Wednesday, November 3, 2010

My discussion with David Walker

I went to Fox yesterday and who do I bump into? None other than David Walker, former Comptroller General of the U.S. and now the president of the Pete Peterson Foundation. Walker is the leader of Deficit Terrorist Nation and he has been on a mission, backed with Peterson’s money, to scare the daylights out of the citizens of this country and our political leadership into believing that Social Security is insolvent and that the nation itself faces bankruptcy unless we reign in runaway spending and the deficits that are accruing.

Back in 2008 I had Walker on as a guest on my radio show on Biz Radio and I got him to admit that there is no solvency issue and that the checks were never going to bounce. As far as I know, I was the only one who has ever gotten him to say that publicly. (I have often asked Neil Cavuto to pose that question to Walker the times when he is on his show and I have personally given Neil the audio clip of that interview, but he hasn’t done it.)

Anyway, when I went into the green room and saw him sitting there, I walked right up to him and introduced myself and asked if he recalled that exchange we had back in 2008. He actually said that he did. So I asked him why he continues to go around saying that social security is facing insolvency.

He said to me that he doesn’t say that.

I questioned him as to what would happen if those deficits were not closed as per his warnings and if the government just kept writing checks. He said that interest rates would rise. Note: he didn’t say we’d go bankrupt; just that interest rates would rise. I asked why he thought interest rates would rise if the Fed sets rates? He said the Fed only sets short term rates, but not “market rates.” I asked him if he was aware that the Fed has been guiding long term rates lower by buying bonds. I tried to explain to him that the Fed could set rates anywhere along the curve, by exactly the same manner of operations that it uses to set short rates. He seemed confused and not fully understanding that the Fed could keep rates low for however long it wanted. Then I brought up the example of Japan, where debt was far higher than in the U.S. and where rates have been virtually at zero for two decades.

He said Japan has no “foreign debt.” I say neither do we, because our “foreign debt” is our own debt—in dollars. Same exact thing as Japan. He had a hard time with that.

Then I asked him if he truly believed that a nation that issues its own currency and where its debts were denominated in that currency could go bankrupt? He responded, “No, that can’t happen.”

Then I followed up by trying to make him see that Social Security or Medicare or any obligation of the government doesn’t face solvency risk by that same logic.

And…he agreed!

So I asked him why he keeps saying it’s going broke?

He says he doesn’t say that. He said that he never says it’s insolvent. (Which is bullshit, because he does say that!)

I told him about what Greenspan said back in 2005 during Congressional testimony, when he was asked that very question, about Social Security solvency. Greenspan said that the Federal Gov’t can pay any amount of money to whomever it wants, but the real issue was whether or not the real assets were going to be there for people to consume. In other words, would we end up having inflation.

Walker seemed to understand this. Then I said that if we were going to have a realistic dialog and discussion about Social Security, we should not frame it in context of risk of insolvency, but rather, whether or not the crediting of bank accounts (issuing checks) was going to lead to inflation down the road. I said that no real examination of that potentiality was ever done. He agreed.

I said that since he is the voice of deficit reduction and fiscal responsibility, he should refrain from using words like bankruptcy and insolvency and reframe the discussion so that people start talking about the real issue; which is whether or not there is a risk of inflation if the government keeps writing checks.

He agreed and said that he won’t talk about solvency. HE SAID HE WASN’T GOING TO TALK ABOUT INSOLVENCY! He also agreed with me that it’s not about interest rates!

In the end he said it’s about inflation and the value of the currency. (I’m not even sure it is about the value of the currency, but I gave him that one!)

So in the end, David Walker, Deficit Terrorist in Chief, basically agreed on all points espoused by the MMT community. He said to me he would characterize it in that way. He said I should ask Neil Cavuto to ask him that question. (I promptly sent an email off to Neil.)

Then he walked out to the studio to do an interview with Fox Anchors David Asman and Liz Claman. Not more than two minutes into this interview, he was talking about restoring SOLVENCY to Social Security.

What a disingenuous, lying, douche bag!


welfarewarfare state said...

