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View Diary: The Trillion $ Coin - a primer for non-economists (45 comments)

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  •  "What we are used to" is a misconception. (9+ / 0-)

    Elwood, as you recognize in your post, there are substantial and long-standing exceptions to all three of the assumptions you cite -- which is not to say that they are not relevant as an (unreasoned) source of discomfort.  But I believe the real discomfort at the root of this discussion is instantly brought to the surface with two simple questions:

    Q1. Who creates US dollars?

    Q2. Who determines the total number of US dollars?

    The oversimplified but fundamentally correct answer both questions is:

    The US money supply is controlled by private (mostly TBTF) banks acting in their own self-interest.

    Sure, the the banknotes in your wallet say "Federal Reserve Note" and the Federal Reserve (itself a private entity) does create a lot of the money in circulation.  But most money is just accounting entries in bank computers -- which the banks essentially create at will pursuant to Congressional delegation via the Fed.

    The Fed does require a "reserve ratio" between private bank reserves and loans.  However, MMT researchers have shown quantitatively and without subtantial contradiction that banks easily obtain low-cost reserves after the fact to cover whatever volume of loans they choose to make.  MMT's catchphrase, "Loans create deposits" is just the opposite of what we learned in ECON 101.

    So, all the right-wing screaming and moaning about a trillion-dollar coin debasing the currency is a smokescreen.  What we're really arguing about is this:

    Should the quantity of money in circulation be determined by private actors guided by pure self-interest, or should it be a public decision?

    And the discomfort grows from there ... what's going to keep my savings from being eaten up by inflation if there's no effective control on the amount of money in circulation?

    I think we've got a better shot when we know who's controlling the money spigot (e.g., an elected President and Congress) and can hold them responsible, insead of the current system: a bunch of anonymous, myopic bank CEOs who answer to no one except Boards of Directors that are packed with their yachting buddies.

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