These are the numbers that the public is constantly bombarded with from the infamous "Debt Clock." The numbers are designed to scare us into believing that our kids and grandkids will be in trouble unless we "fix the debt."
Here are the scary numbers:
However, from the very same debt clock, only hidden all the say down at the bottom, here are the asset numbers:
You can see from the very numbers that the Debt Clock organization provides, our assets are nearly six times as big as our debt and that's not even the point. The real point is that the debt of the government is an ASSET of the non-government. It's not what we OWE, it's what we OWN!!!
36 comments:
Mike,
Is the national debt included in theTotal National Assets? Is there any way to determine exactly what makes up Total National Assets?
Wait 'til we go on Paylight Savings Dime!
(or crime)
mike's BFF cleavage lauren in her new role @yahoo ticker and guess who is one of her first guests?!
http://www.youtube.com/watch?v=D9Xbrcr4EBg
http://www.youtube.com/watch?v=UnM8MraBbns
Our assets outnumber the external debt by multiple times over.
The only problem with the assets clock is that it makes it look like the assets are for each citizen.
MMT is presently only for the central banks and those who are recipients of the crediting system which some call printing of money.
QED is not crediting or priting of money since it does not create a deficit so MMT is on the back burner.
Republicans use MMT when ??
Democrates use MMT when they ???
@SR:
Yeah, I saw that. Hahahaaaa!!
Very interesting as to which numbers are growing and which are shrinking. The Fed Monetary Base is shrinking, while M2 is growing. Treasury Securities is shrinking and so is Currency and Credit Derivatives. Total Personal Debt is dropping as is Mortgage Debt, while Credit Card and Student Loan Debt are growing.
But the really confusing one is Treasury Securities. It is falling from about $509 Billion, but the Total National Debt is $16.4 Trillion and growing and the Debt Held by Foreign Countries is about $5.56B and growing.
Can someone please tell me what I am missing here? Where are the rest of the Treasury Securities? Why doesn't the amount of Treasuries equal (or approximate) Total Debt? WTF?!?
JK,
Good point!
Can you run that down?
If they have Treasury Securities in BOTH totals??????
Checkmate! (Except for morons!)
Can you help run that down??
rsp,
JK,
They are in BOTH places:
From their pop-up: "Total National Assets Includes: Personal Assets, Non Inc. Business Assets, Non Profit Org Assets. - Source Federal Reserve
Thats the L.100 tables from the Z.1 which INCLUDES holdings of USTs!
They have them in both places!
What a bunch of morons!!!
LOL!
rsp,
Matt Franko,
That's exactly what I was thinking… if our national debt, a.k.a. net financial assets, is included in Total National Assets, then "CHECKMATE!" :)
This is a scandal!
Alternate interpretation:
The debt is double-counted, but that is bad because it obscures the fact that either
(1) 16T needs to be taxed to pay off the debt, OR
(2) 16T needs to be printed
That is a *bad* set of choices. I think the MMT position (which I think is wrong). Is that this is an OK set of choices, because (2) is not bad.
Note that the number goes higher if we include "unfunded liabilities," like Social Security.
"(1) 16T needs to be taxed to pay off the debt, OR
(2) 16T needs to be printed " - marris
Both of these alternate interpretations are absurd and would only be made by someone that doesn't understand the (any) monetary system.
(1) would result in the removal of all net cash from the non-government, $5T of which is held by folks that we can't tax. Needless to say the economy would collapse like a black hole. Let's just have a revolution instead.
Economies can't run on bank-issued currency alone, it's impossible.
So your hypothetical (1) assumes the desire for mass suicide.
(2) Bonds are not meant to be redeemed en masse, any more than dollars in demand deposit accounts would ever be re-deemed en masse. Either would result in a bank run. Bonds are in so much demand we can't create enough of them, because the top 0.1% are extracting the bulk of funds created by netmoney printing.
Saying that it's possible that all holders would wish to exchange their bonds for cash at once is like saying everyone might follow the Pied Piper over the cliff at once.
But none of these things will ever happen. Unless those involved wish to commit finacial suicide.
It's important to separate the stuff that is logically possible from the stuff that is logically impossible.