Social Security is insolvent for crying out loud. The big problem with socialism is that you eventually run out of other people's money. When this government-run Ponzi scheme was enacted it required about 14 workers per retiree to support the program. It now takes between 2.5 and 3 persons per retiree to support the program. Please tell be what happens when the ration is 1:1? Just like a Ponzi scheme, the people who get in first make out like bandits. The people who get in last get taken. To demonstrate the point, Ida Fuller was the first Social Security welfare recipient. She lived to be about 90 years old. She payed in about $20 and got back over $20,000. The current crop of young workers aren't going to see a cent unless they are payed back in monopoly money.

Social Security was sold to the American people as insurance because it would have been rejected by the Amercian people if the government had truthfully identified it as a transfer program. Real insurance premiums get invested. Insurance is also designed to measure risk. The government even went through the charade of waiting 5 years between enactment of the program and the first checks being mailed out to dupe the people into thinking that the money had been saved. Not one damn dime has ever been saved. The money confiscated from current workers goes into a general fund. It isn't earmarked specifially for Social Security. The American people were told lies.

The big joke is that the government pretends that the program is solvent because there are Treasury bills in the Social Security account. Which is nothing more than one agency of government saying that is owes another agency of government a credit that the taxpayer is expected to pay for it. You can't tax current workers enough to pay for the program. They will rebel. You can't tax rich people enough to pay for it either because they will either leave the country; hide their money; or government will end up killing the goose that layed the golden egg by taxing them out of existence.

Government does have one more ace in the hole though. They can try to inflate their way out. The price inflation rate for energy, healthcare, basic necessities, and foodstuffs has increased in price far more than the government pretends. They purposefully overweight housing and rents in the CPI to make it show less price inflation. If steak rises too much in their sample, the bureaucrats conclude that the people must have bought more ground beef to compensate and take the steak out of their index. When new car prices rise too fast, the bureaucrats conclude that people simply bought more old cars and overwight used cars in their index. How convenient! When the Fed housing bubble was in full flight, they underweighted housing in their inflation index--the exact opposite of what they are doing now. The Social Security welfare recipient isn't going to see a COLA increase for the second year in a row. The government has created a lot of new money to help pay some of its debts and liabilities. The key to this theft is to underreport the real price inflation rate.

Tom Hickey said...

Mike, in Mr. Walker's favor, I think that he may not actually have been lying. It is possible he has a diagnosable and perhaps treatable cognitive disorder. Such disorders are broadly categorized as fixations.

Good work, BTW. It went into his subconscious, at least. Let's hope he can recover and will recover this when he does.

welfarewarfare state said...

Hey Tom,

Socialist ideology is the mental disorder. I think central planners disease is also curable. When you get your head out of the perma-tanned, legend in his own mind, aged frat boy's backside, perhaps you should consider that debt is a liability. Debt is only an asset if you are the creditor.

This debt-based fiat paper system is collapsing all around you guys, and yet you still continue to quack the party line. It's not even thought--it's duckspeak. It only requires the use of the larynx. I read through your post and I only hear, "Quack, quack, quack." It's only fitting because you adhere to an ideology propagated by quacks.

Perhaps you are the one who suffers from a severe case of cognitive dissonance.

googleheim said...

Social Security is broken because that what Republicans want it to be, and it's a familiar rant:

1. state dept broken - close it down
2. public tv too expensive - close barney purple dinosaur down
3. social security is broken - close it down

Chile's privatized pension system bit the dust 2 years ago. How's that ?

It was the poster child for George Schultz - his baby with Kissinger and Pinochet as they frolicked with cocktails in the tulips.

The immigrant nazi's are also part of the deficit terrorism : they don't want illegals getting subsidized healthcare paid for by tax payers ... but the rich tax cuts don't allow that and anyone who purchases anything in the USA if they are legal or not they are taxpayers.

how are illegal immigrants not tax payers ?

let's close NAFTA too and unionize the south. how's that ?

let's boot the austria fascist grove thing into oblivion !

Stephan said...

Funny dialogue with Walker. And you have also some very funny commenter. On what planet are WelfareWarfare clowns living? Alpha Centauri?

STF said...

Great stuff Mike!

Welfare . . . we are ignoring you because you are CLUELESS.

bubbleRefuge said...

WS, I give up on you. Engaging you ruins my lowers my credibility as a blogger. You refuse to discuss things in any kind of rational economic context. Therefore, like Scott says I will heretofore ignore you.

