[jeffkrol]

–Monetary Sovereignty: The key to understanding economics Monetary Sovereignty – Mitchell

The unlimited ability to create money is an uncontested fact for monetarily sovereign nations, although at any given time, a nation may or may not choose to use that ability. Economic growth, inflation, deflation, recession, depression and social factors may influence a nation’s decision to create money. A monetarily sovereign nation even can choose to declare bankruptcy, for various reasons, but this would be an arbitrary matter of choice.

Debt hawks do not (or do not wish to) understand the implications of monetary sovereignty. You never will see that term on such debt hawk web sites as The Committee for a Responsible Federal Budget” or the Concord Coalition. If you go to those sites you will see federal debt described in the same terms as personal debt – as an unsustainable obligation. While debt can be unsustainable for you, me, businesses, states, cities, counties and the monetarily non-sovereign EU nations, no debt is unsustainable for the U.S. government.

........
So any "economic disaster" we create will be our own doing............

The financial problems of Portugal, Ireland, Italy, Greece and Spain (The PIIGS), are due not to deficits and debt. They are due to these nations having surrendered their monetary sovereignty, thus preventing them from serving their debt by creating money.

Some debt hawks say that a Debt/GDP ratio exceeding 100% puts a nation on the brink of bankruptcy. Yet today, Japan has a debt/GDP ratio approaching 200%, and this monetarily sovereign nation has absolutely no difficulty servicing its debt. The debt hawks, as usual, having learned nothing from this, continue to wail about the meaningless debt/GDP ratio.

Monetarily sovereign nations need neither to tax nor to borrow, but may choose to do so for many reasons unrelated to financial need. The spending by monetarily sovereign nations is constrained only by inflation,, but since the 1971 end of the gold standard, there has been no relationship between federal deficit spending and inflation. Today, despite massive stimulus spending, we fight deflation.

This is not to say that at some level, deficit spending could cause inflation. If the government were to give every American $1 trillion, I am confident we would have inflation. But we are nowhere near that point. (Debt hawks love to propose extreme circumstances, like the $1 trillion gift to each American, as “proof” deficit spending is unsustainable. But that is no more proof than the other extreme circumstance — tax every American $1 trillion — demonstrates that taxes are unsustainable.

FICA does not pay for Social Security benefits. FICA could (and should) be reduced to zero, and benefits could be tripled, and this would not affect by even one penny the federal government’s ability to pay benefits.

Maybe we need to dust off those pitch forks and torches........
The gov. misguided policies (across the entire political spectrum) are causing more pain then necessary....... maybe that's what makes it so hard to see.

Politicians do not seem to understand monetary sovereignty. The press does not seem to understand monetary sovereignty. Yet, no one intelligently can discuss national deficits and debt without understanding the implications of monetarily sovereignty. The concept is the basis for all modern economics. Monetary Sovereignty is to economics as arithmetic is to mathematics.

All debt hawk objections revolve around just two questions:
1. Does the federal government have the power to create unlimited dollars? Clearly, it has this power.
2. Does creating money cause inflation? It can, but despite an astounding 3,500% increase in debt since 1971, we are nowhere near the point where deficits cause inflation. As of this writing, we are fighting deflation.

Maybe it's religious in nature?????????

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.

I wrote to one of my congressperson... the other one I suspect couldn't punch through a paper bag. I suggest that anyone here that is concerned do the same.

---

Last edited by jeffkrol; 01-21-2011 at 06:57 AM.

[GeneV]

Some of this is similar to the article about the Euro I posted a while back.

[newarts]

All debt hawk objections revolve around just two questions:
...
2. Does creating money cause inflation? It can, but despite an astounding 3,500% increase in debt since 1971, we are nowhere near the point where deficits cause inflation. As of this writing, we are fighting deflation.

These points are inconsistent; it is not the existence of deficits that cause inflationary pressure as much as it is paying them off by increasing money supply. We have not yet paid off the deficit by creating money; I suspect that if the entire deficit were to be wiped out tomorrow by a massive creation of money, we'd see some real inflationary pressure.

This is not to say that at some level, deficit spending could cause inflation. If the government were to give every American $1 trillion, I am confident we would have inflation. But we are nowhere near that point. (Debt hawks love to propose extreme circumstances, like the $1 trillion gift to each American, as “proof” deficit spending is unsustainable. But that is no more proof than the other extreme circumstance — tax every American $1 trillion — demonstrates that taxes are unsustainable.