Re: (1) I'm not sure why you mean there would be a removal of all net cash from the non-government sector. Is this based on some broken MMT accouting? (Like the cash represents an accouting balance)? Or is it based on some cash total (e.g. M0, M1, M2, ...)
If the former, then I think your error is an "ordinary MMT" error. That is, I know that MMTers think it's OK to double-count cash and bonds. You are not *more wrong* than the MMT baseline.
If you think the latter, then I think you *are* more wrong than an ordinary MMTer. If the government taxes $1K from me and pays off a $1K bond, then the bond holder gets $1K. The government could tax that $1K and use it to pay off another bond, etc. All the debt could be paid off with any amount of "cash." It's just a question of how much you tax.
Re: (2) The argument does not rely on "massive redemption" of all bonds. I'm saying that the debt represents an outstanding redemption total. It will eventually need to be resolved with (1) or (2). (1) and (2) may be done over a long period of time if the average rate of debt growth does not exceed the average rate of tax increase + average rate of printing.
Get him, Paul!
marris,
First lets get some kind of agreement on what "net cash" means.
Take all of the dollars and all of the government bonds held by the public (yes bonds are cash-redeemable on demand just like any other govt.-backed cash-like vehicle). Bonds are dollars that earn interest...
Subtract all of the outstanding loan balances held by FRBS banks...
That equals "net cash". You can call it what you like...it's a number, and it's a net positive number.
It also equals the sum of all deficits over history. About $12T. The total level of $NFA in the non-government.
Accumulated savings and profits from previous cycles are stored in those bonds because the holders have no need to spend the cash. What do you do with excess savings?
The demand for cash can always met when a bond holder wants to redeem it, the frequency of redemptions is well below the demand for bonds, but the redemtions come from existing dollars in the non-government, not from printing new dollars.
Bonds are in greater demand than plain-old dollars.
I don't know why you are bringing M0, M1,...Mn into this because in an analysis of the flow of funds within the non-government they are irrelevant...those numbers represent a subset of available reserves which are unlimited, but have little meaning wrt economic activity.
MMT looks at the flow of "net cash"...defined by (G-T).
The two remaining parameters of the sectoral balances (I-S) and (X-M) contain a distribution of the net funds generated by (G-T), approximately $7T and $5T respectively, as a running total over history...just like your checkbook register.
(G-T) funds accumulated financial wealth (savings and profit) much of which is held as bonds.
"Paying off" the National Debt would remove all accumulated dollar wealth completely from the non-government, meaning all net cash and bonds (savings and retained eranings)...there would be nothing left but dollars from the asset side of bank loans and liabilities in an equal amount...zero net funds.
First of all we could never in reality be able to approach that position...the economy would collapse like a black hole before we even got close. But let's pretend we could...
The liabilities from debt are satisfied (debt service) at a rate if about 11% of the outstanding loan balance each year (for household debt). Household debt is currently about $13T.
The level of dollars in the economy from credit behaves like a container that has a leak in it...to maintain the level the inflow must be at least equal to the outflow.
This means just to tread water new loans have to be issued at the same rate...about $1.3T per year...news flash...household debt has been stagnant for over 4 years.
Further, there is no headroom for expansion until the balance is paid down to a sustainable level. Much of the asset side has been saved or taken as profits...the outstanding balance isn't producing much spending, and the folks holding the liabilities don't have any way of clawing back the asset side. The only possible way would be for businesses to invest with the intention of losing money in the aggregate...reverse the dynamic...until the funds were returned to households. This isn't going to happen.
Where will the funds come from to make the loan payments? They can only come from deficit spending, more specifically, deficit spending targeted at the 99%.
Of course, without net government spending no one could save or earn a profit in the aggregate anyway.
An electrical circuit, no matter how well-designed, will not function without a flow of current, and the circuit cannot create it's own flow...it needs an external source that provides current (liquidity) on demand.
The economy can't function without a steady stream of $NFA.
