[jeffkrol]

Oh and happy 4th.. someday sane people will run the US....................
–How God fights NASA

If you had the unlimited ability to create dollars, would you ask me for dollars? The U.S. government has that ability. So why does it ask you for dollars? Why does the U.S. ask China for dollars? Why do people worry the U.S. could run short of dollars? There are no facts to support these beliefs.
Yet, when I try to explain this to those who don’t understand Monetary Sovereignty, I am met not just with disbelief, but with active hostility, as though I had insulted someone’s baby.
The May 1, 2012 issue of Scientific American Magazine contained two, seemingly unrelated articles, that bear on this question. The first bemoans the fact that budget cuts have hamstrung NASA...........Translation: Science is suffering from federal budget cuts. Although we are a science magazine, we blindly accept the popular faith that taxes pay for federal spending, and budgets must be cut, so we have no counter argument to present to Congress and the President.

And then there is this article:

How Critical Thinkers Lose Their Faith in God
Religious belief drops when analytical thinking rises. Faith and intuition are intimately related.
By Daisy Grewal

[les3547]

Oh and happy 4th.. someday sane people will run the US....................
–How God fights NASA

Here's a question for you I've wanted to ask for some time but didn't ask to avoid appearing ignorant.

My negative reaction to printing money to pay our debts is due to being unable to see what secures such money. Money is after all an abstraction for goods and services we trade. So the way I think about it is as if we still bartered (i.e., no money). If I kept borrowing goods and services from people, I wouldn't be able to pay my debts until I'd accumulated enough g&s. And then, if I drew up vouchers to stand in for the goods and services I have available to repay, then the amount of vouchers should correspond to what I actually have.

I do understand that in an economy as large as the US, we have tremendous potential to produce, and so the way I've made sense of the print-more-money strategy is that we are going into debt to ourselves, but it is a kind of unsecured indebtedness. That's unlike if we borrow from another country (assuming they are not printing money just to pay bills) where their money is backed up by owed/stored goods and services.

Now, if we give our printed debt-currency to other countries, they will know it is based on goods and services we've yet to create, no one knows for sure if we will get back on our feet and sufficiently produce, and so it seems to me this money is asking others take a risk, which would be a reason to downgrade the value of the currency (I suppose one could look at that downgrade as a kind of "interest"). In my limited understanding, I also see how in an unproductive economy, printing debt money could be a path to hyperinflation.

I've assumed the negative reaction of experts to printing more money is something along the line of the reasons I gave. If so, how does monetary sovereignty solve or avoid the problem?

[patrick9]

someday sane people will run the US.

Not as long as insane vote

[wildman]

I'm a long way from being an economist but I will give it a shot:

Money is after all an abstraction for goods and services we trade.

I don't think so. Money is a medium of exchange and nothing more. I can either exchange my old DL camera body for a FA50 lens directly (barter) or failing to find a seller of a FA50 I can accept enough money for my DL to allow me to buy a FA50 when one is available on the market later on.

My negative reaction to printing money to pay our debts is due to being unable to see what secures such money.

What secures any medium of exchange is not necessarly how much tangible wealth is immediately on hand at any given time but rather confidence in the long term ability of a society to create wealth. What the economist calls the "underlying fundamentals".

From 1930 to 1933 GDP declined by about 1/3. Did we (society as a whole) have 1/3 less factories in 1933 than we had in 1930? Did we have 1/3 less skilled workers capable of making cars in those factories in 1933 than we had in 1930? Families were going hungry and there was bread lines. Was there 1/3 less arable land for food production in 1933 than there was in 1930. Was there 1/3 fewer farmers to work that arable land in 1933 than there was in 1930? No. But if allowed to go on for much longer then there could have been a real fundamental structural decline in a societies long term ability to create real tangible wealth in the 1930s.

The Great Depression of the 30's, and perhaps our mini depression now, was a failure of the system not a failure of our basic ability to create wealth. There is plenty of wealth, real and potential, just not the will by those who own and control it to use it for broad social purposes rather than just for purposes of clear and immediate narrow self interest.

If increasing the medium of exchange can, in fact, increase the exchange of wealth among the general public than I'm all for it.

Just my rather amateur take on the situation.

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Last edited by wildman; 07-05-2012 at 10:35 AM.

[stevewig]

I'm a long way from being an economist but I will give it a shot.......

.......There is plenty of wealth, real and potential, just not the will by those who own and control it to use it for broad social purposes rather than just for purposes of narrow self interest......

Wildman, do I smell a slight tinge of socialist thinking in your ideas now?

[jeffkrol]

Between the 2 wars and the "stimulus" money we have printed trillions over 10 plus years of "unfunded" money.. How is that "supply and demand" for cash doing right this minute..
Seems obvious to me...

And in the pure MMT sense "money demand is created by being the only media for paying taxes"..........

[les3547]

I don't think so. Money is a medium of exchange and nothing more. I can either exchange my old DL camera body for a FA50 lens directly (barter) or failing to find a seller of a FA50 I can accept enough money for my DL to allow me to buy a FA50 when one is available on the market later on.

I'm not sure I can see any contradiction. Money is an "abstraction" in the sense that it represents all the goods and services available for cash. There isn't a food type of money, a car type, a rent type, a health care type, etc.

What secures any medium of exchange is not necessarly how much tangible wealth is immediately on hand at any given time but rather confidence in the long term ability of a society to create wealth. What the economist calls the "underlying fundamentals".

