The certainty of debt and taxes- comments on the Fiscal Cliff

It takes a fiat currency to sustain full employment.

And a fiat currency, like the $US and the euro, includes the certainty of debt and taxes.

Taxation is required to allow the government to spend its otherwise worthless currency.

And ‘debt’- some entity spending more than its income- is required to ‘offset’ an entity’s desire to spend less than its income.

These desires to not spend are known as demand leakages.

That means, at full employment, either a private sector entity or the government will be spending more than its income to offset the demand leakages.

Private sector spending is, operationally, revenue constrained. It is limited by income and credit worthiness.

Public sector spending in a currency it issues is not revenue constrained.

The private sector, the user of the currency, must first obtain funds before it can spend.

The public sector, the issuer of its currency, must, from inception, spend or lend first, before it can ‘collect’ taxes and/or borrow.

The private sector is necessarily pro cyclical. In a down turn, the private sector loses credit worthiness and therefore is limited in its ability to spend more than its income.

That leaves only the public sector to spend more than its income to fill any residual output gap and sustain full employment.

Those claiming ‘the problem is too much debt- private sector and public sector’ are entirely missing the point.

That includes everyone in Congress, President Obama, and Candidate Romney.

Those now pushing for Federal deficit reduction are entirely missing the point.

There is not Federal solvency problem, short term or long term, with any size deficit.

There could be a long term inflation problem.

However, I have seen no credible, professional long term forecasts of substantial inflation. That includes the Fed, the CBO, and the forecasts of the largest financial institutions, as well as the inflation rates implied by the long term inflation indexed US Treasury securities.

Last year the pre debt ceiling war cry from all sides was that immediate deficit reduction was imperative to keep us from becoming the next Greece.

That fell by the wayside after the downgrade, that was supposed to cause interest rates to spike and find the US, Greek like, on its knees before the IMF,
instead cause rates paid by the US Treasury to dramatically fall. The difference is the US govt is the issuer of the $US, while Greece is but a user of the euro.

So seems to me in this economy federal deficit reduction should be off the table, and the burden of proof of a sufficiently high long term inflation risk
be on those who want to put it back on the table. Anything less seems subversive, either by accident or by design.

(feel free to distribute)

This entry was posted in Deficit, Government Spending, Inflation. Bookmark the permalink.

217 Responses to The certainty of debt and taxes- comments on the Fiscal Cliff

  1. Robert Rice says:

    Joe,

    You’ll have to forgive my tardy response, but as you can see, it’s taken some time to write it.

    I never said the government was revenue- constrained BEFORE inception of the Treasury department – HOW could it be – by definition? No Treasury Department = no revenue. Without a Treasury Department to establish accounts and pay the government Bills, there can be no claim of being revenue-constrained.

    What you wrote was that you believed the government was a currency user at the time of the country’s inception. Given this would refer to the Continental Congress, as I’ve demonstrated, that was not the case.

    Now the allegation has morphed to; post-creation of the Treasury, post-modification of itself, and post-ratification of the Constitution, Congress became a currency user. We’ll evaluate this proposition’s truth value shortly.

    That’s why I said all the Scrip and Continental talk was not relevant.

    Look Joe, the fact that the Continental Congress issued convertible currency after declaring themselves an independent nation from Britain in 1776, is direct evidence the government was a currency issuer at the time of its inception. That’s entirely relevant to what you wrote. Now you want to “clarify” and suggest what you really meant was that post-creation of the Treasury, Congress became a currency user. Yet, as I’ve pointed out, the Constitution specifically grants Congress the authority to coin money, which you accept and which quite obviously means it was a currency issuer at the time. I’ll show you shortly the historical record also clearly demonstrates Congress issued currency after the creation of the Treasury. As a matter of fact, the Treasury itself issued currency, both as coin and eventually as paper.

    The issue is one of since the establishment of the Treasury Department, so post-September 1789. After the Department was established by law in the First Congress, all payments were to made on the basis I provided earlier – only after the monies were received.

    No, the authority was specifically granted to Congress to coin. It wasn’t successful in coining in the quantities it wanted because, from what I gather, they lacked the physical resources. Without oring operations on behalf of Congress, while they possessed the authority to coin, they had little opportunity to exercise that authority in the production of sufficient quantities to negate a need for debt issuance.

    Five years after the Treasury was established, the U.S, government was $6 Million in debt to the PRIVATE Bank of the United States. The government was well on its way to funding its operations via the issuance of debt. The government was revenue-constrained – THAT is why it issued the debts.

    You’re drawing an inference based on circumstantial evidence. The issuance of debt to fund operations does not necessarily imply the government is a currency user. It is also possible it lacked the physical resources to coin in the quantities needed, and hence, although it possessed the authority, practically speaking, it functioned as a currency user.

    We never coined a nickel and owed $6Million

    The historical record is clear on this; the Mint did in fact coin money within a few years of the creation of the Treasury:

    “President George Washington appointed Philadelphian David Rittenhouse, a leading American scientist, as the first Director of the Mint. Under Rittenhouse, the Mint produced its first circulating coins — 11,178 copper cents, which were delivered in March 1793. Soon after, the Mint began issuing gold and silver coins as well. President Washington, who lived only a few blocks from the new Mint, is believed to have donated some of his own silver for minting.”

    http://www.usmint.gov/historianscorner/?action=history

    And as an aside, I’m not sure why President Washington would need to donate to the Mint if resources for coining were readily available.

    I believe the Founders granted the Congress the POWER to create money, or I wouldn’t be here. Both the ambiguous language and British money custom (commodity money) prevented the implementation of that power when Hamilton prevailed.

    If Congress had the authority to issue currency in the form of specie, then Congress was a currency issuer. Again, the fact it didn’t issue in quantities sufficient to fund public expenditures is more a function of insufficient resources at the time of a young nation.

    If the Fed were a government agency, its employees would by in the union. The Board members are compensated, but the banking SYSTEM is private, including the Regional Fed Offices. All private employees. I’ve been reading FED publications for 40 years. Its opinion of itself has changed over time. Get hold of a Fed Purposes and Functions publication from the 60s or 70s.

    It’s not up to me to do your research. Support your own claims. Besides, what the Fed allegedly said 40 or 50 years ago is not to supercede what they indicate today.

    If the Fed wasn’t a government entity:

    1. It wouldn’t forfeit all of its profits every year over to the Treasury as it has been since its inception in 1913 (with the exception of a small percentage retained to cover expenses).
    2. It wouldn’t call itself a government entity (Whether the institution evolved or its views of itself evolved wasn’t the question; the truth today was the question).
    3. The Federal government wouldn’t have issued it a .gov website.

    The fact the Federal Reserve employees aren’t unionized hardly proves the institution is non-government. You’ll have to ask Congress why they haven’t offered FR employees the opportunity to join one of the Federal government’s unions, but it hardly seems rational to infer the FR is non-government in contradiction to the above evidence simply because their employees are not Federal government unionized.

    I hope you’re joking about the dot.gov .

    And I hope you are joking about the FR being non-government. You seem to be suffering from ostrich syndrome otherwise known as sticking your head in the sand. The Fed publication specifically indicates it is government. And since you think it is silly to provide the .gov site as evidence, what’s your theory as to why the Federal government allows an allegedly private entity to use a .gov website? Like a good scientist, I’d like to hear your accounting for this data instead of being dismissive.

    What I have a really hard time with, Robert, is any assertion that the power to create the nation’s money has NOT been effectively delegated to the private banks, and perhaps that the private banks do NOT create the nation’s money.
    The creation of money originates within the banking system. That is what endogenous money is all about.
    The Fed says so. Read Modern Money Mechanics.

    I have read it. And no one has rejected endogenous money, only that it is not the only means by which money is created. The Federal government, the Treasury specifically, has a long history of printing money. They did so on behalf of Congress for well over 100 years, and they did so initially to fund the Civil war:

    http://en.wikipedia.org/wiki/United_States_Note

    The reason the Treasury stopped printing appears to be twofold:

    1. Redundancy.

    “United States notes serve no function that is not already adequately served by Federal Reserve notes. As a result, the Treasury Department stopped issuing United States notes, and none have been placed into circulation since January 21, 1971.”

    http://www.treasury.gov/resource-center/faqs/Currency/Pages/legal-tender.aspx (see the last FAQ)

    2. Limitations on the amount. Federal Reserve Notes are not subject to the limited quantity U.S. notes are subject to, which was apparently set my Congress in the 19th century at $300,000,000.

