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Please begin with an informative title:

Our 46th Vice President, Richard Bruce "Dick" Cheney is famously reported, by Paul O'Neill, Secretary of the Treasury, to have said:

Reagan proved that deficits don't matter. We won the mid-term elections, this is our due.
What Cheney meant was that the deficit didn't matter to the electorate, which voted in Republicans, despite having been told throughout the nineties that "balancing the budget" and reducing the National government's deficit was the holy grail. And, since Cheney's only interest was in having power, the deficit didn't matter to him for sure.

I will admit here to having always been leery of the balanced budget meme, because planning to have income and outflow exactly the same was obviously designed to create an illusion that can't be realized. So, of course, it is nice to have a bunch of economists admit that concern about the deficit is a "superstition."

On the other hand, as the economist L. Randall Wray explains in the first session of a series of seminars under the heading, Modern Money & Public Purpose, a national deficit is a real thing and it is a good thing, which, from time to time, we create on purpose. So, deficits obviously do matter.


You must enter an Intro for your Diary Entry between 300 and 1150 characters long (that's approximately 50-175 words without any html or formatting markup).

Since the first seminar, as recorded, is rather lengthy (107 minutes), I've split it up into segments and left off the Q&A.
Wray starts off his presentation with a quizz:

Just like a household, the government has to finance its spending out of its income or through borrowing.


The role of taxes is to provide finance for government spending.


The National Government borrows money from the private sector to finance the budget deficit.


By running budget surpluses the government takes pressure off interest rates because more funds are then available for private sector investment projects.


Persistent budget deficits will burden future generations with inflation and higher taxes.


Running budget surpluses now will help build up the funds necessary to cope with the ageing population in the future.


And all of these statements are found to be false. And to validate that conclusion, Wray calls on the Federal Reserve Bank of St. Louis, where all the Fed's data are collected:
St. Louis Fed:  “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. 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 mareket for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets.”
Then he translates what that means.
Government can NEVER run our of Dollars; It can NEVER be forced to default; it can NEVER be forced to miss a payment; it is NEVER subject to whims of “bond vigilantes.”

It's my hope that this initial taste will lead you to sample all the segments, especially the second half of Micheal Hudson's, which brings it all up to the present day and leads me, at least, to the conclusion that the reason we have to increase tax levies on the gnomes of Wall Street is because they have sequestered our money and effectively taken it out of circulation.  And, while our government can always "make" more, it's terribly inefficient to have someone doing the equivalent of siphoning the oil out of the car's engine every night. We'd consider that vandalism. Just so, the economic vandals need to be reined in.

For those who can't watch videos on the site, here are the URLS





I should add that Wray accusing the President of prevaricating is not quite accurate.  While the limits on spending by Congress are entirely arbitrary and self-imposed, the Executive is limited to only spending what the Congress authorizes and the only leeway he has is to spend less, which both Clinton and Obama have accomplished, presumably because what the Congress approved was ill-advised.
So, I've been pleased that President Obama has not taken the disingenuous Republican gambit on the deficit and has refuted the Paul Ryan plan to impose austerity quite directly. That he's not wanting to waste time challenging conventional wisdom is understandable. There are more important things to decide. And at some point the public is going to realize that the country can manage quite well without a budget, balanced or otherwise.
Given the rampant growth of planning in the last two decades, one suspects that the nervous nellies who decried Soviet five year plans were just jealous. Planning and never getting anything done has turned out to be so much fun and a virtual guarantee of longevity in Congress. Which is why Capitol Hill is in need of a good house cleaning.

h/t to Bluehawk for bringing this seminar series to our attention.

Extended (Optional)

Originally posted to hannah on Thu Oct 04, 2012 at 07:04 AM PDT.

Also republished by Money and Public Purpose.

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