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Saints preserve us we're $16Trillion in debt and no end in sight!!! Oh, the humanity! Save the children, but abandon all hope!!! The Chinese are coming, the Chinese are coming! We owe them TRILLIONS and the day of reckoning will soon be upon us!!! . . . and other assorted bullshit.

PLEEEEEASE! The American economy has NEVER been seriously harmed by government deficits or the public "debt." That's not to say that the opposite does not occur, that is, the economy can certainly be injured in the absence of public sector deficits. You need only look to the goldilocks era during the late Clinton years when the government accounts went into surplus.

What, you say? The Clinton years were pure Tony the Tiger "GREAAAT." Cornflakes, I say!  Follow me below and I will explain why.  

The problem, of course, is that a federal government surplus will ONLY occur in the presence of either a trade surplus or a private sector deficit. The federal government surpluses from 1998 to 2001 occurred at the same time we were running huge trade deficits. Consequently, the US private sector went into massive debt. After the Bush tax cuts there were a few quarters of private sector saving, then massive debt again accumulating from 2004 to the crash. See graph.

After the crash, automatic stabilizers (decreased tax revenue, unemployment insurance, TANF, etc) and huge deficit spending in the form of bailouts and stimulus again went into private sector surpluses, but by the time of the crash private debt was 500% GDP (almost double what it was going into the great depression), so deficit spending went to reduce debt rather than into consumption, which is why the economy remains sluggish with low aggregate demand.

This is all sort of basic macroeconomics that everybody should understand. Sadly, most readers either missed basic econ or it was so poorly taught that the result was simply learned confusion. Nevertheless the mechanics of sector balances is really straight forward. Take all the activity in the (federal) government sector, cancel all the debits against all the credits, what's left is the sector balance. Do the same for the domestic private sector, and for the foreign sector. Add the three balances together. They equal ZERO. If they don't, you did something wrong because it is a mathematical identity. When one of the three is positive, at least one of the others is negative. Like a three-way teeter-totter.

I am constantly disheartened by the economic commentary in the media, mostly because progressives constantly adopt the right-wing meme about debt and it is clear they neither understand the issues, nor do they have a divergent position on the matter. The only difference is the degree of wrongness: they are rhetorically hawkishly wrong on the right, they are rhetorically dovishly wrong on the left, and in terms of actual historical outcome those positions are reversed.

If progressives would understand a few things, we could have a real debate about the economy, but the current state of affairs is pathetic. Everyone is flocking to talking points and making broad statements about debt without first trying to understand the nature the money that underlies it. It is disconcerting when everyone who's supposed to be on your side babbles incomprehensibly about such an important topic.

Understand this:

1) Federal Deficits drive private wealth.
 Unless we are net exporters, there is only one choice: either the Federal Government or the private sector must be in deficit. Take you choice.

2)The national debt consists entirely of the government's exclusive obligation to accept dollars (and only dollars) to discharge tax liabilities. Look at a dollar bill, read what it says. That is the government's sole guarantee. It also has a legal tender provision, but that pertains to private debt and is really irrelevant to this argument.


3)If you hold a US Treasury bond (like China) the government makes two guarantees. a) It will pay the promised interest in dollars (the same dollars it creates at will); and b) it will be redeemed for dollars, whereupon the government will accept those same dollars in payment of tax liabilities. So should China decide to call our debt, here's what happens. We give them dollars for the bonds and we stop paying them interest. At that point they have huge pile of paper that guarantees them the right to extinguish that specific amount of US Tax liabilities, and we have huge piles of iPads and flatscreen TV's. and a mountain of lesser stuff that they made with their labor and their materials. Ouch! So instead, say they refuse to buy any more of our bonds. But remember, we sell them bonds because they don't want non-interest bearing cash. They can't sell all their junk to us for anything but dollars. Don't want bonds? Keep the dollars. Don't want dollars? Sorry, Charlie, take your crap home. If you sell in America you sell for dollars. And course, if you don't want to sell here for dollars, we might just start making them for ourselves and for our export market. So, should we be scared of all this? Are you insane? Are they? Is suicide a viable threat from an adversary?


4)The government does not have to borrow money, it issues money, it creates it by spending it into existence, often taking a private asset in exchange. The government sells bonds to satisfy the private sector's desire to hold savings in interest bearing instruments and to support interest rates in the private market. If the bond vigilantes don't want dollars-based assets, we can stop squandering sovereign money supporting their market and let interest rates fall to nothing. That just lowers the propensity to save and stimulates consumption  The government imposes taxes to insure the value of monetary instruments. Government debt is not debt in the conventional sense of the word - it is the governments IOU issued against the aggregate of the government's UOME; it is the transduction of a one-sided private sector real asset into a two-sided financial asset (debit and credit), remitting the credit back as private sector wealth. That credit and its associated debit are both extinguished when the government receives it in payment against a tax liability. That is a monetary fact.

Originally posted to Old Surgeon on Wed Oct 24, 2012 at 05:43 PM PDT.

Also republished by Money and Public Purpose and Community Spotlight.

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Comment Preferences

  •  I have a question (2+ / 0-)
    Recommended by:
    chemborg, FG

    Younsay because the country had trade deficits from 1998 to 2001, the private sector went int debt. I don't see the connection between the two. Isn't a trade deficit simply that you are importing more than you are exporting? Has nothing to do with borrowing, no?

    •  The foreign debt can only be financed by (18+ / 0-)

      either the private sector or the government sector. Remember the three sector balances equal zero by definition. As the government was mounting surpluses during, net financial assets were draining out of the private sector. Nevertheless, consumption kept up in the private sector, but it was largely consumption of foreign goods. This was all financed through borrowing against the real estate asset bubble. Remember, we're discussing aggregates, not individuals. Some individuals grew real assets during the bubble, many more acquired credit assets that were crushed when the bubble was deflated.

      •  Excellent (5+ / 0-)

        Thank you.

        "There are four boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order." Ed Howdershelt

        by Lava20 on Wed Oct 24, 2012 at 06:04:13 PM PDT

        [ Parent ]

      •  Ok. That makes sense. Thanks. (4+ / 0-)
        Recommended by:
        chemborg, JanL, shaharazade, FarWestGirl
      •  This is quite profound! (7+ / 0-)
        The foreign debt can only be financed by
        either the private sector or the government sector.
        rather like that club where entry is limited to members and non-members only.
      •  Not correct. (1+ / 0-)
        Recommended by:
        dallasdunlap

        When a country has a trade deficit, there is a matching purchase of assets the exporting counties receive in exchange for their goods and services beyond what the US sold them.

        These assets are not limited to government and private sector bonds.  These assets include real estate, purchase of company stock, direct investments into business operations, bank deposits, purchase of natural resources,mortgage backed securities, foreign assets owned by US entities, etc..

        The most important way to protect the environment is not to have more than one child.

        by nextstep on Thu Oct 25, 2012 at 06:31:57 PM PDT

        [ Parent ]

        •  But these are all denominated in dollars, and are (0+ / 0-)

          only convertible to dollars; one can't buy mortgage backed securities and receive anything other than dollar denominated interest.

          All this is really beyond my ordinary though processes, but it makes sense. As long as the US government controls its currency, and that currency is the only legal tender for all debts public and private, the government controls debt.

          No?

          •  If a country allowed its currency to have high (0+ / 0-)

            inflation, new debt vulnerable to inflation will either be an inflation adjusted security or the debt will be denominated in some other currency.

            The role of the US dollar as the core international currency only continues as long as the US has low inflation.  The US dollar is trusted only so long as its value is trust worthy.

            I have done international business in high inflation countries and have seen up close how currencies fail.

            The most important way to protect the environment is not to have more than one child.

            by nextstep on Thu Oct 25, 2012 at 11:16:59 PM PDT

            [ Parent ]

        •  Foreign real assets are traded for (2+ / 0-)
          Recommended by:
          psyched, katiec

          dollar-based financial assets. These are banked at the foreign trader's bank as demand deposits, and that bank's account at the Fed as reserves. This is a checking account - pays no interest.

          Separately, for reasons not predicated on foreign exchange, the Treasury offers bonds for sale. In some respects this is a scam because it just keeps interest rates up for the bankers. But it just costs interest, and if you understand money, the interest is both unnecessary and largely irrelevant.

          Now, the foreign trader has all kinds of free market options. He can withdraw the money in cash and have dollar bills, which he can carry around and spend or hoard or trade for some other kind of money. He can write a check and buy whatever a willing seller wishes to sell for dollars. He can buy a bond that ties up the capital for a fixed time in exchange for a few extra dollars. Or he can discharge his US Tax Liabilities. That's it. And it is only the last of these, extinguishing tax liabilities, that has anything to do with the government. The rest is circulating money, like circulating blood. Oxygen, blood and the body makes a fair analogy if you do physiology.

          •  You left out buying non-financial assets. (0+ / 0-)

            Such as real estate, natural resources, businesses that may be US only or international, the investment world is far broader than debt instruments.

            The most important way to protect the environment is not to have more than one child.

            by nextstep on Thu Oct 25, 2012 at 11:23:37 PM PDT

            [ Parent ]

  •  Hotlisted so I can digest it later. (10+ / 0-)

    Never really got through economics. .

    The founding fathers knew of the mutually corrupting influences of Church and state, wisely sending them to opposite corners.

    by emidesu on Wed Oct 24, 2012 at 05:52:09 PM PDT

  •  The one that always cracks me up is when they (24+ / 0-)

    simply divide up the debt by the number of people and say 'Your share of the debt is ....'.

    Well, no.  Because my share of the wealth isn't simply 1/314millionth of the country, nor is my share of the income.  Your (and my) share is dependent upon the ratio of the rates at which we're taxed as compared to those of other people.  

    They talk about increasing debt as increasing our personal 'share of the debt', but the reality is that our share changes for the better if the rich are tasked to actually start paying more again, and for the worse when they're given tax breaks, ala Romney/Ryan.