    The sum is this. The Constitution gives the power to create the nation’s money to the sovereign people, acting through their Congress. The private bankers now HAVE that power. The Fed says so

    You and your incessant failure to provide references… Because Joe said the Fed said so isn’t even worth responding to. Prove your case instead of expecting those you are conversing with to accept “Joe’s infallible word.”

    I would suggest the Federal Reserve has never made any claim the Federal government forfeited its authority to create money to private banks, leaving itself without such. And if it hypothetically had, such comments would be in contradiction to the SCOTUS, which has specifically ruled the Federal government has the authority to create money:

    “The Legal Tender Act of 1862, enacted February 25, 1862, was enacted to issue paper money, United States Notes, to finance the Civil War without raising taxes.”

    http://en.wikipedia.org/wiki/Legal_Tender_Cases

    This was challenged and SCOTUS ruled initially against the Act, but quickly reversed itself the next year, reaffirming and broadening the ruling again a decade or so later.

    It’s not my job to show the language of the delegation. It would be a waste of time and is also irrelevant. The proof is in the pudding.

    Well if nothing else, we can see who provides evidence and who makes unsubstantiated claims. And you aren’t even accurate about the pudding proof…

    On your Point No 1 – Delegation DOES equal the transfer of the authority when the results are the proof.
    On your point No 2 – I NEVER said the delegation was permanent. You made that up. The delegation is whatever is in the law. I’m here because I want to reverse that delegation. You’ll never make any of these changes without it.

    Joe, you sound like a clanging cymbal. Lots of noise, little music. I never said your position implies it’d be impossible for Congress to regain the authority. You’re arguing they don’t currently possess the authority because of delegation, and I explained delegation does not equate to giving authority away.

    By the way, as my intuition suspected, printing money wasn’t expressly authorized in the Constitution because of concerns over how it would appear given the Continental currency fiasco. However, it was purposely not prohibited by Congress either.

    Just a couple of the opinions expressed during the actual discussions on this matter. From the Madison Debates, Tuesday August 16th 1787:

    “Mr. Mercer was a friend to paper money, though in the present state & temper of America, he should neither propose nor approve of such a measure. He was consequently opposed to a prohibition of it altogether. It will stamp suspicion on the Government to deny it a discretion on this point. It was impolitic also to excite the opposition of all those who were friends to paper money. The people of property would be sure to be on the side of the plan, and it was impolitic to purchase their further attachment with the loss of the opposite class of Citizens.”

    and,

    “Mr. Elseworth thought this a favorable moment to shut and bar the door against paper money. The mischiefs of the various experiments which had been made, were now fresh in the public mind and had excited the disgust of all the respectable part of America. By witholding the power from the new Government. more friends of influence would be gained to it than by almost any thing else. Paper money can in no case be necessary. Give the Government credit, and other resources will offer. The power may do harm, never good.”

    http://avalon.law.yale.edu/18th_century/debates_816.asp

    Like I suspected, the reason the Constitution authorizes coining specifically is because the populace had greater confidence in specie as “real” money. Nowadays, paper, coins, flowing electrons through transistors, all serve as real money and are regarded as such by the populace, and the courts have long since authorized Congress to create all forms (certainly coins and paper).

    Robert

    Reply

  2. y says:

    “It takes a fiat currency to sustain full employment.”

    Why’s that?

    Is sustained full employment impossible with “non-fiat” currency?

    Reply

    Tom Hickey Reply:

    @y,

    Policy space expands with non-convertible floating rate monetary regime and contracts with a convertible fixed-rate regime. The former has an inflationary bias and the later a deflationary bias. With the former govt can be focused on domestic policy, and with the latter the external is the focus (fx rate, gold outflow).

    Reply

  3. John O'Connell says:

    My grandmother’s recipe for spaghetti sauce goes, in part, something like this:

    “Combine ingredients in a saucepan on high heat and bring to a boil. Reduce heat and simmer … “

    Managing the economy is sort of like making spaghetti sauce. The sauce is the economy, and its temperature represents its output, as compared to its potential. (Think of the temperature in celsius, where 0 is freezing, and 100 is boiling. That scale maps well to many economic variables.) The stove is the government, the gas is the government deficit, and the kitchen is the rest of the world.
    Simmering represents the economy operating at full potential, but without overheating.

    If the sauce ingredients start out at room temperature, you can turn the gas up all the way, and keep it there for quite a while, with no danger of the saucepan boiling over.

    Likewise, when the economy is operating with lots of unemployment and excess capacity, like it is today, we can have very large deficits with no danger of inflation. In fact, we have so far had deficits of record-breaking size for 4 years running without any increase in inflation, and the economy is still nowhere near our goal of simmering”.

    As the sauce temperature approaches 100 degrees, you have to reduce the heat, or the sauce will boil violently, boil over, and make a mess. Likewise, when the economy gets near full employment, you will have to reduce the deficit, or the economy would “overheat”, and cause inflation.

    But, you can’t turn the gas off completely, and expect the sauce to continue simmering. The sauce is constantly losing heat to the kitchen, and will cool off if the gas is turned off completely.

    Likewise, you can’t balance the budget (no deficit) and expect the economy to continue operating at capacity. It will lose money to the rest of the world, because of the trade deficit, and the result will be a recession. Economists call this loss of money from the economy a “leakage”, and it is just like heat transfer from something hot to its cooler surroundings.

    In order to keep the sauce just simmering, without cooling off or boiling over, the gas must be on at just the right level to offset the heat loss to the kitchen.

    Likewise, to keep the economy operating at peak level, there needs to be a deficit just large enough to offset the leakages to the rest of the world, and also domestic savings, which is another leakage. (I have no analog in spaghetti sauce for domestic savings, which just proves that no analogy is perfect.)

    Reducing the gas before the sauce has come to a boil means it will take longer to boil, or may never boil, if the gas is not high enough to offset the heat loss to the kitchen.

    Likewise, reducing the deficit today, when the economy is so far from optimal, and not even moving noticeably in the right direction, is a recipe for recession, with no hope of ever getting back to full employment.

    The Treasury is the supplier of money to the economy, just as the stove is the supplier of heat to the sauce. Nobody else can create the dollars needed to raise GDP, and if government refuses to have a high enough deficit, refuses to create dollars in sufficient quantity, we will continue to suffer as we have for the past 4 years.

    Reply

  4. @ESM, This is a reply to Warren who said above:

    “it’s all about the president spending $ initially authorized by congress but the blocked by congress by not extending the debt ceiling.

    so currently, with the debt ceiling not an immediate obstacle, federal spending would’t change.”

    It’s true that repayment of public debt using PPCS profits doesn’t itself change spending. But it’s quite likely that in due course $60 T PPCS would increase Federal deficit spending due to the political impact of paying off the public debt, issuing no more debt, and also having $44 T left over to cover future deficit spending. Again that’s because a move like this one would totally change the background for public debate. We’d no longer be debating the debt. Instead, we’d be debating the likely impact of Federal deficit sending proposals. It seems to me that’s exactly the kind of debate MMT would like us to have.

    It is not true that removing the debt ceiling would have the same political effect, even if we could get that done. If we did, the deficit hawks would still object to more deficit spending on grounds that “we” will run out of money, because we can only tax and borrow and we would then have to debate whether it will ever be the case that other nations would not buy Treasury debt. Who wants to argue about such nonsense? We’ve been arguing about that for years now. It’s so much better just to take the debt issue off the table by getting rid of the public debt and never having any more of it. That will end all arguments about solvency once and for all. So why not just do that? Why, keep emphasizing that there are no barriers to out just continuing to borrow? It’s true. But it’s bad messaging and it’s bad politics.

    All of us should just get behind $60 T or $100 T PPCS. The debt ceiling is coming up again in just a few months and a good part of the safety net is at risk. Your point here is that it should be off the table. You’re right! It should! But it is not! And it won’t be off the table unless the President does what I’m proposing, which is to use very high value PPCS like $30 T, $60 T, $100 T, maybe a Quadrillion, etc.

