MMT Podcasts

Modern Monetary Theory

The After Show is an hour long and my segment generally starts at about the 35 minute point during the podcast. You will quickly find that I often have much more in the notes than I can get to during the podcast. Please use the menu below to jump to your area of interest and then click on the episode title for the audio link.

31.7.14Why MMT is so important.

  • Changing the understanding of monetary policy could do more to make the progressive social and environmental agenda possible than anything else
    • it IS a sea change
    • it defines the art of the possible
  • this notion of fiscal space
    • unemployment and under-employment
    • INVESTING in social justice and ending economic inequality
    • investing in clean energy
    • rebuilding our national infrastructure
    • diving into R&D related to climate change response
    • making the structural changes necessary to accommodate climate change as much as possible
  • numbers/reports are not the way we measure economic success and stability, PEOPLE and their quality of life are the way we measure success and stability; what is the SOCIAL COST of monetary policy
  • I am going to serve this all up in bite-sized morsels so that over time those who faithfully follow The After Show will develop a deeper comfort level with the topic and the confidence that they can put the facts to work for them within their own agenda priorities.
  • Responded to questions and briefly covered
    • Reinhart & Rogoff
    • why we need to have Janet Yellen’s back (for now at least)

7.8.14 – The Basics of MMT

  • People NOT Numbers.  numbers/reports are not the way we measure economic success and stability, PEOPLE and their quality of life are the way we measure success and stability; what is the SOCIAL COST of monetary policy
  • it is not the job of Congress to balance the budget, it is the job of Congress to balance the economy – I will get in to what this means and how this works; I will provide both key to the industry jargon and stories to go along with it so you can easily internalize it
  • Carrots vs Cookies – Fiscal Policy
    • first, a sliver of information about process
      • generated by the President (through the budget and the power of the veto)
      • the House (power of the purse) the Senate (historically more conservative and less likely to be moved by fashionable spending trends)
    • in the text books, fiscal policy uses government spending or taxation to effect of the economy so that is a macroeconomic effect but in practice fiscal policy is utilized by politicians as carrots vs cookies as in, “We are going to cut Head Start and Unemployment benefits so that we can afford this missile system the Pentagon has specifically said it does not want.”
      • Congress uses fiscal policy as a microeconomic rewards system to support specific benefactors
    • A word about Micro vs Macro economics
      • Microeconomics is small bore, it deals with individuals or specific sectors (like defense or agriculture or child care)
      • Macroeconomics is all the big stuff, the sum total of the economy namely unemployment, inflation and the currency exchange rate
      • since Congress is operating fiscal policy through an entirely political lens with no view to macroeconomic effects, the weight of managing the stability of the economy falls entirely to the Fed and, say what you will, you wouldn’t want their job under these conditions
    • Earmarks vs Pork – while it is widely understood that the earmark process, so proudly “ended” by the GOP cut pork barrel spending it also dramatically limited the ability of intra-Congress negotiations and immensely increased the power of committee chairmen
  • The stool – Monetary Policy
    • according to textbooks, monetary policy is the control of the money supply and interest rates, via the central bank which, in our case, is the Fed
      • supposed to be equally concerned with inflation AND jobs but for many years, see Alan Greenspan, the Fed restricted its view to inflation (this is where people vs numbers mantra comes in)
      • under Bernanke, in ways that I will cover another day, the Fed began to add jobs back in to the equation, Yellen seems to be even more so
      • the real problems with Fed actions comes when you have a combination of the financialization of the economy and the sequesterization of the money supply…both of which I will cover next week

14.8.14What is money and how does that relate to Scotland and the upcoming vote for independence?

  • The Scottish Referendum to be held 18 September 2014
  • The big issue IS the economy and the currency upon which it will be based.
  • What is Money?
    • many of the most important activities in any society take place outside of the economy and the continuing encroachment on the inherently non-monetary is dangerous
    • any national currency is called a “sovereign currency” (Dollar yes, Euro no)
    • modern sovereign currencies are usually free floating, fiat currencies
    • legal tender laws do not alone determine if a currency will be accepted in the private sector
    • Gold – in near modern times basing money on a gold standard never really worked, countries always cheated by leveraging the gold
    • goldbugs have it backwards, gold didn’t give currency value, currency gave gold value
    • currency is not now and never was gold, currency was and is always debt
    • all money things are debt
    • taxes, not gold or laws, drive the use of sovereign currency
    • it is meaningless to say that a government “saves” its own currency or that it must collect taxes in order to have enough of that currency
    • the Treasury can always afford anything in its own currency (see two wars under W)
    • as of April 2014 there is about $1.27 trillion of US currency in circulation and estimates are that half to two-thirds of that is outside of the country (up from $24.8 billion at the end of 2003)
    • It is difficult to find examples of excessive money creation to finance PRODUCTIVE purposes, rather monetary policy that further financializes an economy fuels asset price bubbles
    • the biggest challenge for progressives is not that there is not enough money to do what we want to do, the problem is how to break through the wall of ignorance purposefully built around this topic
  • Scottish Economy:
    • financial services are Scotland’s largest single export
    • Scotlands GDP exceeds that of France if oil and gas are included and still bigger than Italy if not
    • The Royal Bank of Scotland (RSB), Bank of Scotland, Lloyds Banking Group etc have assets worth 1254% of Scottish GDP (imagine bailing THAT out!)
  • Currency:
    • independent Scottish currency, join the Euro or stick with the pound sterling
    • Alex Salmond (samond) Scotland’s First Minister, leader of the Scottish National Party (SNP) “It’s our pound and we’re keeping it.”
    • SNP favors the pound with Bank of England setting the interest rate, monetary policy and acting as their central bank; easier for citizens and companies who have a myrid of cross-border interactions; would save exchange trading costs
    • SNP favor using the pound and pegging it to the UK, called dollarization or the Panama Option in a “Sterling Zone”
    • so-called “pegged economies” are not constrained by inflation and exchange rates, they are constrained by the peg (over which they have no control)
    • Westminster is resisting the currency union idea because the UK would be underwriting the Scottish economy; Scotland would be in a less-than relationship with the UK; Scotland would have LESS control than it does today
    • David Cameron’s Chancellor of the Exchequer is George Osborne – very much opposed to Scotland using the pound
    • Salmond is threatening to not pay Scotlands portion of the UK debt if Westminster refuses the use of the sterling
    • independent Scottish currency would insulate Scotland from the UK (a bit)
    • only a fully Scottish currency could be pegged to the pound and still be flexible
    • for the Euro the thinking is that Scotland would have to join the EU
  • Other Scottish Notes:
    • Scottish Parliment devolved from Westminster in 1999, SNP became largest party and has controlled the Parliment since the 2011 election; controls most domestic policy; has limited power to vary the “Tartan Tax” but has not used it yet; cost of university education is free as is health care
    • The McCrone Report, commissioned in 1974 and written by the Chief Economic Advisor to the Scottish Office, Gavin McCrone, was kept secret until 2005. Showed that in 1974 Scottish oil would have given an independent Scotland one of the strongest currencies in Europe.
    • British Linen Company formed in 1746 and offered banking services to its customers, was a real pioneer in branch banking (acquired by Bank of Scotland in 1971)
    • nearly all of the Scottish banks in the 1700 issued their own currencies, lead to instability in 1760’s; 1765 regulation and a note exchange established
    • Scottish banks first to accept deposits and pay interest on a large scale
    • first Savings Bank in the world in 1810 (not commercial and did not lend money or issue notes) invested in government treasuries; off-shoots were the penny savings banks
    • legislation from Westminster has prevented the formation of any major new Scottish commercial banks since 1845
    • a European law put in place in 1991 may force the big Scottish banks to move from Edinburgh to London
    • European Exchange Rate Mechanism – ERM II aka “Eternal Recession Mechanism”

21.8.14What is Monetary Policy?