Checkmate Paul !
paul yes bonds are cash-redeemable on demand just like any other govt.-backed cash-like vehicle
Not sure what you intend here. Tsys are not redeemable on demand but at maturity. They are highly liquid and can be exchanged in the market for cash or used as collateral to obtain cash, but most are not redeemable "on demand" from Tsy, whose liability they are. (EE/E savings bonds are redeemable on presentation at the interest earned to date. The service is now available online for individuals desiring to participate.)
Paul,
Can I ask a question regarding framing? (kind of an MMT vs. MR issue)
Do you think it's inaccurate to say that when the U.S. government "borrows" money by issuing Tsys, it's essentially taking endogenously created money, shifting the liability from a bank's balance sheet onto the government's balance sheet, then injecting the asset back into the non-government?
i.e. recycling "inside" money. ...again, by shifting financial liabilities to the federal government, but "leaving" or "injecting" the financial assets back to the non-government… thereby creating NFAs.
This is the major point where I haven't decided if (1) MMT or MR is describing the process accurately and the other is not, or (2) if they are describing the same process but just framing it differently by stressing different aspects and using different language, but essentially saying the same exact thing.
What am I missing?
JK, the sectors are said to "save" when they run surpluses and to "borrow" when they run deficits. Since the sectors must sum to zero, "saving" and "borrowing" have to be equal. If one says that the consolidated non-govt sector save net financial assets in aggregate, then the govt sector must "borrow" in aggregate. This is true whether the govt self-funds with coins and notes (direct issuance) or bond (indirect issuance in which the Tsy obtains rb to clear from the cb).
As far as the deficit goes, what the govt "borrows" (by running a deficit) it provides to non-govt as "saving" of net financial assets. Thus in aggregate, the rb created by goft deficit expenditure get drained into tsys if the Treasury funds itself indirectly by obtaining rb from the auctions. While the rb are cb liabilities that can only come from the cb, the rb that come from the auction are exchanged with non-govt including non-banks for rb without changing the amount of consolidated nongovt saving of $NFA.
So to say that govt borrows bank created money is not completely correct in that tys are settled in rb which is credited to the Tsy acct for deficit expenditure. Banks can create promises to settle in rb but not rb. To get rb, the banks either have to have excess rb from operations, borrow rb in the interbank market or borrow rb from the Fed using either repo or the discount window. this has to be the case since the Tsy funds deficit expenditure with the tsys it alone creates as its liabilities in order obtain rb to clear its crediting of non-govt accounts, and rb only come from the cb. Since the Tsy cannot sell the tsys to the fed or run an overdraft at the Fed, it has to get the rb indirectly through non-govt. But that just adds a step.
One can say that an individual or entity can borrow from a bank to pay taxes or to purchase tsys, but those transactions settle in rb, which the bank has to obtain to settle with Tsy in the FRS. so a person might think that the bank funded the operation, but in terms of the big picture this is not the case in aggregate. In the final analysis, a Tsy account has to end up with rb wrt both tax payments and bond sales since these finally settle in the FRS in rb.
JK,
ENDOGENOUS…having an internal cause or origin.
I suppose that means that the "cause" of money expansion comes from inside the economy, but I think that's bullshit…"demand" for money may seem to come from inside, but the money itself comes from an external source, because to begin with it doesn't exist, and economic activity can't create it.
Does the economy "suck" the money out of the government or banks? I don't think so…if the government didn't spend first there would be no demand for credit. So net government spending causes the demand for credit.
From where I sit any money is an injection from outside the boundary of the economy. If this single event class didn't occur there would be no state-backed money period. It's exogenous in nature.
***********
As far as the government "borrowing", that makes no logical sense to me because the government doesn't "use" the funds, just like taxes don't "fund" spending, and before something can be "borrowed" it has to exist first.
With the bond thing, the government creates and spends new funds into the economy, and by law has to pay some rate of interest on an equivalent amount of existing funds (prior spending) to a small group that has an excess they don't have much use for.
At the end of the day the financial assets of the non-government increases every time the transaction takes place…the government is funding the non-government, and paying interest to it to boot!!!
The framing should be simple…The government "stocks the pond" (the economy) with spending (dollars) that ripple through the economy and account for most if not all of GDP.
Businesses "fish" for the dollars. They hire workers to help them with their "fishing" to multiply their efforts. In doing so businesses pay the workers a fraction of the money they haul in and retain some of it as profits and ultimately retained earnings.
