Print and Shred is how the system works. All modern monetary systems work this way, no matter how much they try and hide the fact.
The MMT money story explains where the ‘why not print more money’ idea falls over. The government only prints more money to buy more stuff..…
New Wayland
35 comments:
A common MMT claim is that the only thing which gives value to money is taxation.
I dispute this. I say that taxation is only one factor that sustains a monetary system. Other factors include local and federal laws regarding legal tender, plus laws regarding contractual “considerations,” and so on.
The biggest factor of all is social convention. Each individual person agrees that a dollar is worth a dollar because everyone else agrees that it is. This is how everyone gives his “full faith and credit” to the dollar. Taxes help to “back” this system, but taxes are just one factor involved. Once a monetary system is well established, social convention will keep it going even if taxes are lowered to zero.
“The population pays its dues to the authorities, and the government immediately shreds all the money it has collected as tax.”
Immediately? No. There is an intermediate step. When the U.S. government creates money out of thin air for government spending, the government sends instructions to special “Treasury Tax and Loan” accounts at commercial banks that meet certain criteria. These TT&L accounts are credited by the amount the U.S. government wants to spend. Then the digital money is dispersed to regular accounts from there.
Federal tax revenues work the same. When you pay a federal tax, your own bank account is debited by the amount of the tax, and TT&L accounts are credited by that same amount. Then that federal tax revenue is zeroed out – i.e. sent back into the ether where it came from. It some cases this happens overnight. In other cases it takes a bit more time. It all has to do with the inter-bank reserve system of banks.
Of course, “shredded” is misleading, since all money is digital -- i.e. money has no physical existence, just like points in a sports game have no physical existence. Coins and currency notes represent money, just as symbols on a scoreboard represent points.
Monetarily sovereign governments have no need of tax revenue, just as a sports scoreboard has no need of “points” revenue.
And of course, FICA taxes do not pay for Medicare or Social Security. The U.S. government creates these benefits out of thin air. There is no pool of dollars anywhere. No “Social Security fund.” These are all misnomers. Medicare and Social Security cannot “go broke” unless politicians destroy those programs for purely political reasons.
“If you ‘fire up the printing press’ you automatically ‘fire up the shredding machine’ to the same extent.”
Well sort of. Monetarily sovereign governments do not tax back all monies they create in a given fiscal year. Some of the created money remains in circulation for a while.
For example, in FY 2022 the U.S. government created $6.272 trillion out of thin air, and taxed back 78% of that ($4.896 trillion). That 78% was destroyed (sent back into thin air). The remaining 22% ($1.376 trillion) remained in circulation. This was the 2022 “federal deficit.”
Incidentally it always amazes me how most people tend to think of money as something physical. Consider that $1 million in hundred-dollar bills weighs 22 pounds. In FY 2022 the U.S. government created $6.272 trillion out of thin air. If the U.S. government shipped out that money in hundred-dollar bills, it would weigh 68,992 tons (not pounds). This would require 493 freight train cars filled to the top with hundred-dollar bills.
In reality, coins and currency notes represent less than 3% of the overall money supply.
"Well sort of. Monetarily sovereign governments do not tax back all monies they create in a given fiscal year."
I didn't mention a time period, did I.
Why is the circumnavigation of the planet around its star at all important?
The shredding will happen when the money is eventually fully spent.
"I dispute this."
Well, that's because you've perhaps misunderstood what MMT says on the subject.
Taxes are a sufficient, but not necessary, condition for driving a currency.
Randy has a whole video on the topic: https://youtu.be/0C0_XUuQaRU?si=of2s1lo1nWcFHj1Z
This is still a very elementary level parable…
“ Incidentally it always amazes me how most people tend to think of money as something physical”
It’s a very common cognitive deficiency…
https://en.wikipedia.org/wiki/Reification_(fallacy)
Reification is the basis of Monetarism…
“You've perhaps misunderstood what MMT says on the subject. Taxes are a sufficient, but not necessary, condition for driving a currency.”