    It's the same crapola they pull by talking about how Obama is going to raise taxes without actually mentioning that on the vast majority of people, he won't, and might even lower them, but on the wealthy he will.

    •  The whole basis for taxation is crazy. (15+ / 0-)

      Taxes are essential but not for anything having to do with what government spends. Dollars are debits on the gov balance sheet. When they receive the corresponding credit as a tax liability payment, the credit and the debit combine to cancel. If you pay your tax directly to the treasury account at the Fed with cash, say a $100 bill, they will mark off the debit on the balance sheet and drop the $100 bill in the shredder. That's why you don't help out the government by sending them extra tax money. They have absolutely no use for it.

      The point is, taxes power (drive) money. Each of us acquires two liabilities at birth. Death. Taxes. Death is the debt of life, a debt to nature. Taxes are a debt to the regime for protecting us from lions, tigers and bears. Taxes must be sufficient to require effort to satisfy them, and universally enforceable. Beyond that they MAY be used to shape public purpose, to control inflation, and fine tune the economy. They need not be based on income. A tax on cranial volume, living space, or another non monetary measure would also work.  

      •  when tax money is sent to the government (8+ / 0-)

        When tax money is sent to the government, it is "destroyed". It ceases to exist. I think our elected representative have this image of a huge vault like Scrooge McDuck's that tax money is deposited in. Taxes are a way to reduce the amount of money in an economy and thus control inflation.

        Thank you so much for this. In my opinion, this is the most important issue we have to deal with. We can't feed our hungry, take care of our sick, mitigate global warming, prepare for the end of oil, all because we are "running out of money".

        •  No doubt most of our elected representatives (5+ / 0-)

          are dumb and uneducated.

          However, there's also no doubt  that some know what the deal is.  Considering Geitner's testimony before Congress about how the US can't go broke, just as a "bowling alley can't run out of points", etc....  it seems that Obama, who listens closely to Geitner from all accounts, is one who knows that the US can't run out of points.

          Anyway, there's no doubt in my mind that real fraud, real propaganda is also at work -- not just innocent mis-information, though that's also at work.

          •  Obama may know this (1+ / 0-)
            Recommended by:
            psyched

            But Katie, he still says we're running out of money and need to cut the deficit. Why is that?

            •  Social/economic/political control..... (0+ / 0-)

              Can you imagine the demands on democracy if people realized that money is like playing a keyboard computer game?

              Fiat money is cool precisely because it COULD be used for expanding democracy.  And it's a threat for the same reason.

              And yeah, if Timmy understands the score, and it sure looks like he does (same with Bernanke), then I'd assume Obama does too, cuz Obama seems relatively intelligent, and Timmy has his ear.

              And if Obama doesn't understand the game, then he's being willfully ignorant, ie, not getting what one really does get but doesn't want to.

            •  Maybe the deficit is symbolic, and the fact that (0+ / 0-)

              the debt is so large erodes our power overseas.

              Hamilton was adamant about two things: that the US Government debt would be paid, and that a government regulated private banking system was the foundation of a sound economy.

              Of course, the debt the US owed at that time was payable in foreign currency or gold, and thus had to be earned by the creation of new wealth through productivity in agriculture and industry.

              Fortunately, the US had plenty of land, and was able to seed productivity by paying off debts to soldiers with land, and selling some of it.

  •  BTW, in re your #1 (9+ / 0-)

    Didn't it use to be, before we went all 'global free tradey' that we actually used policy tools like tariffs to try and keep us more in the way of net exporters?

    •  We did (17+ / 0-)

      Also after WWII we rebuilt a lot of the world with American exports and thus we became the world's biggest creditor. Then, when we got Japan and Europe back on their feet, we became their export market. Twenty five years later we were flipping to debtor status, the gold was draining from our reserves because our $35 per ounce fix was 20% below the rest of the world's market price for gold. Tricky Dick saw what was happening and said "no mas." We went off the gold standard and declared monetary independence. Nobody really seemed to know what that meant at the time, and they still don't, for the most part. But it fundamentally changed the nature of money.

      The thing is, in terms of material wealth, an importing country that has a sovereign non convertible money is in a far different position than one with a pegged or gold-backed money. Before Nixon did the good thing, the situation in my #3 above would have required handing a $trillion in gold over to China. If that were the case that stupid right wing China Owns You TV ad would actually have some validity. But President Nixon, of all people, the man who opened up China to the West, is also the guy who put the biggest screw in the world to them.

  •  National Debt and Budget Deficit (7+ / 0-)

    Free University and Health Care for all, now. -8.88, -7.13

    by SoCalHobbit on Wed Oct 24, 2012 at 06:35:15 PM PDT

  •  Thanks for this...... (19+ / 0-)

    I think it would be helpful if someone -- like you -- would slowly go through the steps of how a dollar bill gets into the private sector.

    Thanks again,
    Katie

  •  Also, the MMT folks on DKos should.... (10+ / 0-)

    post reviews of good papers and videos, like the recent videos of Wray, Kelton, Keen, etc...  

    And there's a good post up now at New Economic Perspectives called "Myth Drives the Budget Fuss".

    Anyway, just a suggestion.

    Thanks again for your really good post.  It's one I'll be coming back to.

    Katie

  •  "This is all sort of basic macroeconomics that (21+ / 0-)

    everybody should understand"

    I'm just guessing from your username, but I think you must travel in fairly insular circles. The ignorance that prevails today is truly astonishing. Economics is not taught at all until post-secondary and at that it is elective.

    Thank you so much for writing this piece, I only wish it would get some play. Perhaps you will re-publish it after the elections?

    "Those who can make you believe absurdities can make you commit atrocities." - Voltaire

    by Greyhound on Wed Oct 24, 2012 at 10:29:49 PM PDT

    •  Yeah, nobody (6+ / 0-)

      bothers to acquire any macroeconomics, and thus the turdblossoms do bloom.  O'Reilly was on Letterman tonight claiming that Romney would bring prosperity because he was a supply sider, and he didn't even get laughed off the stage.  That crap is still around, and will no doubt continue to haunt us for years to come.

      The "invisible hand" doesn't regulate the market - it wanks it. -- SantaFeMarie

      by Dinclusin on Thu Oct 25, 2012 at 03:07:09 AM PDT

      [ Parent ]

      •  It will be around because it is the MO of the GOP. (4+ / 0-)

        They need it to justify the continued upward redistribution of wealth.  Even the top 1%er's don't understand how economics works.  They understand how business works.  Low info voters think economics is what they learned in home economics.

        What kills me is why Obama and other dems continue to give them rope with Catfood commissions, etc.  Econo 101 should be a required course for high school in America along-side and coordinated with Government.  It should also be required of every elected official and if they don't pass with an 80% or better they must continue to take it until they do.

        "Wall Street expertise, an industry in which anything not explicitly illegal is fair game, and the illegal things are fair game too if you think you won't get caught." — Hunter

        by Back In Blue on Thu Oct 25, 2012 at 10:29:15 AM PDT

        [ Parent ]

  •  debt is fear mongering (5+ / 0-)

    Never has anything been more fear mongered than the debt.

    It's true that you don't want to pay huge amounts of interest but in terms of percentage of GDP our debt (even at the current level) is not all that bad.

    "The real wealth of a nation consists of the contributions of its people and nature." -- Rianne Eisler

    by noofsh on Thu Oct 25, 2012 at 01:05:19 AM PDT

  •  So... we don't owe anyone (2+ / 0-)

    any money? It's all just smoke and mirrors economics b.s.? Thought so.

    •  The Government owes it (3+ / 0-)
      Recommended by:
      katiec, winkk, psyched

      alright. But it also has a capacity to make all the money it needs to repay it. There are a number of ways to do that. A currently legal way is proof platinum coin seigniorage. The advantages of doing it this way are two.

      First, it requires no further legislative action. And second, the difference  between the $16 T debt and the $44 T of excess seigniorage used to fill the public purse can place continuing pressure on Congress for deficit spending appropriations in the future, since the money for the deficits will already be there.

    •  Debt and credit are two sides of a coin (4+ / 0-)
      Recommended by:
      katiec, winkk, psyched, Calgacus

      In double entry accounting every transaction has a debit and a credit. And everything that we use to transact our day to day economic life are little IOU tokens. That is all that money is - it is an IOU token.

      So while bank debt is also money, it is money that has to be paid back in its entirety with interest. Government money can only be obtained from government payments, by either doing work for the government, or from "entitlement programs." There is no other way. This money is only repayable to the Government to the extent of your tax liability. The rest is yours to keep or spend. Government issued money is the only money that you can "save" - bank issued debt money cannot be saved as it has to be repaid with interest. Thus the accumulated savings of the society have to be of necessity, the accumulated Government deficits - (to the penny - as MMT economists would say.)

  •  Yes, exactly (33+ / 0-)

    The government creates money by spending it into existence.  It destroys money by taxation.  It subsidizes investors by creating Treasury Bonds.  There is no necessary connection between the budget deficit and the creation of new debt.

    Oh, but what about inflation?

    1 - It all depends on how you define inflation.  Current measures of inflation almost exclusively define it in terms of wages and prices - that is, the evil and bad inflation is almost exclusively defined as a rise in wages.  Oh, the horrors, the ordinary people are getting a larger share of the pie!  Destroy the economy now, before it's too late.

    2 - Asset price inflation - that is, the rise in stock prices, investment values, and real estate value - somehow is not included in the common measures of inflation.  Strangely enough, those are the kinds of things the 1% happen to own.  One would not want the government stepping in to prevent THOSE assets from appreciating.

    3 - Government spending (that is, monetary creation) creates wage/price inflation if those government dollars are being used to buy things that are in short supply.  If it's being used to buy up things that are sitting around idle, such as the labor of teachers - then it's not going to be inflationary.