The above quote indicates there is (at least one) balancing point between too much taxation and too much "monetary gifting". But which side are we on and how fast is the response to a fluctuation?

Dave

[jeffkrol]

Some of this is similar to the article about the Euro I posted a while back.

you know it's just become pretty frustrating to me personally that it seems Bush/Cheny were really correct in "deficits don't matter" yet went and just threw all that money overseas when it could have just as easily been spent here with MUCH BETTER economic results.. Now Obama and the entire current senate are 100% wrong. apparently NONE of the philosophies are anywhere near on target.
I defended the bank stimulus (which was only partially correct) and watched as NONE really went to the "little people" (which it REALLY should of) because we as a people would revolt that some got "free homes" (ie mortgage relief, gov jobs) while we pay our own way. And the banks continue to not lend and make things worse. Yes it seems to all boil down to perception and each individuals feelings of what is "fair".
Sad, a country that did such great things has now reduced itself to PRETEND it can't even pay it's own bill to itself..........

[newarts]

The financial problems of Portugal, Ireland, Italy, Greece and Spain (The PIIGS), are due not to deficits and debt. They are due to these nations having surrendered their monetary sovereignty, thus preventing them from serving their debt by creating money.

Paul Krugman (no economic slouch) has recently implied that the bailout of the "PIIGS" exemplifies why the entire future of the Euro and consequently Eurozone is at risk due to the moral hazards and practicalities involved. Not unlike what our laissez-faire bailout of the "too big to fail's" has done to our financial system?

[GeneV]

Paul Krugman (no economic slouch) has recently pointed out that the bailout of the "PIIGS" may put the entire future of the Euro and consequently Eurozone at risk due to the moral hazards involved. Not unlike our laissez-faire bailout of the "too big to fail's" has done to our financial system?

Yes. That was in the lengthy article on the Euro to which I referred in the earlier thread.

[skyredoubt]

I believe Rodger Malcolm Mitchell is on the extreme side even relative to the MMT crowd. I haven't gotten my head around his arguments yet, but he parts ways with MMTers in that he doesn't believe taxes are what creates demand for the currency in the first place and wants to eliminate taxes altogether and fight inflation with interest rates.

These points are inconsistent; it is not the existence of deficits that cause inflationary pressure as much as it is paying them off by increasing money supply. We have not yet paid off the deficit by creating money; I suspect that if the entire deficit were to be wiped out tomorrow by a massive creation of money, we'd see some real inflationary pressure.

Dave, deficit is the difference between spending and taxation in any given period. Debt is the cumulative deficit over the years. This is a result of the self-imposed constraint that the fiat regimes such as ours placed on themselves, namely, that deficits must be funded by issuing debt. That is to say, the Treasury cannot simply have an overdraft at the Fed, it has to sell Tsys to cover that. Operationally, this is not necessary, as Fed and Treasury are both part of the US govt. So, this is a political constraint that in the end doesn't really change much, besides creating steady income for bond traders. The reason it doesn't change much is that with the Treasury selling debt, the Fed Funds rate moves away from the target decided by the Fed (EDIT: more supply of US Tsys = drop in bank reserves = increase in the Fed Funds Rate), so, the Fed needs to drain those Tsys back to hit its target rate, so, it adds reserves to the system, which is just money creation. So, instead of the Treasury creating the money in the first place, we jump through hoops and end up in exactly the same place.
Now, you could wipe out entire debt tomorrow and not have any inflation. Why? Because bonds never constrained anybody's spending. People holding US bonds don't spend money now because it is their preference. It is like you having money in a savings account (US bonds) vs. a checking account (US coins/cash and bank reserves): do you feel like this prevents you from spending money? Bonds can be even more inflationary than reserves since they can serve as collateral for various loans and also carry interest (check out this post:New Economic Perspectives: What If the Government Just Prints Money?)
So, what would people holding US bonds today do if they were paid off? They'd have to move their money into some other interest bearing instruments.

---

Last edited by skyredoubt; 01-21-2011 at 09:55 AM.

