Forum Thread

Message to Republicans: why do you want to choke the private sector?

Reply to ThreadDisplaying 1 - 15 of 17 1 2 Next
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    WE GET THAT YOU DON'T LIKE GOVERNMENT SPENDING, BUT WHY ARE YOU IN FAVOR OF CHOKING THE PRIVATE SECTOR?

    Got into a debate/discussion with a Republican friend of mine yesterday. He had no idea how the checks clear, how the US government spends, how interest rates are set, what's the function of taxes, what's the function of goverment securities, etc. Went through it with him in about 20 minutes. Now he wants to read Warren Mosler's book. When talking Modern Monetary Theory (MMT) to "Conservative" Republicans it's important to emphasize that it requires of them no ideological belief shift about the role of government. MMT just describes the monetary system that we have and the options that are available. We can still have our policy debate about the 'size' of government. That the government CAN financially purchase anything available for sale in its own currency doesn't mean that it SHOULD! And if they want government spending cuts, it still doesn't make much ideological sense for the 'limited' government crowd to be in favor of "austerity," which is the definition of overtaxation per size of government. If Republicans want government spending cuts in a time of depressed aggregate spending, the responsible thing to do is accompany the government spending cuts with massive demand side tax cuts. Otherwise, given the economy's 'built in' "demand leakages," it's like placing a bag over the head of the private sector. How is that 'limited' gov't? How is that consistent with "negative" liberty? The Federal Government (consolidated: Congress, Treasury, and FED) is the currency issuing monopolist. You might not like that, but it doesn't explain why you would want the government to use this power you hate to 'bleed off' consumer dollars from the American people. #Let My People Work! #Let Markets Work!
  • Houston, TX
    Are you sure you want to delete this post?
        
    Carlitos Wrote: WE GET THAT YOU DON'T LIKE GOVERNMENT SPENDING, BUT WHY ARE YOU IN FAVOR OF CHOKING THE PRIVATE SECTOR?

    Got into a debate/discussion with a Republican friend of mine yesterday. He had no idea how the checks clear, how the US government spends, how interest rates are set, what's the function of taxes, what's the function of goverment securities, etc. Went through it with him in about 20 minutes. Now he wants to read Warren Mosler's book. When talking Modern Monetary Theory (MMT) to "Conservative" Republicans it's important to emphasize that it requires of them no ideological belief shift about the role of government. MMT just describes the monetary system that we have and the options that are available. We can still have our policy debate about the 'size' of government. That the government CAN financially purchase anything available for sale in its own currency doesn't mean that it SHOULD! And if they want government spending cuts, it still doesn't make much ideological sense for the 'limited' government crowd to be in favor of "austerity," which is the definition of overtaxation per size of government. If Republicans want government spending cuts in a time of depressed aggregate spending, the responsible thing to do is accompany the government spending cuts with massive demand side tax cuts. Otherwise, given the economy's 'built in' "demand leakages," it's like placing a bag over the head of the private sector. How is that 'limited' gov't? How is that consistent with "negative" liberty? The Federal Government (consolidated: Congress, Treasury, and FED) is the currency issuing monopolist. You might not like that, but it doesn't explain why you would want the government to use this power you hate to 'bleed off' consumer dollars from the American people. #Let My People Work! #Let Markets Work!
  • Houston, TX
    Are you sure you want to delete this post?
        
    A broad-brush assessment based on personal experience is hardly a objective analysis of the knowledge of Conservatives.

    That said, I've been a Conservative for decades and I have a good general understanding of economies and monetary theory including researching enough about MMT to justify some serious reservations.

    First off from what I understand MMT'ers state that a Government that can create it's own FIAT currency will never go bankrupt and that Government debt is not "true debt". That bond issuance and tax payments are merely a way to manipulate interest rates and are tools of a effective monetary policy.

    The problem I have with this theory is that it's effectiveness is based on a few long shot assumptions. First is the assumption that US currency is always going to be in demand and will never lose it's reserve status. Right now Countries are already trying to cut out the middleman so to speak, and moving away from the US dollars as they opt for a more direct lines of purchase. Does that mean that this is the beginning of a trend that will eventually lead to the dollar losing it's reserve status ? I don't think so, but it clearly points out that investors and Countries have options.

