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18 April 2015


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I'm trying to accommodate your frame of reference and replying so as to take it into account.

In this case, you'd suggested that these $5000-$10,000 per capita payments could be made without issuing debt. My reply simply acknowledged that (with a change in the law) that could indeed be done.

And then you take me to task for suggesting such a thing?


Ingolf, if I sounded as if I were doing that, I apologize. I didn't mean to. What I neglected to say is that in the US there is no reason for a law. Congress already has the legal capability to do it. And the President can do it by Executive Order just by picking up a pen and signing his John Henry.


Well, Congress is supposed to be listening to the people.

If a federal government, any government with a sovereign currency, imposes a tax payable in its own currency, it is logically absurd—and IMO immoral and cruel--not to give the private sector a means of obtaining those units of currency to both pay the tax and to net save in those units of currency.

Those net savings (meaning what’s left over after taxes) are how people develop their wealth, put their kids though school, feed their families, buy cars and family trips . . . and exercise their liberty.

What came first? The chicken or the egg?

We can’t make dollars up on our laser printers and pass them off as USD. It’s counterfeiting. We go to jail. Sure, we could borrow credit money from a bank, but that requires collateral, creditworthiness, a repayment schedule, and there’s a cost to it: interest payments. That’s real debt.

The federal government is not constrained that way because it issues the currency, it creates the money. It spends on goods and services in the economy, and that money enters the economy interest-free. That’s how we built the Boulder Dam, the interstate highway, and the Space Program. No one had to pay that money back. Every dollar that the government spends on useful things in the society increases its value 1.7 to 3X in terms of GDP. It's called providing for the general welfare of the people and economic growth.

But we don’t have the regular public out there with pitchforks telling Congress that the purpose of an economy is to serve the people, serve society, not serve some financial index. That's why Wall street is running the government


No problems.

Maybe Congress (and the President) already have this power as you suggest, although if so it surprises me.

How does that fit with your comment immediately above: "In the US, it's been a law since the gold standard days that the US Treasury's General Account at the Fed must have a positive balance"?

Anyway, if you can point to the legal source of these powers, I'd be interested to have a look.


The Congressional powers are enumerated in the US Constitution, Article I, Sec.8, clause 1. (Nixon used his presidential power in 1971 dramatically when he granted significant transfers to the 50 states after he took us off the gold standard internationally and devalued the dollar.) Various state transfers are still on the books as a matter of course. Google the Daily Treasury Statement; they're in either Table III or IV.

For "the US Treasury's General Account at the Fed must have a positive balance," see former Deputy Secretary of the Treasury Frank N Newman's book, "Freedom From National Debt," and these:

"Can Taxes and Bonds Finance Government Spending?"
By Stephanie Bell Kelton

"Modern Monetary Theory—A Primer on the Operational Realities of the Monetary System"
By Scott Fullwiler

The latter two are wonky.


Days later, I didn't see this Ingolf. Correcting it for the record here, although I know you'll never see it:

"Under the present monetary system, only the Fed can produce base money."

No. Only Congress/US Treasury creates base money. The Fed manages it.


Another after-the-fact correction for the record:

"As you of course know, whenever they "purchase"an asset (be it Treasuries, mortgage-backed securities or theoretically whatever) the monetary base goes up by that amount. Equally, if existing portfolio assets mature or are sold, the monetary base goes down."

No. The Fed cannot purchase the initial treasury securities auctioned to the public by the US Treasury. These are the treasury securities that increase the monetary base. It can only purchase treasury securities and the others you mention in the after-market ON THE OPEN MARKET, as you could.

Fed purchases


Another correction for the record on this dead thread:

"Until the crisis, over the entire life of the republic this process had resulted in a monetary base of about $800 billion. Today, it's $3.9 trillion."

No. In fact, since 1998, the US Treasury has created, "issued," $719 TRILLION in treasury securities, both marketable and non-marketable. See the Daily Treasury Statements since 1998 on the US Treasury's Bureau of the Fiscal Service website. Add 'em up. The end of the fiscal year is Sept 30.


Final selected correction for the record, or I'll be here all day:

"The private sector is also perfectly capable of adding financial assets."

ABSOLUTELY IMPOSSIBLE. Mathematically impossible. Cannot be done. Any gain is someone else's loss. One person's asset is another person's liability.

The US dollar is a closed system. Only the US federal government can create a dollar. Only the US federal government can add new financial assets to the system.


Again, days later, only saw this--this thread is a monster and I haven't caught everything. But I don't want someone reading this later left with questions.

"Then, the lending bank's reserves will be debited by the amount of the drawdown"

No. The customer's local BANK account is debited. Reserves aren't touched. If the customer wrote a check to someone within the same local bank, nothing happens. If the check goes to bank B, the BANK moves the reserves backing up the amount of the check/loan to Bank B.

I have to go out now. Can't answer the rest.



That should at least partially address your claims.

The thing with MMT is that despite the 'theory' in the name it's mostly a description of how modern fiat currencies objectively work. The theory part is in suggestions of what can be done with that power and knowledge. Any claims that this can't possible work run right up against that fact that, well, it does work. And has been for the better part of a century.

There's a comment somewhere above to the effect that nothing MMTers say would be shocking to an economist a hundred years ago. And I'm sure it wouldn't be. But that's kind of the point; knowledge has been lost in the intervening decades and we've now come to a period where it seems no one in charge actually understands the fundamentals about how some very key things actually work. One wonders what the staffers of the Congressional Library actually do all day, since it's certainly not helping our Represenatives educate themselves.

Who knows, maybe at least a few of them do have some understanding and are simply being intentional liars. Bernie Sanders (who I'm not calling a liar, bad transition, I know) knows Kelton, so he must have at least some understanding of how our money works. But even so he's talking about raising taxes on the rich to pay for College. Perhaps he's just playing it safe for now, to first present the ultimate goal, and should he ever win he can begin the difficult task of actually getting both the public and Congress to understand that we don't actually need to raise taxes to pay for anything.

MRW, I would greatly like to see some of what you've gathered and discovered in your research. Can you point me to the nineteen-teens documents you say are now scanned on Google?

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