Most MMT proponents claim that “Taxes drives money.” This implies that taxes are necessary for monetary systems to function. This claim is false, for reasons I described above. When I clarify this, MMT people become angry with me. They call me an idiot, or else they claim that I have misunderstood their error.
What really makes them furious is when I question their “jobs guarantee” in detail. For many reasons, I hold that it is unworkable and unnecessary. This makes MMT people howl with rage.
I agree with reader Matt Franko. MMT proponents are correct about many things, but they often become irrational and irascible when they start grinding their ideological axes.
Also, many MMT adherents stubbornly refuse to clearly.
1. The national government wishes to provision itself.
2. To do this, it has to transfer physical output in the country from the private sector to the public sector.
3. It does that by imposing a tax in a denomination on the population.
Huh? This is needlessly abstruse gibberish.
All of us swim in an ocean of lies. This is directly from the U.S. Treasury…
https://fiscaldata.treasury.gov/americas-finance-guide/#:~:text=Federal%20government%20spending%20pays%20for,the%20most%20on%20Social%20Security.
”The national debt is the money the federal government has borrowed to cover the outstanding balance of expenses incurred over time. To pay for a deficit, the federal government borrows additional funds, which increases the debt.”
WRONG. The “national debt” is simply the amount of money that various parties have deposited into Fed savings accounts by purchasing Treasury securities. This has nothing to do with the U.S. government’s ability to create and spend money.
Monies deposited in Fed savings accounts are called a “debt” because they are owed to their depositors, plus interest. For the Fed these monies are also assets. When we deposit our money in a bank, we lend our money to the bank. The bank is in debt to us, but the bank also treats that debt as an asset for the bank. Therefore the “national debt” can just as easily be called the national assets.
Politicians and creditor oligarchs want us to worry about the “national debt” so we don’t complain about the actual crisis, which is private debt (e.g. credit card debt, student loan debt, mortgages, car loans, “payday loans,” etc etc.)
Private debt is killing us, and it will eventually destroy the USA. The parasites will kill their host.
“To pay for government programs while operating under a deficit, the federal government borrows money by selling U.S. Treasury bonds, bills, and other securities”
WRONG. The U.S. government pays for its programs by creating money out of thin air, simply by crediting accounts (i.e. changing the numbers in accounts).
On a sports scoreboard, we do not have to “borrow points” in order to change the score. We simply change the numbers.
“The national debt enables the federal government to pay for important programs and services for the American public.”
WRONG.
Anyway you get the picture. Nobody in government can speak the truth, even if they want to, since they will be flamed by the mob.
The peasants don’t want to hear the truth anyway. They’re rather whine about the “national debt” and “pandemics” and “climate change” and Trump, and the “Chinese threat,” and so on.
Things that are fun to worry about, since they are not real "crises," and no one is personally affected by them.
Ideologues and pundits worry about the national debt.
Frightened people and pundits worry about pandemics.
Scientists and pundits worry about climate change.
Warmongers and pundits worry about China.
Ordinary people worry about jobs, income, paying their bills.
i.e. the stuff that never makes the news.
Given you didn't understand the MMT position on taxes it doesn't surprise me you can't grok the Job Guarantee.
In particular that it moves the stabilisation policy from the market for money to the market for labour, and thereby eliminating any need for a base rate.
Which then allows the economy to maintain stable prices at a far higher level of output, and loan prices to remain low forever. Great for those who work for a living, want an affordable home to live in and fancy retiring before they die.
The Job Guarantee is the natural outcome of the Price Anchorism that is the central tenet of MMT - the price level is determined by what government demands for its currency.
It ain't MMT without a Job Guarantee. Without the price anchor you're just doing a different version of monetarism - messing around with the price or quantity of money in a futile belief that controls things.
