Saturday, December 8, 2012

"Revenue" Has no Relevance Whatsoever to An Issuer of Any Given Liquidity Notation (aka, fiat currency)

commentary by Roger Erickson

Fiscal Cliff And Deficit Conversation Misses The Point

This article starts out with an intriguing title, but manages to miss the point itself. It concludes by suggesting that social dedication to minimum safety nets will have to be undone. Then, the comments go down the usual track of "governments spending more than they take in." Wow. No intelligent discourse there.

Since it's still necessary, let's restate the recurring issue that people are beating their heads against, like morons battling a brick wall.

"Revenue is obsolete to a fiat currency issuer" - doesn't seem to work well enough.

So let's try a simpler translation. "Revenue Has no Relevance Whatsoever to An Issuer of Any Given Liquidity Notation (aka, fiat currency)."

Gov receipts? Of fiat currency? Issuer receipts of liquidity notation?

By that logic, math departments must constantly be in danger of running out of numerals! Do people computing sense from nonsense run into Computational Cliffs? If they do, it's a voluntary, not absolute act, and the solution is always more, not less, practice. If people run low on numerals or symbolic logic notation, how do they arrange to get more "receipts" of either or both? Let me guess. Down Alice's rabbit hole? At the present time, you can actually successfully run for Congress simply by digging yourself in deeper.

So how, exactly, does a currency issuer take in more fiat than it utilizes? Why does a currency issuer EVER need back any of what it can already print in unlimited amounts, just-in-time, just-as-needed? It doesn't of course. Taxes in a fiat currency regime are a tool for shaping aggregate demand - not, I repeat NOT a source of fiat. Citizens must get that fundamental, operational axiom down first before trying discuss their own fiscal policy. It's not all just theory - the operations set constraints on what does & doesn't make sense for given situations. Take a gun as an example. Ballistics experts can design whatever range, accuracy & loading mechanisms they want - while blithely assuming the gun will always be cleaned and oiled to meet their assumed needs. Operationally, however, it makes a world of difference if one does something simple like chrome plate key parts and the inside surface of the barrel - so that the gun can won't jam, and will keep working long periods without maintenance.  Think of operational features as automatic stabilizers that protect us from the divergence of theory and practice.

Everything in this article above goes awry by conflating CURRENCY ISSUERS with CURRENCY USERS.

Modern, fiat currency is NOT a long term store of value. Fiat currency is 99.999% for liquidity, not value.

Besides, if we just use our brains, we cannot run out of liquidity (aka, fiat currency; aka, public initiative).

And oh yes, once again, "Revenue" has no relevance whatsoever to an issuer of any given liquidity notation (aka, fiat currency).  I'd repeat that 12x, but it's better if readers practice that at home.  Maybe in front of a mirror, unless they've run out of photons and need receipts to see the light.

Taxes for Revenue are Obsolete - NY Fed Chief, 1946

If that link is down, try p. 35 at this link.


1 comment:

Dan Kervick said...

Yeah, this is a massive psychological hurdle for some people. It should be obvious, but people's everyday experience is only with entities that are users of the currency, and therefore have a budget constraint. The whole idea that there is even such a thing as a currency issuer boggles their minds.