  • Fiscal Policy – in the text books, fiscal policy uses government spending or taxation to effect of the economy
  • Monetary Policy
    • according to textbooks, monetary policy is the control of the money supply and interest rates, via the central bank which, in our case, is the Fed
    • supposed to be equally concerned with inflation AND jobs but for many years, see Alan Greenspan, the Fed restricted its view to inflation (this is where people vs numbers mantra comes in)
    • under Bernanke, in ways that I will cover another day, the Fed began to add jobs back in to the equation, Yellen seems to be even more so
    • the real problems with Fed actions comes when you have a combination of the financialization of the economy and the sequesterization of the money supply
    • Monetary Policy is neither good nor bad but because the GOP House is on a kamikazi mission to destroy the credit rating of the US, fiscal policy isn’t really happening right now
    • Monetary Policy is code and it means leveraging the economy via Wall Street, Fiscal Policy is the natural way to operate the economy via Main Street
    • the most logical/effective/efficient use of monetary policy and fiscal policy is to promote the utilization of domestic resources (industrial capacity and employment) at close to capacity and then let the sectional balances fall where they may
    • Treasury bonds are money that we owe IN DOLLARS
    • Treasuries held by banks, firms and households are counted as government debt and are subject to the debt ceiling even though they are debt the private sector WANTS to hold
    • reserves are the liabilities of the central bank and are created by keystroke so there is not constraint except policy; the Fed does not spend tax money, it spends keystrokes
    • as long as there are keyboard strokes available to be made, the government will never miss an interest payment (unless there is a fucking debt ceiling)
    • to finance deficit spending the Department of the Treasury issues Treasury bonds (though as any MMTer will tell you, this is unnecessary) and other types of securities
    • taxes appear on the Fed balance sheet entirely on the liabilities side because $X gets debited from the taxpayer’s banks reserve balance and credited to the Treasury account so
    • there is a zero net change at the Fed, this is the destruction of monetary base
    • Fed purchase create monetary base and taxes destroy it
    • clearly, one of the costs of this myth was that while Fed Chairman Bernanke was able to use keystrokes to purchase (toxic) financial assets to keep Wall Street alive, Congress refused to authorize the use of keystrokes to pay wages and keep unemployment from skyrocketing
  • The stool = unemployment, inflation, foreign exchange rate
    • if the public sector always runs a “balanced budget” the private sector’s net financial wealth will be zero, if the government runs a surplus the private sector has negative financial wealth
    • there is no reason for any sector to balance its “budget” (flow) for any given year and all three sectors will automatically balance with one another; it is the responsibility of those with monetary and fiscal responsibility to determine where that balance best advantages the economy
    • a budget surplus is the same thing as a savings flow and causes “dissaving”
  • Per Arliss – when we worry about federal debt and deficits we are envisioning ourselves on the wrong side of the equation
    • savings in the private sector cannot preexist deficit in the public sector; savings and deficits from prior years are, in a sense, residuals and are equal/balanced/mirrored
  • Per Arliss –  imbalance is not out of balance, it just says you are only seeing part of the story

Next week:banking and Fed Open Market Operations (Treasuries and Bonds)

  • Mitch McConnell now assuring us that he will use fiscal policy to achieve social policy if the GOP takes back the Senate via non-authorization for federal spending bills
  • People NOT Numbers.  numbers/reports are not the way we measure economic success and stability, PEOPLE and their quality of life are the way we measure success and stability; what is the SOCIAL COST of monetary policy
  • it is not the job of Congress to balance the budget, it is the job of Congress to balance the economy – I will get in to what this means and how this works; I will provide both key to the industry jargon and stories to go along with it so you can easily internalize it

28.8.14The Creation and Destruction of Money – Process


  1. Congress Authorizes Spending
  2. The President Signs-off
  3. The Treasury HAS deposits at the Fed
  4. The Fed keystrokes the payment or cuts a check
  5. The Fed debits Treasury’s reserve account


  1. Congress authorizes spending
  2. The President signs-off
  3. Treasury does NOT have sufficient deposits at the Fed
  4. Treasury sells T-bills and bonds to special private dealers and the dealers payments are deposited to the Treasury account at the Fed
  5. The Fed buys the securities from the dealers (because the Fed is not allowed to directly purchase from Treasury, since it is all a rigged game to cut Wall Street in at every turn)
  6. The Fed has the Treasuries, the Treasury has the necessary deposits, the dealers have made their cut
  7. Now the Fed keystrokes the originally needed payment or cuts the check
  8. And debits Treasury’s account

Destruction (as it pertains to hitting the “Target” Federal Funds Rate)

  1. Private banks have more reserves than they would like and the federal funds market is pushing the FFR below the target set by the FOMC
  2. The Desk of the NY Fed enters the market and sells securities sopping up excess reserves to the point that the FFR returns to target
  3. Fed has increased its reserves and banks have increased their holdings of Treasuries

Per Arliss – So-called government debt is really VERY MUCH about Wall Street profitability.

The above is from:  “Modern Money Theory” by L. Randall Wray (published 2012)

What is federal debt?

  • Treasuries held by banks, firms and households are counted as government debt and are subject to the debt ceiling even though they are debt the private sector WANTS to hold
  • Treasury instruments are money we owe in DOLLARS
  • Federal Reserve Notes that are circulating in the economy (against which the Fed is required to hold collateral devices of equal value)
  • Savings in the private sector cannot pre-exist deficit in the public sector
  • Federal debt is an economic engine right up to the point that the economy reaches full employment and full industrial capacity.
  • Federal debt which is the result of Federal spending, or fiscal policy, operates on the economy via Main Street and individuals. Federal debt via monetary policy operates on the economy via Wall Street.

The job of the Federal government is NOT to balance the budget, it is to balance the economy.

4.9.14The Basics of the Fed and the Federal Funds Rate

  • The Fed controls monetary policy with three powerful tools: the FFR, the Discount Window and reserve requirements. The FED Board of Governors is responsible for the Discount rate and setting reserve requirements.
  • The Fed has 12 branch banks each of which is headed by a President.
  • The Federal Funds Rate (The Target Rate) [NOT the “Discount Rate]
    • This interest rate is a monetary policy variable and it is set by the Federal Open Market Committee (FOMC)
      • Chairman of the Fed, Pres of NY Fed (Vice Chair), BOG, and four of the other Reserve bank presidents. Total of 12. Meet 8 times a year.
    • The Target Rate is set. Currently that rate is 0.25% but it is not a rate over which the Fed has direct control.
    • The Target Rate directly influences interest rates especially long-term consumer interest rates like home mortgages and auto loans.
    • Influences the overall economy by either creating more money into the system or pulling it back out.
    • Higher FFR is SUPPOSED to cause banks to reduce their purchasing and raise interest rates thus slowing the economy but because as the GFC shows, this is not necessarily the case bc banks continue to purchase even the worst assets without consequence
    • Lower FFR CAN cause member banks to increase their purchasing but it cannot FORCE them to
  • Process
    • Every business day morning at 7:30AM ET a group in the FEDNY called the Open Market Trading Desk “the Desk” meet via phone with a president of one of the Fed branches currently on the BOG to decide if and what kind of open market operations (OMOs) are called for on that day
      • the Desk is run by the System Open Market Account Manager
      • make deals with “primary dealers” for securities
      • make deals with foreign entities that have Fed accounts
    • all operations with primary dealers are conducted through an auction process
    • The Desk announces any scheduled operations at 9:30AM and requests bids from dealers
    • Short term operations are the most common
    • Always the goal is not to retain a set Fed balance but a goal in the federal funds rate
    • The Desk may redeem maturing securities instead of purchasing new ones so as not to enter the market at that time, this is a softer approach
    • (Temporary) Repurchase (Repo)  Agreements are a common tool as well
      • usually an overnight term
      • Fed purchases securities from a primary dealer with a commitment to sell back on a specific day
    • Fed accepts Treasury, federal agency (social security) and mortgage-backed securities (backed by federal agencies) as collateral
    • purchasing Treasuries creates money into the economy because the Fed just credits the balance of the depository institution and there is no corresponding offset for another member bank
    • selling securities is the opposite because the Fed destroys money out of the economy and there is no corresponding credit to another member’s account

The history of the Fed has been that it views the economy through the lens of the FFR or, before that, through reserve balances, but it was originally tasked to consider unemployment as the key economic measure. Legislation and our collective abrogation of responsibility allowed them to move away from thinking about people first and it is our responsibility to hold them to the full measure of their trust.