    4 - The destruction of money via taxation should never be thought of as "funding" the government in any way, but rather as a way to reduce inflationary pressures and to manage economic actions.  Taxation should really be targeted at those areas of the economy where too much money has built up, and thus which might be able to create inflationary economic distortions.  For example, massive inherited incomes and ridiculous CEO pay that, in the search for easy returns, fuels the Wall Street casinos and thus creates asset price inflation.

    5 - The upshot of this is that, liberated from the imaginary shackles of a false economic doctrine, the government could easily spend millions to hire the unemployed in a variety of useful and necessary occupations, without creating a dime of liabilities for the ordinary citizen or summoning the inflationary boogeyman.

    The ideology behind the notion of cutting budgets and promoting austerity is complete nonsense.  The only effect it will have, or can ever have, is to destroy the productive economy and further impoverish the masses.  Feudalism, here we come!

    `Under my command, every mission is a suicide mission.`

    by Zwackus on Thu Oct 25, 2012 at 02:19:41 AM PDT

  •  Yeah, but what about interest? (0+ / 0-)

    Isn't the gov having to spend an s-load of our tax dollars to pay interest on the debt every year?  What did I miss?

    The "invisible hand" doesn't regulate the market - it wanks it. -- SantaFeMarie

    by Dinclusin on Thu Oct 25, 2012 at 03:32:31 AM PDT

    •  The interest is paid with dollars created (10+ / 0-)

      out of thin air.  Bowling alleys never run out of points, and the US will never run out of dollars.

      Dollars are just a unit of account, like inches, ounces, etc....  They're not a thing.

      •  Interest is a CHOICE not a requirement (10+ / 0-)

        The treasury sells its bonds to soak up excess reserves in the banking sector so as to maintain the desired overnight interest rate. Think about it. We are deficit spending so there is always excess going out of the treasury to the banks. These are posted as bank reserves, essentially a checking account at the Fed. You don't want too much money in your checking account because it doesn't earn interest, so you transfer the excess to savings. At the Fed, savings means bonds.

        Every day as reserves accumulate the banks want to loan them out, but if everyone has excess reserves, nobody will borrow and the interest rate is pressured down toward the "natural rate of interest" which is ZERO.

        If the bond sales didn't happen, the only ones hurt would be the bond merchants and the financiers that rely on the government teat. That's basically what all the goofy quantitative easing has been about. The fed buys back a bunch of bonds, basically moving accounts from savings to checking, with a new deal where checking earns 0.25%.

    •  The US pays the lowest rate in today's market (4+ / 0-)

      The 10 year  treasury note is paying 1.8% interest  the 20 -year is paying 2.5 %.   In other words ... the Treasury is offering  about what the Big Banks HOPE the inflation rate will be, if all goes well.

      By way of contrast: England sells it's bonds at about half a percent higher  while GREEK public debt is paying between 16 and 18% ... down from 20-30% a few months ago.  

      What this means ... the bond market has  eight to ten times the confidence that the United States will pay its debts than that Greece will.  (After all, push comes to shove, the United States may have to tax the Plenty Rich a couple of percent more than we do now, where as Greece would probably have to sell off a few of their islands -- land, goods,  people and mineral rights included.

      So ... as a gross number ... yeah, it's a whole big pile of money.  

      But, in  relative terms ... now is a pretty good time to be borrowing for infrastructure repair and capitol investment.  

      (Good time for a first time purchase of a new house, assuming one has the income to make the payments.)

      •  U.S. and Greece -- totally different animals.... (5+ / 0-)

        The U.S. makes it's own money and owes all obligations in it's own currency.

        Greece doesn't make it's own money and owed all it's obligations in a "foreign" currency -- the Euro.

        Greece CAN run out of Euros.

        The U.S. has it's very own dollar making machine, thus has an infinite "supply" of dollars.

        •  So what is being said... (1+ / 0-)
          Recommended by:
          Dustin Mineau

          is that the Cheney quote of "Reagan proved that deficits don't matter" is true.

          Got to ask, then, why all the brouhaha about raising the debt ceiling? Ignoring the Republican "screw the black guy" aspect of the squabble.

          •  Old Thinking (4+ / 0-)

            People are still stuck in a pre-fiat "gold standard" thinking.  Before 1971 when the United States was still on a gold standard, we really COULD run out of money and did have to pay interest to "borrow" the gold to pay for stuff.  That's why all the brouhaha.

            I think some RepublicansConservatives like Cheney, Greenspan, and Bernake get it.  But they don't tell the truth because it wouldn't help their political agenda.

            Our Dime: Understanding the Federal Budget

            by Dustin Mineau on Thu Oct 25, 2012 at 12:38:30 PM PDT

            [ Parent ]

      •  No, no, a thousand times no (4+ / 0-)

        Tax dollars do not pay the debt. Period. The US creates money to spend and destroys money that it receives in taxes. Taxing and spending have nothing to do with each other except that congress demands we offer bonds in lieu of cash so the holders can make money on them. It's a stinking giveaway. What the government does to conceal the truth is a series of 7 transactions involving the Treasury, Private Banks, and the Fed. But if you lay out all of the transactions and "gather like terms" as they teach you in algebra, it comes down to this.

        Spending: Congress authorizes $1Billion to buy a bomb. Dollars are created when they are credited to the bomb-maker's bank account and his bank's reserve account. This requires entering a 1 followed by 9 zeros on a keyboard. The credit is accompanied by an equal debit on the treasury balance sheet.

        Taxes: As those $Billion come back to the treasury in tax receipts, the credits cancel the debits and the financial asset that was created during the spending phase is now extinguished. Kaput. Off the books. If it came in physical cash, it was shredded.

        •  Is this an important distinction ? (0+ / 0-)

          I mean, I get it that money is an abstraction with a great many arcane technicalities governing it's use and creation -- and that I don't know, much less understand most of them.

          But, are you saying that if tax revenues were increased by raising differential tax rate on income, there would be no effect on debt or deficit ?  

          Or is this a question of the  legitimacy of issuing bonds in the first place?  The economic validity of using fiat money in the first place?

          I'm seeing the issue that matters is "Can the United States pay it's debts ?"  

          My guess is ... "yes." ... and the Markets in their infallible wisdom seem to be saying "yes" also  ... because they are not demanding huge rates of return to compensate for their risk.  

          The Right has been whipping up an image of USA in default  -- Chinese bankers men repossessing our cars and foreclosing our homes.  Well actually ... since it's "national debt" I guess they'd be reproing our aircraft carriers and foreclosing our national parks -- or something.

          Because it seems that when Clinton raised rates, Bush predicted the retirement of the national debt ...  except he then lowered rates with the result that both debt and deficit increased -- and now both Romney and Obama speak of a "debt crisis."

          Is that history irrelevant ?

          •  It's All "deadly innocent frauds" (2+ / 0-)
            Recommended by:
            psyched, katiec
            Or is this a question of the  legitimacy of issuing bonds in the first place?
            Yes.  There is no need for the U.S. government to issue bonds.  It could just issue debt-free money.  In fact, by issuing bonds, it raises interest rates.
            Is that history irrelevant ?
            The history is not even close to what either side will tell you.  The Clinton years were great because the private-domestic sector drove up private debt.  Eventually to the point where people were spending more than they were saving.  That was what drove trade deficits and what drove the budget to surpluses.

            When people were no longer able(or allowed) to go further into debt the economy started to faulter and we got the first round of deficit creating Bush tax cuts.  9/11 drove further private sector saving which forced further deficits.

            You could make arguments about how Clinton changed the tax code to be more progressive and raised the minimum wage, etc... is what convinced the private sector to consume and invest more.  But it wasn't purely by raising taxes.

            Our Dime: Understanding the Federal Budget

            by Dustin Mineau on Thu Oct 25, 2012 at 12:47:31 PM PDT

            [ Parent ]

          •  Don't guess - understand (2+ / 0-)
            Recommended by:
            Carol in San Antonio, katiec
            I'm seeing the issue that matters is "Can the United States pay it's debts?"  

            My guess is ... "yes." ... and the Markets in their infallible wisdom seem to be saying "yes" also  ... because they are not demanding huge rates of return to compensate for their risk.  

            The real "brand name" currencies are sovereign, non-convertible, free floating exchange-rate money-things. The US, Canada, Australia, Japan, Great Britain, and a few others meet all the criteria. These countries can ALWAYS pay 100% of their debts. Their currency is backed by their sovereignty. Its value derives from its unique ability to extinguish debt to the government - taxes, tithes, fine and fees. Since they promise nothing more, from the point of view of the government, creating these credits costs virtually nothing. Their ability to be spent back to the government only arises as the government imposes its taxes and other liabilities on the private sector.
  •  The only money we're running out of... (4+ / 0-)

    ...is Rmoney.

  •  This illustrates the giant scam played on us (6+ / 0-)

    And, unfortunately, The average person is extremely unlikely to be able to understand this, even if they only got honest information.

    This is how the vampires are draining us.  Understanding this one thing would be a huge change for the better.

    Which is why the vampires will expend every effort to prevent it from becoming general knowledge.

    See my sig.


    The Fail will continue until actual torches and pitchforks are set in motion. - Pangolin@kunstler.com

    by No one gets out alive on Thu Oct 25, 2012 at 05:39:18 AM PDT

  •  No Country with its own currency (7+ / 0-)

    can ever run out of money.

    •  Ever hear of... (0+ / 0-)

      ...the Weimar Republic.

      •  irrelevent (1+ / 0-)
        Recommended by:
        katiec

        so is Zimbabwe

      •  The problem there was that Weimar owed (1+ / 0-)
        Recommended by:
        katiec

        crushing reparations debt that was in foreign currencies. The US government owes no such debt.

        Just another faggity fag socialist fuckstick homosinner!

        by Ian S on Thu Oct 25, 2012 at 05:28:25 PM PDT

        [ Parent ]

        •  Debt is debt (0+ / 0-)

          According to MMT, Weimar just need to issue more money to pay the debt, which it did.  This resulted in hyperinflation.

