Duane Catlett and Dan Metzger — Federal budget process: What did Leon Panetta mean?

Very clear statement of MMT principles applied to fiscal policy.

Mr. Panetta stated in his lecture that “the nation’s biggest security issue was its inability to deal with the budget.” Although many will interpret his statement as a call to cut the deficit, what he was really criticizing was the Congress’ inability to produce and pass a spending budget that would put some certainty into the ability of the nation to do strategic long term planning.

Like most Washington public servants, Mr. Panetta holds the old-fashioned view that federal budgets should be balanced and the magnitude of deficits is an important metric for the economy. This view is appropriate for households and businesses that have limited financial resources. However, the federal government issues the nation’s currency and is not constrained by financial resources. It has all the financial resources it needs and is constrained only by the nation’s productive resources.

Both political parties are dominated by the false view that the federal budget must be balanced. The only difference is that conservatives think the government has a spending problem and liberals think it is a revenue problem. Both are wrong and it is hurting America’s competitive global advantages.

In the modern world of fiat currency the federal government must focus on real resources (available materials, factories, infrastructure, labor, knowledge) instead of financial resources (money and bonds) in managing the economy. Money is the vehicle that allows the smooth movement of goods and services from sellers to buyers in the economy. The federal government as the sole issuer of the U.S. dollar can issue all the money it needs to move any resources of the nation....

Independent Record
Federal budget process: What did Leon Panetta mean?
Duane Catlett, retired career Ph.D chemist and materials technology manager, and Dan Metzger, retired Ph.D physicist and engineering manager. Both are serious students of Modern Money Theory.
(h/t Warren Mosler at The Center of the Universe and Randy Wray at Economonitor)