18.9.14The Discount Window of the Federal Reserve

  • originally conceived as a way to stop a bank run
  • loans member banks can make from the Federal Reserve, in crisis the Fed can also lend directly to companies
  • the “Discount Rate” is usually a point higher than the FFR target so banks prefer to borrow from other banks .75%
  • 3 kinds of lending programs
    • primary lending (this is the discount rate) .75%
    • secondary lending – to those banks with less than top credit 1.25%
    • seasonal lending (for banks in tourist areas or areas heavy in ag) .15%, extended for up to 9 months
    • access to the discount window and the interest charge is set by the BOG
  • Can be used in crisis as it was in 9-11 or if a bank is going under to give it time to recover or to close in an orderly fashion
    • during 9-11 amount of lending went up more than 200 times its normal rate
    • during the GFC banks relied heavily on the window from December 2006 to March 2010
    • Fed actually held auctions instead of a set rate and banks would borrow on one day and return a bit more on another, set, day, the difference was the “interest” rate
    • in early 2007 discount rate was 6.25 and it went down to .50% by 12/08
  • all loans are fully secured by collateral and the Fed is first in line to recover assets in the advent of failure
    • Fed determines what can be used as collateral and determines the value which is always at a discount off real value
    • common collateral Treasuries, “real bills” (short-term commercial loans to good customers), MBS (mortgage backed sucurities !!!!!)
    • Fed COULD use the insistance on quality collateral to drive banks to improve the quality of the loans they make but they aren’t
  • prior to the GFC discount window borrowing was frowned upon, this is no longer the case, Fed went so far as to lengthen the period of loans from overnight to even months
  • during the GFC banks could not refinance their positions, as they normally would, because creditors were cashing out instead of rolling over assets
  • as a result of GFC banks are now holding large amounts of cash and are not using intraday lending
    • because they aren’t lending to us claiming that “good” loans are are hard to find and forgetting their part in lowering the credit scores of so many people
  • intraday lending, essentially overdraft fees, used to average about $50B/minute and go up to $150/minute but huge bank reserves have basically eliminated intraday lending for right now
  • bank lending is not constrained by reserves so constraining Fed lending by quantity of reserves does not alter lending to public; what constraint does do is alter the FFR
    • bank lending is not constrained by reserve ratios because the Fed MUST LEND in order to hit the FFR
    • higher ratios act like a tax on banks because it forces them to the window or to the market
    • so banks make that up elsewhere = us
    • the Monetary Controll Act (MCA) made all depository institutions subject to reserve requirements
    • money sitting in banks is a liability on their books because it can be withdrawn; it is only an asset when it is circulating as a loan
    • reserves, however, are assets
    • reserves are an average of the amount held over a period of time providing flexibility in day-to-day operations
    • scaled to be less odious for smaller banks and credit unions
  • the Fed cannot push a string and make the private sector more liquid than it wishes to be

    16.10.14Debt & Deficit

  • Recent economic headlines
    • CBO estimates the deficit for 2014 is 2.8% down from 4.1% in 2013 and smaller than the average of the last 40 years which is 3.1%; it was 9.8%
      • debt to GDP is a crazy measurement because GDP is a single year and Treasuries range up to 30 years; apples and oranges
      • in the 2008 – 2009 FY; Obama’s 2nd term deficit will be lower than Reagan’s 2nd term deficit
      • the economy is operating farther below capacity than the average of the past 40 years
    • Federal debt is now $17.9T which is $200, 259 for every full-time worker also, the sky is falling!!! NOT.
  • Debt and deficit have been in the news and I want listeners to take everything frightening or encouraging they think they have heard and set it aside
    • 99.9% of the analysis of what you have heard is wrong because it is virtually all based on gold-standard thinking and is no longer applicable to the real economy (and hasn’t been since 1971)
    • as per economist Robert Heilbroner, “Money is the scariest topic there is….”
    • the terms “debt”, “deficit” and “austerity” have taken on almost religious reverence and challenging them is seen as blasphemy…so here I go
  • MMT is not economic theory, it is an explanation of the way the economy already works
    • understanding is power and explaining your understanding to others is VOTES
  • Alan Greenspan to Paul Ryan in a House budget committee hearing, “… there’s nothing to prevent the federal government from creating as much money as it wants to someone.” – 2 March 2005
  • St. Louis Federal Reserve, “As the sole manufacturer of dollars, whose debt is denominated in dollars, the US government can never become insolvent, i.e. Unable to pay its bills. In this sense. The government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. Government debt at home because the U.S. Government has the only means of creating risk-free dollar-denominated assets.
    • and because this is true, the Federal government has ZERO debt BURDAN (Fed debt is a tool)
    • even within the Fed the Treasuries which appear on one side of the ledger as a liability appear on the other side as an asset
    • the Fed borrows from investors when it sells securities but the US gov’t borrows from no one – Mark Robertson
    • the US Treasury has had securities outstanding every year since 1791 and the debt has never been paid-off
    • Money can only be in one of three places: the federal government, the private sector (including us) or the international sector THEREFORE government debt = savings/profits in the combined private and international sectors. Period. End of story. No debate.
      • Government debt = private savings + international (US dollar denominated) savings
      • government debt = savings
      • government debt = profits
      • so, to turn the current headlines on their ear, the current Total Public Wealth is $17.9T (Intra-governmental $5.1T and everyone else $12.8T)
    • when the government spends more than it taxes (so-called “deficit spending”) it is not only leaving the money in the hands of the private sectors, it is paying us interest on the safest investment instruments possible, US Treasuries
      • so we are not only holding the money that constitutes government debt, we are profiting on the money that is debt
      • deficits = wealth
      • debt = profits
      • the famed Debt Clock is a wealth clock
      • a cut in debt = a cut in wealth
    • government CAN spend too much and generate beyond nominal inflation and currency depreciation but that is HARD
      • cash registers do not discriminate
      • government has to be careful not to put so much money into circulation that it over-utilizes the limited resources (employment and industrial capacity)
      • BUT there is no direct causation between deficit spending and inflation at all
      • the int’l demand for US goods and instruments means that reaching market saturation would b nearly impossible
      • interestingly, the 1% pose a far greater threat of inflation than does the government because they are solely determine their release of potentially inflationary funds into circulation whereas the government has a significant toolbox of controls
        • an interesting justification for progressive tax rates
    • because the private and international sectors DO have discretion over their budgetary outcome, the federal government does NOT have discretion over deficit spending
      • the sectors are inextricably bound; balances balance
      • the sectors are ALWAYS in balance
      • any discussion of government deficit makes no sense
      • only discussion of sector balances matters and the private sector can NOT be allowed to go into a state of negative savings without crashing the economy
    • ANYONE who is priortizing debt and deficit is grabbing the issue from the wrong end
      • for us, the issue is neither debt nor deficit, it is inequality
      • austerians, deficit hawks, are wealth killers
      • deficit hawks destroy the safest possible investment instruments, US Treasuries
      • deficit hawks destroy profits and the capitalist system
    • I should add that taxes are NEVER used to take money from the rich and give it to the poor, the Federal government is NOT Robin Hood
      • doing what Obama has done and linking taxes on the rich to programs for the poor is terrible framing, confusing and factually incorrect
      • when progressives link taxes to spending we are singing the conservatives tune
      • when the economy reaches full employment (meaning fully utilized employment) then then if there is something the government needs to be doing with resources that have become competitive, the reason to raise taxes is not to increase the government coffers but to reduce the competition for the resource the government needs for the public purpose (think rubber in WWII)
    • our challenge is not what we can afford but whether we will be able to be a productive enough nation going forward
    • circling back to the beginning, deficit hawks are not worried about spending money they are happy to spend money on their priorities, they simply do not want to spend money on ours – this is not a war about money, it is a war about morality and it is the core of what divides us from them
  • Those who choose to push austerity do so to reinforce their worldview