          •  Weimar did not have sovereign control of its money (0+ / 0-)

            because all the reparation debt was in foreign currencies. It's the same as having a peg you can't maintain. China can peg to the dollar because they are trading goods for dollars and the peg helps support their export market. Later, when China decides to boost its middle class, they will drop the peg and start using their dollars to buy American goods and services for their domestic market. What else are the going to do with all those dollars? If you're China you don't have a lot of US tax liabilities to extinguish. They will have to trade them for something - eventually. They've invested an awful lot of their labor and capital and all that goes into industrial capacity to get those dollars. If they don't buy our stuff or trade with someone for another kind of money to buy their stuff, then our Chinese trading partners will be shit out of luck.

            Oh, yeah, and we still have all their stuff - it ours now. So who's got who by the short hairs?

  •  Okay, I get it (5+ / 0-)

    (Or at least I think I do.)

    But if this is the real deal then what the Hell is wrong those bozos in Washington, from the top on down to the Tea Party scum?

    Obviously we've suffered a traumatic injury to the economy. It's in the economic equivalent of cardiogenic shock. If it were a heart we'd be zappin' it with some major joules with our handy-dandy little defibrillator.

    Sure you  might burn some skin, kill off some cells, but in the end the heart would lurch back to thumping along and  blood would flow, O2 would arrive in tissues, synapses would liven up and we'd be  all pink again.

    We could clean up any untidiness once the beast was chugging along.

    Is this MMT so avant garde that it hasn't arrived in Washington?

    Or is there a darker explanation: that powerful interests have determined that they'd rather collect on our economy's life-insurance policy instead? Isn't that pretty short-sighted - seems like if it's allowed to die it would take their hoards along too? Or maybe I just don't get it after all?

    Thanks for an excellent and thought provoking diary to start off the day.

    Araguato

    •  Ever since we adopted the meme that the (5+ / 0-)

      government should be run like a business, budgeted like a family. And indeed, in countries without sovereign non-convertible, free floating currencies must operate under those types of constraints. If your money is pegged to something, and that was the case for dollars until the early 70's, you have to have lots of that something in order to have lots of money. The thing a nation has the most of is sovereignty, if they chose to preserve it. In fact, sovereignty is a dimensionless feature and it can thus be either absent or present - if present it is virtually infinite. Sovereign money is just counting numbers. You can't run out of counting numbers. A gazillion plus one is a gazillion and one.

      •  This line of thinking has limts... (1+ / 0-)
        Recommended by:
        hmi

        Well, carrying debt, increasing your debt even is OK so long as those who would lend you money continue to believe you are good for it. (Credit coming from Latin credere, same root as credible) In a sense, it is "faith based." If the would be lenders start to lose faith, they will ask a higher price for their risk - in the form of a higher interest rate on bonds. When those bond rates rise, interest rates rise system wide, raising the price of money capital for everyone. That's one potential problem if you let things get too out there, debt wise.

        A second related problem with out of control debt in a credit based currency is that these dynamics will lead to reduction in the perceived relative value of the currency by investors / currency traders.  This spikes exchange rates and makes imports more expensive.

        Within reason debt is OK. If you keep it within a certain proportion to the size of the economy (debt to GDP), and don't spike it too far beyond that except for very brief periods, it's fine. Everyone has hard times occasionally; they come and go. It's when it gets to a point where the market decides your country doesn't have things under control that problems appear.

        •  Exactly why the brinksmanship was so dangerous. (0+ / 0-)

          And why ignorant t-partiers need to go.  

          There's also the definition of "out-of-control".  The GOP likes to claim any spending by dems is out-of-control but spending by the GOP isn't even mentioned and frequently denied. All this while the GOP has outspent the dems by a longshot.

          "Wall Street expertise, an industry in which anything not explicitly illegal is fair game, and the illegal things are fair game too if you think you won't get caught." — Hunter

          by Back In Blue on Thu Oct 25, 2012 at 11:29:39 AM PDT

          [ Parent ]

          •  Yes, you have a point about that (0+ / 0-)

            Yes, true, threatening default doesn't build confidence in the market either. I guess the key is to be serious about dealing with the issue while not being hysterical, to look proactive and sensible rather than lurching perilously around at the last minute.

        •  We don't need (1+ / 0-)
          Recommended by:
          psyched

          to run up debt in order to deficit spend. See here.

    •  Good question. I think it's a combination (2+ / 0-)
      Recommended by:
      shaharazade, Dustin Mineau

      of intentional propoganda and ignorance.

      I have no doubt that most economic professors, for instance, have SOME inkling about the difference between a commondity money and a fiat one.  And all this implies.

      Yet, listent to NPR -- it's a fucking farce.  And I think it's at least in part, an intentional one.

    •  Lots of small reason, I think (2+ / 0-)
      Recommended by:
      psyched, Ian S
      But if this is the real deal then what the Hell is wrong those bozos in Washington
      I think there are several explanations and reasons.  One is that it is competing with Austrian economics that thinks all unemployment is caused by lazy, obstinate workers, PERIOD!

      A second reason is that people, even economists, haven't fully realized the implications of going from a gold standard to a fiat currency.  There is a lot of left over thinking for the gold standard days that applied back then, but not now in a fiat, floating exchange currency.

      Third, I do believe there are some who get it, but don't reveal the truth for whatever reason.  Some consider it a benevolent lie.  They think if they tell people the truth - that the federal government can never run out of money - it will instantly spend too much and we'll have runaway inflation.  Then, I think some are just lying to support their political opinions(we must stop feeding poor women and children lest we run out of money!).

      Our Dime: Understanding the Federal Budget

      by Dustin Mineau on Thu Oct 25, 2012 at 01:05:02 PM PDT

      [ Parent ]

    •  Many just don't (2+ / 0-)
      Recommended by:
      katiec, psyched

      understand. A few do understand; but won't talk about it for political reasons or for fear of being viewed as "unserious." For example, Bernie Sanders has a "dream team" of economic advisers. Four MMT Professors are on it out of about 12 people. Yet Bernie still always gives lip service to deficit reduction every chance he gets.

  •  Unfortunately you'll never get this point across (6+ / 0-)

    to the average Joe. The only point of reference they have is their own debts, credit, and income. Because of this, the deficit hawks will win the day.

    Someone would need to take this excellent diary and fill it with similes and metaphors that average people could identify with.

    "Those who can make you believe absurdities, can make you commit atrocities" Voltaire.

    by JWK on Thu Oct 25, 2012 at 06:06:08 AM PDT

  •  Well (3+ / 0-)

    they have replaced the big scary black man meme with the yellow menace meme. Has anybody seen the ad where they show a economic conference in chinese (I assume) with the conclusion that we all work for the chinese???? I am sure the poorest chinese will be happy to learn about it.

  •  it's just too many zeros (1+ / 0-)
    Recommended by:
    shaharazade

    i have trouble imagining anything over a million. After that it doesn't get a lot bigger. In my mind, the exponents don't translate, it's just a matter, of "oh that's really big". I'm not sure how to think about so many zeros. And I'm typically pretty good at abstract thinking....
    000,000,000,000,000,000,000,000,000,000,000,000,000,000,  Huh?

  •  The financial crisis was caused by private debt (9+ / 0-)

    not public debt.  The confusion of the two is a scam run by conservatives who have been using the ignorance of most people to ride their hobby horse of slashing social spending.

  •  Trying to spread this... (4+ / 0-)

    Tipped/Recc'd and Liked to FB.  Maybe we can kill a few myths with the power of knowledge?

    Thanks for the tutorial.

    "What is being noticed is only an indication of what is being done." Albert Einstein 1954

    by tundraman on Thu Oct 25, 2012 at 07:00:48 AM PDT

  •  Running out of money? No worries, we'll just... (3+ / 0-)
    Recommended by:
    katiec, shaharazade, mmacdDE

    print up some more, use it to pay off the debt, and "Voila"!! No more debt, and lots more money!

    If our politicians were serious about limiting debts, they'd not be starting simultaneous decade long wars & charging the expenses on the US treasury credit card.  They wouldn't then decide to continue paying for wars and "defense" by cutting social programs rather than cutting warfare.  

    But, that's just my very simplistic view of things.  The way I see it, the republicans don't worry about the deficit until there's a Democratic President.  Then, it's suddenly a crisis of monumental and end-of-the-world-type proportions.  Sadly, Democratic politicians seem to be unable to comprehend how they are being manipulated by the politically-motivated fiscal chicken-littles of the opposition party.

    •  My view is a little different (5+ / 0-)

      You have crappy policy and crappy policy lite. There is not a word of debate about the presumed "danger" of the debt. There is not even a word of debate about the "nature" of the debt - the nature of money. In my #2 above I make that point. Read it carefully:

      The national debt consists entirely of the government's exclusive obligation to accept dollars (and only dollars) to discharge tax liabilities. Look at a dollar bill, read what it says. That is the government's sole guarantee. It also has a legal tender provision, but that pertains to private debt and is really irrelevant to this argument.

      That is the real nature of sovereign money. A dollar is good for private exchange precisely because it is the only instrument that can extinguish you tax liability. The two liabilities we all accrue at birth a death and taxes. They will both be paid.
    •  Don't think the Dems WANT the word to get (2+ / 0-)
      Recommended by:
      Old Surgeon, psyched

      out.  It's social control, and both parties want social control.

    •  I think this lot (2+ / 0-)
      Recommended by:
      kurious, psyched

      of Vichy Dems is well aware of what they are doing. Clinton's privatizing deregulating and 'free trade' policies are running pour party. Bowles was a Clintonite, this whole administration is chock full if free market/free trade ideologues. Only difference I can see is our 'side feels your pain' and tells you to eat your peas. When are those 'inevitable' boats Clinton talked about gonna rise? Disaster capitalists who use threats of fiscal cliffs of mass destruction to keep 'Oligarchical Collectivism' and disaster capitalism profitable.        

  •  Wow! I couldn't disagree more (2+ / 0-)
    Recommended by:
    ThankGodforAtheists, hmi

    There are so many half-truths here that I don't even know where to start.