[skyredoubt]

From:
The Center of the Universe Soft Currency Economics

The Myth of Debt Monetization

The subject of debt monetization frequently enters discussions of monetary policy. Debt monetization is usually referred to as a process whereby the Fed buys government bonds directly from the Treasury. In other words, the federal government borrows money from the Central Bank rather than the public. Debt monetization is the process usually implied when a government is said to be printing money. Debt monetization, all else equal, is said to increase the money supply and can lead to severe inflation. However, fear of debt monetization is unfounded, since the Federal Reserve does not even have the option to monetize any of the outstanding federal debt or newly issued federal debt. As long as the Fed has a mandate to maintain a target fed funds rate, the size of its purchases and sales of government debt are not discretionary. Once the Federal Reserve Board of Governors sets a fed funds rate, the Fed’s portfolio of government securities changes only because of the transactions that are required to support the funds rate. The Fed’s lack of control over the quantity of reserves underscores the impossibility of debt monetization. The Fed is unable to monetize the federal debt by purchasing government securities at will because to do so would cause the funds rate to fall to zero. If the Fed purchased securities directly from the Treasury and the Treasury then spent the money, it’s expenditures would be excess reserves in the banking system. The Fed would be forced to sell an equal amount of securities to support the fed funds target rate. The Fed would act only as an intermediary. The Fed would be buying securities from the Treasury and selling them to the public. No monetization would occur. To monetize means to convert to money. Gold used to be monetized when the government issued new gold certificates to purchase gold. In a broad sense, federal debt is money, and deficit spending is the process of monetizing whatever the government purchases. Monetizing does occur when the Fed buys foreign currency. Purchasing foreign currency converts, or monetizes, that currency to dollars. The Fed then offers U.S. Government securities for sale to offer the new dollars just added to the banking system a place to earn interest. This often misunderstood process is referred to as sterilization.

[skyredoubt]

The above quote indicates there is (at least one) balancing point between too much taxation and too much "monetary gifting". But which side are we on and how fast is the response to a fluctuation?
Dave

Definitely too much taxation right now (on the aggregate, not necessarily amound different strats of income.) When you have a lack of aggregate demand (consumption) as it is right now, you know that the private sector desires more net financial assets before it is confident enough to spend, so, this means that the deficit is too small (government deficit = private sector surplus, by definition). So, you have to either increase spending, reduce taxation or both.

[skyredoubt]

Check this out - Sidestepping the debt-ceiling limit:
President Obama Should Use Coin Seigniorage Now!

the Treasury, which the US Mint is part of, could order the mint to produce special very large face value Platinum coins (e.g. each coin might have a face value of $500 Billion or more), and to deposit those coins in the Mint's account at the Fed. The Fed could not refuse the coins or fail to credit their face value because they are legal tender. Since the Federal Reserve Banks (though not the Board of Governors and the FOMC) are legally in the private private sector, acceptance by them of a deposit in the form of the jumbo coins, resulting in their markup of the Mint's Account by the face value of the coins, from an accounting point of view, gets recorded as a sale of the coins to the private sector. The portion of the receipts from the "sale" representing the Mint's seigniorage profit, after the costs of minting the coins are subtracted, may then be periodically swept into the Treasury General Account, and would go into the category of "miscellaneous receipts" to the Treasury, lifting the Treasury's revenue total.

[mikemike]

Maybe it's religious in nature?????????

I think that is an interesting comparison. It boils down to free will on the government's part to not monetize runaway spending. I am an atheist and although I have no fear of eternal damnation or hopes of eternal salvation through my actions on earth as is the premise of christianity (or improving my lot in the next life like in hinduism), I do not behave in an immoral and sociopathic way and am altruistic at times despite having no higher power that I must answer to for my actions. An entity without monetary sovereignty must answer to a higher power while an entity with sovereignty does not, but that does not mean that the sovereign entity should behave in a sociopathic way. I would consider the approach you have been advocating to be sociopathic.

you know it's just become pretty frustrating to me personally that it seems Bush/Cheny were really correct in "deficits don't matter" yet went and just threw all that money overseas when it could have just as easily been spent here with MUCH BETTER economic results.. Now Obama and the entire current senate are 100% wrong. apparently NONE of the philosophies are anywhere near on target.
I defended the bank stimulus (which was only partially correct) and watched as NONE really went to the "little people" (which it REALLY should of) because we as a people would revolt that some got "free homes" (ie mortgage relief, gov jobs) while we pay our own way. And the banks continue to not lend and make things worse. Yes it seems to all boil down to perception and each individuals feelings of what is "fair".
Sad, a country that did such great things has now reduced itself to PRETEND it can't even pay it's own bill to itself.........

I think the effectiveness of our political leaders is a practical limitation upon any hopes any chartalists might have that the government will spend our economy out of it's woes. No government official from the highest office of the presidency to the lowest alderman in a village has been above conflicts of interests and it is extremely rare that that the subjects of there spending turn out being a good thing in the long run for humanity.