Mike, great anecdote. Maybe policy makers do know more than they let on about MMT but cannot get beyond the 'political' ramifications.

welfarewarfare state said...

Hey, Stephan

What planet are you from? You typed , "And you have some very funny commenter." Judging from your poor sentence structure, I'm guessing your home planet is Alpha Badsyntax.

Snow White said...

Welfare must be bored because he has nothing better to do than troll this site. Sorry dude but you are not high enough up the mental hierarchy for this blog,so your comments will be ignored.

Mike Sandifer said...

Brilliant Mike.

welfarewarfare state said...


I don't advocate ending the State Department. I would much prefer a foreign policy that doesn't impose a PaxAmericana on the rest of the world though. The State Dept. is one of the few legitimate functions of government though it is bloated.

Did you really play the Barney card which is actually the "it's for the children card?" Some of the children's show on public television are popular so they should have no problem finding a home at the myriad cartoon networks which pays their bills with ad revenue. In that way there is no government force involved. It is the news and opinion programming that really bothers me. It's news by statist drones for statist drones. Why should I have money confiscated from me by the government to have state apologists posing as newsreporters offering their apologias for state collectivism? I don't mind socialist news networks like MSNBC because not only do I not have to watch, I am not forced to pay for the drivel either.

I don't propose a retirement program like Chile's either. That's a sure-fire way to only encourage large corporations to get into be with government further. I think that most individuals will save for their own retirements responsibly if they don't think that there is a government backstop in place as with Social Security. Those who don't save enough would have to rely on family, private charities, churches, and local communites. This is exactly how it was done before the welfare state to good effect. The mutual aid societies, fraternal org.'s, lodges, churches, famililes, etc. WERE the social safety net. These natural organizations arose spontaneously out of civl society, and everyone involved gave his volitional concent. It tended to create a ssense of community. Compare this to the force and impending banruptcy of the welfare state. It has atomized society to the point of being on the brink of generational warfare.

What makes it so difficult on the individual is that the government has continaully debased the currency for generations. It not only discourages savings, but it compels otherwise financially unsophisticated people to risk their money in equities that they don't understand. Wouldn't it be a lot easier to save in a commodity-based money gaining purchasing power over time that the government can't debase at will?

I think the best course of action is stop all Social Security welfare checks to seniors that have other means to support themselves. The over 65 demographic is the wealthiest in the country. Many of them have other means. The age at which someone can receive S.S. welfare benfits will also have to be raised again. The people who have been made dependent by a government that has seized a portion of their wages all their working lives should continue to receive S.S. welfare checks. Younger workers should have the option of opting out of the Ponzi scheme.

Lastly, some of you say that you are either ignoring me or not responding to me....... while simultaneously responding to my previous posts. You guys just can't help yourselves. I am the one discordant note in an otherwise harmonious socialist symphony.


Snow White said...

Good job Mike with David Walker. You shocked him into silence. He had to hit Fox News where his out of paradigm nonsense would be accepted.He is starting to believe his own lies.

Anonymous said...

If there are enough resources to care for our senior citizens then they can be cared for, as Walker grudgingly admits.

Great work Mike. As for the disingenuous, lying, douche bag - he wants to ensure the continued arrival of his paycheck. Many of us can relate to that!

googleheim said...


You are not an Austrian if you don't want tax collection. You are 1/2 Austrian.

Not referring to you at all, I find the irony in republican't austrian economics is that they want Austrian school but they don't want Austro-german precision tax collection.

There are ironies with democrats too, almost flip flop to other.

Barney was mentioned because that is the cartoon the 94 Gringrich congress tried to shut off effectively when they shut down PBS and the government.

The republican't vision is to deem something broken and that they have to fix it. It's all hype.

The Tea Party is really a second head on the GOP body, sharing the same heart and serving the purpose of rebranding the GOP.

Unknown said...


The Chilean pension plan did not go bust. They found that fewer people were contributing to it for a variety of reasons (e.g. self-employed people can make voluntary contributions) and that fewer people would qualify. The returns have actually outpaced our Social Security returns by a wide margin. To reform it they decided to add a program more like ours in addition to the old program. Also, because of a lack of competition in fund managers, the fees were much higher than if the Chilean government had let a Vanguard-type company be one of the fund managers. If Vanguard had been a choice, with no minimum fee, the original program would be a huge winner for most of the population.

googleheim said...