    ¡Cállate o despertarás la izquierda! - protest sign in Spain

    by gjohnsit on Thu Oct 25, 2012 at 07:45:31 AM PDT

  •  Thanks again! (3+ / 0-)
    Recommended by:
    KatGirl, shaharazade, mithra

    This is the analysis I have been searching for! I don't know enough about econ to feel comfortable asserting the MMT basics. I'm really not even sure what debts and credits are.

    But the boogie man approach to government debt has been driving me crazy. It "unsustainable", it will destroy America, a "prairie fire of debt" and so forth. No one ever games out what happens when the deficit gets "too big".  Does someone come along and try to foreclose on the whole country? As an individual, I KNOW what happens if I don't make my mortgage payments. But the US government? They can just issue money.

    Do the conservative believe that if the deficit gets too big, that the Chinese will take all our money away and America will be reduced to a barter economy?

  •  OH NOES! (2+ / 0-)
    Recommended by:
    katiec, shaharazade

    THE ONLY THING THAT CAN SAVE US NOW IS ELIMINATING ABORTION! OH NOES!!!!

  •  What I don't get: DO deficits matter ? (1+ / 0-)
    Recommended by:
    shaharazade

    Obviously, they "didn't" when Reagan and Bush were running up the debt. But how much of that was strategy: Republicans cut taxes and run up debt, putting Democrats wrong footed on raising taxes and posting deficits  -- and how much was it a case of "in an economy this big and productive, deficits DON'T matter."

    I can't help noticing that the banks and businesses that buy long term US Debt are willing to accept some of the lowest interest rates in the market ... suggesting that the rest of the world is hard-headedly persuaded that the US can meet its obligations if it has to -- which is not the case for Ireland, Greece or Zimbabwe, for examples.

    So ... if for the immediate future the world investing community is willing to accept less than 1% for US government debt ... and long term less than 3% ...

    Where's the big fat existential crisis ?

    •  Deficits ALWAYS matter (3+ / 0-)

      They are what drives wealth. Like the gas pedal, there is a right amount to push. The first time I ever got behind the wheel of a car, I didn't get the subtlety of gas pedal. I push to the floor or I don't push it at all. Deficits at full employment and an economy operating at near capacity are like stomping on the gas pedal in traffic. You can do it - it is possible, despite it being dangerous, unwise, stupid and lots of other descriptors.

      People who want to buy safe debt buy US Debt because the US cannot be forced into default, ever! They will be less inclined if our political system constrains the economy and threatens VOLUNTARY default, which is exactly what the T-Baggers were advocating.

  •  One of the most commented on MMT post. (1+ / 0-)
    Recommended by:
    Dustin Mineau

    I think it was the pithy title.  Good job!

  •  So, help me out, I'm admittedly ignorant... (0+ / 0-)

    When Romney talks about labeling China a 'currency manipulator', is he actually taking a swipe at our Fed for being one, too?    Because increasing the money supply would adversely affect rich people more?

    •  China has sovereign currency, too (4+ / 0-)

      but the difference is they have pegged the RMB to the dollar. The dollar floats on the world market, with the RMB attached to it like a Remora on a shark. What Rmoney claims is that the peg is too low, essentially subsidizing Chinese industry by making their products cheaper in our markets. So does this hurt us? It goes back to my earlier argument. They make real stuff out of real labor, materials, energy, social costs, environmental costs, etc, and they give it to us for paper that we can create at will. With their currency pegged too low against ours, we get even more of their stuff in the bargain.

      Like most of what Rmoney says, it's bullshit. Romney may actually have some grasp of microeconomics, but macro and money, he's totally clueless. Unfortunately, so is Obama.

  •  Something Economists... esp Milton Friedman.... (1+ / 0-)
    Recommended by:
    katiec

    ... have always neglected to include on the calculations over money supply and national debt issues has been:

    We have an underground black market economy going on that operates on CASH and acts as a sponge that soaks up excess cash in the money supply.... to the tune of $400-500 BILLION per year.

    $400 BILLION literally in 10's 20's 50's and 100's, cash money.

    Through the illegal drug trade, and that money goes into the third world cash economy, you know, the other 4 BILLION people on earth who aren't in the big western economies, who don't trust or use their own domestic currency in many instances.... they use US currency, cash money.

    That "other" 4 billion people could absorb an additional $20 TRILLION in cash, and the formal official economies of the world would literally not notice it's existence.

    In the grand scheme of the Milton Friedman school of economics, ignoring this reality paints a very different picture of world economy. The fact is inflationary concerns over the money supply.... the "PRINTING OF CASH" that the Teabagger nutz scream about.... are a fantasy only true on some other earth where only the western and Asian formal economies exist.

    It's simply crazy to be making decisions about the overall world economy, and ignoring this vast pool of real people and the informal but ENORMOUS other economy they are involved with.

  •  Chicken Little started up again 1/20/2009 (2+ / 0-)
    Recommended by:
    katiec, ybruti

    ..."coincidentally," the latest Chicken Little act about the "sky falling" because of deficits and debt, started up again on Jan. 20, 2009, the very day that President Obama took office.

    Up until then...not a peep out of any one of our current Chicken Littles since...well...since the last time a Democrat became President...President Clinton. Prior to that, the national debt, mostly acquired under Reagan and Bush, apparently wasn't a problem.

    Just like...there was, apparently, no problem with our national debt when George Walker Bush blew through the surpluses created under President Clinton, decided to give massive tax cuts to those who didn't need it then, and who still don't need it, start a couple of wars because...well,  just because he wanted to start a couple of wars (being a "war president" apparently looked good on his resume, according to Carl Rove).

    Our debt is not a major problem. It rarely, if ever is. Until, of course, a Democratic President is elected and then...look out it's a catastrophe suddenly.

    And these mindless, shallow folks in the news media...just let themselves to continue to be led around by the nose by these follks.

  •  In the simplest possible terms (3+ / 0-)
    Recommended by:
    Dustin Mineau, Old Surgeon, katiec

    Money exists because the government says it exists. Debt is counted in money.

    The government can't go broke because all the money it owes it owns in the final analysis.

    There can be shortages of goods, but we'll never run out of money.

    Wealth doesn't trickle down -- it rises up.

    by elsaf on Thu Oct 25, 2012 at 01:36:59 PM PDT

  •  OP is way off (2+ / 0-)
    Recommended by:
    hmi, ybruti

    I am sorry but your view of how government debt works, the impact of deficits and the relationship of either to the economy is not based in reality. My responses below are in Italic.

    "1) ...either the Federal Government or the private sector must be in deficit."    

    Really, and why is that?  The fact is that the US has had many years of a surplus at the same time of a healthy private sector.  

    "2) The national debt consists entirely of the government's exclusive obligation to accept dollars (and only dollars) to discharge tax liabilities."  

    What exactly are you talking about?  The debt is made up of securities sold in the market to attain funds to meet the cash flow needs of the US government resulting from the deficits, i.e., the lack of tax revenue that would normally fund expenditures.  

    "3) If you hold a US Treasury bond (like China) the government makes two guarantees. a) It will pay the promised interest in dollars (the same dollars it creates at will); and b) it will be redeemed for dollars, whereupon the government will accept those same dollars in payment of tax liabilities. So should China decide to call our debt, here's what happens. We give them dollars for the bonds and we stop paying them interest."  

    US debt securities are not callable.  If holders of US debt wanted to liquidate there holdings, they would sell them in the open market.  When a debt is redeemed the principle and interest is paid to the holder.  I don't understand your, "whereupon the government will accept those same dollars in payment of tax liabilities".  Whom are you speaking of?  The payment is strictly an outflow of funds.

    "4) The government does not have to borrow money, it issues money, it creates it by spending it into existence, often taking a private asset in exchange."  

    Wow, magic money.  You cannot equate issuing debt to issuing money.  These are hardly the same thing.  If the US were to issue money in place of debt, you would be taking a wheelbarrow full to get a loaf of bread.

    "The government sells bonds to satisfy the private sector's desire to hold savings in interest bearing instruments and to support interest rates in the private market."  

    NOT.  Again, debt is issue to meet cash flow needs not the needs of some investor.  Where do you get this crap?  

    "The government imposes taxes to insure the value of monetary instruments. Government debt is not debt in the conventional sense of the word - it is the governments IOU issued against the aggregate of the government's UOME; it is the transduction of a one-sided private sector real asset into a two-sided financial asset (debit and credit), remitting the credit back as private sector wealth. That credit and its associated debit are both extinguished when the government receives it in payment against a tax liability. That is a monetary fact."

    Pretty much a blathering of nonsense.  The government imposes taxes to fund its appropriations.  It issues debt for cash needs should the revenue stream create a shortfall.

    The US debt is a serious issue.  We have already had our credit rating drop.  US debt as a percent of GDP isn't critical but it is going in the wrong direction, and fast.  Both the deficit and the debt need to be brought under control but without austerity measures that will kill economic growth.

    •  NOT (3+ / 0-)
      Recommended by:
      katiec, mithra, psyched

      go study - you really are deep in the weeds here.

      Come back after you do your homework and we can talk.

      •  Very specific, just like Romney. (0+ / 0-)
        •  Oh, the atheist prays to Krugman? (0+ / 0-)

          If the relationship of the Federal Government to the US Dollar is other than a promise to accept the dollar to extinguish a tax liability, please explain. I cannot find where the government has made any other promise about the dollar. If that is the government's sole liability wrt the dollar, then all the rest of my argument follows. It means the dollar is fundamentally something other than what you perceive. Work on that thought, Atheist, and be intellectually honest. That would be a marked departure from your original attack. And please, come back with self-generated thought, not ipse dixit.

          •  Ahhh...You drink MMT coolaid. (0+ / 0-)

            By definition, I don't pray to anyone.  Krugman just happens to think MMT economics is off the mark.  I can understand why.  Other than throwing out more MMT dogma, maybe you can point to something in my post that isn't correct.

