Posted by WARREN MOSLER on 30th July 2011
Imagine a card game, where every entity in the economy is one of the players,
and you, Congress, are the scorekeeper.
The message here is the difference between being the scorekeeper and being a player.
The problem is, you are acting like one of the players when, in fact, you are the scorekeeper.
And you support your mistake with false analogies that presume you are one of the players,
when, in fact, you are the scorekeeper for the dollar.
That correct analogy is between scorekeepers in card games and your role as scorekeeper for the US dollar.
As scorekeeper in a card game, you keep track of how many points everyone has.
You award points to players with winning hands.
You subtract points from players with losing hands.
So as the scorekeeper, let me ask you:
How many points do you have?
Can the scorekeeper run out of points?
When you award points to players with winning hands,
where do those points come from?
When the scorekeeper subtracts points from players with losing hands,
does he have more points?
Do you understand the difference between being the scorekeeper and being the players?
You are the scorekeep for the US dollar.
You spend by marking up numbers in bank accounts at your Fed,
just like your Fed Chairman Bernanke has testified before you.
When you tax, the Fed marks numbers down in bank accounts.
Yes, the Fed accounts for what it does, but doesn’t actually get anything,
Just like the scorekeeper of a card game doesn’t get any points himself
when he subtracts points from the players.
When Congress spends more than it taxes,
it’s just like the scorekeeper of the card game awarding more points to the players’ scores than he subtracts from their scores.
What happens to the players total score when that happens?
It goes up by exactly that amount.
To the point.
What happens to dollar savings in the economy when Congress spends more than it taxes?
It goes up by exactly that amount.
To the penny.
The score keeper in a the card game keeps track of everyone’s score.
The players’ scores are accounted for by the scorekeeper.
The score keeper keeps the books.
Likewise, the Fed accounts for what it does.
The Fed keeps accounts for all the dollars all its member banks and participating governments hold in their accounts at the Fed.
That’s what accounts are- record keeping entries.
So when China sells us goods and services and gets paid in dollars,
the Fed- the scorekeeper for the dollar-
marks up (credits) the number in their reserve account at the Fed.
And when China buys US Treasury securities,
the Fed marks down (debits) the number in their reserve account.
And markes up (credits) the number in China’s securities account at the Fed.
That is what ‘government borrowing’ and ‘government debt’ is-
the shifting of dollars from reserve accounts to securities accounts at the Fed.
Yes, there are some $14 trillion in securities accounts at the Fed.
This represents the dollars the economy has left after the Fed added to our accounts when the Treasury spent, and subtracted from our accounts when the IRS taxed.
And it also happens to be the economy’s total net savings of dollars.
And paying back the debt is the reverse. It happens this way:
The Fed, the scorekeeper, shifts dollars from securities accounts to reserve accounts
Again, all on it’s own books.
This done for billions of dollars every month.
There are no grandchildren involved.
The Fed, the scorekeeper, can’t ‘run out of money’ as you’ve all presumed
The Fed, the scorekeeper, spends by marking up numbers in accounts with its computer.
This operation has nothing to with either
‘debt management’ which oversees the shifting of dollars between reserve accounts and securities accounts,
or the internal revenue service which oversees the subtraction of balances from bank reserve accounts.
And so yes, your deficits of recent years have added that many dollars to global dollar income and savings, to the penny.
Just ask anyone at the CBO.
It is no coincidence that savings goes up every time the deficit goes up-
It’s the same dollars that you deficit spend that necessarily become our dollar savings.
To the penny.
A word about Greece.
Greece is not the scorekeeper for the euro,
any more than the US states are scorekeepers for the dollar.
The European Central Bank is the scorekeeper for the euro.
Greece and the other euro member nations,
like the US states,
and players can run out of points and default,
and look to the scorekeeper for a bailout.
What does this mean?
There is no financial crisis for the US Government, the scorekeeper for the US dollar.
It can’t run out of dollars, and it is not dependent on taxing or borrowing to be able to spend.
That sky is not falling.
Let me conclude that the risk of under taxing and/or overspending is inflation, not insolvency.
And monetary inflation comes from trying to buy more than there is for sale,
which drives up prices.
But, as they say, to get out of a hole first you have to stop digging.
(I don’t think you, or anyone else, believes acceptable price stability requires 16% unemployment?)
Someday there may be excess demand from people with dollars to spend for labor, housing, and all the other goods and services that are desperately looking for buyers with dollars to spend.
But today excess capacity rules.
And an informed Congress
That recognizes it’s role of scorekeeper,
And recognizes the desperate shortage of consumer dollars for business to compete for,
Would be debating a compromise combination of tax cuts and spending increases.
presuming itself to be a player rather than scorekeeper,
Congress continues to act as if we could become the next Greece,
as it continues to repress the economy and turn us into the next Japan.
***comments welcome, feel free to repost, etc.