    So, if my fellow MMTers really want the safety net off the table after this election, then I think MMTer who believes in doing that ought to join me in getting behind high value PPCS now, and keep up that drum beat until the President either does that or, alternatively is exposed as not telling the about our running out of money. Why are you not joining me in this?

    Reply

    WARREN MOSLER Reply:

    it violates ‘Lerner’s law’ as the effort to ‘get rid of the debt’ carrying the implication that ‘the debt’ is a problem that needs to be gotten rid of.

    And that will likely be (as it already has been) used against it by those saying it just renames ‘the debt’/govt. liabilities and doesn’t eliminate those govt liabilities, which you’ve ‘conceded’ are a bad thing by the act of trying to get rid of same.

    In other words, it’s seen as a ‘gimmick’ that doesn’t actually change anything.

    Reply

  5. To Robert Rice,

    Thanks for what looks like an attempt to clear up our differences here.

    You imply a contradiction in my statements where I say that
    1. Right Now, Legally, Today nobody in government has any power to create any money as we know it (coins excepted) = results being two
    – that ALL our money is being created by private bankers.
    – spending by government is revenue constrained

    And

    2. The Congress of the United States is granted the power to create the nation’s money under the Constitution, (and we want that above power back from the private bankers.)

    You opine about the legal effects of the delegation of power. I would observe it has been legally established(delegation) and practiced with regard to money for over a hundred years.

    The Congress HAS, legally or illegally, completely and effectively delegated the power of the sovereign to issue the nation’s “money” over to a private banking cartel.
    They HAVE the power.
    It is not a FINAL delegation.
    It is a temporal delegation.
    Thus the effort to reverse the actions of Congress in that delegation – all as outlined in HR 2990.

    THAT is the tune.
    There has been no change in that tune.
    It is the tune I have sung since 35 years before the Kucinich Bill was thought of.

    On the matter of whether the federal government was revenue constrained since inception, yes, it has been.
    The laws establishing the Federal Treasury have further established that whatever monies are paid out by Treasury EXIST as a matter of control, accountancy, reporting and audit.
    HAD the Congress utilized its powers on day one to issuance, debt-free, of the monies to enable national commerce, this would not obviate the NEED for Treasury to accommodate each and all of those conditions.
    Unless some other law was passed to make that possible (see Kucinich)

    It’s part of the mythology of not understanding the national money system to accord with the notion that providing money for commerce(the national circulating medium of exchange) means that the government does not need to count its own inflows and outgoes in the use of that money.

    What Congress has is the POWER to create laws that order the Treasury to do anything, legal or otherwise. What Congress doesn’t have, having abdicated our public trust by both design and error, is any government agency that can TODAY create money to use in national commerce.

    It is the POWER that is supreme within sovereignty. But the right and privilege that that power entails, again effectively and in practice, belongs to the bankers of the world.

    We can pretend that is not the case, and say things like ‘when Congress spends, it creates money’, and repeat it over and over again, and feel good about it. But that doesn’t make it true.

    Thanks.

    Reply

    ESM Reply:

    @joe bongiovanni,

    “We can pretend that is not the case, and say things like ‘when Congress spends, it creates money’, and repeat it over and over again, and feel good about it. But that doesn’t make it true.”

    When Congress authorizes borrowing to cover net deficit spending, it is essentially authorizing the Treasury to create net new T-bills. For pedogogical reasons, Warren won’t call T-bills money, but they are. And through the magic of the Federal Reserve and Fed lending via repo, T-bills are essentially fungible with reserves or cash. Neglecting the middlemen (Fed and bond dealers), the Treasury deficit spends by paying in T-bills, which it creates ex nihilo.

    Reply

    WARREN MOSLER Reply:

    it’s just that in general I don’t call anything ‘money’
    particularly around academics

    Reply

    Tom Hickey Reply:

    @WARREN MOSLER,

    “fungible tax credits” instead of money?

    WARREN MOSLER Reply:

    right, same thing

    Neil Wilson Reply:

    @ESM,

    I wish more people would realise that rather than just believing the ‘Wizard of Oz’ light show.

    Reply

    Tom Hickey Reply:

    @Neil Wilson,

    Exactly. When the cb swaps its liabilities for its own liabilities (reserve currency cash currency or its own liabilities (reserves) for Tsy liabilities (tys) it’s just “making change” or shifting the way govt liabilities are held between demand and savings accounts.

    While it possible to say that banks “buy” cash currency from the cb for reserve currency, it is equally correct to say the cb is “buying” cash currency for reserve currency. But there is no spending when “spending” denotes a fiscal operation that increases non-govt financial assets.

    Same holds for “printing money” (which is a logical nonsense in the way it is usually used).

    joe bongiovanni Reply:

    @ESM,

    In discussing money we often refer to either its monetary system functions or the various forms of its use in commerce and finance.

    Rothbard, Fisher and many others, including the Fed, refer to the M-1 money supply when discussing ‘money’.

    When Congress authorizes and Treasury issues securities, it is true that the “proceeds” go through a series of transactions and end up in the M1(after the Treasury spends). It is the “proceeds” from the securities that Congress spends in paying its bills.

    It could be abstractly inferred that Treasury thereby “deficit spends by paying in T-Bills”(creates money). But that abstraction does not confer the status of ‘money’ on the bonds. Neither does it confer upon the Congress or Treasury the act of issuance of money. The government’s issuance is one of term-debt, repayable upon maturity with interest.

    Whenever a Treasury security is issued, its essential monetary character is one of the public “use” of the existing money supply, and not one of creating the money supply – just as is taxation as a source of government revenues.

    Were the security a money-issuance, that is, a creation of new money by the Congress, there would be more M1 by the amount of the issuance. In reality, the issuance of public debt does nothing to increase the money supply.

    On the contrary, as the private banks DO create the money supply, the issuance of debt by private bankers DOES create additional M-1 money by the amount of the private debt issued.

    As such, the fungible qualities of Treasuries in commerce make them money-like. Not much different than any financial instrument that trades as a financial asset. But they are definitely not money.

    Thanks.

    Reply

    Tom Hickey Reply:

    @joe bongiovanni,

    The MMT economists prefer to define terms operationally and see “money” as a confusing term. Changes (flows) in the stock of non-govt net financial assets are what is significant. The government adds financial assets that are a govt liability through Tsy disbursement by directing the Fed to credit non-govt deposit accounts, the settlement of which takes place in reserves that come through auction of tsys. So when the tsys are auctioned and the reserves credited to the Tsy are disbursed to non-govt accounts through spending and transfer, the total increase (flow) in non-govt NFA is the amount of the tsys and the reserves that entered non-govt by crediting deposit accounts. The stock of NFA held by non-govt increases by the amount of the flow. Tsys and reserves are fungible operationally and actually function in this way massively on a daily basis, e.g., through repo.

    WARREN MOSLER Reply:

    note that you can correlate/model/etc net financial assets with things,
    but even the fed has abandoned trying to correlate its various M’s with anything useful for its purposes.

    WARREN MOSLER Reply:

    Just more of the usual empty rhetoric and semantics. A rose by any other name, etc.

    again, do you have any specific proposals to restore output and employment?

    Robert Rice Reply:

    @joe bongiovanni,

    Joe,

    Today’s history lesson begins with a primer from the Minneapolis Fed:

    http://www.minneapolisfed.org/community_education/student/centralbankhistory/bank.cfm

    To be followed by this Wikipedia article:

    http://en.wikipedia.org/wiki/Early_American_currency

    And to consummate, an article from the Philadelphia Fed:

    http://www.philadelphiafed.org/education/teachers/resources/money-in-colonial-times/

    The above should be sufficient to demonstrate you are mistaken.

    But in case it isn’t self-evident, the fact is, the government was not a currency user from its inception. They issued paper money as well as coins.

    I suspect the reason why the Constitution doesn’t specifically say Congress has the authority to print “paper money,” is for the simple reason the Continental Congress and the 13 Colonies had exercised such authority previously with unfavorable results. In those days, paper money was convertible. When the Continental Congress reneged on this promised convertibility, it destroyed confidence in the government’s issued paper money (which they’d been issuing to help fund the Revolution). Consequently this gave rise to hyperinflation as well as the phrase, “Not worth a Continental,” (the name of the paper money prior to the ratification of the Constitution). Having this concern fresh in their minds, it seems to me the writers of the Constitution wanted Congress to be able to issue what would be regarded as “real” money by the populace, and so they specified non-convertible coins. But let’s not get hung up on the form the money could be issued in, as that wasn’t so much the point as it was that the authors wanted the government to be able to create what was regarded as “real” money. Today electrons flowing through semiconductors, paper, and coins all constitute real money.

