that are the wealthiest. So in a sense, by saying ‘Wipe Out The Student Debt’, you are facilitating wealth inequality.”

In addition, which Logan is happy to see, the (‘progressive’) New York Times agrees:

Thanks for reading and HAPPY THANKSGIVING,

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P.S. Regarding the federal ‘job guarantee’ proposal, this was Warren Mosler’s tweet (a reply to a Global Institute for Sustainable Development’s tweet sharing a poll finding that says 52% of Americans support a federal JG, even more so if those jobs help mitigate and adapt to climate change. 66% support Green New Deal-style proposals):

“I see those jobs as ‘standard’ gov jobs with standard federal pay and benefits etc. The jg isn’t meant to replace/undermine ‘normal’ gov employment.”—Warren Mosler

Perhaps Mr. Mosler is now seeing what Jim ‘MineThis1’ Boukis and Charles ‘Kondy’ Kondak have been saying all along at Pure MMT for the 100%, which is that we already have a military and a civil service (we already have a federal ‘jg’) that could do those jobs.

It seems like Mr. Mosler (now that midterm elections, including his own, are over and he is back to thinking in clear economic ‘description’ MMT mode instead of political ‘prescription’ MMT mode) is getting concerned about MMTers framing their jg as being needed to do those jobs. Which would have the unintended (‘neoliberal’) consequence of replacing/undermining the military & civil service workforce—as well as all other (‘progressive’) automatic stabilizers already in place.




Political ‘Prescription’ MMTer Kids Say The Darnedest Things

These ‘scholars’ are so quick to downplay federal taxation when it comes to peddling their dopey policy proposals (like having the federal gov’t spend $500B creating make-work JG ‘jobs’—during a labor shortage), that if you dare question the merit of using federal taxes on their ideas (if you don’t think a certain progressive agenda’s spending proposal is a good use of surplus funds), then the political ‘prescription’ MMTer will reprimand you for not understanding that ‘taxes are a false narrative’ (that ‘taxes are irrelevant’) and that you need to stop being a ‘racist’.

“You’ll see me fighting against people saying ‘the taxpayer dollar’ because saying it is a racist xenophobic trope that is used to great precision.”—Green Party of Pennsylvania November Conference Keynote speaker Steve Grumbine

“‘Taxpayer funds’ is a false narrative.”— Francisco Flores (@FFlorescpa)

“The proceeds from federal tax collections are irrelevant.”—Ellis Winningham


…if you listen to what these political ‘prescription’ MMTers also say about federal taxes when it fits their narrative, you’ll hear something like this:
“Number 9, federal taxation allows the US Government policy space to provision itself.”—Steve Grumbine, ’10 MMT truths’
“If inflation starts getting out of hand (say, approaches 4%), take action: Congress increases federal tax rates aggressively across the board…”—FFlorescpa, ‘Financing Economic Solutions to Unemployment and Accompanying Social Problems’
“MMT is quite extensive. It is not as simple as ‘Hey, federal taxes don’t fund federal spending’. So, to the activist I will say that if you only discuss this singular point endlessly, you are leaving a huge hole for people to drive a truck through. You are creating your own headaches.”—Ellis Winningham
And just like that, federal tax collections are relevant, taxpayer funds aren’t a false narrative, and if you are talking about taxpayer dollars then you aren’t a racist.

Thanks for reading,

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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,

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Pure ‘prescription’ MMT v. Political ‘prescription’ MMT

Anyone thinking ‘work less’ —in a country where all the people work such long hours that there is *literally* a word for people that *actually* collapse from sudden occupational ‘overwork death’ (Karōshi  過労死)— would have understandably been considered a space cadet.

Presenting Japanese billionaire Yusaku Maezawa who says that working less, not more, was EXACTLY the reason why he could build a company worth $8B and land a ticket on the moon.

The short workday is the reason for the success of his company ‘Zozo’, where he encourages employees to work more efficiently and find more inspiration outside the office.

“When our employees began working differently, under the program, they stopped wasteful activities, wasteful conversations and wasteful meetings. As a result, they could concentrate more, be more productive and then go home after six hours,” Maezawa said at the Foreign Correspondent’s Club of Japan, where he held a news conference about his lunar trip.

Now there’s an idea that might also work in the US.

Let’s call it the federal ‘Less Hours On The Job Guarantee’ program.

The Pure ‘prescription’ solution is to get the person working in your office for only six hours a day to be just as productive (same output) as the person working in your competitor’s office for ten hours a day.

The Political ‘prescription’ solution is to simply pander to your employees, telling them that the government should create more jobs (Job Guarantee), create more dollars (more deficit spending) and call it a day.

If we had a jobs shortage problem, then a temporary ‘job guarantee’ program could be needed, but we don’t have a job shortage problem right now, we have a labor shortage problem right now. When companies are starving for workers, you need more workers, not more jobs. During record-breaking jobs growth, when cities are offering to pay you a bonus / pay your moving expenses / pay off your student loan debt to come work there, you don’t need the government to create more jobs, you need the government to try to get the workers that are already working in the labor force to work more productively.