23.10.14Fed Chair Janet Yellen’s Speech on Inequality

  • Fed Chair Janet Yellen
    • Janet Yellen’s doctoral supervisor @ Yale was Nobel laureate Joseph “there is no such thing as an invisible hand” Stieglitz
    • Thesis, “Employment, Output and Capital Accumulation in the Open Economy
    • Wall Street considers her to be a dove (meaning unemployment is her priority over inflation)
    • in 2014 Forbes listed her as the second most powerful woman in the world (behind Angela Merkel) and the highest ranking American
    • as early as 1998 she was publishing on the increase in inequality
  • Gaps have increased in the US b/c beginning with Reagan we have adopted radical economic theory which was then and is now provably incorrect.
    • When biologists make a mistake there is a crisis in a petri dish. When economists make a mistake governments fall.
  • This past week Yellen spoke at the Conference on Economic Opportunity and Inequality sponsored by the Boston Fed
    • Title of her speech, “Perspectives on Inequality and Opportunity from the Survey of Consumer Finances
  • Excerpted opening remarks from the speech:
    • income and wealth inequality are widening faster in the US than in other advanced countries and has been for decades (note that income and wealth are different)
    • inequality narrowed for 40 years following the Great Depression
    • income and wealth inequality are near the highest they have been in the past 100 years
    • “…it is appropriate to ask whether this trend is compatible with values…”
    • some inequality is good in that it drives innovation, creativity as people are driven to improve their circumstances
    • widening inequality is not as much a concern if wealth is rising for all families
  • Facts about widening inequality – from the Fed’s triennial Survey of Consumer Finances (broken into figures for the top 5%, the next 45% and the bottom 50%)
    • Concentration of income
      • for the top 5% grew by 38% from 1989 to 2013
      • for the other 95% grew by less than 10%
    • Distribution of Wealth is even worse
      • top 5% held 54% of wealth in 1989, 61% in 2010 and 63% in 2013
      • next 45% had 43% in 1989 and 36% in 2013
      • bottom 50% 3% in 1989 and 1% in 2013, avg net worth of these 62 million households  was $11,000 in 2013
    • Housing wealth
      • top 5% accounts for 20% of wealth
      • next 45% accounts for 40%
      • bottom 50% accounts for 60% with 61% LESS home equity in 2013 than in 2007
      • rebounding home prices have helped (but vulnerability remains)
    • Investments (mutual bonds, stocks, pensions)
      • top 5% hold nearly 65% of all investment assets in 2013
      • next 45% hold 33%
      • bottom 50% holds 2%
    • Inequality persists from generation to generation
      • mobility in the US is LOWER than in almost all other advanced countries (so much for exceptionalism)
      • economic mobility and income inequality are negatively correlated
  • Building blocks of opportunity
    • Two cornerstones:  “resources available to children in their most formative years”  and higher education
    • ownership of a private business
    • inherited wealth
    • Resources for children
      • homes in safer neighborhoods
      • homes near good schools
      • nutrition
      • health care
      • early childhood education
      • intervention for learning disabilities
      • learning enrichment opportunities including travel
      • homeownership rates (97% of top 5%, less than 50% of bottom 50%)
      • educational attainment of parents (86% of top 5%, 12% of bottom 50%)
      • stable family structure (4% of top 5% of families headed by single parents, 47% of bottom 50%)
      • social safety-net spending helps to offset disparities this spending is 1.2 to 1.7% of GDP in average years and up to 3% during the GEC
      • public funding of education
        • children from lower-income households who receive quality early pK ed are more likely to graduate from high school and to attend college, less likely to receive public assistance and to go to jail
        • despite increased need, enrollment has stalled or been cut (b/c of GOP morality)
        • in 2010 US was 28 out of 38 in 4-yr olds enrolled in public or private early childhood education
        • one of few nations where funding of education is subnational; some nations strive for equal spending per student and others specifically increase spending in schools in depressed areas specifically with an eye toward reducing inequality
    • Higher education
      • median annual earnings of full-time workers with a BA is 79% higher and it is still advantageous even with escalation in cost
      • costs have risen MUCH faster than income since 2001
      • outstanding ed debt has grown from 26% of avg yearly income in 1995 to 58% in 2013
    • Private business ownership (risky and many fail early)
      • while it is highly concentrated at the top also confers wealth to others
      • of top 5% 40% are have ownership in a private business with avg holdings of $4,000,000, next 45% it’s 14% with holdings of $200,000 (more than one-third of their net worth); bottom 50% only 3% and avg value is $20,000
      • it has become more difficult to start a business and the pace of business creation has declined (economy is less productive)
      • depresses wage growth and employment
    • Inherited wealth (Piketty covers this in depth)
      • over half goes to top 5%, 40% to next 45% and 7% to bottom 50%
  • What do we do with all this information?
    • first, we come to terms with the political realities of the useless progressive meme about having to pay for all of it with an increase in taxes – the so-called Robin Hood Tax is not only a political loser but also unnecessary
      • we need predistribution not redistribution
      • redistribution mechanisms rarely last and are easily eroded
      • redistribution is divisive and politically untenable
      • redistribution is costly in that in requires a significant bureaucracy
      • redistribution is dangerous because the public views their taxes as payment for services (and they then calculate what is “fair”) – taxes are a tool not a method of payment
      • the reality is that the rich will never pay taxes because they will purchase tax exemptions from Congress
    • we adopt the PROVEN reality of the power of fiat currency (taxes pay for NOTHING, the government creates money every time it spends)
    • we invoke the bedrock principle that the ONLY measures of economic health that matter are (true) unemployment, inflation and the exchange rate – and the balance that exists between them
    • we recognize that the rising problem is productivity

30.10.14Guess what, taxes don’t pay for anything, ever!