If the government didn't "stock the pond" continuously it would be "fished out" very quickly.
We only have one pond.
Or something like that.
"yes bonds are cash-redeemable on demand just like any other govt.-backed cash-like vehicle - paul
Not sure what you intend here." - Tom
Maybe a poor choice of words but I'm surprised you didn't get what I meant.
…redeemed at face value at maturity, exchanged for cash on demand with a penalty anytime…treasuries are a stand-in for what I call "cash"…or "net money"…$NFA.
Treasuries are a store of cash…a form of saving that is very liquid and very safe.
I defined $NFA in terms of the balance sheet in another thread:
Add up all of your cash, demand deposits, savings deposits, money-market funds, etc.
Subtract all outstanding loan balances owed to FRBS banks.
That's your $NFA.
Do that for every balance sheet in the domestic non-government.
Add them all up.
Add FDHBFIN to it.
That's total $NFA.
That should equal ∑ deficits over history to the penny.
Maybe a poor choice of words but I'm surprised you didn't get what I meant.
Jus' sayin' "redeem" is not precise without qualification.
Tom and Paul,
Thanks for the responses. Still chewing on it all. I understand and agree with MMT in the abstract… the general lines of reasoning… I'm just still trying to undersand the intricate operations.
Assets cluster in the n%, debt is spread further down the 100-n% spectrum.
What about bank debt/assets, presumably a lot of this is simply the flipside...I guess the problem is that it's charged on real estate and that bubble has popped, the miniscule stimulus relative to the need has prevented deflation...just
Sorry, a glaring omission in my last comment, which should read...
"Add up all of your cash, demand deposits, savings deposits, money-market funds, govt. bonds, etc."
JK,
I think most of my comments are based on extension of the sectoral balances...more arithmetic and systems than MMT per se, but then they should be the same at the root.
I'm just making my best attempt at reverse-engineering the system in place.
It's easier to avoid confusion if you remember one simple thing...money comes from somewhere and goes somewhere. Figure out the source.
Follow the money, ignore the other stuff.
What about bank debt/assets, presumably a lot of this is simply the flipside" - willORNG
It all requires net government spending to get sorted out...the money flows through households, mainly the 99%, and reaches the debt held by businesses which was part of the cost of their products and services.
If the government stops net spending or reduces the level significantly there's nowhere for the economy and all of the debt-holders to go.
Then we are left with accounting tricks...debt jubilees, platinum coins, etc. ...anything to avoid letting the cat out of the bag...capitalism depends entirely on the government money machine.
What about bank debt/assets, presumably a lot of this is simply the flipside" - willORNG
The neoliberal spin make public "debt" (national savings) bad and private debt (the real problem) good. Neoliberalism is designed to maximize use of private debt to maximize economic rent under finance capitalism. It's pure propaganda that masks redistribution upward.
@paul Wow, thank you for the rambling, non-sensical response. It's a good bet that when an MMTer posts a long response to a simple question, he does not know what he's talking about. Tom (smarter than 98.6%) of MMTers, correctly picked out the redeemable nonsense right away. Let's see if I can pick out the remaining junk.
BTW, I agree that MMT accounting treats cash and government bonds as fungible. And I think that's wrong. Most of the incorrect analysis that follows is incorrect because *that* is wrong.
But it's always fun to see MMTers get *more confused* than usual. That's always entertaining.
[The sum of all deficits over history (as non-MMTers understand "deficits") is 16T. I think you've mentioned this $12T number before. When I asked you to justify it last time, we discovered that 4T of the 16T is held by government agencies. If you want to pretend that the number is $12T, that's fine with me. Or alternatively, if you want to repurpose the label "deficit" for debt not held by government agencies, that's also fine. BTW, repurposing terms is a common crank move. It's funniest when the crank forgot what he repurposed and gets confused!!!]
> "Paying off" the National Debt would remove all accumulated dollar wealth completely from the non-government, meaning all net cash and bonds (savings and retained eranings)...there would be nothing left but dollars from the asset side of bank loans and liabilities in an equal amount...zero net funds.