For me the basics of MMT describe how money operates in the real world. It’s like the theory of relativity, or the theory of aerodynamics. Either the airplane flies, or it doesn’t.
For you, MMT is an ideology of what should happen -- e.g. we should have a “jobs guarantee.”
For me, MMT is descriptive, and can be summed up in a paragraph or two. For you, MMT is prescriptive, and discussions of it can fill volumes.
You try to make your prescriptive opinions seem more solid by dressing them up with techno-babble like “stabilization policy.” However they remain an ideology, and are therefore your Ultimate and Righteous Truth. This makes you say things like, “It ain't MMT without a Job Guarantee.”
That’s your MMT, in which any objection to the “jobs guarantee” or the “taxes drives money” mantra is a violation of your ideological demands. Such demands lead to cultish behavior, rendering you incapable of having a rational discussion about them.
Therefore I will not fill up this page with all the reasons why the “jobs guarantee” is unworkable and unnecessary. It would be useless, and you become very angry.
I might, however, ask how a “jobs guarantee” could ever work in a financialized post-industrial society like the USA’s, in which most manufacturing has been moved abroad. Instead of manufacturing stuff, the USA is now more geared toward manufacturing debt.
However I won’t push for an answer, since that’s a real world question, and ideologues don’t like real world questions. If pressed for real world answers, they become furious.
Konrad it’s a Plantoist Theory or Thesis so they get to say what their Thesis is.,,
We shouldn’t conflate or not identify what method anybody is employing…
The context of your comments are mostly Scientific….
MMT people are not trained in scientific method so they are going to use the method they are trained in.
eg I myself really can’t call myself an “MMT person” because I am not trained in and don’t use the Platonist method..,
“ Huh? This is needlessly abstruse gibberish.”
It would be explained scientifically not via a narrative like this you find abstruse .., but rather by using diagrams and quantitative illustrations..,
Neil is slumming here using a parable like Platonist….
Neil also understands this all scientifically I’m pretty sure about that having read his stuff for over 10 years..,
“ Federal tax revenues work the same. When you pay a federal tax, your own bank account is debited by the amount of the tax, and TT&L accounts are credited by that same amount. Then that federal tax revenue is zeroed out – i.e. sent back into the ether where it came from.”
This is not accurate .., if they use the TTLs those accounts are regulated at the Depositories as normal bank deposits subject to Liquidity Coverage Ratio etc….
If Positive balances in the TTLs then depositories have to retain % Reserve assets against those deposit liabilities…
This was why when govt run a prolonged surplus it leads to reduced credit creation and possible economic contraction if govt doesn’t do a tax cut a la Lafferism..,
MMT says “loans create deposits “ which is true but not exclusive…
Can also say “govt surpluses create deposits” if they using TTLs..,,
And deposits are regulated… so you have to apply regulatory mathematics… which these Fed and FDIC people don’t know how to do…
"For me the basics of MMT describe how money operates in the real world."
That's not MMT. That's just basic financial accounting.
Bill and Warren came up with MMT and Bill says the following:
"You are welcome to call anything whatever you like whether there is an existing body of knowledge that calls it something else or not. But that won’t change things much.
Neil Wilson is correct that what the founders of MMT (including myself) have deemed to be the body of theory and practice they advocate includes the concept of an employment buffer stock as an integral component.
As Neil says it ‘fixes the bug’ that the Phillips curve opens up for conventional ‘Keynesian’ (heterodox) theory. You demand to know “Who says so?”. I say so. That has been the core of my work in this area of research and theoretical development for decades. The Job Guarantee solves the ‘missing equation’ problem of macroeconomics and is core to what we call MMT. It is one of the things that separates MMT from other Post Keynesian macroeconomic approaches.
As Neil noted “Every generation that discovers MMT seems to think they can do without the Job Guarantee for some reason.”
Over the 14 years I have been writing a blog and thus presenting my academic work in a more accessible format, this discussion has recycled several times. It has led to some people who in their rush of enthusiasm claim to be devoted MMTers then denouncing the approach a few weeks later once they realise what the body of work involves.