  • taxes pay for government spending if you are a state, county, city or a foreign nation with a pegged currency
  • the US has a sovereign, floating, fiat currency
    • sovereign – we issue it
    • floating – no promise to convert it at a fixed value
    • fiat – because we say so, “full faith and credit” – also known as “modern money”
  • the government MUST spend or lend currency into the economy first, how can it be otherwise?
    • taxes drive money – this concept is called chartalism
      • witness bitcoin – never needed for an obligatory payment, no issuer required to take them back, not redeemable; to paraphrase Paul Krugman on the subject, our currency is backed by guys with guns, bitcoin is not
    • except for seven brief periods the US has always spent more than it has received in revenues
    • the government also does not need the sale of Treasury instruments to fund itself
      • they create income for rentiers
      • they give rentiers leverage on the economy
      • they do, however, provide us with a tool in terms of monetary policy
    • where do tax payments go? nowhere
    • when currency goes out into the economy it is debited against the account ledgers of the government, it is a liability AND it is the creation of money; when it returns in the form of taxes that liability is erased – the money disappears, it is essentially destroyed
  • Quoting Ben Bernanke, from a 2013 60 Minutes interview. He was asked, “Is that tax money the Fed is spending?” and Bernanke said, “It’s not tax money. The banks have accounts at the Fed much the way that you do, have an account at a commercial bank. So when we want to lend to a bank, we simply use the computer to mark up the size of the account they have with the Fed. “
    • that’s a big FU to the Peterson Institute, Fix the Debt, and The Can Kicks Back
    • not only are we not running out of money, we can’t
  • government spending is not operationally constrained, all constraints are self-imposed
    • debt ceiling
    • rules preventing the Treasury from over drafting at the Fed
    • rules that prevent the Fed from purchasing bonds directly from the Treasury (known as monetizing the debt)
  • the purpose of taxes
    • to drive money
    • to leverage/control the economy (protect against inflation)
    • stabilize the purchasing power of the dollar
    • as an expression of public policy (tariffs and sin taxes etc)
      • gov’t always has the money to care for those who smoke but the issue is the waste of resources
    • assess the benefits of specific national resources (gas tax for the highway system)
    • corporate income taxes are a bad tax – they are not needed to pay for social programs and they inhibit efficient use of resources especially for small business (tariffs and the elimination of specific loopholes can be used to eliminate corporate behaviors which do not promote the public good…Chevron)
    • understanding what taxes are for makes it possible to then set them at a level consistent with full employment and optimal resource usage
  • Or another way of putting it, as Warren Mosler says, “the purpose of the tax is to create unemployment”
    • taxes reduce aggregate demand
    • money is linked to sovereign power so that it may command resources but that power is seldom absolute with the most obvious competitor being domestic creditors; too much debt to private creditors destroys the balance of power needed to govern
  • optimally tax revenues move countercyclically up when the economy is strong and down when it is weak
    • when the economy is strong and there are inflationary pressures then
      • increase taxes
      • implement wage and price controls
      • ration
      • import more
      • incentivise more production
  • money and debt are exceedingly emotional
    • often associated with religious significance:  debt, sin, repayment, redemption
    • in Aramaic, the language of Christ, the word for “debt” is the same as the word for”sin”
    • so The Lord’s Prayer could equally well be “forgive our debts” instead of “forgive us our trespasses”
  • there are other ways to move resources to the public sector
    • eminent domain
    • the military draft
    • volunteerism
  • the unemployed are an idyl economic resource
    • the creation of job guarantee programs (more on this next week) can be safely undertaken, with deficit spending, all the way up to the point of resource constraints (full employment) and we have not been there since WWII
    • at the point of reaching resource constraint either increase taxes or reduce spending, either way is leverage against inflation
  • it is neither correct nor politically realistic to think in terms of taxing the rich to give to the poor
    • yes, taxing the rich does take money from them but it is not given to the poor (government spending, fiscal policy directed toward public purpose, does that)
    • is a “sin” tax and is put in place for public purpose and not for revenue
    • the super rich are in a position to buy government and that is not to the public good
    • the better way to address inequality is with (good paying) jobs
    • taxing the rich will be impossible to pass but there are other options including
      • eliminating treasury securities which provide rentier income
      • banning stock ownership by pension funds backed by federal gov’t
      • regulations to constrain permitted banking activities
      • limits on executive pay at corporations
  • progressives MUST recognize that we are not revenue constrained, we are constrained by
    • a lack of mobilization to alter the political will
    • a lack of organization around tactics
    • a lack of codified audacious vision

20.11.14The End of Quantitative Easing

  •  “The QE was like the Wizard of Oz. There’s no impact on the economy.” – Dr. Randall Wray
  • not a good policy for a government with a sovereign, floating, fiat currency when aggregate demand is low and unemployment is high
  • people THINK that QE pushes money from the Fed out into the economy but this is not the case
    • a sovereign issuer spends by issuing currency or keystroking electronic balances, not by borrowing
  • QE involves the Fed buying Treasuries or agency mortgage backed securities (from Fannie Mae and Freddie Mac) from banks and electronically crediting the purchase amount into the reserve account of the bank
    • QE1 – Fed was purchasing $40B in long-term Treasuries and $45B in MBS PER MONTH; by September 2014 they were purchasing $10B in longer-term securities and $5B in MBS
    • according to the FOMC these assets will remain at the Fed for the foreseeable future
    • financial assets remain unchanged in “value” though they are changed in composition
    • only has to be done this way because we are playing the game that says that we have to purchase government securities from the private sector, this is because Congress decided that the Treasury needed to underwrite Wall Street with corporate welfare, it is not for any accounting purpose
  • People think the aim is to create excess reserves which can then be loaned out by those same banks and that will be enough to arrest rising unemployment and falling productivity
    • they think it is “printing money” for a “cash-starved” system
      • neo-liberals use these terms to perpetuate inflationary fears
    • banks will earn interest at a higher rate of return than they were on the Treasuries
    • banks will move toxic assets off their books and become more financially sound
    • so, viewed from the national interest and the neoliberal perspective, QE
      • provides for the government to underwrite investors (the 1%) in a wealth scheme
      • provides for the government to reduce investor risk
      • provides for a greater TBTF bumper cushion
  • Does QE work?
    • Not very much.
    • It is based on the belief that banks need reserves before they can lend; this is not the case
      • banks are limited by a supply of credit worthy customers
      • banks worry about their reserve positions at the end of the day and any shortages are purchased in the overnight interbank market or at the discount window (as a last resort)
        • the cost of money for banks is lower than the interest charged bank customers and that margin is where the bank makes money
      • loans create deposits which generate reserves, not the other way around
      • the QE in Japan, to which people often point as a success story, actually happened at the same time as appropriate, aggressive fiscal policy (and THAT is what made the difference)
      • remember that commercial bank interest rates are related to the overnight interest rate as set by the FOMC; this target rate is NOT set by markets so budget deficits place no upward pressure on it at all
        • when the Fed credits commercial bank reserves this creates a downward pressure on the overnight rate because excess reserves mean that supply has increased over demand; the Fed moves countercycally to hit its target
        • a federal deficit cannot raise interest rates unless the FOMC, for some arbitrary reason, decides to “make it so”
        • also, no bank can lend its reserves except to another bank so the “new” keystrokes remain firmly on the ledger of the Fed, on the liability side, balanced by the assets of the longer-term securities and MBS on the other side
    • monetary policy is a blunt instrument, fiscal policy can be much more adroitly targeted
  • Where QE does make a difference – in investment rates/wealth growth for the 1%
    • might increase aggregate demand a bit BUT
    • countered by lowering the interest rate received by savers who will, then, reduce their consumption
    • What will matter then is if there are enough goods produced in the year 2050 to gate inflation. The things we can do now to aid future retirees are funding education, infrastructure, basic science, underlying technology development etc.. Savings are REAL (available labor, available raw resources, available production capacity) and that is what will make a difference for retirees.
  • Why have we been using QE?
    • bringing toxic assets into the Fed, where they can be bolstered by keystrokes as needed does support the housing industry and strengthen banks (though they are free to pull the same shit again)
    • reflects the neo-liberal bias of the Fed
  • Ask yourself:
    • What will motivate customers to borrow if they are unsure of keeping their job or are underemployed?
    • What would motivate a business to borrow if they are not confident that demand will hold up?
    • So the availability of loans does not matter if the fundamentals of the economy are weak and those can only be fixed through fiscal policy because, among other things, the Fed is out of tools.
  • Our government can ALWAYS stimulate growth through fiscal policy
    • we just saw it with the successful (though not big enough) Obama stimulus
    • employ all the unemployed and the underemployed – which I will talk about next week