    And it isn’t as though they gave up on issuing paper money anyway, as the history lesson above elucidates.

    In reference to your other comments, you’ve largely just repeated yourself without addressing my arguments. Delegation does not equate to giving away authority, etc., etc., etc. I don’t feel the need to repeat myself. I don’t mean to be rude, but it’s your responsibility to read other people’s comments correctly, not mine to repeat endlessly in hopes that you’ll actually evaluate my concerns accurately and fairly. I don’t mean to suggest you are purposely being unfair, but negligence isn’t any better of an excuse.

    I do however hope the above helps. We need to get our act together as a country, evaluate claims and arguments fairly, be honest, not let egos get in the way like three year olds, and simply let the facts lead us to greener pastures.

    Reply

    WARREN MOSLER Reply:

    so far just he’s just been a lot of AMI propaganda/empty rhetoric.
    impressive that they got it all as far as they have.
    but that goes for a lot of things

    Reply

    joe bongiovanni Reply:

    @Robert Rice,
    To Robert
    Thanks. I totally agree that we NEED to get our act together as a monetary country.
    From the first MinnFed link.

    “The Bank of the United States was conceived in 1790 to deal with the war debt and to put the government on sound financial footing. It was intended to help fund the government’s debt and issue currency notes.”
    And…..
    “Though the intent of the Bank was to facilitate government finances, Hamilton had another goal in mind—to function as a commercial bank.”
    So, to be clear, Robert, the First Bank of the United States was a PRIVATE bank, and I PROMISE you that they gave NO MONEY to the government – for any reason.

    The second WIKI article AND the third fed article are both about Colonial Currency, ending with the rebellious Continental – that is, even before that first article.

    Again , none of this has anything to do with anything I said.

    It would be incorrect, Robert, to think that just because ANY government might create Bills and Coins for the national economy, or electrons flowing about with $-signs, that this somehow means that government is, ipso-facto, self-financing; i.e., that the government is not “revenue constrained”. It depends on the legal structure that guides government finance.
    Again, it is not correct.
    I suggest a read of a textbook on government finance.

    Given my study of the history of money and monetary systems, I do wish you could add to my understanding. I’ve read over several times Hammonds epic on “Banks and Politics in America from the Revolution to the Civil War”. And more recently monetary historian Stephen Zarlenga’s , “The Lost Science of Money”, which has several informative Chapters on that period, some of which correct the errors you learn from the Fed.

    Robert, I never purposely avoid a question. I wish you would have simply said – HERE is what Joe failed to address.

    Was it the matter of the Delegation of Congressional Authority with regard to the issuing power contained in Article 1, Section 5 Clause 8 ?

    Because, here I must be circumspect. I actually believe – not making the claim, but I believe – that the delegation of money-creation power from the Congress to the Federal Reserve System was not legal – because the Fed is a private institution, and the legal delegation doctrine established through Court decisions AND the Administrative Procedures Act say that the Congress can only LEGALLY delegate to either the Executive Branch or an administrative agency that is part of and under the control of the government.
    But THAT is a separate matter.
    I cannot sue the Fed and the Congress.

    Having said that, I don’t understand what “delegation of power” issue we are discussing that I did not address.
    I tried to point out that the Federal Reserve Act effectively transfers the power to create ALL of the nation’s money, as we describe it in these conversations, notably M-1, to the Fed member banks.
    It has been done.
    The “delegation” is complete and in force.

    Of course, as I have said many times, the POWER and the RIGHT to issue a sovereign nation’s currency rests with its government. And that government can, at any time, choose to reverse that delegation of money-creation powers by Amendment to the Fed Act, all as contained in the Kucinich Bill.

    Sorry if anything appears either irresponsible or, as you say, negligent, on my part.
    It is not intended.

    Greener pastures ahead, let’s hope.
    As in Greenbacks.

    For the Money System Common

    Reply

    WARREN MOSLER Reply:

    “I tried to point out that the Federal Reserve Act effectively transfers the power to create ALL of the nation’s money, as we describe it in these conversations, notably M-1, to the Fed member banks.”

    That’s because you/others define ‘money’ as bank liabilities.

    What makes banks different is primarily that their liabilities/deposits are FDIC insured,
    and, to a lesser extent, that their liabilities/deposits can be used to pay taxes.
    and along with that comes the necessity of government regulation, which is necessarily a work in progress.

    GE makes loans in the tens of billions, and they create liabilities called GE commercial paper,
    which trade in the wholesale markets much like bank liabilities. Sometimes even at lower yields than bank liabilities.
    But GE commercial paper is not FDIC insured, and they do not issue them in small enough denominations for most to count them as ‘money’ yet the Fed has included them in some of its ‘M’s’ over the years, which has caused a number of academics to include commercial paper as ‘money’. But they are not FDIC insured, and GE is subject to the odd liquidity crisis, so GE credit is not a bank. (they did recently get a banking license, but that’s a separate corp. and different matter)

    But my point, to your point, is why does the ‘power’ to create a liability academics define as ‘money’ critical to anything outside of academia?

    What exactly are you trying to ‘take away from banks’?
    The govt. doesn’t ‘give’ anything to banks that they ‘loan out’- they don’t ‘get reserves from the govt that they loan out’
    Anyone can make loans without any ‘power’ from government.
    And those loans will likewise result in liabilities an academic could define as ‘money’
    And those liabilities might have further use in exchange.
    So what?
    Do you not want any private sector entity to be able to make loans of any kind?
    Do you want only govt. to make loans and not banks or anyone else?

    The K proposal features a 100% reserve requirement which does nothing but alter the bank’s return on equity for a given capital requirement. It doesn’t restrict bank lending.
    At best k has confused reserves with capital, but more likely he’s been snowed by proponents who’ve stumbled across rhetoric that’s effective in raising funds and mobilizing support from people who don’t know any better.

    Robert Rice Reply:

    @joe bongiovanni,

    Fair enough Joe, let’s see if we can work toward the unity of mind it is in our individual interest to share.

    So, to be clear, Robert, the First Bank of the United States was a PRIVATE bank, and I PROMISE you that they gave NO MONEY to the government – for any reason.

    Whether the country’s first bank was private or not wasn’t the issue. The reason I appealed to these sources was to give you evidence the government was issuing currency, both before and after the ratification of the Constitution (i.e., within the context of the country’s inception). Can we agree on this as a historical fact? If so, is it not reasonable to infer the government was a currency issuer in those times?

    Again , none of this has anything to do with anything I said.

    You indicated you believed the government was a currency user at the time of its inception. The references above demonstrate otherwise. How is this not germane?

    It would be incorrect, Robert, to think that just because ANY government might create Bills and Coins for the national economy, or electrons flowing about with $-signs, that this somehow means that government is, ipso-facto, self-financing; i.e., that the government is not “revenue constrained”. It depends on the legal structure that guides government finance.

    So you believe the founders had a different reason than financing government spending when they granted themselves the authority to create money? What, pray tell, was their real motive?

    some of which correct the errors you learn from the Fed.

    And what exactly did the Fed write incorrectly?

    I actually believe – not making the claim, but I believe – that the delegation of money-creation power from the Congress to the Federal Reserve System was not legal – because the Fed is a private institution, and the legal delegation doctrine established through Court decisions AND the Administrative Procedures Act say that the Congress can only LEGALLY delegate to either the Executive Branch or an administrative agency that is part of and under the control of the government.

    If I recall correctly, Tom answered this point above. The Fed is a government agency. It has private member banks which purchase a quantity of stock as a membership fee, but it is itself a government agency. The Fed has a .gov website, for example (which it obviously would not have if it were not a government agency). That really should be sufficient, but the Fed specifically professes to be a government agency:

    “The Federal Reserve System is considered to be an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive branch of government. The System is, however, subject to oversight by the U.S. Congress. The Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government; therefore, the description of the System as “independent within the government” is more accurate.”

    http://www.federalreserve.gov/pf/pdf/pf_1.pdf#page=4 (see end of page 2 and beginning of page 3)

    It’s all government baby.