When it comes to workers, that’s Pure ‘prescription’ thinking.

The same goes for dollars. We don’t need more dollars (more deficits), we need to get the dollars already in existence in the banking system working more productively.

That could help ‘defrost’ some of the $$$, to get them out from the nonfunctional (financial) economy and back into the functional (real) economy. In other words, more ‘deficits’ for more ‘this’ and more ‘that’, which always sounds so virtuous (what your listeners want to hear), isn’t always the best idea (what your listeners need). Sometimes less is more. Shortening the workweek, that’s your classic example of Pure ‘prescription’ MMT v. Political ‘prescription’ MMT.

“The answer lies in organic solutions, that unlock nonproductive savings back into productive capital. We need an eco-feedback loop that embraces human capital producing more useful output instead of continuing to increase gov’t deficits that results in just more capital producing more capital.” —Jim Boukis

Thanks for reading,

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Dow DOWN 2.41% (-608) TWO WEEKS BEFORE MIDTERMS (!) ‘Yikes’ or ‘Yawn’ (?)

OCT 24, 2018 (TWO WEEKS BEFORE MIDTERMS): Nasdaq down 4.43% (-329)…S&P 500 down 3.09% (-84)… Dow down 2.41% (-608)

‘Yikes’ or ‘Yawn’?

As far as the stock market goes, it’s a ‘yawn’ (and get ready to start saying ‘yippee’).

YEAR-TO-DATE: Nasdaq (7006 7108) is UP 1.45%

YEAR-TO-DATE: S&P 500 (2695 2656) is DOWN 1.45% (The S&P 500 officially closed in ‘correction’, meaning down over 10%, from a record high reached on Jan 26th, from 2872, down to 2581, on Feb 8th; and today 10/24/18, while being back in correction territory during market hours, closed down 9.3%, just shy of official correction, from the record high reached September 21st, from 2929 down to 2656).

YEAR-TO-DATE: Dow (24824 24583) is DOWN 1%

“Relax…Everything is fine…There’s nothing bad out there…We still have a way to go before we see wage or profit margin compression…Right now only 2 of the 6 recession indicators that I have are checked off, the third one is the yield curve inversion that hasn’t happened.”—Logan Mohtashami 10/23/18

Two of his six recession indicators, meaning Logan only sees about a 33% chance of recession, or in other words, about a 77% chance of no recession, so this economy, this market, still has a lot more upside potential. This correction is a ‘yawn’ and get ready to start saying ‘yipee’ at the end of the year.

IS THIS A RERUN OF 1987 when another strong Republican president had the market routinely breaking records? On 08/17/1987 the Dow Jones Industrial Average closed above 2700 for the first time at 2,700.57 (+40% year-to-date). On 10/19/1987 ‘Black Monday’, stock markets around the world suffered an unexpected dramatic drop, with the DJIA closing at 1,738 after falling 508 points (-22.6%), the largest one-day drop in recorded stock market history, AND first financial crisis of the modern globalized era, BUT the DJIA ended 1987 closing at 1950—UP 1% for the year.

IS THIS MIDTERM ELECTION UNCERTAINTY of a close race? The Blue Team, down two touchdowns (the White House and the Supreme Court), are now at Fourth & Goal and they need to score, they need a touchdown (either the House and/or the Senate), for some locker room enthusiasm before the start of the second half. Blue *might* score, OR all this is just ‘noise’ posing as ‘uncertainty’ and the market has already factored in that on Nov 6th, Red will easily stop Blue at the goal line.

IS THIS ‘TAPER TANTRUM 2’? The 2018 stock market corrections and the 2013 taper tantrums were both caused by expected and actual surges in US Treasury yields. Higher interest rates can be unfriendly to stock prices. Equity markets can be spooked easier in a rising interest rate environment (as per Warren Buffet, rising rates are like increased ‘gravity’ on stocks). In 2013, the market had a tantrum over expected FOMC rate rises to come following the Fed’s announced bond buyback reductions (officially ending the ‘QE’ years); and now in 2018, the tantrum is over the Fed’s actual FOMC rate rises that recently went above the ‘accommodative’ level (officially ending the ‘easy money’ years). However, keep in mind, that the reason why interest rates have been moving up is simply because the economy is doing better, which is of course, good for stocks. For example, even with the taper tantrum in the spring of 2013, U.S. stocks closed 2013 at records, with the S&P 500 ending the year with a strong finish, posting its largest annual jump in 16 years (UP 29.6%) and the Dow its biggest gain in 18 years (UP 26.5%).