    Which is leads me to my next point. MMT assumes that the preference for US liabilities is also unchanging and that investors would just accept the instant debt adjustment by the Treasury and continue to deal in US currency. Nothing is further from the truth, as currency conversion is as easy and painless as ever, with banks taking care of conversions instantly now when dealing in multiple currencies until they arrive at the currency needed for the point of sale.

    There is nothing stopping large investment houses, hedge funds and Countries from completely moving out of US currency and into something that's more tangible until the point of sale. Hell, large Hedge-funds have been going long on gold for a reason......don't get me wrong I'm not arguing for a return to the Gold Standard. But they're doing that as a hedge against a falling and unstable currencies as Countries

    MMT advocates argue that just because a Government can spend money doesn't mean they should spend money. This seems counter intuitive to the MMT claims of a self funding Government that can print money to satisfy it's debts without consequence. THAT statement makes the case for margins, it makes the case for a reasoned accounting of Federal expenditures, after all Fed debts have been wiped clean.

    Another issue I have with MMT is that the people that seem to advocate it's implementation seem to have blurred the lines between the Governments ability to print vast amounts of currency and REAL wealth.

    Real wealth defined as tangible assets and real goods and services as an output of the REAL economy. The only thing that truly gives our currency any " value" is the ability of our Government to access that wealth via taxation as with any FIAT currency a implied collateral has to exist.

    Allowing our Government to print money makes the assumption that that currency will be spent effectively, and in ways that insures productivity. The vastness of our growing Federal Government can't even insure the accountability of our Politicians and to give a Government that is apparently being run by people who chose to respond to questions by admitting they're completely disconnected the power to call their debt good seems like a foolish choice.
  • Are you sure you want to delete this post?
        
    Post Removed by Moderators
    The decision was made to remove this post (but not delete it) from this thread by a moderator -- but we still allow members to see it if they wish. Please note that some members may have replied to this post later in this discussion thread before moderators decided to remove it. You can choose to see what was removed here: View Removed Post
  • Liberal Democrat
    Democrat
    Colorado Springs, CO
    Are you sure you want to delete this post?
        
    FoxxBat --

    I too was skeptical of MMT and it took me a while to get on board...and I still have questions from time to time that CBB patiently answers. As PGR said, CBB will answer your questions, but in the meantime you might find this interview of Bill Mitchell published in the Harvard International Review to be helpful:

    Harvard International Review, October 16, 2011: Debt, Deficits, and Modern Monetary Theory

    It's easy reading and I won't attempt to paraphrase or comment further.
  • Houston, TX
    Are you sure you want to delete this post?
        
    pr Wrote: Well Foxxbait you might be correct about MMT or you might be wrong. I suggest you are nothing more than a conservative troll (from TX, ha, ha) and I'm sure CBB will answer all your concerns.

    In the mean time YOU should reflect on the real reason this country faces so many economic problems! HINT it's right wing, conservative Republicans, not unlike yourself, that are directly responsible.
    Interesting, a troll calling me a troll. Lemm'e guess, the extent of your knowledge on economics and monetary systems comes from MSNBC and whatever you can imagine at the time.

    I was trying to address monetary theory with out getting into the brass tacks of our current economic dilemma, without getting into some flame match with a hopelessly misinformed partisan lunatic, but since you drug your self out from under the proverbial bridge, sure, I'll play your game.

    You say our current economic problems comes form Republicans and Conservatives ? But you offer up no evidence to your ridiculous one dimensional assertion ? Ok, your'e a Liberal, a fairly simple creature intellectually so I'm going to assume your'e either referring to the Republicans not working with Obama ( and by that giving him free reign to damage our economy even further, OR your referring to the dreaded " Great Bush Recession ".

    First off, Obama had two years of unfettered free reign to turn this economy around, a 800 billion "stimulus" that stimulated nothing but huge NEW structural debt, not jobs. His Green Jobs plan, so desperately inane and poorly thought out, comparable to a sixth graders science project, he was going to spend billions and billions to build a manufacturing base, ( that Obama's donors ran ) for a product that wasn't in demand. And absolutely NO thought was given to the Chinese and their ability to undercut manufacturing on photo voltaic panels.

    He gave FISKER automotive a 500 million dollar loan guarantee, to build cars no one wanted, they blew through over a hundred million of that cash, and then ..............well things aren't looking good for old FISKER. Go Figure. Oh and did I mention they are a DUTCH Company ?