Then the cycle turns as more people ‘discover’ our work.
As I said, you can call something MMT as you see fit. But without the Job Guarantee stability framework embedded, what you think is MMT is not the genuine article."
“That's not MMT. That's just basic financial accounting.”
Finance and Accounting is ideally a Science Degree,. MMT people have Art Degrees.,.
Art Degree people use figurative language (like Neil’s parable here) to represent the literal….
But then they say in figurative language “taxes burn up the money!” which obviously doesn’t happen USD balances can accrue in TTL accounts and if not regulatory adjusted can make all the depositories insolvent and an economic catastrophe….
Meanwhile these same Art Degree people don’t understand any of this because they are thinking “hey! I thought it was burned up! And we don’t have to worry about it anymore!”… meanwhile they have created an economic catastrophe…
Too dumb to apply 8th grade Algebra in a regulatory analysis…
Then they create another “neoliberal conspiracy!” Theory as a coping mechanism… and claim some secret cabal of wealthy people are doing it on purpose to get over on the poors, etc.. drift into climate doomsday psychoses, etc..,
It’s not ideal for Economics and obviously doesn’t work… nobody is believing the MMT thesis…
Creates the opportunity for this reification error we keep seeing where the students are left thinking the figure of speech “money!” is real and we can literally run out of it…
Monetarism is prescriptive. It's also BS. So with MMT, we get prescriptions without the BS.
Conspiracy theory:
The job guarantee and the Philips curve must never be mentioned in the same sentence.
“Bill and Warren came up with MMT.”
That is like claiming that they “came up with” the idea that water is wet.
MMT explains what actually happens in the real world. It notes, for example, that monetarily sovereign governments create their domestic spending money out of thin air by crediting accounts. Everyone with any intelligence already knew that. Anything further than a few basic points like this is ideology and speculation. You call your ideology “MMT.” I call it chatter, speculation, and religion. “Without a jobs guarantee, it’s not genuine MMT. We alone have the real MMT. Anything else is blasphemy.
Since MMT (for you) is a religion, it has very little to do with reality. It’s an escape.
What use is it to chatter about unicorns and “jobs guarantees” when the entire West is caught up in a bubble economy, with wildly overvalued asset markets and real estate? The financialized, post-industrial Western economy consists of multiple bubbles that form a collective bubble. Whenever there is a crash, the Fed lowers interest rates to re-inflate bubbles in financial markets and asset markets.
The West is also crippled by a debt bubble.
In a bubble economy, 90% of the wealth created goes to the top 1% of people who are already wealthy. This massive wealth allows the ultra-rich to invest billions into real estate and other assets, further inflating the bubbles. Stock prices and housing prices are now at all-time highs. (In early 2009 the S&P 500 average was $735.09; now it is at $4,600.)
Ten percent of the U.S. population owns 90% of all income-producing assets (e.g. business equity, non-home real estates, stocks directly or indirectly owned, etc). Meanwhile the bottom 90% are being squeezed harder and harder, whether or not they are employed.
I don’t see how a “jobs guarantee” would change all that. Not that it matters. For you, MMT is a religion, and whenever religion becomes involved, we go round and round in circles like dog chasing its tail.
“ The job guarantee and the Philips curve”
They are simply opposing Platonist/dialogic theses..
They both can be examined by scientists but neither are scientific…
" For you, MMT is a religion"
Full psychic psychiatrist at work there.
Must be great being able to read people's minds at a distance.
"and if not regulatory adjusted can make all the depositories insolvent "
It's the regulations that are making the depositories insolvent.
The depositories are in perfectly fine shape with TTL accounts since they are nothing more than an accounting illusion to avoid banks looking like they are borrowing from the central bank.
With an elastic 0% overdraft at the central bank, all that silliness goes away.
We don't have to operate banks using silly US bank policies.