This is a statement about stock. It is misleading. When most people think of "dollar wealth," they think of the 92T number from the debt clock. 92-12 > 0.
Now if you want to stay in MMT la-la-land and say "No, no, no. by dollar wealth, I mean the 12T number. Net worth will go down by that much." Well that's what it means to take option (1). We tax 16T of wealth and use it to pay off 16T in debt.
Now if you want to argue that such an action will "remove all dollars" from the economy, then that would obviously be incorrect. Dollars would be taken from the taxed people and given to the bond holders. The former bond holder would have dollars. 12T of them!!!
> The level of dollars in the economy from credit behaves like a container that has a leak in it...to maintain the level the inflow must be at least equal to the outflow.
This is a statement about flow. It is also misleading! The "leak" that you're talking about is much simpler than you're making it. It would stop on it's own when the $16T is paid off! Interest stops once there's no outstanding debt. Duh!
BTW, a little micro analysis goes a long way. Try to think about things from the POV of one bond before you tackle NFA aggregates. The latter is just a good way to confuse yourself. Gotta walk before you can run.
@paul BTW, it would also help if, after writing each statement, you ask yourself:
(a) Do I care about the level of NFA, the flow of NFA, or both?
(b) And if both, why both?
(a1) Would I be happy if the stock level just increase by $X each year? If so, then the deficit can stay the same size.
(a2) Or do I need the stock level to increase by an increasing amount each year? That's what increasing deficits would mean.
BTW, I agree that MMT accounting treats cash and government bonds as fungible. And I think that's wrong. Most of the incorrect analysis that follows is incorrect because *that* is wrong.
Fungibility of tsys and rb is key in the argument because the opposing parties disagree on a matter of fact, since facts are shaped by perception.
Through the MMT lens, a tsys is a savings acct at the Fed and rb is a deposit acct. Operationally, these can be exchanged at the press of a button due to the high liquidity of the tsy market and cb ELR policy of providing rb. It's just a matter of the interest and the way the system works, those who hold large amts of rb for any length of time prefer to hold them with interest, so there is constant exchange of tsys and rb going on all the time, which make the case that rb and tsys are indeed fungible operationally as matter of fact.
marris,
a) I care about the flow…the stock just illustrates where all the net money ends up…which is informative. Seems like "stocks" are what everyone in the mainstream is worried about though due to their incessant whining about a National "Debt" that is also National Savings.
b) n/a
c) The deficit is not a budget item, so it can't be "controlled" through the budget directly. Once the size of a deficit becomes apparent it's already happened and we can't go back in time to alter it.
d) Again, your question has no bearing on anything that happens in the real world. You really don't understand stocks and flows, or what it means for a system to be "closed".
"Try to think about things from the POV of one bond before you tackle NFA aggregates. The latter is just a good way to confuse yourself. Gotta walk before you can run." - marris
You're an asshole. I'm sure you hear that al the time.
That aside, If you think my analysis is wrong then by all means give us a logical counterargument showing all the relevant math errors and faulty logic.
Here's what's important…if $NFA isn't increased to match saving desires and retained earnings, to offset leakages (trade deficit) and to accomodate growth, the economy will tank and unemployment will skyrocket. Very few people win.
Disagree? Make your case. Follow the money.
Tell us about your credit-funded economy.
Think we have to give back all of the net dollars we've earned? Tell us why, and show us the math.
@paul, sorry to play rough, but it's important to get your facts and logic right before you write long posts. Life's too short to waste time reading nonsense.
(c) is wrong. The deficit is obviously controllable because tax and spending are operationally controllable. The deficit is spending minus tax revenue. From the rest of the paragraph, I think you may be trying to say that the debt (the 12T stock) is not easy to change (since it has built up from flow over time). In contrast, it's easier to change the 1-2T *deficit* (the annual total flow).
[See, stocks and flows are easy!]
I think you're definitely outside the "MMT mainstream" here. Mosler and friends want to target the level (the stock) of NFAs. They think that increasing the stock of NFAs is essentialy for economic growth.
I don't think (d) requires any analytic response. I guess you're trying to deflect attention from your rambling by accusing me of not understanding stock vs. flows? Good luck with that.
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