    I tried to point out that the Federal Reserve Act effectively transfers the power to create ALL of the nation’s money, as we describe it in these conversations, notably M-1, to the Fed member banks.
    It has been done.
    The “delegation” is complete and in force.

    Do you have a link for the specific Act you are referring to?

    Now, there are two points I would repeat here–and it is repetition, and why I made some of the comments about being fair, listening, repetition, etc. (which I only mention now for explanatory purposes):

    1. Delegation does not necessarily equal giving authority away. I gave you two examples. The law would have to explicitly indicate the authority was being handed over to another party. I highly doubt any law indicates this. But supposing there is one, this brings us to my second point:

    2. So what if there is? Such a law would be unconstitutional under Article 1, Section 8, Clause 5. The Federal government could ignore any subordinate law with just basis. Should someone sue, the SCOTUS would never rule the government had permanently given away its money creative, self-funding powers. There’s no way. The Federal government would just argue it was following the law with primacy, and they’d win.

    Anyhow, where’s this law you keep alluding to which is allegedly inconsistent with the Constitution? Can you please provide me with a link? Thanks.

    Tom Hickey Reply:

    @Robert Rice,

    RR: “So you believe the founders had a different reason than financing government spending when they granted themselves the authority to create money? What, pray tell, was their real motive?”

    This has a clear historical answer. The Constitution gave the currency issuance power to the federal government through the legislative powers enumerated in Article 1, section 8. It was Hamilton that wanted to created a central bank when the institutions of government were being developed using the Constitution as the rule over all other rules.

    One faction objected saying that this exceeded the powers enumerated in the Constitution. Hamilton countered that the Constitution implied all powers needed in exercise of enumerating powers. SCOTUS sided with Hamilton and the doctrine of implied powers became precedent rather than enumerated powers. We are still arguing over this even though it has been established virtually from the beginning.

    Exactly what motivated Hamilton to do this is a matter of debate among historians. But those on the other side of the argument that Alexander Hamilton are convinced that Hamilton, who was from New York, was in the pocket of the bankers, notably Robert Morris. Sound familiar?

    joe bongiovanni Reply:

    @robertrice,

    I must apologize as this discussion has really gotten a bit silly.

    I never said the government was revenue- constrained BEFORE inception of the Treasury department – HOW could it be – by definition?
    No Treasury Department = no revenue. Without a Treasury Department to establish accounts and pay the government Bills, there can be no claim of being revenue-constrained.
    That’s why I said all the Scrip and Continental talk was not relevant.

    The issue is one of since the establishment of the Treasury Department, so post-September 1789. After the Department was established by law in the First Congress, all payments were to made on the basis I provided earlier – only after the monies were received.

    At that time the government earned money on ownership of its shares in the First Bank. Neither emitting Bills of Credit nor coinage is creating money for paying Bills.

    Five years after the Treasury was established, the U.S, government was $6 Million in debt to the PRIVATE Bank of the United States. The government was well on its way to funding its operations via the issuance of debt. The government was revenue-constrained – THAT is why it issued the debts.

    We never coined a nickel and owed $6Million

    I believe the Founders granted the Congress the POWER to create money, or I wouldn’t be here. Both the ambiguous language and British money custom (commodity money) prevented the implementation of that power when Hamilton prevailed.
    Motive? I go by history, the facts and the law.

    If the Fed were a government agency, its employees would by in the union. The Board members are compensated, but the banking SYSTEM is private, including the Regional Fed Offices. All private employees.

    I’ve been reading FED publications for 40 years. Its opinion of itself has changed over time. Get hold of a Fed Purposes and Functions publication from the 60s or 70s.
    I hope you’re joking about the dot.gov .

    What I have a really hard time with, Robert, is any assertion that the power to create the nation’s money has NOT been effectively delegated to the private banks, and perhaps that the private banks do NOT create the nation’s money.
    The creation of money originates within the banking system. That is what endogenous money is all about.
    The Fed says so. Read Modern Money Mechanics.

    The sum is this. The Constitution gives the power to create the nation’s money to the sovereign people, acting through their Congress.

    The private bankers now HAVE that power. The Fed says so.
    It’s not my job to show the language of the delegation. It would be a waste of time and is also irrelevant. The proof is in the pudding.

    On your Point No 1 – Delegation DOES equal the transfer of the authority when the results are the proof.
    On your point No 2 – I NEVER said the delegation was permanent. You made that up. The delegation is whatever is in the law. I’m here because I want to reverse that delegation. You’ll never make any of these changes without it.
    Thanks.

    joe bongiovanni Reply:

    @warren mosler,

    “That’s because you/others define ‘money’ as bank liabilities.

    Others? I don’t know anyone who defines money as bank liabilities. At least I don’t hang out with any.

    “But my point, to your point, is why does the ‘power’ to create a liability academics define as ‘money’ critical to anything outside of academia?”

    My point? Where is my point?
    I know how banks operate. My library is full of books on money and banking.
    OK, let’s pretend, Warren. Let’s pretend that the creation of “money” is not the actual creation of the total purchasing power of the national economy, and the renting of that purchasing power to the American people, including their government. And, let’s pretend that it matters not who controls the creation of the nation’s purchasing power, and that it was NOT what we fought the War for Independence over – the right to issue and create and regulate the use of our own money?

    OK, we want the government’s power of money creation taken back from the banks.

    “Do you not want any private sector entity to be able to make loans of any kind?”

    The government grants to the banks the special governmental privilege to create the national purchasing power out of nothing. Anyone ELSE can only make loans of things they own, except bankers.

    “The K proposal features a 100% reserve requirement which does nothing but alter the bank’s return on equity for a given capital requirement. It doesn’t restrict bank lending.”

    The K proposal eliminates ANY reserve requirement, does NOT limit the bank’s return on equity and will undoubtedly REDUCE the bank’s capital requirements. It is not intended to limit bank lending. It is intended to promote bank lending – with real money.

    Nobody’s confused about reserves and capital.
    This is about the national money system of a modern monetary economy.
    We can follow the dots.

    Thanks.

    WARREN MOSLER Reply:

    the bank liabilities in question are also called bank deposits, which others define as ‘money’

    ok, my error, I thought K had 100% reserve requirements last time I read it.
    Must have been changed?
    I agree with 0 reserves, like Canada.

    Govt grants banks two key things- secure deposits/liabilites not dependent on markets, and, of lesser importance, bank deposits can be used for payment of taxes.

    Whether academics define bank deposits (aka bank liabilities) as ‘money’ is of no consequence.

    So how can bank lending not result in an increase in bank deposits (aka, ‘money’ by most)?

    Don’t all loans ‘create’ equal liabilites/deposits as a point of logic?

    Heck, when you eat at a restaurant an don’t pay until after you eat, your ‘tab’ is the liability that goes with your unpaid meal, which is the ‘loan’. There’s no getting around the fact that credit is necessarily two sided. Someone owes and someone is owed?
    Credit is evidenced by an asset and a liability.

    joe bongiovanni Reply:

    @warren mosler,

    Money is money.
    Debt is debt.

    It is true that in accounting for money, the money supply includes checking account bank deposits, which are a liability to the bank.
    But they never answer the question of the definition of money,

    The Kucinich Bill does have a section that ends fractional-reserve banking. It does not engage full-reserve banking.
    This is sometimes difficult to understand for those who are immersed in reserve-based banking. They do not understand the REAL money system – as it would exist under the Kucinich Bill.
    Reserves against WHAT?
    No reserves. Real money.
    Banks lend at will.
    No moral hazard.

    I’m really sorry that you’re incapable of differentiating the means-of-exchange money for the national economy from that which involves a transaction.

    There is no effort to limit transactions.
    There is merely an effort to assure adequate “means-of-exchange” money to achieve our GDP potential.
    Once the money exists it is up to commerce to shape the future.