Sometimes you have to wonder if the manhattan project, the prototypical government superprogram, was never undertaken or successful if we would live in a world without nuclear weapons today. We would have still won europe and eventually have won the pacific even at the cost of more US lives due to conventional fighting.

Likewise with the interstate system it helped the rise of the car and urban sprawl and simultaneously led to the demise of streetcars and passenger railways. Without interstates, would we have a stronger rail and public transit system and live with a less carbon intensive infrastructure system.

Blank checks from the government creates these monsters in a matter of years then we spend generations trying to contain the consequences which have civilization ending potential.

[jeffkrol]

An entity without monetary sovereignty must answer to a higher power while an entity with sovereignty does not, but that does not mean that the sovereign entity should behave in a sociopathic way. I would consider the approach you have been advocating to be sociopathic.

And I consider the needless suffering (lets just take health ins) of millions due to unwarranted financial fears to be sociopathic.. guess that's were the line gets drawn..

Sometimes you have to wonder if the manhattan project, the prototypical government superprogram, was never undertaken or successful if we would live in a world without nuclear weapons today. We would have still won europe and eventually have won the pacific even at the cost of more US lives due to conventional fighting.

Likewise with the interstate system it helped the rise of the car and urban sprawl and simultaneously led to the demise of streetcars and passenger railways. Without interstates, would we have a stronger rail and public transit system and live with a less carbon intensive infrastructure system.

Blank checks from the government creates these monsters in a matter of years then we spend generations trying to contain the consequences which have civilization ending potential.

Actually interesting points, make thousands more suffer for fear of "future" possibilities... though the threat is real, and even w/ out nukes "bunker busters", bio weapons ect. would still exist and there is the MAD philosophy that did prevent anyone from using them again...
as to "interstates" which real purpose was to transport militias and heavy machinery ie tanks, to any one part of this country fast and eficiently (they had to be designed to not crumble under the heavies tank treads) was a major economic boon to the US of A......
I think your statements prove your conclusions invalid.........
My greatest knock on the nukes is 1)we should have done a non-civilian first test in the eyes of the Japanese. 2)second one was unnecessary.

Blank checks from the government creates these monsters in a matter of years then we spend generations trying to contain the consequences which have civilization ending potential

We will spend a lot more time cleaning up industries "messes" then the govs.......
how's love canal doing... pick a toxic supersite..
Feel lucky Chernobyl wasn't a private corp........
Superfund Sites Where You Live | Superfund | US EPA
Ten Most Polluted Places Named

Men search for metal at an abandoned lead mine in Kabwe, Zambia, the country's second largest city, in this undated photo. (See a map of Zambia.)

Decades of unregulated lead mining have led to widespread poisoning in residents exposed to soil and water.

The New York-based Blacksmith Institute added the city to its list of the ten most polluted places for 2007.

Blood lead levels in children, who often bathe in contaminated water and play in the soil, are high enough to be potentially fatal, the institute reported on its Web site.

Although a local nonprofit educates families about avoiding lead exposure, entire communities may have to relocate, the institute said.

Workers dump waste at Vapi, a town in western India that marks the southern end of the country's "Golden Corridor"a 400-kilometer (245-mile) stretch of industrial sites that manufacture petrochemicals, pesticides, dyes, paints, and fertilizers. (See a map of India.)

A survey by the Indian government revealed that the sites lack a proper system for disposing of industrial waste, which often contains high levels of heavy metals and cyanide, among other contaminants.

A new list issued by the nonprofit Blacksmith Institute places Vapi in the top ten of the most polluted regions in the world.

Vapi's distance from sources of clean water has forced residents to consume the town's contaminated water, the institute said.

As a result, incidences of respiratory diseases, carcinoma, skin and throat cancers, birth defects, and infertility are high in Vapi, the nonprofit added.

Coming to a county near you because our gov. is "broke"...........

Untreated sewage and mercury-contaminated sludge flow into a water system at Sumgayit, Azerbaijan, in this undated photo. (See a map of Azerbaijan.)

A major industrial center of the former Soviet Union and erstwhile home to more than 40 chemical factories, Sumagayit was recently named one of the ten most polluted cities in the world by the nonprofit Blacksmith Institute.

At their peak of production, the town's factories released as much as 120,000 tons of harmful emissions annually, exposing workers and residents to high levels of contaminants, the institute said.

A study conducted by the Azerbaijani government and the UN revealed that cancer rates in Sumgayit are 22 to 51 percent higher than in rest of the country.

Coming to a county near you because our gov. is "broke"...........