The problem with the Chilean system is that it cratered along with market in 2007/8. Also mining also stopped for a while.

You can get things like Chile to work since they have very little population and huge amounts of copper and other minerals.

You can get things like Denmark to work since they have very little populations and huge amounts of intellectual minerals in the people.

However, applying either extreme to the USA is worthless and inapplicable.

welfarewarfare state said...


I like how you start off your post my typing that you are not referring to me at all then proceed to go on a rant against Austrian economics when I am the only Austrian here. You, much like bubbleRefuge and the rest of the proles, haven't read one book cover to cover by an Austrian. You have only read criticism by statist econmists who don't understand it any better than you. I am not an anarchist. I am a minarchist. I am not opposed to consumption taxes. However, it is nuclear-grade stupid to tax production as the income tax does.

Instead of criticizing Chile's centrally planned retirement program, why not look at the one in your own country that has unfunded liabilites in the tens of trillions of dollars over the coming decades. The ideas of rational constructivism and legal positivism are the source of the problem. The individual's retirement can't be centrally planned to good effect.

By the way, did any of you notice that gold, oil, and silver went ballistic today in response to QE2.

Matt Franko said...


"unfunded liability"

By that logic you have an unfunded liability to your utility Cos. of probably $100k depending on how old you are...did you realize this? Oh no!

welfarewarfare state said...


The difference is that I haven't commiting to paying my utility bill for the next 100 years. Your analogy would be more correct if I had committed to pay ten other people's utility bills for the next 30 years from money that I took from them under the pretence that i was going to save and/or invest it. Of course I didn't save or invest any of it because I squandered it only countless other things. Just like government.

Government originally sold S.S. to the people as insurance. The American people were told that the S.S. "contributions" were just like insurance premiums. These "premiums" were going to be invested. Of course, that was a lie that even the slowest among us (cough, cough, Normanites)knows to be fallacious.

Matt Franko said...

You are not the Sovereign. So if you need electricity, water, heat, etc. (food for that matter too) for the rest of your days here, it is probably more correct to say that YOU have the unfunded liability.

Under a FFNC regime, the govt can ALWAYS credit a bank account, the SS checks will not bounce, the only constraints are real.

Think of it this way: if all of these seniors who are receiving/stand to receive these benefits, if there was a terrible disease that struck our nation and all the people over age 65 suddenly died, would all of us still working suddenly be on 'easy street' and be able to immediately retire? Of course not, we still would need to work to provide the real goods and services to the economy, the way we do now, only now with SS, we also provide a limited amount of security income to our seniors who we all politically agree dont have to work or at least not work as hard counter factual. Our economy is currently able to provide for both the workers, the children, and our retired seniors.

As Mike tried to make the point with asswipe Walker, we probably should be studying whether this will always realistically be the case, otherwise we should be exploring for policies to prevent that future real contraint from developing.

welfarewarfare state said...


Your right in that the government checks will never bounce because the government can just create as much paper money as it wants. My concern is that the dollar won't have any purchasing power. Is someone going to feel secure when they get a check for say $1500, but the dollars only command very few goods and services in the economy?

If the individuals in this country are so productive then why are our trade deficits in the tens of billions of dollars monthly? The rest of the world is supporting us temporarily by buying our bonds. Those bond purchases have slowed recently.

You say that we can take care of our elderly. Many of them can more than take care of themselves. The way to do this is through families, local communiteis, private charities, mutual aid socities, etc. Government central planning fails. The government hasn't saved one dime of the trillions of dollars received.

You guys are always saying, "Mike says...." Mr. Norman doesn't understand anything. The guy is incompetent. It's going to take a shock like the dollar index crashing, 20% price inflation, the bond bubble bursting, etc. for you guys to snap put of the trance.

welfarewarfare state said...

The above post should begin "You're right" and nor "your right." oops!

Anonymous said...


Anonymous said...