    WARREN MOSLER Reply:

    it’s not about what ‘money’ is, it’s about what the dollar is, defining the thing the govt demands for payment of taxes.
    which is what the tax liabilities do.

    for all practical purposes there is no actual fractional reserve banking currently. so it’s ending something that functionally isn’t there. fractional reserve banking applies to fixed fx, not floating.

    i realize it’s not meant to limit transactions.

    we can currently assure adequate ‘means of exchange money to achieve our gdp potential’
    simply by adjusting our fiscal balance.

    have you read ‘soft currency economics’ on this website?

  6. Warren
    I can’t thank you enough for providing the link to the two articles on HR 2990 (The National Emergency Employment Defense Act of 2011), and on Congressman Kucinich’s work thereon, that were posted here at the Center.

    I admit the error of avoiding the Center in the past, and had never seen those two postings.

    Upon review, here’s my take.
    Yourself, Neil Wilson, Tom Hickey and Rodger Mitchell propound all sorts of evils contained in the Kucinich full-employment proposal – I believe all of them in error.

    One Ralph Musgrave, obviously interested and better informed than your readers about both monetary systems and political economics, in seemingly effortless corrections to the flaws presented, draws it all down to the quintessential truth about what MUST be public policy Number One.

    We really need to be clear and understand what the issues are we are discussing before we declare victory in the knowledge of money.

    Political Monetary Economics 101, according to (this) Joe
    Somebody is going to control the powers of issuance, valuation and use of the state money system. It is either going to be the state – the national government to whom the powers were granted in the Constitution – as we advocate on the public money side, or it is going to continue to be the private bankcorporations of the world, who create ALL of the world’s monies as a debt, repayable with interest that is never created, using not their ownership of the money lent, but the unique, corrupting privilege of issuing the nation’s purchasing power.

    I’m sorry to say that the more I study MMT, the more I become convinced of its own mythology, as opposed to its science. Even the most respected Bill Mitchell fosters MMT myths. Especially for one, the myth of the money multiplier myth.

    To which I commented on Bill’s Blog recently.
    http://bilbo.economicoutlook.net/blog/?p=1623&cpage=1#comment-24955

    The money-multiplier myth might have been an errant explanation by some uninformed neo-classical economists of how money is created, and the role of deposits and reserves in that creation, but the truth of those relations has been publicly known and clearly explicated by the Fed at least since BEFORE the abandonment in 1971 of the fairly-benign Bretton Woods “Gold-Bullion Exchange Standard” .

    I have enjoyed the dance between ’34 and ’71.
    I hope things are clear to your readers.
    Thanks.

    Reply

    WARREN MOSLER Reply:

    still waiting for your current proposals once ‘control’, whatever that means, has been changed to your liking.

    or is that all that has to be done, a change of control of some type, and the economy will return to full employment?

    Reply

    joe bongiovanni Reply:

    @WARREN MOSLER,

    Let’s begin by agreement on meeting the full-employment goal.
    Until everybody’s working, it’s all in.

    In order to pursue full-employment we need to change some of the present statutes regarding both the banking and currency system and government finance.
    At the FSTI I asked for the list that MMT would advance for legislative reform.
    I am still waiting for it. We can develop one here on the blog.

    The Kucinich Bill offers a legislative remedy by restoring economic democracy to the country. The Bill is based upon implementing Lincoln’s observations after going to the bankers in order to save the Union – that the government should create all the money that is needed by the government and for national commerce.

    Warren repeatedly disparages the Bill with cavalier disdain, but he offers no analysis.
    I am amazed that any MMT proponent has not fully read, and does not fully comprehend, the K-Bill.
    It definitely includes many of the premises that MMT is founded upon; those of monetary sovereignty coupled with state money(only, FOR REAL), and social progress achieved through the utilization of the monetary system as a public policy tool.

    I have asked many times and will again – what are the goals of MMT that cannot be achieved through the Kucininch Bill?

    Warren asks for institutional/policy alternatives to compare with his own.
    I gladly respond.
    What is not included in the Bill is my opinion.

    On Warren’s institutional proposals(Banks, FDIC, FED and Treasury)

    BANKS – Warren proposals have to do with lending and investment policies, many related to investment and shadow banking not traditionally covered by federal regulation.
    Under the Kucinich Bill, regulated banking would be pretty much limited to that of the commercial banking sector.
    While investment and shadow banks could continue to exist, they would no longer be able to create, or leverage with, $US-denominated monetary assets as that would become purvey of the government. The great reformation required on the balance sheets of the unregulated banking sector would soon be upon us.

    The major difference is that all commercial banks would be operating on a ‘real-money(monetized bank-credit) basis, similar to Fisher’s 100 Percent Money proposal.
    Risks associated with bank runs and moral hazard would disappear from the banking system. Banks would lend real money that they obtain from their depositors.

    Once we decide that banks would do banking, in extending the capital formation and investment trust function to any commercial bank, Warren’s list of rules regarding bank investments and other activities by US banks is exemplary.
    No change. All in there.

    FDIC – Sorry, given the avoidance of moral hazard through money reform, the role of the FDIC is almost non-existent — deposit-loss restoration that result from institutional fraud. Banks will suffer their losses; all lending risks are borne by the bank’s shareholders.

    The FED
    Warren’s proposals assume the continuance of private money-creation, and interest-rate based monetary policy actions. No problem that the government can lend unsecured – and zero need for a federal risk guarantee on Treasury defaults.
    We take back the money system.
    Not sure if loan security is covered in the Bill.

    Interest rates would be determined by the market. The government has changed to managing the quantity of money; the price of which is whatever the market will bear.
    The government can always add liquidity in the event of hoarding, etc.

    Transform the Fed into a publicly-owned central bank, under Treasury Department, keeping its supervisory and clearing functions, etc..
    The independent monetary authority ensures monetary quantities are adequate to achieve potential GDP(demand) and available for capital accumulation by investment trusts.
    The Fed would be a lender of last resort to ensure liquidity. No interest rate leverage would be available to Fed borrowers (no advantage to borrow from the Fed over other banks).

    There would be no ‘reserve’ function associated with Treasury-Fed-banking operations and there would be minimal bank-capital and regulation required, as the bulk of systemic risk has been eliminated. The economy would not be subject to bank lending levels.

    TREASURY:
    Cease all issuances of securities – Agreed.
    Cease purchase of Financial Assets – Agreed

    Other Considerations
    Warren supplements the institutional changes with two demand-management proposals.
    1. A single $150 Billion grant to the states, per-capita issued, as a form of “revenue” sharing. (or, non-revenue sharing?)

    Kucinich proposes an ANNUAL grant of 25 percent sharing of the federal government’s “New-money” creation. A Non-stagnated, non-debt-destructed $14Trillion economy and 3 percent growth potential is accommodated with $420 Billion of debt-free “circulating media” authorized in the federal budget for that purpose.
    Thus, est. some $105 Billion ANNUALLY to the states, again on a per-capita basis.

    The K-Bill enables funding of other special state projects for needed infrastructure improvements, all by debt-free issuances or zero percent loans, approved by Congress.

    2. A full payroll-tax holiday for FICA withholding, and the balances funded by the government for employers and employees. At 30 percent of government revenues, regardless of source, on a $4Trillion budget, that adds about $1.2 Trillion to the economy and would require an additional $1.2 Trillion of funding. With no more government borrowing, what is the source of the government’s funds to maintain the social insurance balances? Money being debt, and all.

    On Social Security Funding, leaving FICA as is, the Kucinich Bill proposes to simply fund any deficits of the account:

    SOCIAL SECURITY TRUST FUNDS. The Secretary …. shall submit to the Monetary Authority any requests to cover impending deficits in Social Security Trust Fund accounts.

    In addition, provision is made for funding educational growth:
    “to sufficiently provide for universal pre-kindergarten, fully funded State programs for elementary and secondary education and universal college at every 2-
    and 4-year public institution of higher learning and create a learning environment so that every child has an opportunity to reach their full educational potential.

    In addition, the Kucinich Bill’s calls for a one-time citizens dividend, with the amount to be determined by the Secretary. I hope it would not be less than Bush’s free $600 per capita, roughly $186 Billion

    Finally, the Bill caps all interest rates at 8 percent, and limits all fees and interest to the principal amount of the loan, to prevent specific compounding interest; mortgages excepted.

    On those points, this is how the Kucinich and Mosler(MMT?) policy initiatives compare.
    Thanks.

    Reply

    WARREN MOSLER Reply:

    I agree in general with your actual fiscal proposals.