You could adopt the superior UK ones for example :-)
They are simply opposing Platonist/dialogic theses..
They both can be examined by scientists but neither are scientific…
Bill's academic work challenges (if not demolishes) the employment/inflation trade off.
Obviously the politics have spoken, and no academic will discuss it.
“ You could adopt the superior UK ones”
Yes it is…
“ Bill's academic work challenges (if not demolishes) the employment/inflation trade off.”
It’s a Platonist alternative thesis.. it’s not being accepted by either the general population or policy makers at this time..,
The current monetarist policy works to reduce prices too in periods where these people think there is their figure of speech “inflation”… we are seeing it in action right now… all financial asset prices have been reduced .., bonds at 15 year lows, stocks below prices already achieved 2 years ago, CRE down double digits.., …
And UE is remaining under 4%…
These guys are going to soon be taking victory laps….
“ MMT explains what actually happens in the real world.”
No it doesn’t..
“Taxes destroy money” is what is actually happening in the real world?
Settlement of a pecuniary obligation is destroying a figure of speech?
the only thing of value they are contributing is they are trying to tell their other Art degree people that we’re never “out of money!” .. beyond that they don’t exhibit a very detailed understanding of “what is happening in the real world”…
“ It's the regulations that are making the depositories insolvent.”
No it’s not it’s the human action…
If you have a regulation that requires Depositories to maintain Reserve Asset balance that is >= 10% of Deposit Liability balance and there are $13T in system Deposit Liabilities then WHY would you adjust Depository System Reserve balances to $1.2T?
When your own regulations require depositories in aggregate to have at least $1.3T ?
WHY?
The regulations don’t have anything to do with it… human beings need to able to compute 10% of $13T…
It’s like your saying we shouldn’t have an electrical code because some moron ran 20 AWG wire from a 20A breaker and burned the house down…
And UE is remaining under 4%…
Nope.
The proper measure is U-6 and if there were a JG, we could expect those numbers to seek those openings.
Academia will not acknowledge that a buffer stock approach is a less damaging way to address inflation. Because... politics.
Matt,
Treasury always has the option of moving TTL balances to the TGA to eliminate reserves and deposits in the bank commercial sector. It's easy to change the ratio if the idiots in charge don't want to abandon their silly ritualistic rules.
Taxes destroy money. When you draw up the consolidated government sector and the consolidated private sector, taxes reduce the size of the balance sheet of the private sector and spending increases it. Each time ever time.
You can play accounting tricks and inter entity loans as much as you like, but when you consolidate the accounts, that is what happens.
And it is over this boundary - with the central bank consolidated into the government sector where it belongs - that the MMT balance sheet effect occurs. That's where spending creates money and taxes destroy it. And that's where the control effect occurs - the private sector has more or less money.
"Taxes destroy money."
Federal taxes, yes.
Repaying a bank loan also destroys money (destroys the principal).
Konrad:I don’t see how a “jobs guarantee” would change all that.
That some people don't understand how it would doesn't mean it would not change all that. There is a lot of science I do not understand, but trust is true, am quite certain that I could understand normally well if I did the work.
For many people do see how it would change all that. How it has changed all that in the past. Plutocrats in particular understand, which is why they like the Job Guarantee about as much as vampires like wooden stakes.
Maybe British TV needs a series, Neil the Vampire Slayer. :-)
“ Treasury always has the option of moving TTL balances to the TGA to eliminate reserves and deposits in the bank commercial sector.”
Well yes and they have done that….
But now just the last few months they dropped the TGA by 300b and bank reserves went back up…
When the QT is supposed to be LOWERING bank reserves.., which one is it?
“ taxes reduce the size of the balance sheet of the private sector and spending increases it. Each time ever time. ”
Sure but Where is your figure of speech in this statement?
There isn’t any..,
Why do you feel the need to be slumming with these Art degree morons?
https://en.wiktionary.org/wiki/slumming
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