From 1930 to 1933 GDP declined by about 1/3. Did we (society as a whole) have 1/3 less factories in 1933 than we had in 1930? Did we have 1/3 less skilled workers capable of making cars in those factories in 1933 than we had in 1930? Families were going hungry and there was bread lines. Was there 1/3 less arable land for food production in 1933 than there was in 1930. Was there 1/3 fewer farmers to work that arable land in 1933 than there was in 1930? No. But if allowed to go on for much longer then there could have been a real fundamental structural decline in a societies long term ability to create real tangible wealth in the 1930s.

The Great Depression of the 30's, and perhaps our mini depression now, was a failure of the system not a failure of our basic ability to create wealth. There is plenty of wealth, real and potential, just not the will by those who own and control it to use it for broad social purposes rather than just for purposes of narrow self interest.

If increasing the medium of exchange can, in fact, increase the exchange of wealth among the general public than I'm all for it..

Reading that I got the image of how we used to start cars that had run out of gas by pouring gas into the carburetor. If printing a bit of cash is to pump up a lagging economy, I think I understand that.

But I believe Jeff has suggested we might, for example, eliminate our debt to China by simply printing up a trillion dollars or so. Would China want money we print for such a purpose? Is there a limit to how much money we print and use, and if so what determines that? How can the world tell what the "long term ability of [our] society to create wealth" is, and when we are printing beyond our means? That's what I meant by suggesting that just printing up cash is a risk to those we pay with it.

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Last edited by les3547; 07-05-2012 at 10:55 AM.

[jeffkrol]

I'm not sure I can see any contradiction. Money is an "abstraction" in the sense that it represents all the goods and services available for cash. There isn't a food type of money, a car type, a rent type, a health care type, etc.




Reading that I got the image of how we used to start cars that had run out of gas by pouring gas into the carburetor. If printing a bit of cash is to pump up a lagging economy, I think I understand that.

But I believe Jeff has suggested we might, for example, eliminate our debt to Chine by simply printing up a trillion dollars or so. Would China want money we print for such a purpose? Is there a limit to how much money we print and use, and if so what determines that? How can the world tell what the "long term ability of [our] society to create wealth" is, and when we are printing beyond our means? That's what I meant by suggesting that just printing up cash is a risk to those we pay with it.

Currently HISTORY has proven that wrong.. though OF COURSE there is a limit (somewhere) but to "print" money to pay for "local services/supplies" like health care (and not EXTRACT equiv. from the economy in taxes) is GENERALLY not a determinant of demand nor inflationary (as long as the resources in an economy (both material and human) are not utilized)i

[les3547]

Currently HISTORY has proven that wrong.. though OF COURSE there is a limit (somewhere) but to "print" money to pay for "local services/supplies" like health care (and not EXTRACT equiv. from the economy in taxes) is GENERALLY not a determinant of demand nor inflationary (as long as the resources in an economy (both material and human) are not utilized)i

I can't see why you added "as long as the resources in an economy (both material and human) are not utilized." As long as they are not utilized for what?

[GeneV]

But I believe Jeff has suggested we might, for example, eliminate our debt to China by simply printing up a trillion dollars or so. Would China want money we print for such a purpose? Is there a limit to how much money we print and use, and if so what determines that? How can the world tell what the "long term ability of [our] society to create wealth" is, and when we are printing beyond our means? That's what I meant by suggesting that just printing up cash is a risk to those we pay with it.

It is not that we "may" eliminate our debt to China that way, but that we WILL do so. There is no direct connection between money in and money out the way the fed works.

The government creates currency. It literally makes the money we use. That is an important difference between government and us. Moreover, that money is not tied to any physical commodity like gold. That’s why you will often hear MMT’ers quip that sovereign debt or taxes don’t fund the government’s spending in a fiat currency system. What they are saying is that the government creates currency – and, therefore, as it’s creator they can buy stuff with money they create without funding it first.

Taxes give the fiat currency value by forcing people to use that specific currency in order to discharge their tax obligation. From an accounting perspective, they merely expunge a liability on the government’s balance sheet ledger. They don’t fund spending per se. There is a vestigial tie to taxes as a ‘funding’ source in that the U.S. government is required to issue debt in the form of Treasury bonds, bills or notes to cover deficits But this is a relic of the gold standard mandated by Congress which has not prevented the government from deficit spending. Legal tender laws make the currency widely distributed and entrench it as the money of choice within an economy. In a fiat currency system, sovereign government debt doesn’t serve an important currency function like funding deficits.

The Government's Bank | Credit Writedowns

The article from which that quote came does a nice job of explaining it.

As I understand it, "printing" too much money may have consequences, but it depends upon how badly other countries want or need your currency to buy or sell goods and services.

[Nesster]

Taxes give the fiat currency value by forcing people to use that specific currency in order to discharge their tax obligation.

therefore higher taxes = higher value of the currency

[GeneV]

therefore higher taxes = higher value of the currency

Which may or may not be a good thing.

[jeffkrol]

I can't see why you added "as long as the resources in an economy (both material and human) are not utilized." As long as they are not utilized for what?

Sorry, was in a hurry.........

NOT FULLY utilized (@ 100% "resource use" any added money would tend to be inflationary in the "too much money chasing too few goods. There is no more "production buffer"..) .. at this point money injection would be pure inflationary.. One of the reasons our "voodoo" economists never want FULL employment.........would be wage inflationary.....

[les3547]

Sorry, was in a hurry.........

NOT FULLY utilized (@ 100% "resource use" any added money would tend to be inflationary in the "too much money chasing too few goods. There is no more "production buffer"..) .. at this point money injection would be pure inflationary.. One of the reasons our "voodoo" economists never want FULL employment.........would be wage inflationary.....

I see, thanks.

[wildman]

Wildman, do I smell a slight tinge of socialist thinking in your ideas now?

Of course.
I have never held the idea that a advanced modern economy can work based only on purely collective or individualistic principles.

I leave such thinking to the Tea Party folks.