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"U.S. bankruptcy: A colossal hoax"

This is a very clear application of MMT thinking to the ZOMG!!!! Teh Debt!!!! policy debacle.* I urge you to read it more than once; the MMT talking points are woven together beautifully, and in fresh language. Susan Feiner, Professor of Economics, University of Southern Maine:

The United States is sovereign in its own currency. (Note to readers: this is just a fancy way of saying that the US is the only entity in the world that can create dollar denominated money. Japan and Mexican have similar monopolies on yen and pesos.) Our government creates, spends, borrows, and pays interest in dollars.

Clerks at the US Treasury enter numbers into computers that record plusses in federal agency accounts. When agencies spend—more keyboard clicks—other bank accounts are credited, then those account owners spend their money.

Next, people like you and me drive on roads, attend public school, drink clean water, fly on safe planes, and eat food checked for deadly bacteria. Myriad other necessities flow from Congressionally authorized Treasury clicks: fire and safety officers ready at a moment’s notice to come to our rescue, energy delivered via the nation’s grid powers our appliances, Social Security checks feed our seniors, and infectious diseases are checked when kids are vaccinated.

Of course people work (caveat: those 29.2 million people are still unemployed), businesses earn profits (well yeah, it’s a lot harder to do this when there are 29.2 million unemployed), consumers spend and banks’ lend.

But, as frustratingly insubstantial as it may seem, the wheels of commerce are greased by nothing more than these accounting clicks.

“You’ve got to be kidding me. My business has cash reserves of six months.”

“Sure you do. Is that reserve—coin plus currency—buried in the backyard? Or is it on deposit at a bank? If the former, send me your address! If the latter, baby you’ve got blips. You run your business by telling the bank what to do with your blips.”

As I said, money is nothing. Money is everything. And that’s true in spades for the federal government.

We are in a different place than is the government, because you and I will die. At that point, our estates will be settled: if our assets (positive blips) are greater than our liabilities (negative blips), then our heirs inherit. If the reverse occurs, then nobody gets anything. Ditto for business bankruptcies—paying off creditors requires asset liquidation.

There’s nothing comparable to death for the US. The national analogy—revolution or an invasion/occupation—would render dollars useless, no longer accepted for purchases or paying debts.

Bankruptcy is simply not possible. As long as the debts owed by the US government are dollar denominated debts, we can always create all the dollars we need.

Yep, you’re right. Creating dollars ad infinitum could cause repercussions. But that’s not what we’re talking about. The topic is bankruptcy … running out of the money needed to pay our dollar denominated debts. That is impossible, short of a self-destructive decision not to pay the debt.

The inflation boogie man can be put to bed, as well. If we create money to retire debt, we are “printing money” that has already been spent. (That’s what debt is: money - oops, blips - that has been spent.) It has already supplied whatever inflation it could. Offsetting those blips that have already been spent cannot produce any inflation. This is what the “mobs” are missing.

Awesome.

NOTE * It's a debacle if you assume that our feral elites are enriching themselves and killing us as the result of some sort of accident. Anyhow.

NOTE Hat tip, Roger Erickson.

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okanogen's picture
Submitted by okanogen on

If we create money to retire debt, we are “printing money” that has already been spent. (That’s what debt is: money - oops, blips - that has been spent.) It has already supplied whatever inflation it could. Offsetting those blips that have already been spent cannot produce any inflation.

This is exactly what I was saying here. I am glad to see someone (oh, I'm sorry, an academic, respectable someone) describe it in that way, because it is clear, in normal, everyday English, and comprehendable by non-academic elites. In other words, ordinary people can understand that.

Obviously, if you look at Krugman, the primary opposition to applying MMT in practice is fears of inflation, so that is the most imporatant, and most vulnerable avenue of attack. If this can be pointed out as a non-existent boogie-man, people will finally see that their taxes and federal government spending are almost completely unrelated. This a disruptive game-changer on everything from entitlements to Universal Health Care and public infrastructure spending. The notion that taxes DO NOT in fact "have" to be raised to pay for these things, and instead, our ability to pay for them is tied to our tolerance for inflation is a complete game-changer from the far left to the far right.

CMike's picture
Submitted by CMike on

Dr. Feiner says:

The inflation boogie man can be put to bed, as well. If we create money to retire debt, we are “printing money” that has already been spent. (That’s what debt is: money - oops, blips - that has been spent.) It has already supplied whatever inflation it could. Offsetting those blips that have already been spent cannot produce any inflation. This is what the “mobs” are missing.

As a member of the greater mob, though not of the subset which is worried about bankruptcy, here's my concern. If we were living in a closed national economy and if labor were working for subsistence wages here, it might not matter how much money the investor class had on deposit relative to the wage rate. In order to generate any real economy production the investor class would have to pay workers with enough money or enough in the way of actual goods and services for the workers to sustain themselves. However, even at this late date, most of us in the United States are not living in a subsistence wage economy, not yet anyway.

And, we are not living in a closed national economy, we are living in a globalized one. In this globalized economy, savings, including the savings a bond represents, grant the holder a claim to a share of the goods and services the world-wide real economy will produce in the future. If you allow the Treasury, or the Fed, to credit the investor class and foreign central banks with newly created blips today they will have a larger proportional claim than U.S. workers on the real economy's total world-wide production of goods and services (including political services) in the future.

To avoid this state of affairs, we're left back where we started. We have to find the political means; to tax away the windfall profits members of the investor class are accumulating for themselves as savings, to raise the wage rates in this economy, to reduce the unemployment rate, and to increase the amount of financial, social service, educational, and medical benefits being offered by our federal, state, and local governments acting in concert for the purpose of raising the living standards of the general population.