The report finds that air pollution hovers at unhealthy levels in almost every major city, threatening people’s ability to breathe and placing lives at risk. Some of the biggest sources of air pollution, including dirty power plants, dirty diesel engines and ocean-going vessels, also worsen global warming.

Many cities, like Los Angeles, New York, Atlanta, Charlotte, Philadelphia, Washington, DC and Baltimore have made considerable improvements in their air quality over the past decade. People living in some of these cities however, are breathing even dirtier air than what was reported in the Lung Association’s previous report. Only one city, Fargo, North Dakota, ranked among the cleanest in all three air pollution categories covered by the research.

Sixteen cities making this year’s 25 most ozone-polluted list experienced worsened ozone (smog) problems than last year. Some 58 per cent of people in the United States live in counties with recorded unhealthy levels of ozone air pollution, measured against the tighter standard in effect since March 2008. The new standard showed that unhealthy ozone levels are more widespread and more severe than previously recognized. The report’s review of the past 10 years identified consistent improvements in ozone in some cities, most notably in Los Angeles, which has long been recognized for its serious ozone problem. By contrast, two cities, Dallas-Ft. Worth and Las Vegas, have higher ozone levels than 10 years ago.

Ozone is the most widespread form of air pollution. When inhaled, ozone irritates the lungs, resulting in something like a bad sunburn. The health effects of breathing ozone pollution can be immediate. Ozone can cause wheezing, coughing and asthma attacks. Breathing ozone pollution can even shorten lives.

Emerging research has redefined the severity and immediate health impacts of particle pollution and ozone, as well as an expanded definition of specific groups at great risk. New data show that women in their 50’s may be particularly threatened by air pollution and that diesel truck drivers and dockworkers who are forced to breathe exhaust on the job may face a greater risk of developing lung cancer or chronic obstructive pulmonary disease. California researchers have tripled their estimate of the number of people that particle pollution kills each year in their state.

Low income people and some racial and ethnic groups often face greater risk from pollutants. Pollution sources like factories and power plants may be closer to their homes. Many live near areas with heavy highway traffic or have poor access to health care, which makes them even more vulnerable. Some racial and ethnic groups have a higher prevalence of diseases like asthma or diabetes, which compounds the ill effects of air pollution for these groups.

http://www.citymayors.com/environment/polluted_uscities.html

[skyredoubt]

No government official from the highest office of the presidency to the lowest alderman in a village has been above conflicts of interests and it is extremely rare that that the subjects of there spending turn out being a good thing in the long run for humanity.

What you say applies not only to government spending but to any investment. We cannot foresee all the consequences of our actions. As Niels Bohr once said "Predictions are hard, especially about future." So, if you want to make it look like the reasons for our evils come from the fact that spending was done by government, then you'd need much more convincing set of data to show that, statistically, government is indeed worse than private sector, not to mention that there are some projects that the private sector would never take on, either because it simply cannot or because the ROE is too uncertain, intangible (public good) or in the too distant future.
The internet we are using for this back and forth came about because of government spending. Most research in any area is done with government funds. Etc.
Yes, there are conflicts of interests.This is a known and necessary evil that doesn't invalidate the need for government intervention when and where it is needed.

[mikemike]

What you say applies not only to government spending but to any investment. We cannot foresee all the consequences of our actions.

But as you have pointed out the ability for government to spend on a bad project is not constrained by the finite monetary resources other individuals and organizations have. This allows a government project to go from half baked good idea pandora's recipe box to dinner on the table way too fast.

There have been some good ones too, like the space program, but there are some really bad ones out there in our history and I it seems like keeping restraints on how much government can spend in a given year is a good idea.

[skyredoubt]

But as you have pointed out the ability for government to spend on a bad project is not constrained by the finite monetary resources other individuals and organizations have. This allows a government project to go from half baked good idea pandora's recipe box to dinner on the table way too fast.
There have been some good ones too, like the space program, but there are some really bad ones out there in our history and I it seems like keeping restraints on how much government can spend in a given year is a good idea.

Sorry, Mike, what do you have Congress for? What is the appropriation process for? Exactly for the democratically elected representatives to decide on what the government should and should not spend! What MMT is saying that in the fiat currency regime the argument against spending cannot be "we cannot afford it" , because we obviously can (operationally). Your argument actually needs to convince the nation that such and such spending should not be done because it is bad for the public good. Any spending that is good for the public (at least to the best of our abilities as a nation to foresee) should be approved, because there is always money for good things.