            •  OK (0+ / 0-)
              I am sorry but your view of how government debt works, the impact of deficits and the relationship of either to the economy is not based in reality. My responses below are in Italic.
              "1) ...either the Federal Government or the private sector must be in deficit."    
              Really, and why is that?  The fact is that the US has had many years of a surplus at the same time of a healthy private sector.  
              Athieist - an ellipsis (…) How "Romneylike" (to return your earlier quip). How about we read the whole thing: "Federal Deficits drive private wealth. Unless we are net exporters, there is only one choice: either the Federal Government or the private sector must be in deficit. Take you choice."  Don't like this? Too bad. It is like basic macro sector analysis - a mathematical identity.
              2) The national debt consists entirely of the government's exclusive obligation to accept dollars (and only dollars) to discharge tax liabilities."  
              What exactly are you talking about?  The debt is made up of securities sold in the market to attain funds to meet the cash flow needs of the US government resulting from the deficits, i.e., the lack of tax revenue that would normally fund expenditures.  
              So, Athieist, How did the market get the dollars in the first place to buy the bonds? Let's see, they went to Kinko's - don't think so, that's mighty illegal. Counterfeiting! So it was the Gov that produced the dollars in the first place. Think it through, carefully, this is not a chicken and egg paradox. This is straight forward. The Gov must have done business in dollars with the private sector before it ever collected a dime in tax.
              "3) If you hold a US Treasury bond (like China) the government makes two guarantees. a) It will pay the promised interest in dollars (the same dollars it creates at will); and b) it will be redeemed for dollars, whereupon the government will accept those same dollars in payment of tax liabilities. So should China decide to call our debt, here's what happens. We give them dollars for the bonds and we stop paying them interest."  
              US debt securities are not callable.  If holders of US debt wanted to liquidate there holdings, they would sell them in the open market.  When a debt is redeemed the principle and interest is paid to the holder.  I don't understand your, "whereupon the government will accept those same dollars in payment of tax liabilities".  Whom are you speaking of?  The payment is strictly an outflow of funds.
              Yes, Athieist, they are not callable but they are tradable. Ultimately they are converted back to cash (real, not credit dollars). Real dollars can do two things: in the private market they can buy what a willing seller wishes to sell for dollars, in the public sphere they are accepted in discharge of monetary obligations to the state. Period. If you know of something else, please be forthcoming.
              "4) The government does not have to borrow money, it issues money, it creates it by spending it into existence, often taking a private asset in exchange."  
              Wow, magic money.  You cannot equate issuing debt to issuing money.  These are hardly the same thing.  If the US were to issue money in place of debt, you would be taking a wheelbarrow full to get a loaf of bread.
              Yes, Athieist, magic. That is what advanced concepts appear to be to those who saddle themselves with ignorance and the dogma of the past. Think about poor Copernicus. He actually thought about the observed movements of the lights in the night sky and realized that a thing everyone had known for thousands of years with absolute certainty, that the earth was the center of our universe, WAS WRONG. And now it is so obvious, how could anybody back then have been so ignorant?
              "The government sells bonds to satisfy the private sector's desire to hold savings in interest bearing instruments and to support interest rates in the private market."  
              NOT.  Again, debt is issue to meet cash flow needs not the needs of some investor.  Where do you get this crap?  
              Yeah, yeah. Wrong again. See above.
              "The government imposes taxes to insure the value of monetary instruments. Government debt is not debt in the conventional sense of the word - it is the governments IOU issued against the aggregate of the government's UOME; it is the transduction of a one-sided private sector real asset into a two-sided financial asset (debit and credit), remitting the credit back as private sector wealth. That credit and its associated debit are both extinguished when the government receives it in payment against a tax liability. That is a monetary fact."
              Pretty much a blathering of nonsense.  The government imposes taxes to fund its appropriations.  It issues debt for cash needs should the revenue stream create a shortfall.
              And again and again.
              The US debt is a serious issue.  We have already had our credit rating drop.  US debt as a percent of GDP isn't critical but it is going in the wrong direction, and fast.  Both the deficit and the debt need to be brought under control but without austerity measures that will kill economic growth.
              And again.
              End GOP CorporateCare.
              And here I'm not quite sure what you're driving at, but I might actually agree.
              •  Thanks (except for the snide parts) (0+ / 0-)

                So, Old Doc, in your OP you state, "Everyone is flocking to talking points and making broad statements about debt without first trying to understand the nature the money that underlies it."  So, let me try to open a better dialog with you, if you want me to understand the economics of this for the future.  If I ask a question, I am asking to get an answer and not being a wise ass.  I think there are points we will still disagree on but that is fine.

                Point 1.  I did take it out of context and for that I apologize.  So, what you are saying is if the Current Account is a Net Importer, one or the other must run a deficit and this is a mathematical certainty?  I am assuming this would be represent by the following formula:

                (Exports - Imports) = (Investment - Savings) - (Taxes - Gov Spending)

                or

                Net Imports = Net Positive Invest + Gov Deficit

                or

                Net Imports = Net Negative Invest + Gov Surplus

                Do I have these correct?  If not, what would be a correct representation?

                Point 2.  Your statement of "The national debt consists entirely of the government's exclusive obligation to accept dollars (and only dollars) to discharge tax liabilities." needs explanation.  I understand US debt and that it is backed by the full faith and credit of the US.  What are the tax liabilities that are discharged?  A tax liability as I know them is a debt owed for taxes or a future dollar outflow.  So to say that existing debt is an obligation to accept dollars to pay a tax seems to be a non sequitur to me.  How do you receive dollars for a debt if the debt, when due, will create a dollar outflow?

                Point 3.  In my post I took exception to the use of the word "call" from a technical feature of a US bond which as you say in you post above they are not.  Maybe your OP used the word from a different standpoint or even an economic meaning.  

                In addition to that I stated in my post I don't understand your, "...it will be redeemed for dollars, whereupon the government will accept those same dollars in payment of tax liabilities"  This is similar to Point 2.  When debt is issued the Treasury has a dollar inflow.  Until US debt matures there is no effect to the Treasury even if they are traded 100 times.  When the debt matures (redeemed), it creates a dollar outflow to the Treasury.  So I don't understand how the government will accept dollars at that time.  

                Point 4.  The reason I took exception to you statement about debt versus money is that I see a distinct difference from issuing debt, where the Treasury takes in dollars in exchange for the security, and issuing currency, where is does not.  Yes, I understand both are obligations, i.e., back by the full faith and credit.  But if currency were just "printed" to meet obligations it would have an inflationary impact.

                As far as the reason behind the issuance of debt?  I am sorry, I will never buy your argument.  The reason behind debt obligations of the US government, State or political subdivisions are for one reason, cash needs, be it short term financing of an operating budget or capital investment.  The suggestion that they issue debt because the investors want them is backwards.  You have to have a need before going to market.  Ask any bond attorney.  Been there, done that.

                And yes, taxes are levied to support budgets.  Maybe in some esoteric theoretical fashion they help support monetary value but it is not the reason why they are imposed in the first place.  Been there too, done that too.

                As far as ending GOP CorporateCare?  Just a matter of stopping oil subsidies, etc. when better use of the money can be made.

                Don't piss off the women.

                by ThankGodforAtheists on Sat Oct 27, 2012 at 10:51:38 PM PDT

                [ Parent ]

                •  HI - now we can be friends. Point 1 (0+ / 0-)

                  Best way to do sector balance is sum 3 sectors to 0 thus. Start w/ domestic where GDP= C+I+G (consumption, invest, gov spend: all aggregate expenditures) = C+S+T (consumption, savings, taxes: all aggregate allocations)
                  Thus: C+I+G = C+S+T;  I+G = S+T; [I-S]+[G-T] = 0
                  Add foreign balance [X-M] (EXPORT -IMPORT) = 0 and it's
                  [I-S] + [G-T] + [X-M] = 0; Then, for the private sector:
                  [S-I] = [G-T] + [X-M] so if [G-T] = 0 (balanced budget) the private sector balance will vary as the trade balance. Deficit = deficit, surplus = surplus. With a large trade deficit, inadequate deficit spending in the government sector (G>T) will allow deficits to accumulate in the private sector.

                  (Exports - Imports) = (Investment - Savings) - (Taxes - Gov Spending)
                  or
                  Net Imports = Net Positive Invest + Gov Deficit
                  or
                  Net Imports = Net Negative Invest + Gov Surplus
                  From [S-I] = [G-T] + [X-M];   [X-M] = [S-I] - [G-T] so it should be:
                  (eXports-iMports) = (Savings-Investment) - (spending-taxes); but as a balance among three sectors the other statements are ambiguous. A trade deficit means that the sum of the remaining sectors is in deficit. With large government deficits (G>>T) private sector savings and trade deficits a entirely compatible
                  •  Point 1 (0+ / 0-)

                    Let's see if this reflects the situation better.  With the corrected formula:

                    (eXports-iMports) = (Savings-Investment) - (spending-taxes)
                    I assume it should then look like this:

                    net iMports = net positive Savings + net Gov spending

                    Example:  -1 = +1 + -2

                    or

                    net iMports = net negative Savings + net gov Taxes

                    Example:  -1 = -2 + +1

                    But this could also be:

                    -2 = -1 + -1

                    And conversely a Net Export situation would allow a both positive savings and a surplus which was what I incorrectly responded to originally.

                    Don't piss off the women.

                    by ThankGodforAtheists on Mon Oct 29, 2012 at 11:41:04 AM PDT

                    [ Parent ]

                    •  right (0+ / 0-)

                      i prefer to think in terms of balance within and among sectors, thus gov sector:
                      neg--> [G > T] = [T < G] = deficit;
                      pos--> [G < T] = [T > G] = surplus

                      Private sector
                      neg--> [I > S] =  [S < I] = deficit;
                      pos--> [I < S] =  [S > I] = surplus

                      foreign (current accounts)
                      neg--> [M > X] = [X < M] = deficit;
                      pos--> [M < X] = [X > M] = surplus

                      rather than label them from one side. too many descriptors for my old mind. i don't know much microeconomics. is there a reason you use this appraoch?

