In a recent diary from our friendly neighborhood MMT specialist (Connecting the Dots) we see the following comments:
"The US government can always make any payments in US dollars that it wants to.
There is no such thing as the US govt. running out of US dollars.
The US government always has the 'ability to pay' any amount of US dollars at any time."
The problem with these statements is that such statements assume that the US government is controlled by rational people. S&P downgraded US debt because S&P recognized the irrationality of the Republican party that controls the purse strings of the US government. The House of Representatives controls the budget and the debt limit.
Modern money theory is based on the concept of true fiat money while conservative throwbacks are focused on some sort of commodity based monetary system. (that system died in 1973). The desire of all conservatives is to return to hard money. And that means the total collapse of the power of the US government, especially its power to issue money. This "desire" was and is what the "debt limit" is about. The Republicans refuse to pay for the enforcement of their property rights and their religious wars while creating money for those purposes. And then, when inflation SHOULD ensue, they simply refuse to allow it because THEY have all the money and debt instruments (they hold all the mortgages of all kinds).
S&P realized that the Republicans control the purse by virtue of their control of the House of Representatives. There is also the realization that the Democratic president is either a total weakling or a traitor to the cause of true economic justice. The basis of Modern Monetary Theory is that money has value because people must have it in order to pay taxes. Why is it not obvious to MMT people that if the Republicans can stop the government from taxing appropriately then government money will be worthless. No one will need or want American dollars unless the issuer of those dollars demands their return via taxation. How can this simple fact escape the MMT people or the American people as a whole? While the US government might be able to create dollars at will, those dollars will not be of any value.
The entire objective of the Republican party has been and will be the destruction of the US government. And that destruction is assured by taking the taxing authority away.
Another theory of modern money is a theory that relies on the law enforcement authority of government. In that theoretical system banks are the creators of money and the enforcement of debtors laws are what provides value to the money. This banker theoretical basis of money is the mainstream Republican theory. The hard money people are the Tea Baggers and the Libertarians. And when they all get together the common theme is destruction of the elected government's power.
The best outcome of the "super congress" is a stalemate that assures the total expiration of the Bush Tax Cuts and the across the board spending cuts. This will cripple the US economy, but what matters is that the American people understand that it is the Republicans that have done it. It matters because the future of the nation is more important than rescuing the CURRENT economy from the Republican assault. Let them hang themselves. There will be a much better tomorrow if that is allowed to happen.