    You do, however, misrepresent my banking and monetary reform proposals, which is indicative of your general lack of understanding of actual monetary operations logic. This is further confirmed by your banking, Fed, and FCIC proposals. The problem is the ignorance displayed with those proposals will cause them to be (rightfully) discredited by Fed and Tsy senior staffers with credible rebuttal that you all will not be able to credibly defend, because ‘they’ will be right and you will be ‘wrong’ operationally.

    And, unfortunately, when discredited operationally your fiscal proposals that I support will not get further consideration, because the implication is that your discredited proposals ‘open the door’ the fiscal proposals.

    My position is that ‘the door is already wide open’ for the fiscal proposals, and that they are not operationally dependent on anything else. That is, we could immediately, with no negative monetary/operational consequences, have a:

    Full FICA suspension and increase social security by raising the minimum benefit to, say, $1,500 per month.
    Distribute $150 billion to the state govs on a per capita basis
    Fund an $8/hr transition job for anyone willing and able to work.

    Further, I have proposed the Fed be ordered by Congress to permanently maintain a 0 interest rate policy simply by reducing interest on reserves to 0%, and Congress order the tsy to issue nothing longer than 3 month bills. Economically and for all practical purposes monetarily, this accomplishes most of what you are trying to accomplish.

    In fact, Congress is currently operationally free to deficit spend in any size it wants.
    And it is free to set any interest rate it wants.

    Furthermore, I also restrict banking much as you suggest, and maybe a bit more in my proposals.
    And I support full deposit insurance for reasons outlined as well.
    In fact, there is no other way to do it. Many have tried, all have failed, and for good reason.
    The liability side of banking is not the place for market discipline. Never has been, isn’t now.

    joe bongiovanni Reply:

    @joe bongiovanni,

    Gee Warren, I was just trying to be responsive to your call for monetary system and policy alternatives to what it is that you advocate, and I tried to use your 4-pager on this site for the template.

    You have made a number of claims about my comment. Please understand that I hope we can pursue those claims in order to prove, or perhaps disprove, your point – maybe in a new thread especially for that purpose. Based on your cavalier attitude, let’s have a go, shall we?

    1. I misrepresented your banking and monetary reform proposals, …..
    2. Probably because I lack an understanding of actual monetary operations logic.
    3. Which is confirmed by my banking, Fed, and FCIC proposals (which are contained in the Kucinich Bill).

    On those three:
    Here is the policy sheet I used.
    http://moslereconomics.com/wp-content/pdfs/Proposals.pdf

    Please say how I mis-represented them.

    On my ignorance, just to be clear, I love the way the modern monetary intelligencia are constantly evolving the terms, definitions and meanings they use.

    For instance here, “monetary operations logic”.
    I could just be glib, and correct, and say there is no logic to monetary operations – I thought that was what MMT was all about.

    With a library of books on money and banking, and regular searches of the BIS, IMF, Fed, FDIC, Central Bank and academic research sites, I have to admit that I never saw the term “monetary operations logic”.

    I just did a search at the Central Bank Research Hub and found no response.

    I am surprised that I never came across that term before in my effort to catch up on MMT.

    What research paper, textbook. economic or financial dictionary covers the subject of which I am accused of being ignorant?
    Because, I am a student of money, and I always want to know more.

    As I said, all the proposals I advanced were from the Kucinich Bill.

    You say they display almost unparalleled ignorance that would be rightly rebutted by senior Treasury or Fed officials. I’m not sure as to what you think they might rebut, but I promise you its true that every clause and phrase of the Kucinich Bill spent months in discussions among the affected agencies, including Treasury and Fed, and they have concurred on the legal and technical feasibility of each and every one of them.

    Nobody raised “monetary policy logic” by the way.

    What I really do like, Warren, is that we seem to agree on the socio-economic results we are pursuing. We disagree on how to get there.

    You say that the K-Bill is seriously flawed, never saying how.
    You claim that your options are viable right now.
    Not operationally viable, but legally, technically and functionally – that is “actually” viable, actually do-able.
    I say they are not. Not even close.

    On the K-Bill, it was written by Congress’ primary legislative draft-person on the subject of money, banking and government finance. So as to the legality and technical feasibility of the reform proposals, read my lips – we’re all in.

    On the matter of vetting before Treasury and Fed officials, shall we?
    How about a counterpoint proposal venue?
    Here’s MMT. Here’s Kucinich.
    There’s a fork in the road ahead, as Neil Young says.
    Let’s look as far down each as we possibly can and see which one looks better.

    I feel a NEED to make a point here.
    The Kucinich Bill is modeled on two historic reform proposals by academic economists.
    One was the 1933 Chicago Plan for Monetary Reform which was presented to FDR and which was debated in both Houses of Congress as The Monetary Reform Act of 1934.
    The other was the 1939 Program for Monetary Reform, jointly authored by six prominent economists including Fisher, Graham and Douglas(Yale, Princeton, Chicago) . The 1939 Program reform proposal was publicly supported by over 400 economists when it was presented. (Check it out at SSRN under Dr. Ronnie J. Phillips.)
    From your rather arrogant dismissal, I must presume that you know more about the needed reforms to the money system than any of them, or all of them combined.

    This is where we’re at.
    Each of us has presented reform proposals aimed at achieving greater economic democracy and social justice.
    Mine – HR 2990 – is a new version of old efforts by progressive economists that goes directly to the structure of the monetary system.
    Warren claims “operational” superiority, using accounting identities and technological utility – immediately available.
    I’m generally available if you know who to call.

    Thanks.

    WARREN MOSLER Reply:

    for one thing you don’t understand a permanent 0 rate policy is functionally equiv to ‘debt free money’ ‘greenbacks’ etc.
    call that monetary operations logic, if you will.

    I don’t have time or inclination to go on the defensive regarding what you said i said about anything.

    The writings of the group you modeled after was all about fixed exchange rates, from what I’ve read of them over the years.

    noticed this in the bill

    (5) GOVERNING PRINCIPLE OF MONETARY POLICY- The Monetary Authority shall pursue a monetary policy based on the governing principle that the supply of money in circulation should not become inflationary nor deflationary in and of itself, but will be sufficient to allow goods and services to move freely in trade in a balanced manner. The Monetary Authority shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

    Sounds a lot like quantity theory that misses the difference between gross and net financial assets, among other things I’ve already gone into in my writings. Also sounds like its trying to draw on the fixed fx writings of you group of past experts and put it in a floating fx context, which is an unworkable mix of metaphors.

    your bill exchanges fed reserve notes for the new ‘us money’ which misses the point.

    it says banks can only lend the new ‘US money’ which sounds like a no leverage system. that can be replicated by a 100% capital requirement with today’s banks, for example, under current institutional structure.
    again, ‘monetary operations logic’ concludes its functionally identical

    no time to go into the rest of the bill.

    but its entirely unnecessary in addition to large parts that are unworkable.
    you stated goals can be readily accomplished with current institutional arrangements.
    and more so.

  7. I guess this comment format works for some, but ……

    To LetsGetItDone

    You offer two references as proof that the government does not NEED to borrow and tax in order to funds its operations. They’re both the $6Trillion Coin.

    If you read Corrente, his emphasis is on using that money to pay off existing debt, so that there is headroom for MORE DEBT – more borrowing – to be issued.
    We should just abolish the debt-ceiling, I thought we all agreed.

    There IS the potential for money-issuance without debt using coin seigniorage, BUT, and this is a big BUT, the $6Trillion Coin violates Warren and Randy’s (through Innis) basic premise about money – that it is always, and must be, DEBT.

    It is because they fail to take the monetary SYSTEM route – the legal money route – that they ignore the means-of-exchange primary function of sovereign money that leads to their misunderstandings.
    People should ead Soddy’s The Role of Money for a fuller understanding.

    Here is AMI’s critique of Innis, for reference:
    http://www.monetary.org/critique-of-innes/2012/06

    COINS are issued into circulation DEBT-FREE.
    As were the Greenbacks.
    Why not issue electronic Greenbacks to fund the deficit as part of the budgeting process?

    There is no problem with the concept of debt-free (at issuance) money.
    That’s why Lincoln called the money-issuing power “the supreme prerogative” of a sovereign government.