                •  On to point two: (0+ / 0-)

                  I agree that

                  Your statement of "The national debt consists entirely of the government's exclusive obligation to accept dollars (and only dollars) to discharge tax liabilities." needs explanation.
                  is confusing. I had a brief discussion about this with Dr. Kelton of MMT fame. She agrees that was difficult to interpret. The essence of my argument, which she supports, is from the balance sheet perspective.

                  My point is that all Federal Debt (bonds, bills and notes) is resolvable to cash and cash equivalents, and that the only claim cash has against our government's monetary system is to discharge tax, fine, fee etc liabilities. In other words, the only claim a dollar has on the government is the government must accept it in payment. To the extent a government limits it revenue sources to impositions to taxes, fees and fines, and is not otherwise for sale, the dollar can have no destructive claim.

                  You are absolutely that the debt is backed by the full faith and credit of the government. It's a monetary promise and our money is sovereign. There is no physical limit to the state access to money because dollars as constituted are nothing but counting numbers. I know this is hard to grasp because it is contrary to common experience. We are all constrained by the dollars we have available. But the government is not. Not since Aug 15, 1971 when we abandoned the gold standard and allowed our currency to float on the world market. Now the only real constraint is demand pull inflation, and with the current unemployment and low output vs. capacity, we could deficit spend several $trillions without producing much inflation at all. However, if we convert it to debt, we have to be prepared to expand the monetary base an awful lot faster.

                  As for the government's obligation regarding the dollar, what are they? Clearly, the government must accept its own money in payment of what it has due. It could pass laws to accept turkeys or corn or seashells, but the law it passed says it must accept dollars, exclusively. Accept them for what? They are not mortgages encumbering a real asset. They are merely a special IOU against their own UOME. All you can do with them in terms of the government is pay what you owe. Were the government to go into a productive enterprise, then, at least in regard to that enterprise the dollars could behave more like a private-private transactions. There's an area for thought, although I am not generally in favor of the government going into business.

                   

                  •  Point 2 (0+ / 0-)

                    Still trying to crack this nut.  I agree, the balance sheet perspective is important here to understanding this, but more importantly, which balance sheet?

                    When I have been speaking of the US Government for debt payments, etc., I have been speaking of it from the balance sheet of the Federal Government and not the Federal Reserve which, of course, are separate entities.  If you go to page 11 on the link below there is a snapshot of the US Government Balance Sheet.

                    http://www.gao.gov/...

                    From the US Government Balance Sheet perspective, debt, as a liability on the balance sheet, when retired is a cash outflow (asset decrease) as well as a reduction of the debt liability.

                    From a Federal Reserve Balance Sheet perspective (banking perspective) however something different occurs.  The payment of the debt is a change from one debt obligation, e.g., a bond, to another, currency, i.e., Federal Reserve Notes.  Link below.  

                    http://www.federalreserve.gov/...

                    This being said, you stated:

                    My point is that all Federal Debt (bonds, bills and notes) is resolvable to cash and cash equivalents, and that the only claim cash has against our government's monetary system is to discharge tax, fine, fee etc liabilities.
                    I now assume you are speaking of this from the Federal Reserve perspective which would be involved with balance of payment calculations.  so, when you say "resolvable" to cash, I assume you speak of this payment to the holder of the debt.  Cash or dollars "paid out" are just another form of note, therefore the "debt" redemption was merely a swap of one type of debt for another.  In terms of the balance of payments, nothing has changed accept the type of paper held.

                    Moving on to the part of the comment concerning that the only claim cash  has is discharging of tax liabilities. You further explain this by:

                    In other words, the only claim a dollar has on the government is the government must accept it in payment.
                    So if, in its entirety, the original statement means merely that dollars paid out for debt retirement must be accepted back by the government (legal tender) for taxes due (an asset) from the private sector for their tax liability, then yes I agree.  If this is the meaning of the statement, and I am still not sure it is, IMHO I really do think it needs rewording to be more easily understood.

                    Don't piss off the women.

                    by ThankGodforAtheists on Mon Oct 29, 2012 at 11:53:08 AM PDT

                    [ Parent ]

                    •  All of the debt is denominated in dollars (0+ / 0-)

                      I take that to mean the guarantee is to convert from the debt instrument to dollars. Those would usually be in the form of a demand deposit, but, at the extreme, the holder could demand physical cash at conversion.

                      The physical cash, top of the monetary hierarchy, promises to be legal tender for all public and private debts. The debts owed to the government are the various revenue measures imposed by statute; taxes, fees etc. There are also capital accounts with transfers and factors and things I know nothing about. These are in surplus. All of these obligations are also denominated in dollars. Beyond these obligations, dollars have no effect ON the government. That is why taxes drive the power of money. It's not like an equity held against the government. No amount of dollars can force the government to do anything but mark the taxes paid.

                      But I won't argue, that was not my best writing. Obviously, I still don't have the framing quite figured out. But, man, I see it! I'll figure out how to explain it eventually. I had to read MMT with the mindset of a surgeon and a physiologist, but also an educator. I use that sort of feel and analysis for complex systems to formulate my understanding, but I have no grounding in orthodox economics. My whole approach is through the window of MMT, and that make it a journey of discovery.

                •  Points three and four (0+ / 0-)

                  I'll take these together because I be be putting up a diary on this soon. Most people have no idea about the shell game involved in what we call deficit spending. Let me explain briefly how it works.
                  1. Several days before the funds are required the Treasury announces a bond auction and the Federal Reserve enters into a repurchase agreement with one of the Primary Dealers.
                  2. The auction settles and the primary dealer takes the bond, Treasury takes the money, and deposits it a private bank in what's called a Tax & Loan (T&L) account. This account also receives tax payments as they come in. The act of deposition in the T&L account is really just a matter of the Fed crediting their reserves with the reserves from the bond buyers bank.
                  3. When the repo matures the Fed receives the bond and enters a payment into the reserves of the primary dealer clearing that transaction.
                  4. Money is transferred from the T&L account to the Treasury disbursement account at the fed.
                  5. Pay to the vendor is disbursed and the reserves to the vendor's bank are credited.  

                  If you have followed along, you see that this small fragment of reserves were doubled by the addition of fresh, new money. The only debt issued was the short note to the primary dealer which has settled. Where's the debt? The spending happened - it was deficit spending - the bond deal with the primary dealer was a rouse - and there is no new debt. And this is NOT the way it could happen. This is how it does happen. Crazy, huh? So why are we $16T in debt, you ask, and I am dying to tell you because this is the part that really pisses me off.

                  So lets say we are deficit spending $2Billion per day. Every day as these payments clear, think about what is happening to the banking sector's aggregate reserves. They are swelling by $2Bln more or less per day. As the banking day draws to a close the bankers start getting antsy about excess reserves. They try to loan them out in the overnight market, but if the system is flush, nobody wants to borrow and the interest rate crashes. The bankers start screaming and the Fed mollifies them by offering debt instruments to soak up the reserves. No, with quantative easing, the fed is paying 25 basis points on reserves and charging 50 at the window, so it keeps the cash out there, but it doesn't make anybody spend it. That's why QE hasn't worked.

                  Now, everything I am saying about money, debt and deficit is ONLY applicable to the federal government, and only so long as we retain the sovereignty of our currency. Pegging and exchange rate or adopting a commodity standard like silver or gold would be tantamount to rescinding the Declaration of Independence. None of this applies to the states, municipalities, families, firms, or governments with non sovereign currency like the European Union.

                  That's what I though GOP CorpCare was about. I'm with you.

                  Best

                  PS: I blogged a Parable about money that you might enjoy. It didn't get much attention here but some people thought it was enlightening. It's a different way to approach the thought process.

                  •  Points 3 & 4 (mainly 4) (0+ / 0-)

                    Most of my Point 3 might be resolved by my interpretation of Point 2, if correct.

                    As far as Point 4.  Sorry, in your example I don't see the reserves doubling.  Would it be possible to T out the examples?  I tried but I think I am missing something.  OR, do you know of a source that would show examples of Federal Reserve transactions in T account or Dr/Cr format?  It all boils down to these and they are more easily understood than narratives.  I also want to understand this last point as you state its importance.

                    Don't piss off the women.

                    by ThankGodforAtheists on Mon Oct 29, 2012 at 11:55:47 AM PDT

                    [ Parent ]

                    •  In step 3 (0+ / 0-)

                      the primary dealer is holding a bond and the fed settles the account by transferring the payoff from thin air to the primary dealer's banks reserves. The original purchase money from the primary dealer is in a T&L account. When they settle the repo, new money goes to the PD and the bond goes into limbo - collected with other trash assets. Both of these collections of money are in reserves.

                      Here is a reference from Dr. Wray that has some illustrations that may help you. It took me a while to get into them because they're just foreign to my experience, but you've worked in finance so they may be familiar.

    •  There have been only seven periods (3+ / 0-)
      Recommended by:
      Old Surgeon, psyched, katiec

      When the US Government has run a sustained surplus. Each one of those periods was followed by the only seven classified depressions. I would call the current crisis that really started in 2000 a depression. I say 2000, because the employment to population ratio did not reach it previous peak in 2000 before collapsing again.

      Employment to Population Ratio

      From The Federal Budget is NOT like a Household Budget: Here's Why

      With one brief exception, the federal government has been in debt every year since 1776. In January 1835, for the first and only time in U.S. history, the public debt was retired, and a budget surplus was maintained for the next two years in order to accumulate what Treasury Secretary Levi Woodbury called "a fund to meet future deficits." In 1837 the economy collapsed into a deep depression that drove the budget into deficit, and the federal government has been in debt ever since. Since 1776 there have been exactly seven periods of substantial budget surpluses and significant reduction of the debt. From 1817 to 1821 the national debt fell by 29 percent; from 1823 to 1836 it was eliminated (Jackson's efforts); from 1852 to 1857 it fell by 59 percent, from 1867 to 1873 by 27 percent, from 1880 to 1893 by more than 50 percent, and from 1920 to 1930 by about a third. Of course, the last time we ran a budget surplus was during the Clinton years. I do not know any household that has been able to run budget deficits for approximately 190 out of the past 230-odd years, and to accumulate debt virtually nonstop since 1837.