    The " Great Bush Recession " ? LOL !! No, the Consequence of the " Democrat mandated Sub-Prime Bubble". Bill Clintons 1995 Executive ORDERS that comprised " The Affordable Home Ownership Strategy " reduced standards on Lenders across the board, but it also gave them a guaranteed buyer. Fannie Mae and Freddie Mac, who got new and corrupt leadership from 1993 to 1998 thanks to Bill Clinton. Franklin Raines, misreported Billions in profit to meet his executive bonus targets. Jamie Gorelick, plus many of their board members had to be changed in order for their decades long standards of buying PRIME LOANS could be changed.

    Oh but it was the "eeebil banks" and Wall Street.......not really. Fannie Mae invented the Mortgage Backed Security, and in 1997 started turning crap loans into securities by bundling them with good paper, and pushing them out into the market as toxic securities.

    By the time 2008 rolled around, after years of the Democrats fighting off Bush's and the Republicans attempts to regulate these corrupted GSE's, Fannie Mae and Freddie Mac held over 5 TRILLION in sub-prime, Alt-E or just generally crap mortgages or securities backed by these mortgages.



    Anyway, I encourage you to play this game with me, so I can expose your ignorance publicly. C'mon, explain your silly post that called me out as a troll. Explain your desperate assertion that after 4.5 years of Obama, it's still someone elses fault.
  • Are you sure you want to delete this post?
        
    Post Removed by Moderators
    The decision was made to remove this post (but not delete it) from this thread by a moderator -- but we still allow members to see it if they wish. Please note that some members may have replied to this post later in this discussion thread before moderators decided to remove it. You can choose to see what was removed here: View Removed Post
  • Liberal Democrat
    Democrat
    Colorado Springs, CO
    Are you sure you want to delete this post?
        
    FoxxBat --

    CBB usually responds quite quickly on these posts, but in his absence I'll make a few point by point comments, not necessarily from an MMT perspective as I'm not immensely qualified to do that, but what makes sense to me about MMT. So I'll take your comments one at a time. I have numbered and italicized your comments below.

    1. First off from what I understand MMT'ers state that a Government that can create it's own FIAT currency will never go bankrupt and that Government debt is not "true debt". That bond issuance and tax payments are merely a way to manipulate interest rates and are tools of a effective monetary policy.

    Yes that is my understanding as well. In fact every sovereign country in the world, except those that have the Euro as their currency, operate with fiat currencies. Quoting Bill Mitchell: "In a fiat currency system, the currency has legitimacy because of legislative fiat: the government tells us that’s the currency and then legislates it as such. The currency has no intrinsic value. What gives it value, what motivates us to use the currency that the government suggests, is the fact that all tax obligations are denominated in and have to be extinguished with that currency. We have no choice....Once you consider that, then you immediately realize that the national government is the monopoly issuer of that currency. That means that the national government in such a system can never be short of that currency; it can never run out of money. It doesn’t need you or I to lend it money or you and I to pay taxes to get more money. It can never run out of money."

    2. The problem I have with this [MMT] theory is that it's effectiveness is based on a few long shot assumptions. First is the assumption that US currency is always going to be in demand and will never lose it's reserve status. Right now Countries are already trying to cut out the middleman so to speak, and moving away from the US dollars as they opt for a more direct lines of purchase. Does that mean that this is the beginning of a trend that will eventually lead to the dollar losing it's reserve status ? I don't think so, but it clearly points out that investors and Countries have options.

    I do not believe reserve currency status is a prerequisite of MMT. I'll let CBB comment on that. But yes, investors and countries do indeed have options, and for the foreseeable future, the reserve currency of choice is the US dollar. Milton Ezrati in Investment News had a good article earlier this month, Dispelling dollar doubts. He points out all the reasons why the dollar will continue as the primary, although not the only, world's reserve currency. Although the Chinese yuan has been mentioned by some currency speculators as the next world's currency reserve, the facts do not support it right now. Quoting Ezrati:

    "China today lacks a financial system capable of supporting a world reserve currency. The home financial markets of a reserve currency must be broad, deep, active, and, critically, open enough to offer all, domestic and foreign players, quick, easy conversions into and out of all currencies. Those markets must also offer all who hold the reserve, domestic players and foreign, an array of investment opportunities for their holdings and sufficient liquidity to exit and enter them quickly and freely. Right now, China's financial markets have no such advantages. On the contrary, they are cumbersome, controlled, if not effectively closed, and bereft of the necessary array of investment opportunities.

