MMT to Congress: You are the scorekeepers for the US dollar, not a player!

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,
are players,
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.
Ever.

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.

Instead,
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.

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232 Responses to MMT to Congress: You are the scorekeepers for the US dollar, not a player!

  1. Warren,

    We all have been acting as though the President of the United States, Secretary of the Treasury, the Chairman of the Fed and all their aides, do not understand Monetary Sovereignty. So we go to great lengths to provide ever easier-to-understand analogies, hoping that somehow the next analogy will turn on a light bulb.

    Do you really think it’s possible that all those smart people don’t understand the simple facts of Monetary Sovereignty?

    No, they understand. So all the simple analogies will accomplish nothing.

    The real question is: Why do they pretend not to understand? Answer: They are paid by the 1% not to understand, because cuts in federal spending widen the income gap, and that is what the 1% really wants.

    This is not just an educational problem; it also is a power problem. I have begun to focus more on motivation in addition to education. The public not only must know the facts, but also why these facts are being hidden.

    In short, the public has to get angry at being screwed. Only when public outrage is added to the mix, will anything happen. Emotion is more powerful than fact alone, and we need to stir emotion.

    The Message: “Here is how you being screwed; here is who’s screwing you and here is why they’re doing it.” Time to break out the torches and pitchforks.

    Reply

  2. Matthijs says:

    Mario, some good words. I agree. I also sense that there’s something ‘building up’. I just hope it explodes in a positive way, not a bad collapse.

    Reply

  3. Matthijs says:

    @mario and Warren: thanks for your replies, much appreciated.

    So I’ve read some more and understand how it works now. Saw the light, so to say. I’m assuming there are no factual errors (or lies) presented in the works of MMT I read on this site, the sites mentioned or pragcap.com. I’m no economist so I can’t check the facts presented. So for now I assume that the facts presented are true.

    Everything I thought I knew about money or economics turned upside down.

    But then comes the next, real nagging question: if I can understand this from reading a couple of blogs, a downloadable e-book and articles in a few days, why is almost the whole world not understanding this? Just open up any newspaper these days and the articles written don’t make any sense at all, in light of what I now know about modern economics. I can’t turn on the TV anymore and watch the news, because what they are talking about seems like complete nonsense now.

    What is missing here? Either there’s something wrong in MMT or there should be an explanation for the worlds’ ignorance. (I’m a very rational person ..) Which is it? ;)

    Reply

    Tom Hickey Reply:

    @Matthijs,

    “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

    —Upton Sinclair, I, Candidate for Governor: And How I Got Licked (1935), repr. University of California Press, 1994, p. 109.

    Reply

    Matt Franko Reply:

    @Tom Hickey, That’s Krugman in a nutshell!

    Reply

    WARREN MOSLER Reply:

    there should be a explanation for the world’s ignorance.

    I’ve been an ‘insider’ in monetary operations for 40 years. this is how it works

    Reply

    Mario Reply:

    @Matthijs,

    I call it corrupt to the core. To me that means corruption for corruption’s sake. There is no reason or logic to it other than their own subjective logic outside of the reality that exists beyond them. I view this as the most insidious type of corruption one can have b/c it’s a completely isolated, selfish, and useless endeavor. It cannot last by definition. I agree it’s one thing to be corrupt to “protect someone” or for the “betterment” of the people but this is something all together sinister and futile in my eyes.

    I view all of this as a parallel to the 1960’s racial issues. Racism is a subjective experience without reason or logic to back it up…yet it still persists. Our issues are not about race in this case but instead it is about class and money. Eventually the dawn comes and the 60’s were a culmination moment of at least 100 years in the making. I don’t know when this culmination will arrive but I do know what it will look like….people operating economically and monetarily at a higher perspective that includes all people (aka public purpose)…people not “tied up” in their views of themselves through a monetary lense (aka until a person has “x amount” of dollars can they be a “good” person worthy and able to be helped, cared for, considered, supported, addressed, etc.)…it will also look like a world where people see it as a duty, almost like a brotherhood, to support their neighbor in supporting himself. We will not be “crowding each other out” for dollars, instead we will all realize that full employment full potential, full utilization is possible, and that there is no “lack” of dollars and wealth and riches can be earned for all. Call it a utopia, but it’s no more of a utopia than to think of a world where people of all different colors can join and mix together freely doing the same things together happily. And now we do have a black president. History is on the side of Truth, but history can be a slow mistress at times (relatively speaking of course). LOL ;)

    That is what I see lying on the other side of this coin. I also do see that we will get there and MMT has shown me that it is possible to get there practically and operationally speaking. I just don’t see when we will get there.

    http://www.youtube.com/watch?v=MwKIUMbi9Jk&feature=related

    Reply

  4. Matthijs says:

    What I don’t understand, and sorry if this is a silly question, is why it is even called a “debt”. I mean, in the monopoly example, you would not call the bank giving someone some money being “in debt”. It’s just handing out money to a player. Nobody questions whether the bank can run out of money, it never will.
    (ok actually with a real play there might be not enough paper pieces of money… ;0 )

    I have walked past the debt clock in NY and every time I passed it the only thoughts going through my mind where “how are they ever going to pay that back”, “the US is in so much trouble”, etc etc. Just like everybody in the world thinks. I read opinion pieces in the big newspapers every day talking about this huge debt problem and how something has to be done to start paying that back. And how citizens also should start saving more. But how is that possible?

    I’m really confused.

    Reply

    WARREN MOSLER Reply:

    we could call all the savings accounts at the commercial banks debt as well, but we don’t. we just call them bank liabilities

    Reply

    Mario Reply:

    @Matthijs,

    “I’m really confused.”

    just stick around and keep reading/posting here at this blog and others like these:

    http://mikenormaneconomics.blogspot.com/

    http://bilbo.economicoutlook.net/blog/

    http://neweconomicperspectives.blogspot.com/p/modern-money-primer-under-construction.html

    It all comes in time. Just keep at it. We are like salmon swimming upstream. It’s kind of like those 3D pictures you stare at long enough and then you see shapes and figures in there. ;)

    Reply

  5. Tom Hickey says:

    WArren: “and it all comes down to rationing in its various forms, including by price.
    price tends to be the most regressive, not to say it shouldn’t be used.”

    This is the crux of it. Some argue that in a market economy, price should be the only means of rationing. Others hold that price should only be used to ration discretionary items and not vital ones, and private goods but not public goods. This is basic in the right-left divide, with different factions representing different degrees. There is an extreme right postion in the US, but not much of a left one, let alone extreme, as evidenced by the difference between the US and Europe.

    In the US, the right argues that the choice is between market capitalism and command socialism. That is a ridiculous argument that is not borne out by fact. There are many options regarding distribution of real resources and financial wealth.

    Reply

    Gary Reply:

    @Tom Hickey,

    think about it:
    who would prefer to ration everything by price? Yes, the rich.
    That way they can morally and legally rule over everything: land, water, health, life, minds. Everything.

    now – who would prefer to ration by something else than price? Yes – the poor, and those who are poor enough not to afford decent life.

    That is all simple, and if there was democracy – the poor (who are in majority) would have enough influence to implement such rules of the state – so that at least the basic necessities would be rationed by something else than price (perhaps by some socially agreed rules of fairness?).

    But – the unemployment, the private health care, the privatization of water, the regressive taxation etc. – shows that it is not really the democracy. It is something else. Some mind controlling system that actually persuades part of the poor to believe into an economic religion that “explains” to the poor that it is OK and it is fair and the most efficient way to ration resources.
    The “free market” religion (“money is impartial and fair”).

    Reply

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