Can Mike or another commenter please answer the following question for someone who is trying to better understand this debate:

If further stimulus, quantitative easing, etc. can lead to inflation and dollar devaluation as Mike's post indicates is possible, how would be deal with the negative consequences such as higher interest rates on new Treasury debt issuance and difficulties for holders of debt whose real value will decline? What are the negative consequences of inflation and decline of the dollar and can the damage of those consequences be limited and/or corrected?

(Asked by a new student of economics. Hope the question is posted in an comprehensible manner. Thank you.)

Tom Hickey said...

Don't think money; think production, distribution, and consumption of real resources. Money is only a facilitator of transactions. Work back from the transactions, which represent the meeting point of supply and demand in price and quantity.

Government has the power and tools to shape the price of money, quantity of net financial assets, etc. to optimize the use of real resources in an economy, including human resources, along with achieving price stability. This is what MMT is all about.

A monetarily sovereign government as monopoly currency issuer has the sole prerogative and corresponding sole responsibility to provide the correct amount of currency to balance spending power (nominal aggregate demand) and goods for sale (real output capacity). If the government issues currency as nongovernment net financial assets in an amount that results in effective demand in excess of capacity, demand will rise relative to the goods and services that the economy can supply, and inflation will occur due to excess demand relative to supply. If the government falls short in maintaining this balance, recession and unemployment result, due to insufficient demand relative to supply.

The government can achieve balance through fiscal policy (currency issuance and taxation) iaw functional finance and monetary policy (interest rates). This is based on analysis of data in terms of sectoral balances — contribution of government, households and firms, and external — using national accounting identities and stock-flow consistent macro models. Lots of MMT literature and much blogging on this.

Anonymous said...

Thanks Tom, though still a bit dense for me-- I'll have to read some elementary MMT to get the hang of this.

Won't inflation and dollar devaluation make it difficult for the US to acquire the essential raw materials we must import such as oil (and the "rare earth" metals if all the recent stories about China cornering those modern essentials are true)?

Tom Hickey said...

First sign of goods inflation shows up in materials cost. Bernanke is desperately trying to get some inflation going, and increasing liquidity through QE is likely to result in increases in not only asset values (housing, equities) but also commodities, eventually raising the cost of goods. 

I say "eventually" here because at first business will have to absorb most of the cost increase since firms cannot pass increases on to consumers who are too strapped to afford the marginal increase. This results in marginal compression of profit, lower earnings, and less incentive to invest (spend). 

But eventually the materials price increase will be passed on to consumers, raising consumer prices, which is "inflationary." Technically, however, inflation as an across the board real price rise (including wages) in excess of output capacity doesn't occur until full employment is reached. Every rise in price is not inflationary in the sense of being economically inefficient. 

Right now, the Fed has determined that some inflationary pressure is required to get the ball rolling. When prices are stable or falling, it pays to hold onto money, and that decreases effective demand, stalling recovery. So the Fed is increasing liquidity to raise asset prices and create a wealth effect so consumers and businesses will be encouraged to spend, and also to raise commodity prices to drive some price increases in real goods, too.

The risk, of course, is another bubble along with stagflation, especially if petro price rises, as it is now doing.

welfarewarfare state said...

Tom HIckey,

What price stability are you referring to? Are you referring to housing or energy prices over the last decade? How does the Fed know what the price of anything should be? When has the Fed achieved the mythical full employment that you speak? There is nothing efficient about our economy, and the Fed is making it much worse. The market isn't being allowed to correct the imbalances creating by the Fed's housing bubble. The Fed has completely failed in achieving its mandate.

You are right about one thing, Bernanke is trying desperately to create inflation. This is the one thing that the incompetents at the Fed will succeed in doing. The old definiton of inflation was an increase in the money supply with the EFFECT being an increase in proces. By that score he has already succeded. The price inflation is already here especially in commodities. It is about to accelerate greatly because businesses can't continue to eat the cost of the commodity price increases over the last 2 years. They are about to pass those costs along to the consumer.

You guys think that this will result in economic growth because the velocity of money will increase. This will allegedly spur consumption spending which will lead to healthy balance sheets for businesses. It is the increased velocity of money that worries me. That money is exchanging hands at a faster clip tells one nothing about whether resources are used efficiently. Last time I checked the greatly increased velocity of money didn't work out so well for Weimar Germany. A so-called moderate inflation can become a galloping inflation very quickly with the money planners powerless to stop it once it has been set into motion. If real growth could be achieved by simply creating more of the medium of exchange then Argentina's and Zimbabwe's economies should be among the strongest in the world.