      3. The United States has also experienced six periods of depression. The depressions began in 1819, 1837, 1857, 1873, 1893, and 1929. (Do you see any pattern? Take a look at the dates listed above.) With the exception of the Clinton surpluses, every significant reduction of the outstanding debt has been followed by a depression, and every depression has been preceded by significant debt reduction. The Clinton surplus was followed by the Bush recession, a speculative euphoria, and then the collapse in which we now find ourselves. The jury is still out on whether we might manage to work this up to yet another great depression. While we cannot rule out coincidences, seven surpluses followed by six and a half depressions (with some possibility for making it the perfect seven) should raise some eyebrows. And, by the way, our less serious downturns have almost always been preceded by reductions of federal budget deficits. I don't know of any case of a national depression caused by a household budget surplus.

      •  Correlation isn't proof (0+ / 0-)

        Where is the explanation of how one impacts the other?  There are many factors behind each of these recession/depressions.  In some cases it is the restriction of credit markets, in other cases it is the lack of market regulation and human nature plays in as well.  How does this theory above explain the 1929 and 2008 financial disasters?

    •  Addressing one point (0+ / 0-)

      You cannot equate issuing debt to issuing money.  These are hardly the same thing.  If the US were to issue money in place of debt,

      Very, very wrong.  You MUST equate issuing debt to issuing money. Money is debt. They are the same thing, they are both promises.

      If you don't believe me, maybe you believe FDR:

      "government credit and government currency are really one and the same thing."

      Second Fireside Chat

      But what did he know - only took a nation out of a depression, financed the biggest war the world has ever seen with remarkably little inflation, had the highest economic growth rates the nation has ever seen.

      •  The result is hardly the same. (0+ / 0-)

        If, in place of issuing debt securities, the government just printed more currency, do you think the result would be the same?

        •  Of course, except they'd have to print less (0+ / 0-)

          Of course, they hardly do any printing at all.
          At the fed the only difference between currency and bonds is exactly the difference between a checking account and a savings account at a commercial bank. For the contractor, she gets paid through checking account type transactions. She needs some productive place to put that money, but for now she can give it back to the government for safe keeping and some minimal interest. If the fed didn't offer the bonds, the bank reserves would pile up, the interest rate market would collapse, and the non-government sector would get really pissed.

      •  FDR was not working with sovereign money (0+ / 0-)

        The dollar was on a gold standard until Nixon declared monetary independence on August 15, 1971. He might have even been smart enough to figure out what he was really doing, but I doubt it. He was reacting to the 20% arbitrage that foreign holders of dollars were capitalizing on. Americans could not go to the gold window, FDR took care of that! But if you were, say, a Brit and you had dollars, you cold exchange them for gold at $35 an ounce and turn around and sell in the open market for $42. Lots of people got very rich, and Trick Dick got pissed.

        But, we don't have that old gold backed money any more. We have sovereign dollars which are very special IOU's. Specifically, on the dollar the government promises to accept the IOU to satisfy public debts.  Debts to the government consist of taxes, fines, fees, and tithes. The government promises that if you have any such liabilities to it, they will accept their dollars (and only their dollars) in satisfaction, i.e. to extinguish that liability.

        So the dollar is a federal liability in that it is an IOU, and it is carried on the balance sheet as a debit, but it can only be used against the credit on an imposed tax. From this perspective, the value of a dollar is regulated through taxation.

  •  Questions (0+ / 0-)

    1. What is a private sector deficit?  Businesses are not making a lot of money so the taxes they are paying are less than what is needed for budget spending?

    2. Federal Deficits drive private wealth.  How? Because investors get T-bonds?

    •  Sectors - these are aggregate measures (5+ / 0-)

      If we take the economy as a whole, we can divide it into sectors to analyze. Macroeconomic analysis commonly divides the economy into a Government Sector and a Non-Government Sector that is further divided into a Private Sector and a Foreign Sector.

      Because we are considering the case of sovereign money, we limit the Government Sector to the Federal Government. Since 48/50 states have balanced budget mandates this limitation is not critical. The Gov has spending (debits) and income (taxes - credits) on its balance sheet. When you total these up you come to a positive number if there is a surplus and a negative number if there is a deficit.

      Do the same in the private sector. Once all the debits and credits are totaled, as above pos is surplus, neg is deficit.

      Do the foreign sector, take exports and subtract imports to get trade balance. Exports>imports is surplus, etc.

      Sum the three sectors and you must get ZERO by math identity.

      So, in these aggregate measures, private surplus can only happen if there is a deficit in at least one of the other sectors. A net exporting nation can draw a private sector surplus from trade. Net importing nations like US cannot build private wealth without deficit gov spending

      •  This is the clearest explanation of sectoral (2+ / 0-)
        Recommended by:
        Dustin Mineau, mithra

        balances I've come across.  Thanks again!

      •  Well (1+ / 0-)
        Recommended by:
        katiec

        What the Republicans would like to do is hold down government spending, and take any increases in productivity in the private sector and funnel that gain disproportionately into the 'ownership class' and the hell with everyone else.  This creates the illusion of wealth via redistribution upwards.

      •  Other sites show this identity as (0+ / 0-)

        (net private saving) + (net government saving) = (net foreign sector saving) which is a little different from what I understand your identity to be which would be: (net private saving) + (net government saving) = - (net foreign sector saving). Am I missing something here?

        Just another faggity fag socialist fuckstick homosinner!

        by Ian S on Thu Oct 25, 2012 at 06:34:03 PM PDT

        [ Parent ]

        •  Balances (0+ / 0-)

          (Gov Balance) + (Private Balance) + (Foreign Balance) = 0
                 [pos]       +         [pos]          +    MUST BE [neg] = 0

          Savings == [pos] sector balance

          Am I missing something here?
          Algebra

               

  •  John Green had a fairly good answer (1+ / 0-)
    Recommended by:
    ybruti

    The short version is that government debt is actually not as dangerous as people like to think it is, especially when interest rates are so damned low it's almost cheaper for the government to issue bonds than it is to actually change or cut any programs.

    Also, as Green mentions, the debt isn't owned as much by scary China as many people seem to think, in fact Japan owns almost as much of our debt as China does (so why mention China all the time?  Because of scary sort-of-communism of course!  Well, and they're still officially our rivals, sort of).

    Anyhow, explaination here, though I think (obviously) that Romney's solution would be worse than Green makes mit out to be:

    All your vote are belong to us.

    by Harkov311 on Thu Oct 25, 2012 at 05:21:58 PM PDT

    •  True, true, but irrelevent (0+ / 0-)

      The debt is not dangerous for none of the reasons John Green gives. It's not dangerous because of it's inherent nature in a sovereign money economy. It's not dangerous because it is NOT debt the nation owes. It has already been paid with a huge stack of dollars. And what is a dollars? It is an extinguishable tax credit. If you're a sovereign, debt is the quantity of extinguishable tax credits you have issued.

      The state says UOME taxes, the state pays out IOU's against the UOME's either for value received or as transfer payments.
      UOME + IOU = matter + antimatter = annihilation

  •  Great diary (2+ / 0-)
    Recommended by:
    katiec, psyched

    Old Surgeon. Thanks for spreading the news about MMT here.

    •  working on understanding the JG/ELR (2+ / 0-)
      Recommended by:
      psyched, katiec

      I think demonstrating the safety and potential of that sort of program is essential. It is so hard playing Copernicus. My hat's off the the whole MMT crew. My son studies at the UMKC Conservatory - the campus is close by. Considering a little formal study in econ to see what kind of synthesis I can find with physiology. Organic economics? Probably stupid but I'm old, retired and bored.

  •  Annoying cavils (0+ / 0-)

    Basically, Great!
    But there are a few points
    Government debt is not debt in the conventional sense of the word

    No, no, no! Government debt is debt in the most conventional sense. It is the most conventional debt there is. It is exactly like private debt.

    Only ONE difference. Government debt is the government's debt, and Uncle Sam is a really powerful guy, who it is wise to stay on the good side of. That's what makes it special. That's what makes it drive economies, makes people save up somewhat uncallable favors owed them by Uncle Sam.

    The problem is that when people talk about finance, they start using unconventional, incoherent definitions of "debt". MMT uses the basic, universal, fundamental, wired-into-the-primate-brain dictionary definition, which applies equally to any sort of debt, public or private. Which makes it clear that bonds are really the same thing as currency, currency is just a kind of bond.

    Another confusion is saying things like

    a two-sided financial asset (debit and credit), remitting the credit back as private sector wealth
    a dollar is accounted for as a credit on a private balance sheet & a debit on the government's, but it is ONE "THING". The credit & the debt are the same thing, the same relationship viewed from two different perspectives.

    It is an asymmetric relationship. For another example: You can't be in a relationship of "being a parent" without there existing someone at the other side "being a child". They are the same relationship, viewed from two different perspectives.

    They can only be cancelled (aufgehoben, as that MMTer of two centuries ago, Hegel, said) when two opposing credit/debts meet. [ Only works with time travel for the parent/child relationship. :-) ]

  •  I remember (0+ / 0-)

    saying back in 2008-09 that instead of bank bailouts, we should have just sent every living person with a social security number 10K in cash.

    The banks wouldnt of foreclosed on most homes, credit cards would have been all but paid off. Sure goods and wage prices would have inflated, but the only ones who would have been hurting a year later were all the banks holding mortgages on highly inflated prices.

    GOP- Fact Free since 1981!

    by KingGeorgetheTurd on Fri Oct 26, 2012 at 04:52:06 AM PDT

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