4.12.14Unemployment, a Job Guarantee Program and Taking Back the Messaging

  • MMT economists debate whether MMT should just repeat the facts or if it is appropriate to take a stand on various economic issues
    • they fear that the “bleeding heart liberal” label will devalue the discoveries about the operational realities of economic systems on which they are working
    • should be be talking about “values” or facts?
    • the alternate view is that it is immoral and unethical not to enter into a fully informed debate
    • why should we be defensive about our values when they are on the offensive with theirs?
    • why should we be uncomfortable to say that full employment is good and moral and that allowing people to suffer from the violence of unemployment is bad and immoral?
    • neo-liberals use market-based terminology and hand waving to cover over non-market phenomena and it is part of their agenda to seize increasing portions of the economy for the 1%
    • questions about employment are inextricably entangled with questions about ownership and social control of resources and about the politics that surround said resources
    • when control over resources and enterprises is too concentrated and the government too accommodating then the economy inextricably pours toward the elites and away from the workers; inequality grows rapidly
    • unemployment is useful for businesses (who can’t see far enough down the road to consider demand)
    • neo-liberals have drilled into us national decadence, social fragmentation, a haughty disregard for the lessons of others and of history and a hatred for government on all levels
    • …our conception of others, inherently involves the concept of responsibility an the ethics of connectivity.” – Bill Mitchell
    • “The “developed nation” complacency is a fraud. We are all developing nations and we need to think that way again.” – Dan Kervick
    • Hyman Minsky said, to paraphrase, providing welfare rather than jobs is capitalism generating poverty in the midst of plenty
    • vocabulary is everything: unemployed = eager to work
  • The cost of having 25M unemployed
    • loss of income to GDP is $6 to $9.7B per day!!!! (depending upon how conservatively one estimates worker productivity – per Bill Mitchell
    • these losses are NEVER recovered
    • microeconomic costs for program management are dwarfed by macroeconomic GDP losses
    • empirical results are available from the Great Depression and it took 50 years and Ronald Reagan’s trickle-down, neo-liberal drivel to get society to view the unemployed as a cost to society instead of a loss of opportunity/GDP gain
      • neo-liberal approach values austerity and budget surplus (private sector savings losses) as a moral good; blocking fiscal spending in favor of monetary policy which drives gains to the 1%
  • Costs of unemployment include:
    • loss of current output
    • increase in the crime rate
    • social exclusion
    • loss of skills
    • psychological harm (depression, loss of motivation, increased rate of suicide)
    • ill health and reduced life expectancy
    • damage to family relationships
    • loss of social values and responsibility
    • damage spans generations
    • increased incidence of alcohol and substance abuse
    • providing income alone does not eliminate poverty
    • when surveyed, receiving income is the FIFTH reason that the unemployed want work
    • unemployment breeds unemployability
    • remembering that suffering and violence (physical and mental) go together and unemployment is a form of violence
  • Unemployment is NOT an individual problem, no matter what the press and the GOP say, it is a failure of government and a cost to all of society
    • “blame the victim” view
      • lazy
      • uneducated
      • poor work ethic
      • immoral
      • they are “other” and different from us
      • they have chosen this outcome

• lead to “welfare-to-work” and skills training that is divorced from pay and the real jobs market

  • studies all around the world repeatedly show that the unemployed would prefer to work
    • it is a shortage of jobs, not personal immorality that drives unemployment
  • Job Guarantee (JG) Program
    • not a make-work program
    • no one is forced to work in a JG program and workers can leave or change JG jobs at any time
    • all economists know (well, all rational economists know) that there are areas in which the market does not work well; generally areas of public good and social benefit
    • “market efficiency does not equate to social efficiency” – Randall Wray
    • satisfy societal needs that are not being met by the private sector or, IMHO, are major projects that need to be undertaken for the welfare of the entire country
      • environmental services
      • transportation
      • community and social services
      • health services
      • education

• there will be some underemployment, high-skilled workers taking JG jobs, but overall they would still have some income

JG would also greatly improve the bargaining position of labor in the private workforce

  • would prevent much of the collateral damage of unemployment including foreclosure on homes and dramatic reduction in spending into the local economy
  • can be highly decentralized including states, cities, not-for-profits and workers cooperatives
  • we will experiment – there will be failures but there will be more successes
    • a plan must be in place in advance to widely promote success as a counter to known critics
    • a failure here or there will not taint the rest of the program
    • we readily overlook the culling in the private sector, including the cost to the workers of poor decisions by management, and believe that the relatively fewer successes compensate
  • no means testing
  • JG programs must be held to quantifiable, verifiable results (IMHO) so that there is a foundation for review
  • either all JG wages and benefits are the same or there are a very few tiers
  • to cover non-wage costs federal gov’t could provide up to 25% of the wage cost, as was the case for most projects during the various programs of the Great Depression
  • JG can be seen as adding opportunities and freedom of choice, not limiting it
  • JG raises both supply and demand but is countercyclical since JG workers will cycle out into an economy when the economy is strong enough to employ them
  • JG is an inflation stabilizer
  • MMT economists talk about JG not directly competing with private business but on large projects designed for the public good perhaps that is treated as a no-bid contract and private business is not invited to bid
    • there is no such thing as a free market, all economies are planned; the only question is by whom and for whom” – Randall Wray
  • JG creates a wage floor under private business and is a different way to push wages up to a living wage
  • Critics argue:
    • cost of management…small in comparison to GDP losses
    • corruption…audit and extreme transparency
    • corruption…pay recipients directly as we do with Social Security
    • where do we get the money?…we have a sovereign, floating, fiat currency, we always have the money
    • there will be waste, the program will have to be adjusted as it grows, there will be trial and error but the economic and social losses imposed by unemployment are much greater
  • In truth, every successful business required help. There is no such thing as a self-made man (or woman.) – Randall Wray
  • Let a thousand flowers bloom. – Randall Wray

11.12.14The Trillion Dollar Coin = Policy Space (Platinum Coin Seigniorage)

All credit to Kossacks LetsGetItDone and beowulf for their clarity on how the Trillion Dollar Coin Works

  • Platinum Coin Seignorage (PCS) and High Value Platinum Coin Seignorage (HVPCS)
  • the Secretary of the Treasury has the power to authorize the minting of coinage without additional consultation (it would not happen that way but the power exists as per power authorized to the Treasury in 1996)
    • the Mint generates the coins and deposits them in their Public Enterprise Fund Account at the Fed and the difference between the cost of minting the coins and the value of the coins, the seignorage, is “swept” into the General Account of the Treasury (TGA) and booked as miscellaneous revenue
    • the most shocking thing about PCS is not that the fact of it, the shocking thing is that it makes plain the underlying reality of entire sovereign, floating, fiat currency system
    • what is proves is the power and flexibility of a fiat currency to respond to the needs of this economy as well as the weakness and terrifying malevolence of the greed which underlies the politics which prevent us from taking this action today
    • requires no action from Congress
    • does not challenge the Congressional limitation on the Fed extending credit to the Treasury
    • leaves out banks and Wall Street
    • PCS pulls the monetary power of the Fed into the Treasury and the Fed then maintains the Federal Funds Rate above zero and at its target rate by paying interest on the reserves it is holding; in other words, instead of the Treasury paying interest to borrow money from the Fed through banks and brokers, the Fed would pay interest to banks on their reserve accounts
  • Inflation
    • inflation is not caused by increasing the amount of money in circulation, it is caused by increasing the Net Financial Assets (NFAs) in an economy to a level beyond what the productive capacity of the economy can absorb
    • this money is not pushed out of the Fed at once, it is used to retire debt as it comes due, again, like taxes this interaction does not circulate new money into the economy but it does eliminate it from the ledger of the Fed
    • much of this is money the Fed owes, in debt instruments, to federal trust funds (so they can be made whole) thereby eliminating the concerns there
    • the other major portion of debt instruments are held by banks and the Fed would be crediting to their reserve accounts from which they do not spend, except as overnight loans to other banks, all of which does nothing to increase the NFA of anyone (it changes composition, not value)
    • also, in the Govie market (the market through which buyers, via brokers, buy and sell federal debt instruments privately) there are always around 20 buyers for every seller so even now the holder of a Treasury Security is not constrained by liquidity
    • there is significant evidence that Federal debt instruments are much easier to leverage heavily (in the repo market) than are reserves so, again, adding to circulation in the private sector is not inflationary
    • inflation can also be held in check by Congressional spending to increase employment (as opposed to corporate profitability)
    • demand-pull inflation would be mitigated by Congress and fiscal policy instead of the Fed trying to, inefficiently, push employment with monetary policy; as long as we don’t spend past (true) full employment inflation will be held at bay
    • (cost-push inflation still possible if resources are in short supply but that is not related to debt, deficit or austerity)
  • Uproar
    • managing the public panic and explaining the power of the policy (and replacing any staff who resign) would fall to the President – but that’s what Presidents are for
  • Policy Space
  • the space between how do we afford it and how do we spend it
  • the President can legally fill the purse but only Congress can open it and authorize spending
  • per Dr. Randall Wray via Joe Firestone –
  • . . . We don’t let old folks sleep on the street. We take care of our own. We don’t let children go hungry. We take care of our own. We don’t exclude the 47%. We take care of our own.