The German finance minister came out yesterday and called current U.S. policy "clueless." Yes, that is about right.

Tom Hickey said...

Welfare.., I was just saying what Bernanke is doing, not agreeing with it. My own view is that the FOMC should not be politically independent. Instead the Fed should be consolidated with Treasury so that policy decisions become politically accountable.

The primary purpose of the FRS is interbank settlement, in my view, not policy making. I would prefer to leave rates to the market and use fiscal policy to adjust sectoral balances to achieve full employment along with price stability.

welfarewarfare state said...


We finally agree on something. Interest rates should be determined by the supply of savings and the demand for credit.

It is a fallacy to say that the central bank is independent though. Arthur Burns was very political. He purposely juiced the economy before the '72 election in an attempt to get Richard Nixon re-elected. It worked, but the consequences of the Fed's actions were high unemployment and double-digit price inflation. But this occurred well after the elction. Burns was willing to do the same thing for Carter in return for re-appointment, but Carter appointed Volcker instead.

Mr. Greenspan turned political during his time in office as well. He juiced the economy before the 1996 election for Clinton in return for re-appointment with the result being the dotcom bubble. We have had political money since the Fed's inception in the early teens.

Does anyone think that Bernanke isn't currently doing the bidding of the political class in Washington? This latest round of so-called quantitative easing (QE2) was announced to be 600 billion over the next 7 months. Does it strike anyone else as odd that the 600 billion dollar figure is what the projected federal deficit is supposed to be over the next 7 months? The federal government can't come out and explicitly state that they are monetizing debt because it would spook the bond market to say nothing of the financial markets and the American people. It's just coincidence that the size of QE2, 600 billion over 7 months, is the projected amount of the federal deficit over the next 7 months, right?

The world will not continue to buy our debt at the interest rate offered. We can't continue to try to reflate bubbles or create new ones in perpetuity. Each new round of quantitave easing will require successively higher amounts of credit money creation to sustain the debt-based consumption economy. The "growth" that we will get from this money creation will not be real anymore than the bubbles in tech stocks or housing were real. As soon as the monetary spigot is turned off, the house of cards will collapse again. We will be Greece in 2 years time.

Matt Franko said...

We cannot be Greece because we are a currency issuer.

If China doesnt buy our 'debt', then they will just have to leave it in a US bank account, and the Fed can keep buying the debt for all I care. If they doent want to sell us anything anymore, then they will have to suffer the political repercussions of about a 15% drop in their domestic output (aint gonna happen)

Tom Hickey said...

welfare..., It is a fallacy to say that the central bank is independent though.

Agreed in the sense you mention. "Politically indendent" doesn't mean above politics.

The Fed is politically independent by design in the sense that the administration cannot order the Fed to adopt any policy that it does not chose to take, or to reverse any policy that it has chosen. This gives an unelected and unaccountable groups of technocrati control of monetary policy independently of any political control or accountability to the electorate.

welfarewarfare state said...


I think we are arguing semantics. The last central banker that stood up to the politicians was Paul Volcker. It is true that the central bank isn't directly run by politicians, but it frequently does the bidding of the political class. Isn't this a kind of distinction with very little distinction?

welfarewarfare state said...


You are right in so far as you state that we are not Greece because they are not a currency issuer. That is actually Greece's saving grace. They will be forced to get their economic house in order precisely because they can't impose an inflation tax on their people by utilizing a central bank's money creation power.

When I say we are Greece, I mean that our interest rates are going to spike suddenly. Reality will not be conned forever. Most of our debt (thanks to Robet Rubin) is funded in one and two year bonds. If interest rates spike to just 10% (a certainty) then we will have great difficulty just servicing the interest on the national debt. In addition, many of these same finanical institutions that were bailed out are going to be insolvent again.

A central bank can not keep interest rates low forever without destroying the currency.

Some people mistakenly say that history repeats itself. I don't think that the events in Greece will exactly replicate themselves here, but they will rhyme.

Tom Hickey said...