    Thanks.

    Reply

    LetsGetItDone Reply:

    @joe bongiovanni, Joe B, I really appreciate your efforts, but I think you’re a bit confused. First, I am the letsgetitdone at Correntewire. I’m also Joe Firestone one of the organizers of the 2010 FS conference. I was the guy who handed you the mike quite a few times. Second, I’m not advocating a $6 T coin, I’m proposing a $60 T coin to pay off all the debt subject to the limit and also to pay for all new “deficit spending,” and also demonstrate to people that no more debt instruments need to be issued ever again, as long as the 1996 law isn’t repealed, and even if it is the $60 T coin should pay for 15 years of deficit spending at least.

    And third, the platinum coin doesn’t conflict with the notion that all money is debt at all. Since both Warren and Randy point out that high-powered money IS a debt of the Federal Government in the precise sense that the Government is obligated to accept its own money in payment of taxes. No doubt reserves and other high-powered money is different than TSY securities in certain ways since the Government owes no interest on it ad there is also no term on it. But it still represents a Government financial obligation and in that sense is “debt.”

    Reply

    joe bongiovanni Reply:

    @LetsGetItDone,

    Joe,

    Thanks for appreciating my efforts, however confused.
    On the first part, thanks for the mike at the FSTI.
    Most of my questions remain unanswered.

    Second – the denomination of the coin is meaningless – only its intent and impacts both on society and on the monetary economic discussion.
    In that regard, I can only hope you understand my agreement that Congress should be able to do the things you claim possible with “coinage”; i.e. pay off the debt and supply real money, i.e. WITHOUT DEBT, where “deficit spending” is necessary today.
    What I cannot understand is why MMT does not accept that this is EXACTLY what the maligned Kucinich Bill proposes to do.
    Nor do I understand why “coinage” advocates would not expect an IMMEDIATE amendment by Republicans, to the 1996 Act, prior to TGA deposit, placing a limit at $1,000. Or whatever.

    And third, here I disagree completely.
    Forget about the debt-repayment, it confounds the discussion of ‘money as debt’.
    And limit the creation of “coinage” money to the deficit-balance that is needed for the economy every year to achieve GDP potential (Again, exactly what the Kucinich Bill does).

    Knowing the Treasury’s methods for introducing coinage into “circulation”, we need a nominal $500B coin every year.
    It is minted without debt.
    It takes the train to FRBNY and is “deposited” in the TGA of the government.
    It exists immediately for payment for goods and services.
    It is debt-free-at-issuance money.
    It is money without debt.
    It is, just as importantly, permanent debt-free money.
    There will never be any debt associated with the existence of that money until it is used in exchange – in commerce.

    Then of course, we get captured by double-entry bookkeeping, and depending upon who’s “book” it is, it is either a credit or a debit, but it, in and of itself, never represents any debt to anyone.

    It CAN be saved and loaned to someone.
    But, due to its debt-free-issuance, it is not extinguished as money when the loan is repaid.
    The loan money came from somewhere in the first place.
    From the coinage, or from the Kucinich debt-free issuance, which is exactly the same.

    Both Randy and Warren, all based on Innis, are wrong.
    That’s why I linked Zarlenga’s criticism of Innis.
    The significance of state money TODAY as the means for payment and collection of taxes is a secondary matter to that of whether legal money IS debt.
    State money is about the legal concepts of the sovereign state.
    We are a state.
    We have a national money system.
    It works for all of us.
    We are legally protected in commerce by using it.
    AND we pay our taxes with it.
    So what?
    Thanks.

    Reply

    Gary Reply:

    @joe bongiovanni,

    “we need a nominal $500B coin every year.
    It is minted without debt.

    It is money without debt.
    It is, just as importantly, permanent debt-free money.
    There will never be any debt associated with the existence of that money until it is used in exchange – in commerce.”

    The moment government says that this coin is money and uses it as money – it becomes government debt. This is because government can buy anything with it only because it promises to accept that money back as taxes or fines, etc.

    The issue is not government debt as such – the issue is who pays the taxes that gives the value to the money and how much taxes.

    Anther issue is – what government spends its money on.

    And finally – the interest on government debt does not matter – as government can always pay it back (in case of money issuing government, which in your coin example it certainly is). It does matter who gets the interest – and that is part of the above question of where government spends its money. So, from that point of view spending money on paying interest for the savers is rather useless (in my opinion).

    WARREN MOSLER Reply:

    well stated, thanks

    LetsGetItDone Reply:

    @joe bongiovanni, You said:

    “Second – the denomination of the coin is meaningless – only its intent and impacts both on society and on the monetary economic discussion.”

    No, Joe! The denomination of the coin is politically significant. If an unappropriated and unobligated sum of $44 T is sitting in the TGA, then that totally changes the political situation, without any other changes in the system. I, like you, would like to see more far-reaching changes to the banking system. And I see no problem with pushing for those. But the best short-term gain that we can get, because it takes persuading only one person is a high value platinum coin filling the public purse. So, I think that is step 1. After it is done, I will then be all for pushing a more complete and comprehensive solution to the present fiscal/political situation. But right now, the size of the coin is very, very important if we want to save the safety net.

    In that regard, I can only hope you understand my agreement that Congress should be able to do the things you claim possible with “coinage”; i.e. pay off the debt and supply real money, i.e. WITHOUT DEBT, where “deficit spending” is necessary today.

    I do understand it and I have always basically agreed with it. But it is an argument calling for something that neither this nor the next Congress will legislate. So, that’s why, for the time being I focus on the coin. If the President issues it, then the truth of your argument will be more compelling to people, because government powers will have been demonstrated for all to see.

    What I cannot understand is why MMT does not accept that this is EXACTLY what the maligned Kucinich Bill proposes to do.
    Nor do I understand why “coinage” advocates would not expect an IMMEDIATE amendment by Republicans, to the 1996 Act, prior to TGA deposit, placing a limit at $1,000. Or whatever.

    I understand that the Kucinich bill is about producing what you call debt-free money, and I think I favor the bill. I say “think” because I haven’t read it thoroughly and thought about it, due to my judgment that it could never get even 50 votes in either this or the next House of Representatives and not even 10 votes in the Senate. The bill should be advocated, but getting it done is very long-term work.

    As far as an “immediate amendment” is concerned. Doing that isn’t politically practical once the President has done the $60 T thing. The reasons why are 1) the amendment can’t be immediate enough to stop the move, since the President has 10 days to sign any new legislation, and the TGA, would be filled with the $60 T within two days without the president even having to inform Congress until the deposit was credited; and 2) The Rs would be very unlikely to get such an amendment through Congress since it would be filibustered in the Senate, and the President has enough votes there to make sure that a cloture vote would fail. He may even have enough votes to stop passage outright, if the nation is faced with that debt ceiling default situation again before he does it.

    And third, here I disagree completely.
    Forget about the debt-repayment, it confounds the discussion of ‘money as debt’. And limit the creation of “coinage” money to the deficit-balance that is needed for the economy every year to achieve GDP potential (Again, exactly what the Kucinich Bill does).”

    I disagree with this first because debts already incurred must be paid, and second, because paying these debts with PPCS profits is paying for them with “debt free” money, making it a demonstration that 1) government can create “debt-free” money and 2) that it can use it to eliminate the public debt.

    Also, third, I disagree with it because I don’t want to limit the creation of money to the “deficit” in each year. That will end up leaving to Congress the annual decision to cover the “deficit” year-by-year, and gives the conservatives an opportunity to play games every year which may force the Treasury to start issuing debt again to cover deficits. (That especially may happen because as soon as the Government stops issuing debt instruments, the banks will immediately start screaming like the proverbial stuck pigs for new debt so that they have a risk-free investment vehicle. This happened in Australia at the beginning of the 80s when they started running surpluses and didn’t issue debt, and had the banks scream bloody murder getting the government to cave and issue debt while it ran surpluses.)

    In contrast, if that $60 T coin gets minted, the whole issue of “funding” deficit spending will be off the table for at least 15 years, giving us plenty of time to build support for changing the banking system, and also plenty of time to re-build the nation before the assholes can bring up the “we’re running out of money” thing again to block progressive legislation.

    WARREN MOSLER Reply:

    I’ve seen nothing constructive in the K bill

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