We’re all stakeholders in this great nation. We take care of our own. White, black, brown, yellow and red, we take care of our own. Young or old, healthy or sick, we take care of our own. . . .

We need a good government to help us take care of our own. We need good public services and infrastructure to keep our country strong so that we can take care of our own. Our government spends to keep our country strong so that we can take care of our own. . . .

Sovereign government cannot be forced into involuntary insolvency. It can always afford to make all payments as they come due. It can always afford to buy anything that is for sale for its own currency. It can always financially afford any spending that is in the public interest. It can always afford to take care of its own.

Anything that is technologically feasible is financially affordable for the sovereign issuer of the currency. It comes down to technology, resources, and political will. We’ve got the technology to take care of our own. We’ve got the resources to take care of our own. All that is missing is the political will.

Available on Amazon is Joe Firestone’s excellent, short book on the subject:  Fixing the Debt Without Breaking America

My post on DKos from 14 January 2013, “Platinum Coin Seignorage = Policy Space”

15.1.15 – The Rise of MMT (Stephanie Kelton Goes to Washington)

  • Bernie Sanders (I – VT) new ranking minority leader of the US Senate Committee on the Budget; calls himself a “Democratic Socialist”
    • the Budget Committee is responsible for directing the CBO, drafts and monitors the Budge
    • replaces Patty Murray (D- WA)
    • known for compromising with moderate GOP and getting to and agreement with Paul Ryan; the same will not be able to be said about the relationship between Sanders and Mike Enzi (R – WY)
    • Sanders stated policy objectives:
      • to prevent the GOP dismantling of Social Security and Medicare
      • The billionaires of America are on the war path. They want more and more and more. Ant that has everything to do with this Agreement reached between the Republicans and the President.” – a snippet of the 8 hour speech Sen. Sanders made on the Senate floor in opposition to the 2010 tax deal
    • reducing inequality (Stephanie will, no doubt, push a Job Guarantee program)
    • cutting the defense budget
    • $1tn infrastructure plan
    • moving the minority staff dramatically to the left with the appointments of:
      • Matt Stoller – Sr. Policy Advisor on Financial Services, Trade and Economic Issues
        • most recently worked for Rep. Alan Grayson; working on legislation to reform the Fed and to audit it as well as bills that addressed foreclosure and financial reform
        • MSNBC producer for “The Dylan Ratigan Show”
        • co-starred on FX’s “Brand X with Russell Brand”
      • Steve Warnhoff to be Sr. Tax Analyst; formerly Legislative Dir for Citizens for Tax Justice
      • Ethan Rosenkranz, Defense Policy; from the Project on Government Oversight
      • Josh Smith to be Budget Policy Director; last at the Economic Policy Institute
      • Warren Gunnels, Minority Staff Director; long time Sanders aide


  • Stephanie Kelton, PhD – Chief Economist to the Minority
    • University of Missouri at Kansas City (UMKC) Associate Professor and Chairman of the Economics Department (originally came out of the New School for Social Research)
      • arrived at UMKC in 1999
    • Research Interests:  monetary theory & Federal Reserve operations, fiscal policy, employment policy, health care, history of economic monetary thought, social security, European monetary integration & international monetary policy
    • coined the term “deficit owl” in 2010
      • deficit hawks are proponents of austerity
      • deficit doves support balancing the budget once the economy is stronger
      • deficit owls know that balancing the budget is a meaningless, harmful constraint
        • believe that deficit are a symptom of a weak economy, not the cause
    • Researcher at the Levy Institute’s Center for Full Employment and Price Stability
    • Editor-in-Chief of the New Economic Perspectives blog (new Editor is William Black)
    • frequent speaker both nationally and internationally (to particularly large audiences in Italy)
    • regularly seen and heard on liberal radio and television including:
      • The Majority Report with Sam Seder
      • Media Matters Radio
      • Up! With Chris Hayes
      • C-SPAN
      • Le Show with Harry Shearer
      • On Point with Tom Ashbrook
      • Capital Account on RT TV
      • Virtually Speaking
      • and is a member of the TopWonks network
  • Her 2001 book, “The State, the Market and the Euro” predicted the Eurozone crisis
  • Other work correctly predicted that QE wouldn’t lead to high inflation; deficits wouldn’t spike interest rates; the S&P downgrade would not cause investors to flee Treasuries; the US would not experience a Europe-like debt crisis (all of which I have covered in previous episodes of The After Show)
  • this appointment signals that it is becoming safer for Dems to embrace MMT
  • Stephanie announced her new job via her Twitter account and she is active in social media
  • In the past the Dems and GOP have debated the composition and size of the deficit with an eye toward balancing the budget instead of asking if either balance or deficit mattered – paraphrasing Dylan Matthews
    • Kelton & MMT cite the long-term damage caused by the Clinton surpluses (Dems HAVE to stop bragging about that surplus and about Obama’s falling deficit)
    • public debt is private savings
  • Until recently MMT was largely ignored, laughed at or, worst of all, denounced to hide the truth

• anything that puts Kelton into the general vicinity of Senators Sanders, Merkley, Brown and Warren is a chance for the MMT message to spread and that sows seeds for 2016 and beyond

  • The Forbes Fucking Freak-out – seen in an op-ed by Tim Worstall
    • basically AGREES with MMT including the principle that any nation with a sovereign, floating, fiat currency can always afford anything that can be purchased with its own currency AND he agrees that deficits heat and economy and surpluses cool it
    • his problem is that, like the entire rest of the GOP, he doesn’t trust democracy, as follows:
      • It’s not actually that I disagree very much with the economics that is being laid out in MMT:  indeed, I’m terribly tempted to agree that they’re actually correct in much of what they say. Rather, it’s what it will do to the political process if they do gain really policy influence. For at present there does have to be some link, however vague or tenuous, between how much money the government takes in from all of us and how much money the government spends on giving prizes to all.
        • 1) so MMT is RIGHT but that doesn’t matter (and neither does climate change, also, the earth is only 6000 year old)
        • 2) it isn’t the factual basis of MMT that is wrong, it’s democracy; he thinks that having corporations control the economy is preferable to having an elected government control it

It isn’t religion, superstition or fear mongering that forestalls accelerating inflation; it’s accountability – Randall Wray

  • 3) PRIZES?!?!?!? *splat!!! my head just exploded*

• even accepts the approximately $20B a year we are making in seigniorage by spending $0.23 to make a $100 bill and pocketing the difference in the Fed

• panics about Weimar and Zimbabwe forgetting that huge and essential difference –  their debt was not in their own currency

makes the ever-common mistake of conflating the unconstrained printing of money with the printing of money without thought, policy or specific authority

• he thinks the only MMT response to inflation is taxes

• Paraphrases Milton Friedman, “…if you ever have a chance to cut taxes just do so on the basis that politicians, any group of politicians, will spend the bottom out of the Treasury and more however much there is.”

so instead of putting on our big-boy pants as a voting public and holding our politicians accountable we just make random cuts in taxes as much and as often as possible