OR PERHAPS THIS IS ABOUT CHINA? Rather than being about US politics and US economics (being mostly about anything going on locally); it’s probably more likely that the US stock market jitters of 2018 are mostly about the ‘trade war’ and what it means for the world’s second largest economy (being about things going on internationally). When details of the newly-agreed U.S.-Mexico-Canada Agreement (USMCA) were made public, it soon became apparent that President Trump was doing more than just ‘saber-rattling’ against US trade deficits but also circling the wagons in an us (free-market economy) vs. them (‘non-market’ economy’) pendulum swing that threatens a paradigm shift of future supply chains / industrial clusters away from China. The deal brings the US trade relationship with Canada and Mexico into the 21st century, which also includes a modernized, high-standard and never-before-seen rider that provides strong protection and enforcement of North American intellectual property rights. In another bad omen for China, the new agreement will keep up with the fast-changing American economy that, together with the Tax Cuts and Jobs Act (that included a US corporate tax cut from 35% to 21%, a lower one-time tax on repatriated profits earned overseas, and letting companies immediately deduct 100% for the cost of new equipment in the same tax year), reduces the incentives of US company offshoring (of manufacturing jobs leaving the US). The new trade agreement means the end of the United States delegating manufacturing to China; and the beginning of a renewed focus on American nation-building, putting American manufacturing first, bringing back the aggregate demand that reopening those shuttered US factories brings their communities and creating more opportunities for American citizens to get REAL jobs to make the American economy great again—not just fake ‘job guarantees’ that political ‘prescription’ MMTers keep promising you along with more free ‘this’ and more free ‘that’.

Thanks for reading,

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P.S. ‘Full disclosure’, I had some ‘inside information’ when writing this post and concluding that China’s economic jitters this year was mostly to blame for the jitters in the US stock market. Full disclosure, after 30 years in the financial field as a US Treasury bond broker, I retired and moved to Bangkok at the end of 2015. Since my wife of 24 years and I, moved here, the Stock Exchange of Thailand, has done well, the SET Index has gone from 1244 on 01/08/16 to 1828 on 01/26/18—UP 47% during the past two years. Until this year, however, when the US ‘trade war’ with China, the world’s second largest economy, started getting more serious and then the SET Index went DOWN 14% for 2018 after hitting a low of 1595 on 06/29/18. China is Thailand’s largest trading partner. In addition, for decades, the largest number of tourists visiting Thailand, are Chinese. So Thailand relies heavily on both tourists and trade from China. China’s stocks, the Shanghai Composite Index, dropped to their lowest level in nearly four years in September and at this writing is down 20% year-to-date for 2018. Throw a depreciating Chinese currency—the weaker yuan—into that mix; and it becomes more obvious that the Chinese are understandably tightening their belt, which affects the Thai economy, which is causing Thai stock market jitters, which is why many local Thais say their business is very slow (and why my landlord hasn’t raised my rent for 2019).

P.S.S. On 12/06/18, S&P 500 futures sank into correction territory during NY intra-day trading (for the third time in 2018) on news that Canada had arrested the chief financial officer of Huawei, the Chinese telecoms giant, the world’s second-largest smartphone maker, at the center of a spying row. Don’t let yourself think that global economic weakness this year had nothing to do with the China-US trade row; or that this ‘trade war’ with the world’s second-largest economy is just about trade deficits and tariffs. Chinese tech companies are now under intense scrutiny, driven by concerns from Washington (and Britain’s MI6 intelligence service) that they are being used by the Beijing government for spying—posing a threat to both the corporate and national security of the US and any US allies. Huawei, the Chinese telecoms giant, has long been under scrutiny over its allegedly close ties to China’s state intelligence services. After being rigorously tested, Huawei equipment was banned in the US and Australian governments. After more than a decade using equipment of Huawei, Britain’s largest mobile provider (BT) revealed that it was stripping it from its core 4G cellular network after similar moves by the US. Japan’s government plans to ban purchases of equipment from Huawei (and China’s ZTE Corp) to beef up its defenses against intelligence leaks and cyber-attacks. Taiwan is reinforcing its five-year-old ban on Huawei and ZTE which ‘have been effective in minimizing the threat that back-doors built into Chinese network equipment gives Beijing access to military and economic secrets.’ New Zealand’s government is making similar moves to cut ties with Huawei, which was founded by Ren Zhengfei, a former member of China’s People’s Liberation Army, and has been consistently met with suspicion in the West. After her arrest in Vancouver, American prosecutors are seeking to have Huawei CFO Wanzhou ‘Sabrina’ Meng, the daughter of Ren Zhengfei, extradited to the US, as they continue to investigate whether the company broke trade sanctions against Iran. “The China-US trade row could become a protracted war. Without any solid evidence, the Canadian and US governments trampled on international law by basically ‘kidnapping’ Chinese citizen Meng,” an official with the Chinese Ministry of Commerce said in a Global Times op-ed following her arrest.

P.S.S.S. After the US stock market closed in correction territory (down 10.44% from the all-time record high) on Friday 12/07/18, a Bloomberg headline screamed: 

“S&P 500 Volatility Hammering Bulls and Bears For Two Months”

Translation: It’s a sideways market.

‘Yawn’…and IMO…once the US-China negotiators settle their differences and end this trade dispute, get ready to say ‘Yippee’.

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