An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Friday, January 29, 2010
Senate passes pay-go rule on party-line vote
Pay-go forces any new spending to be offset with taxes or spending cuts. Limits the ability of gov't to reduce fiscal drag from here.
Coupled with the $4$ offset for deficit spending and borrowing with a limit on the size of the debt, this hamstrings the ability to use functional finance to balance spending power with real output capacity, simply because most economists, politicians, media types, and the public don't know now the modern monetary system works.
The myths about "fiscal responsibility" are based on gold standard (convertible fixed rate currency) thinking that no longer applies now that the government is the issuer of a non-convertible floating rate currency. As such, the federal governmemt is not financially constrained, unlike households, firms and states in the US, which are revenue constrained.
Coupled with the $4$ offset for deficit spending and borrowing with a limit on the size of the debt, this hamstrings the ability to use functional finance to balance spending power with real output capacity, simply because most economists, politicians, media types, and the public don't know now the modern monetary system works.
ReplyDeleteThe myths about "fiscal responsibility" are based on gold standard (convertible fixed rate currency) thinking that no longer applies now that the government is the issuer of a non-convertible floating rate currency. As such, the federal governmemt is not financially constrained, unlike households, firms and states in the US, which are revenue constrained.
A very entrenched belief system that cannot be broken in my opinion. Will lead to end of democracy as we know it in the U.S.
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