    "Meanwhile, it is far from clear that China really wants its yuan to supplant the dollar as the global reserve. Reserve status certainly would thwart Beijing's ongoing efforts to promote exports by holding down the foreign exchange value of its yuan. If the yuan were to become a reserve currency, central banks and international business would hold yuan in amounts far in excess of those required for simple trade needs. Such additional demands would drive the yuan's value (as the reserve role has the value of the dollar) far above the fair market values connected to trade, much less the advantageous low exchange rate Beijing has long preferred."

    3. Which is leads me to my next point. MMT assumes that the preference for US liabilities is also unchanging and that investors would just accept the instant debt adjustment by the Treasury and continue to deal in US currency. Nothing is further from the truth, as currency conversion is as easy and painless as ever, with banks taking care of conversions instantly now when dealing in multiple currencies until they arrive at the currency needed for the point of sale.

    Yes currency conversion is easy and painless unless you are dealing with a country with currency controls like Venezuela. Furthermore, I do not believe that any MMT economist has said MMT assumes that the "preference for US liabilities is unchanging." I'll quote Bill Mitchell again: "Another basic premise of MMT is that we now live in a world of floating exchange rates, so all of the imbalances in the foreign exchange market are resolved by the price of the currency fluctuating. What that means is that domestic policy instruments—the central bank and fiscal policy—are free to target domestic policy goals knowing that the exchange rate will resolve the currency imbalances arising from trade deficits, trade surpluses, et cetera."

    4. There is nothing stopping large investment houses, hedge funds and Countries from completely moving out of US currency and into something that's more tangible until the point of sale. Hell, large Hedge-funds have been going long on gold for a reason......don't get me wrong I'm not arguing for a return to the Gold Standard. But they're doing that as a hedge against a falling and unstable currencies as Countries.

    You are correct...there is indeed nothing stopping large investment houses, hedge funds, etc. from moving out of US dollars, but when you say "into something more tangible," what are the "more tangible options" other than gold? Certainly not the Euro with their austerity program. And gold? If you invested in gold just 6 months ago you would have lost some 20 percent of your investment. Ditto for the bitcoin...it's up and down like a yo yo. During the Great Recession, the US dollar was the safe haven for many foreign investors and they bought our bonds at interest rates below the rate of inflation. But yes, sure, some of those foreign investors are now pulling back from the dollar. That's not necessarily a bad thing, and a lower value dollar helps exports and employment in the USA as it makes our goods more competitive in world markets.

    5. MMT advocates argue that just because a Government can spend money doesn't mean they should spend money. This seems counter intuitive to the MMT claims of a self funding Government that can print money to satisfy it's debts without consequence. THAT statement makes the case for margins, it makes the case for a reasoned accounting of Federal expenditures, after all Fed debts have been wiped clean.

    Bill Mitchell states: "We’re quite categorical that we believe that budget deficits can be excessive and can be deficient as well. Deficits can be too large, just as they can be too small, and the aim of government is to make sure that they’re just right to employ all available productive capacity."

    6. Another issue I have with MMT is that the people that seem to advocate it's implementation seem to have blurred the lines between the Governments ability to print vast amounts of currency and REAL wealth.

    Real wealth defined as tangible assets and real goods and services as an output of the REAL economy. The only thing that truly gives our currency any " value" is the ability of our Government to access that wealth via taxation as with any FIAT currency a implied collateral has to exist.

    Allowing our Government to print money makes the assumption that that currency will be spent effectively, and in ways that insures productivity. The vastness of our growing Federal Government can't even insure the accountability of our Politicians and to give a Government that is apparently being run by people who chose to respond to questions by admitting they're completely disconnected the power to call their debt good seems like a foolish choice.


    I would agree with this statement. Any government agency is only as effective as the people running it, and that applies not only to various government departments, and the executive, legislative and judicial branches...including the Federal Reserve. And private corporations. The federal government needs to look after the interests of all citizens and not a select few that can afford lobbyists to write legislation that benefits them over the majority. The inequities of opportunity largely resulting from our tax code and special interest legislation has led to the largest disparities in wealth and income distribution since 1929...right before the Great Depression.