  • believes that MMT has no limits entirely dismissing that we never talk about spending without talking about resource/capacity/workforce limitations – the real difference is that MMT addresses REAL limitations instead of politically engendered myth
  • thinks that there is value in politicians having to justify how they will pay for a program (with cuts to other programs) as opposed to arguing the merits of the program based upon the benefit to society
  • and, finally, he comes down to the eternal saw, MMT leads to big government and big is inherently bad but just as with the entire rest of his cadre never says why this is
  • What the GOP, Wall Street and the Economic Priests Really Fear
    • “There’s something invigorating about people freaking out about modern monetary theory (MMT). They treat MMT as akin to the Ark of the Covenant in the first Indiana Jones movie. They are petrified that knowledge of the financial equivalent of the “holy of holies” will be released to normal people because they project their greatest terrors onto the possibility that the public will be transformed and empowered by their knowledge….” – William Black, NEP 14 1 15
    • Nobel Laureate Paul Samuelson argued that promoting the lie that the budget must be balanced serves a public purpose
    • This, of course, serves to ensconce the Priests of Economics up in their unimaginably high and impossible to ascend Thrones of Knowledge; except that that is all hamster lucky
    • The sense among most economists is that you and I can’t be trusted with the Ark because we might get ideas above our station
    • Statistically economists differ from others of similar intelligence in that they score LOWER in altruism when they begin their studies, they are worse when they receive their degrees and they are proud of it – really, someone studied this!!!
    • “Joseph Schumpter, argued against government reducing the severity of depressions because ‘artificial stimulus leaves part of the work of depressions undone.’” – William Black
    • the long-term deficit story plays into the hands of those (Pete Peterson, this means you) who will soon be grubbing to get their hands on Social Security monies – recommend the Matthew Filipowicz interview, Show Ep 393, from this week and his interview with Nancy Altman, of Social Security Works,  on this very subject

date here – title here

7 thoughts on “MMT Podcasts

  1. As a physicist myself I am confused by your embracing the MMT in whole cloth. I completely understand your eureka moment when the answer to the question “how are we going to pay for it” was presented to you. And yes, there is an answer, but MMT is not it. As a scientist, you might be interested in the true basis for sovereign money as presented by a Nobel laureate chemist, Frederick Soddy. He presents an elegant and straightforward explanation of what money really is and how it can be created in its proper form, an asset to society rather than the MMT misinterpretation as a liability.

    As an example of one of the holes in MMT doctrine: “taxes are destroyed and don’t pay for anything”. This sounds revolutionary, but it is a slight of hand that takes advantage of our faulty accounting system to make it appear to be true. Taxes collected do not flow, so it appears that they vanish. In fact the taxes collected allow the authorization of money creation to the exact amount collected. Essentially existing statues effectively bypass the double entry bookkeeping construct. So, to use a term from physics, that money reaches the TGA account via a “tunneling” mechanism with the end result that money spent by congress MUST equal that collected by borrowing and taxing -by definition in law.

    There is actually a much more satisfying paradigm than MMT which really does answer your question of how progressive programs are to be funded. I would suggest reading Dr. Joseph Huber’s latest book, “Sovereign Money”. As a physicist I know you will want to explore all sides of a phenomenon.

    1. Paul, thank you so much for your careful listen! Still, I disagree. Having spent 25 years running the business side of my manufacturing business what I do also know a great deal about is double entry accounting. This is exactly what the Fed (or any central bank of any monetary sovereign) uses and exactly what MMT describes. MMT is badly named, it is not a “theory.” It is fact. Assets/liabilities, it boils down to simple accounting. MMT describes the flow of currency while it remains available for use by currency users. You know the math, a positive 1 cancels a negative 1 every single time. There simply is no argument to be made against this. The Fed uses double entry accounting and MMT explains it. As a scientist you know there is a point at which a theory becomes a proven law. MMT describes not what people want to see or think they see but the actual accounting core of the fact of money. Your guy may have an interesting idea (and I’ll take a look just out of curiosity) but double entry accounting simply is.

      What your comment does point out is that sometimes I shy away from talking about the accounting core because I know any time people think someone is talking to them about math they panic. They don’t see math as a language. I should have found a way to bring the appropriate core concept into my side of the conversation. Ah well, I live, I learn.

      Again, thank you for taking time to comment and I WILL take a look at the book you suggest.

  2. Thanks Arliss. Maybe you can help me follow the money. I have had many many discussions with Joe Firestone and, to be honest, there is a true logical disconnect at play. I suspect it may be that my physics mind doesn’t talk the same language as his.

    (1) Is it not true that congress today (not what is possible but what is legally proscribed) can not spend more than what is borrowed or collected in taxes?

    (2) When the TTL tax receipt accounts are marked down, based upon double entry bookkeeping, what is marked up in response?

    (One point I need to make ahead of time is that the TGA account is not distinct from any other reserve account. I’ve seen explanations from Stephanie which, for some reason, ignore that.)

    I think you will find Dr. Huber’s book provocative – at the very least it will help firm up your own understanding of MMT relative to other models. He’s not really “my guy” but is someone who has recast a long historical understanding of money and the banking system into a modern context.

    1. Ahhhh – you do have a disconnect and this is simple to explain (I think!)

      1. Congress can spend any amount it wants to. It is NOT limited by tax collection in any way. This is, in fact, how the wars in Afghanistan, Iraq and Syria are being funded right now. The GOP keeps pushing what it calls a “balanced budget” (which is a misnomer in so many ways) but even a balanced budget would not prevent them from appropriating whatever it likes whenever it likes.

      2. A monetary sovereign is any nation which creates its own currency. So, the US is a monetary sovereign and China is a monetary sovereign but any nation which uses the euro is not. When a monetary sovereign releases any form of redeemable “money” out into the private sector via currency, credits to bank accounts or through the sale of instruments like T-bills, they are giving the private sector an IOU – literally. So, on the books of the central bank, the Fed in the case of the US, the IOU appears as a liability. Now, let’s say we are talking about $1 in hard currency that the Fed has spent into the private sector through one of its channels. That $1 is a liability because it is an IOU for $1. (Note: this is the point at which gold bugs who don’t understand the power of a fiat currency lose their minds but I’m not going to get into the whole “fiat” thing here. Suffice to say that, for the US, a fiat currency is MUCH more powerful than any commodity-backed currency could ever be.) Okay, when the Fed spent that $1 into the economy it filter through and got to you. Now you have that $1. While you have that $1 it is an asset to you, an asset on your personal ledger. But, as I said earlier, that same dollar shows up as a $1 liability on the ledger of the Federal Reserve, right, because they issued it. Now, imagine that you use that $1 to pay taxes. At this point you don’t have it any more. When you had it, it appeared on your ledger as a $1 asset. When you spent it, it appeared on your ledger as a $1 liability and because +1-1=0, your ledger has zeroed out that dollar. The opposite is true at the Fed. When they issued that $1 out into the private sector it was worth ($1) on their ledger and when you paid your tax with it that dollar came into them as an asset equal to $1. So, for the Fed -1+1=0. And it is always that way. It HAS to be.

      Let’s just think in terms of hard currency, because that is easier to picture than Fed credits to banks or Treasuries. It is obvious on the face that every single bit of hard currency floating around out in the private sector had to first be created into being by the Federal government and spent out into the private sector by the Fed. Think “legal tender.” So, if the government was really collecting back more in taxes than it was spending into the system, there would be no currency floating in the private sector because the public/federal sector would have sopped it all up.

      Every single dime, and that is lol literal, which is floating in the private sector shows up on the books of the Fed as debt. Their debt is our asset. Just like that $1 I was talking about earlier, the $1 liability/debt of the Fed is the $1 asset of currency users like you. The government HAS to be in debt in order for currency to be available in the private sector.

      My understanding of MMT is very firm. It is double-entry accounting. That it also can be utilized to alter the paradigm of what people believe is possible, within the available fiscal and political space, is what makes it wonderful. For me, it is clean, pure, simple math and that makes it even more special. No theorist, or historian or neoliberal economist can explain away the math. It can’t be done. Huber needs to get on board.

  3. Is there a reason as to why every time I click on the highlighted blue link for an MMT podcast the only thing that pops up us “404 NOT FOUND”.? The transcript for each link comes up fine but not the actual podcast.

    1. Gary – I’ll get into it and see if I can figure out what is going on. I’ll comment again when I get it sorted so you will know. Between now and then, if you go to the “HM Podcast Archive & Index” tab and to that actual index page, all the economics-related subjects are in green. The Index goes up through October 2017 so, obviously, I need to catch-up there too! Thank you for shining a light on these things. I will get things moving. Carrots! – Arliss

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