Yes, that is true to great extent, since the politicians and the rest of the ruling elite come from the same class or are its paid minions. The problem is that so-called political independence masks this and gives the politicians cover. The politicians can then claim that they have no power over the Fed BoG. If the cb and treasury were explicitly consolidated, this fig leaf would be gone and the politicians would be accountable for economic policy.

However, given the abysmal understanding the public has of economics, I don't know that this is a great advantage. At least it isn't anti-democratic and anti-capitalistic, as is the present system.

welfarewarfare state said...


I, following Hayek and Rothbard, don't think we will ever have good money again until there is a separation of money and state. Political money will never be good money. The concept of money and money itself were a product of a spontaneously organizing market order. Money was a product of human action but not of deliberate human design. Governments always try to control the issuance of the money because it is a power that can be used to benefit not only government but favored interest factions. A sovereign need not have monopoly power of issuance. The role of the government should be to pursue counterfeiters. It's hard for a government to do that when it is the government that is engaged in counterfeiting though.

I view money as a commodity not unlike coffee, copper, soybeans, etc. I was greatly influenced by George Selgin's book "Good Money" and Hayek's " The Denationalization of Money."

Tom Hickey said...

welfare..., here is where we part company. I trust government more than I trust bankers. I am convinced that democracy is better than oligarchic plutocracy. We get to hold our representatives accountable at the voting booth, not bankers. And the argument that the crooked bankers will be weeded out through competition hasn't ever worked out in practice. The bad drives out the good.

Matt Franko said...

Interest rates are not going to just turn around by themselves, due to the bond 'vigilantes' LOL! The Fed is going to do it when it happens. This will be due to a more robust economy or price instability caused by some sort of supply shock. (oil, trade war?)

IMO what you have to look out for is this turn in the economy that the Fed will have to respond to with higher rates as long as they stay in the current paradigm.

They will increase interest rates with perhaps 10T+ in public issued treasuries, and only maybe 7T in outstanding bank credit..

They will think of course that will slow the economy down but it will be actually increasing fiscal transfer to the non-govt sector, every time they raise rates, the economy will just get more robust. They may keep raising, and raising, etc. This would be the time of the lifetime to get short bonds imo.

This could be a loooong way off. We may be headed for a Japan style lost decade at this rate complete with more deflation if the deficit terrorists gain traction at this juncture politically.

Stay tuned here at Mike's blog for updates.

welfarewarfare state said...


I don't trust bankers either which is why I don't advocate corporatism, but, rather, a free market. The shabby little secret is that big business and big government aren't natural advercaries; they are natural allies. Much of the regulatory code was advocated by large corporate interests because they can more easily cope with the costs of regulation by an advantage of economies of scale. Other regulation is intended to create barriers to entry by making the cost of entry prohibitively high. All of this regulation is sold to the American people as the public good, for the children, consumer protection, etc. The political capitalists understand human nature very well.

Most large corporations don't like laissez faire becuase there is simply too much turn over at the top and bottom. Someone is always nipping at your heels. Most large corporations much prefer corporatism which is only possible through a partership with big government. Large businesses love subsidies, mandates, public-private parterships( which came out of fascist ideology by the way), state-sanctioned cartels, etc. because these things protect them. Many small-to mid-sized companies do fight corporatism and regulations because they are frequently the intended target of these policies. The only way that this system will be ended is to strip the government of its powers to manage the economy.

It is the consumer--not the businessman-- who is in charge in a truly free market. Toi take just one example, the banking sector isn't remotely free market. It is a corporatist system that is, in fact, a banking cartel. (This doesn't stop socialists and corporatists from blaming the non-existent free market should anything go wrong though.) It is the large banking interests that benefit from the current Federal Reserve system which is a hybrid public-private entitity. In fact, it was large banking interests who agitated for the enactment of the Federal Reserve Act. The point man for the bankers in the U.S. Senate was Nelson Aldrich, a Morgan man.

You set up a false choice between democracy and oligarchic plutocracy. It's not one or the other. I favor a constitutional republic whereby the more deleterious effects of mob-rule democracy are ameliorated. A constitutional republic is still representative, but it protects the individual (especially his wealth) from the larcenous appetite of the mob. We are a long ways from the system that our Founders bestowed upon us. The type of system that we have now, which is dangerously close to mob-rule, has resulted in a system whereby the most organized interest factions vote themselves job protection, benefits, subsidies, etc.