    What I really appreciate about the MMT philosophy is that they see government's primary goal as full employment and welfare of the people, and that monetary and fiscal policies need to built around that philosophy. I'll close with another Bill Mitchell statement:

    "Why do we want governments? We want them because they can do things that improve our welfare that we can’t do individually. In that context, it becomes clear that public policy should be devoted wholly to making sure that there are enough jobs, that poverty is eliminated, that the public health and public education systems are first class, that people who are less well off are able to become better off, etc.

    "From a macroeconomic point of view, the spending and tax decisions of government should be such that total spending in the economy is sufficient to produce the level of real output at which firms will employ the available labor force. This is the goal, and the particular budget outcomes must serve this goal."

    CBB...please correct me if I have misrepresented MMT in any way.
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    Been working on something, but it's taken awhile. Looks like Foxxbat has never heard of liar's loans. Alt-A private label security mortgages with no underwritting are not government secured loans. No lender was forced by government mandate to make a liar's loan that no honest lender would make, and implicit with that is that it was the lenders, not the borrowers, who put the lies in liar's loans. The post I've been working on gets doesn't get into that, but it does talk about how banking is a public-private partnership, and that member FED & member FDIC banks are accurately described as the "designated agents" of the government. So just like how we need to police and narrow IRS agents, we need to police and narrow the banks. So conservatives are on the wrong side of their own ideology on both banking regulation and austerity.
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    Schmidt, you need to start blog writting for MMT. Also, get on Facebook so you can be a part of the MMT Deficit Owl Committee.
  • Liberal Democrat
    Democrat
    Colorado Springs, CO
    Are you sure you want to delete this post?
        
    Carlitos Wrote: Been working on something, but it's taken awhile. Looks like Foxxbat has never heard of liar's loans. Alt-A private label security mortgages with no underwritting are not government secured loans. No lender was forced by government mandate to make a liar's loan that no honest lender would make, and implicit with that is that it was the lenders, not the borrowers, who put the lies in liar's loans. The post I've been working on gets doesn't get into that, but it does talk about how banking is a public-private partnership, and that member FED & member FDIC banks are accurately described as the "designated agents" of the government. So just like how we need to police and narrow IRS agents, we need to police and narrow the banks. So conservatives are on the wrong side of their own ideology on both banking regulation and austerity.
    For those that are interested, William K. Black published this article in the New York Times in 2011, When ‘Liar’s Loans’ Flourish:

    Quoting Black:

    "Liar’s loans are ideal for this fraud scheme because the only way large numbers of lenders can grow massively at premium yields is to lend to borrowers who will often be unable to repay the loans. A liar’s loan, by definition not underwritten, means that nobody checks the loan brokers’ lies about the borrowers’ stated income. There’s no audit trail proving the lender’s officers knew they were making a fraudulent loan. A lender that follows the four-part recipe is guaranteed to report record short-term income and maximize the chief executive’s compensation. The same recipe guarantees record real losses. The lender fails but the C.E.O. walks away from the toxic waste site a wealthy man."

    "The F.B.I. warned in September 2004 that mortgage fraud was “epidemic” and predicted that it would cause an “economic crisis.” In 2006, the mortgage industry’s own anti-fraud experts warned that liar’s loans had a fraud incidence of 90 percent because they were “an open invitation to fraudsters.” The lenders reacted to the warning by greatly increasing the number of liar’s loans."

    "Alan Greenspan and Ben Bernanke refused to use their authority to stop liar’s loans despite repeated warnings of the coming disaster."


    As I said in my earlier post, any government agency is only as effective as the people running it...and that includes the Federal Reserve. There has been much criticism directed at the Federal Reserve by both the left and the right, and some have called for eliminating it entirely. That would be like eliminating the office of the President of the United States because we didn't like the President's policies. Alan Greenspan was in his position as head of the Federal Reserve much too long, but blame also lies with the Board of Governors. When they forget who they are supposed to represent then we no longer have a democracy.
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    Good way to look at the FED is like a "nationalized" spread sheet.

    The FED's job should be minimal. It's job should be to clear the checks and provide reserves in a rules based manner that serves public purpose on demand. That's it. Provide some research, information, and pave out an electronic national payments system. The FED is a scorekeeper.

    Screwing around with interest rates is the least effective and a highly distortive way of influencing economic growth, and for the most part it doesn't work as intended, as the people who think otherwise have it all backwards anyway. That's why most people think QE is stimulus. It might 'shift' financial assets in the economy, but it does so by taxing out interest incomes. And with the FED targeting price, quantity regulation of reserves is counterproductive. Banks are highly regulated, but on the wrong side of banking.

    The FDIC and OCC should be the ones in charge of regulating what the banks can do, which should be narrow, transparent, and productive. Now at that point, if the FED gets wind that the FDIC and OCC are screwing around and allowing all kinds of fraud, they should go to the FBI, SEC, Congress, and other relevant government agencies to report.

    The FED should be thought of as public infrastructure that you are allowed to use if you are compliant with the rules. The FED's job should be to provide a public service. It should be up to the other agencies to regulate at the gate and to remove non-compliant entities.
  • Liberal Democrat
    Democrat
    Colorado Springs, CO
    Are you sure you want to delete this post?
        
    CBB --

    Okay I'm learning again. So I looked up OCC and see that it stands for the Office of the Comptroller. According to Wikipedia, it "serves to charter, regulate, and supervise all national banks and thrift institutions and the federal branches and agencies of foreign banks in the United States." The Comptroller also serves as a director of the Federal Deposit Insurance Corporation.

    Then I looked to see who is running the show. Currently it is Thomas J. Curry who was nominated to the Comptroller's job by President Obama. He took office in April 2012. Before that he was one of the directors of the FDIC. On April 1, 2013, Mr. Curry was also named Chairman of the Federal Financial Institutions Examination Council (FFIEC) for a two-year term.

    Curry was preceded by John C. Dugan. Dugan served from 2005 - 2010. Before serving as Comptroller, Dugan worked for 12 years as a lobbyist representing the banking industry.

    So getting back to my point, I'm sure that the structure of these organizations have been well thought out, but if Dugan worked as a lobbyist for the banking industry for 12 years prior to becoming Comptroller of the Currency, would he be looking after the welfare of the banks or the general public?

    These organizations are only as good as the people selected to run them...and their interests may lie elsewhere. In reading the wiki write-up of the OCC it appears that they do indeed have a lot of power. So why didn't they exert it? Or maybe they did and Greenspan and Bernanke overrode them? Black claims that the Fed disregarded the warnings of the FBI, and I assume that the FBI would only act if the Comptroller of the Currency was raising alarms.

    I guess I just don't understand the hierarchy of organizational responsibilities of these government entities. It's complicated.
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
    Are you sure you want to delete this post?
        
    Forgot to post this. It's a response to Foxxbat's first reply.

    Our "reserve status" just means that the world wants to save our currency. Some of that is pure choice on their part; some of it is coercion on the part of the US government of foreign agents and governments. For example, Venezuela and Saudi Arabia have been pressured to sell us oil for US dollars, and they are, for the most part, denied the ability to purchase U.S. assets outside of Treasury securities with those dollars. Capital controls remain in place with respect to foreign agent purchases of U.S. assets, many of which are justified on the basis of national security. So there are dynamics to our current account deficits that are driven by political forces. But it comes from both the domestic and foreign side, and includes overseas leadership that has made the political decision to develop their economies along the lines of export-led industrialization.

    The run up of gold was driven by central banks. Even in Greece, the Central Bank was buying gold at the depths of their bond crises. This is just like deficit spending, as the Central Bank just marks up accounts in the banking system, adding to bank reserves; but as the CB is acquiring an asset, which the private sector is losing, it’s booked differently than government deficit spending.

    I'm not sure what you mean exactly by "instant debt adjustment." Whether the government issues securities (which is a tool to prevent the fed funds rate falling BELOW the fed's positive target) or not, accumulated deficit spending is still "debt." It's all still an obligation of the U.S. government. If the government did not issue securities, those obligations would simply not include interest payments, and they wouldn't apply to the US "debt-ceiling." The simple fact that everybody misses is that “the funds to pay our taxes and buy government securities come from government spending and or lending” (Warren Mosler). There are institutional constraints that make it appear that the Treasury is limited to acquiring the funds by borrowing or taxing to spend first. Legislation does bar the Treasury from running a negative balance at the FED, unlike member FED private banks. However, because the FED targets and regulates the cost of needed reserves for settlement in the banking system, Treasury borrowing operations have to be accounted for and disruptions negated. Banks reserves are the final form of payment for settlement in the banking system. Bank reserves are like checking accounts at the FED. Reserve requirements are like minimum checking account balances. In short, bank reserves are clearing balances that the FED supplies. The FED is the monopoly issuer of reserves.