One of my intellectual heroes is the 19th century classical liberal Fredric Bastiat. He perceptively pointed out that, "Government is the great fiction through which we all endeavor to profit from the labor of our fellows."
Yes, that is right.

Tom Hickey said...

welfare..., according to Bastiat, the sole purpose of government is to guarantee the right to life, liberty and property. To me, that is too narrow a definition. I'll go with the US Constitution and the purpose set forth in the Preamble.

There is an ongoing question as to the proper balance in the role of government. That is a political question that is decided in every election until the next election. Americans shift back and forth in their assessment of this, depending on changing conditions.

Moreover, Article 1, section 8 as interpreted by SCOTUS gives Congress control over money creation in the US. Congress could in theory delegate that completely to the private sector. That would be a drastic mistake. All money creation through the private sector involves private debt. Fiat money is not debt in the same sense, since the money creation by the government creates no corresponding liability in the private sector. Additionally, government money creation would be at no cost if the politicians realized that tsy issuance is operationally unnecessary and constitutes a subsidy that should be terminated as inefficient. Even so, the "cost" interest is paid by more government money creation, therefore, is not at a drain on the private sector.

However interesting these matters may be, this blog is more concerned with monetary and fiscal issues in so far as the discussion is political. The question you raise is whether MMT presents an adequate response regarding policy. You assert that MMT policy options are inherently inflationary. In my view, you have not established that. It remains an assertion based on assumptions that MMT'ers believe that they have refuted.

welfarewarfare state said...


The only way new money gets into our system is if someone or some entity borrows money. Fiat money is debt. A real money is a medium of exchange--not debt.

As far your belief that MMT'ers have refuted the claim that MMT policies (You mean "quantitave easing I believe) aren't inflationary. I don't think this will be a debate in two years time.

Tom Hickey said...

Wrong, welfare. All nongovernment created financial assets net to zero because all the corresponding assets and liabilities are in nongovernment. Loans create deposits, and net to zero in aggregate, everyone bank created money being someone else's debt to the bank (plus interest)

When government deficit spends, nongovernment net financial assets are increased, because there is an increase in nongovernment assets with no corresponding nongovernment liability. You may say that tsy's are debt, but that is not so. Tsy's simply store (save) the reserves created by deficit expenditure. It's a wash. Do the accounting. Plus, the interest on government debt is fiscal and increases nongovernment NFA.

This is not theory. This is operational reality.

welfarewarfare state said...


Our currency is debt. How can the debt ever be repaid in a system where money is debt?

You said that there are no corresponding nongovernment liabilities. This would only be true if the government repaid it's own debt with money from the sky. Any debt accrued by government must be payed back by these "non-governmental" (which are really just individuals)entities with interest.

Tom Hickey said...

welfare..., see Soft Currency Economics by Waren Mosler.

welfarewarfare state said...


See Human Action by Ludwig von Mises.

Tom Hickey said...

welfare...., Mises book on Human Action typifies what is amiss with economics and economists. They think that they can write books out of their field without taking on the substantial work that others have done. Most of them turn out to be wankers when they do this, because they don't know what they are talking about and just make stuff up that sounds good. But it has no solid empirical basis or rests on controversial philosophical argument over norms. Mises basic Libertarian principle, with which he begins the books, that society is an aggregate and not a system of elements and subsystems in relationship is just an assumption and there is abundant scientific evidence in the contemporary biological, social, and evolutionary sciences questioning it, if not refuting it. This is exactly the type of thinking that I am rejecting.

welfarewarfare state said...


Mises wan't "writing out of his field." You seem to suggest that a person who is classically liberal or libertarian as you put it can't be an economist. What? He was a real economist in sharp contrast to many of the crackpots that pass for economists today. It isn't the Austrians who are gulity of too much aggregation. That would be Keynesian, neoliberals, and MMT'ers. Austrians practice methodological individualism. You guys on the left think that economics is the science of central planning.

As Hayek said, "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

I would also point out that while Keynes and Irving Fisher among others were proclaiming a new era of endless prosperity as a result of enlightened progressive planning in the 20's, Mises and Hayek were warning of an asset bubble in stocks. Who is competent and who is incompetent?