    Treasury borrowing operations are simple reserve drains. The way insiders say it is that "you can't do a reserve drain, before you do a reserve add." In other words, the Treasury can't borrow the funds to spend without raising the fed funds rate above the FED's target, unless the FED adds those reserves. We don't call this deficit spending by the FED. But to add reserves to the banking system, the FED is certainly spending. It's just that the FED is acquiring assets in exchange. This is true whether its buying mortgages or Treasury securities, or whether it's extending loans. So it's not booked as government deficit spending, but that's effectively what it is. So if you extend it out to include what the FED (which is an agent of the Treasury) is doing, it’s absolutely true that the government must spend first in order for the private sector to pay taxes.

    In the U.S. banking system, loans create deposits. Banking is not reserve constrained. Banking is constrained by capital requirements, regulation, and endogenous demand for credit. Member FED & FDIC banks are the designated agents of the U.S. government. So Wells Fargo, Bank of America, JP Morgan-Chase, etc. are all agents of the government. They are not "free-enterprise" wild-cats. That's what deposit insurance, access to discount reserve windows, and the fact that banks receive bank charters from government by meeting certain requirements, etc. all means. Banking is a public-private partnership.

    Please note: I adamantly oppose "nationalization" of banking. However, "pass thru" recieverships as part of "Prompt Corrective Action" does not mean "nationalization."

    Effectively, government supplies the funding for settlement at a cost it determines, sets the required capital, provides regulation to make private sector agents comfortable investing in banks so they can meet those requirements, and provides the deposit insurance. Banks are supposed to do the work of making loans available based on honest credit analysis and take deposits. So banks facilitate both credit and transactions. They’re public private partnerships and should be regulated for public purpose. The argument that an activity is profitable for banks is not a reason to extend government involvement in the financial sector.

    But more to the point, banks don't create U.S. dollars. Every loan and deposit created corresponds to offsetting assets and liabilities. Interest payments on private credit are like a cost that requires shifting private sector income. So the entire private credit structure nets out to zero in terms of financial asset savings. Bank lending creates credit claims to U.S. dollars. It's the government's deficit that supplies the net-dollars that supports the private credit structure. Government deficit spending is endogenously determined by the decision of non-government agents to net-save. Without that demand for savings, the Treasury could not run a deficit. While government exogenously can set tax rates and the cost of reserves, it cannot control quantity of dollars needed to pay taxes and save what the non-government tries to save. If government restricts supply from satiating net-savings desires, you end up with “paradox of thrift” involuntary unemployment. The government quantity deficit floats per market forces; interest payments are an exogenously set policy variable. The point is not to worry about where the government's account balance is per se. The point is to worry about full employment and price stability, and that the government serves public purpose. John Maynard Keynes, Ronald Reagan, and George W. Bush all said as much. Keynes said to worry about “full employment and the budget will take care of itself.” Bush said “I don’t worry about numbers on pieces of paper, I worry about jobs!” Ronald Reagan said, “I don’t worry about the deficit; it is big enough to take care of itself.”

    In fact, Warren Mosler met with W.’s Chief of Staff, Andy Card, in the spring of 2003 when the economy wasn’t doing so good and with W. up for reelection in ’04. Card was a good student and W. made the above comment not a week later. W. went onto to pass another round of top-down tax cuts and to refuse to veto a single spending bill. Warren had advised Card to pursue a full FICA payroll tax cut over another round of top-down cuts; however, top down tax cuts do not pose a financial solvency problem for the government.

    MMT begins with recognizing that taxes 'drive' the currency. That's what gives the currency its initial value: the fact that the government requires the private sector to pay taxes in a currency that the government issues. As such, government spends or lends first, and then the private sector can pay its taxes. This enables the government to spend its otherwise worthless currency, which it does not back with a promise of convertibility to gold, silver, or other currencies. This enables the government to compensate private sector agents with tradable tax credits for producing goods and services for the public sector, and enables the government to create market forces that incentivize competition directly for the government's dollars, and for the dollars earned by these private sector suppliers of the public sector. The private sector marketplace is a secondary market for U.S. dollars. The U.S. dollar is a tax credit based simple public monopoly.

    If "large investment houses, hedge funds and countries" want to 'move out' of the dollar, somebody else has to 'move in', somebody else has to take the other side of that trade. It's not possible to address every scenario envisioned by dollar doomsday theorists, but the current crisis is a product of the exact opposite of what they fear, i.e. flight ‘to’ the dollar instead of flight ‘out’ of the dollar. In any event, the only way shorting the currency en masse could become profitable is if the central bank gets in on the act. Please see this: Germany's 1923 Hyperinflation: A "Private" Affair. There’s also the fixed vs. floating distinction in a run on the currency that’s likely been missed. Fixed exchange rates create speculative markets by their very nature, and require governments to build substantial gold or foreign currency reserves (depending on the convertibility window) to defend. What these constraints do is surrender policy space, and set up governments to renege on promises they can’t keep and don’t need to ‘drive’ the currency. Effectively, fixed exchange sets up a giant bet by government that the currency will not be devalued at the convertibility window. The main thing with fixed exchange is that governments do not have complete control over the assets that they are pledging to exchange for dollars issued by government. This exposure exists independent of given conditions, which may enhance or reduce the exposure, but not eliminate it. On fixed exchange, the banks and government are reserve constrained. The base interest rates reflect what it costs the government to delay or reduce convertibility demands. On floating exchange, there is no convertibility demand b/c the option does not exist. So the “natural rate of interest” on floating exchange is zero; government has to ‘push’ rates above zero.

    The consequence of government overspending is inflation, currency depreciation, too small private sector, etc. The limits of government spending are on the real side of the economy, not the government's financial bookkeeping side. Given that the vast majority of our money comes from private credit lending, if you are worried about inflation, seems like you should be just as, if not more worried about what the banks are doing. And again, the banks are the ‘designated agents’ of the government.

    I tend to think that MMT un-blurs most people’s confusion between dollars and REAL wealth. MMT’ers are very specific in what they define as net-financial assets (NFA’s) vs. real savings. MMT’ers understand the difference between saved seed corn and saved dollars. Keynes brilliantly described the distinction between the theatre ticket vs. theatre performance.

    All government spending is done by marking up accounts in the banking system. That’s how it’s done. That’s not something MMT is advocating for per se, but what is happening and what MMT describes. Don’t shoot the messenger. As was implicit with my original post, if you don’t like government spending, why do you support government overtaxation? Smaller government means lower taxes are appropriate. Capitalism runs on sales. For a given credit expansion, cutting government spending without corresponding tax cuts is just like raising taxes. Same thing is happening: private sector income is reduced.
  • Liberal Democrat
    Democrat
    Colorado Springs, CO
    Are you sure you want to delete this post?
        
    CBB--

    Is this is an example of what Warren Mosler calls "demand leakages?"

    Huffington Post Business, June 14, 2013: Offshore Tax-Haven Data Made Public As Companies Brace For Scrutiny

    "A 2012 report by the Tax Justice Network (TJN) found that untaxed wealth invested in offshore tax havens ran between $28 and $32 trillion dollars, equal to two years’ worth of U.S. economic output. The report estimated that if the money were to have been invested in home countries, even at low rates of return, it could have generated hundreds of billions of dollars per year in tax revenue.

    "The TJN report also described the secrecy enveloping the world of offshore tax havens as a "subterranean system that … is the economic equivalent of an astrophysical black hole."


    In my view, while some economists extoll the virtues of the free markets, free trade and minimal regulations, socking away trillions of dollars of money that would otherwise circulate in the USA economy simply to avoid paying US taxes, is a drag on our economy and employment.

    However, I'm not sure what all this means from an MMT perspective. If even a few trillion of that money was returned to the USA over a few years, forced by new regulations or such, that money wouldn't do much to help our economy unless our fiscal policies ensured that it was immediately circulated back into the economy...i.e. help fund infrastructure, education and research in a big way. But if it was used to pay down debt it wouldn't help the economy at all.

    While federal government deficit spending is normally necessary to drive the economy, would the infusion of large funds from overseas in fact drive our fiscal policies in the other direction to avoid inflation? I assume it depends on how this money is used or spent, but would you still hold onto the "full employment criteria" before deficit spending would thought to be no longer necessary?

    Of course, this is probably hypothetical thinking because returning such large quantities of money back to the USA will not happen with this Congress.

    Thoughts?