Greg Hannsgen — Another Eccles at the Fed?

Nicholas Lemann profiles the new Fed chair in the July 21 issue of The New Yorker. One of the key themes of the newer article is that Yellen is “the most liberal [Fed chair] since Marriner Eccles,” and an “unrepentant Keynesian.” 

The article usefully contrasts Yellen’s policy views with those of orthodox macroeconomics. Yellen identifies as an adherent of the philosophy that government is capable of greatly improving on the outcomes of a modern capitalist system. (For many, this is the essence of what is known as the liberal view in the US political realm. Yellen’s liberalism will matter (1) in financial regulation, and (2) in macro policy, where the Fed is influential.)

Multiplier Effect
Another Eccles at the Fed?
Greg Hannsgen

Brian Romanchuk — Book Review - Money: The Unauthorized Biography

The book "Money: The Unauthorized Biography" by Felix Martin is a comprehensive popular history of money. Money and banking are topics of considerable interest since the end of the financial crisis, and they are also areas of great confusion. In this book, Felix Martin offers a clear history of the subject.

Bond Economics
Book Review - Money: The Unauthorized Biography
Brian Romanchuk

Dan Froomkin — It’s About the Lying

Figuring out how to right the constitutional imbalance between the branches of government, as exposed by this CIA assault on Congress, is very complicated. 

But doing something about lying isn’t. You need to hold people accountable for it.

The Intercept
It’s About the Lying
Dan Froomkin

David F. Ruccio — Maximum wage—or, even better, no wages

The time is ripe to open up the debate about proposals like establishing a maximum wage, guaranteeing a basic income, and prohibiting any and all forms of wage-labor. The only price of admission is to listen to the howling of mainstream economists.

Real-World Economics Review Blog
Maximum wage—or, even better, no wages

David F. Ruccio | Professor of Economics, University of Notre Dame

Scientific American — Cause of Mysterious Siberian Holes Possibly Found

Global warming?

Scientific American
Cause of Mysterious Siberian Holes Possibly Found
Tanya Lewis and LiveScience

Neil Wilson — Don't bind your hands Argentina

Drop the peg and never, ever borrow in a foreign currency.

3spoken
Don't bind your hands Argentina

Neil Wilson

Sam Biddle — Why Does Google Employ a Pro-Slavery Lunatic?

I hope this  is satire.

In 2011, Justine Tunney was an anti-establishment organizer within Occupy Wall Street, exhorting class warfare on the sidewalk. Today, it appears that Tunney spends her time ranting against the poor, advocating for the overthrow of American democracy, and not least notably, working at Google's New York branch.

What exactly happened between now and then is unclear. Remnants of the Occupy movement have worked to distance themselves from Tunney, whose views are increasingly of the neo-techno-fascist variety, rather than inclusionary leftism. In February, Tunney seized control of the @OccupyWallStreet Twitter account, which she claims to have created, proclaiming herself the rightful founder of the entire movement. The resulting backlash wasn't the first she's faced from people of all political alignments.

ValleyWag
Why Does Google Employ a Pro-Slavery Lunatic?
Sam Biddle
(h/t Lambert Strether at Naked Capitalism)

WaPo Runs Review of Way-Out-Of-Paradigm Book

Charles Lane reviews Eugene Steuerle's new completely out of paradigm, deficit terrorism book. Lane is not stupid, he should know better than to write this garbage:

"This near-total loss of “fiscal freedom” is the theme of “Dead Men Ruling,” a short, superb new book by C. Eugene Steuerle, from which the above statistics derive; the title nicely expresses the fact that today’s lawmakers are tightly constrained by the accumulated, and seemingly unalterable, decisions of their predecessors. Government is not just out of their control; it’s beyond their control. 

Steuerle persuasively argues that the nation’s budget challenge is not simply a matter of deficits and debt, important as they are. 

Rather, the point is to restore a long-term balance between spending and revenue so that the federal government can invest in new priorities without further indebting an already dangerously indebted country. 

 Steuerle’s book is an effective riposte to those who would argue that fiscal concerns are overblown in light of recent progress against the deficit or that “deficit hawks” are just rationalizing mean-spirited “austerity” to punish the poor and elderly.
To the contrary, what Steuerle shows is that the issue is long-term fiscal sustainability, which would provide flexibility.  

A government that lives within its means would be freer to stimulate the economy during recessions or to devote more resources to the needs of poor children — as opposed to maintaining the current consumption of older middle- and upper-middle-class voters, which is the unstated but actual purpose of the status quo."

Blah, blah, blah. Complete garbage. I know WaPo doesn't exactly have the highest standards for economics reporting (H/T Dean Baker!), but this is just pathetic.  I often seriously wonder how some men can go through their entire careers working in fiscal policy and still be so damn ignorant. It is a lack of intellectual curiosity, capacity, or mixture of both? Unfortunately, all we can be sure of is it will be the poor and vulnerable, not the pundits, that will pay for this ignorance.

Steve Keen — The revolt of (part of) the top 1% of the top 1%

What are your preconceptions about the author of a book with the title The Next Economic Disaster: Why It’s Coming and How to Avoid It? Academic? Leftist? Anti-capitalist? Anti-banker certainly?

Prepare to drop them all, because the author is none of the above. Taking the last first, the majority of his career has been in banking — and as a founder and CEO.…
So what is someone who established banks, initiated credit card companies, and is clearly in the top 1 per cent of the top 1 per cent of America doing writing a book that warns of the dangers of private debt?… 

When the poor and the dispossessed complain about inequality, it’s only to be expected. But when part of the top 1 per cent of the top 1 per cent complain about it, it is truly time to worry — and preferably to act.

Real-World Economics Review Blog

The revolt of (part of) the top 1% of the top 1%
Steve Keen

See also US median wealth is down by 20 percent since 1984

Kelly Evans — 'Outversions': They're the new corporate tax trick

Shares of Windstream Holdings surged more than 12 percent Tuesday when the Little Rock, Arkansas-based telecom company said it was going to spin out some of its fiber and copper cable and other real-estate assets into a real-estate investment trust, or REIT. The move will allow Windstream to cut down its debt load and save millions every year in taxes—and the company said it has the blessing in the form of a 'favorable private letter ruling' from the Internal Revenue Service.

You can see where this is going.

CNBC NetNet
'Outversions': They're the new corporate tax trick
Kelly Evans

Pavlina Tcherneva — 16 Reasons Matt Yglesias is Wrong about the Job Guarantee vs. Basic Income

After straw manning the JG, Yglesias expresses his enthusiasm for a Basic Income Guarantee (BIG). He prefers simply handing out money to the jobless because it’s not as “messy” as the JG. (I’ve already argued why such objections should not be taken seriously). But more importantly, like many BIG advocates, he assumes that the BIG will magically solve the fundamental problem of economic insecurity.

Here are sixteen reasons why this assumption is wrong.

New Economic Perspectives

16 Reasons Matt Yglesias is Wrong about the Job Guarantee vs. Basic Income
Posted on January 16, 2014 by Pavlina Tcherneva

Timothy Taylor — Universal Basic Income: A Thought Experiment

Pretty much all current public programs to assist households with low incomes suffer from the same seemingly unavoidable problem: As the household's income rises, the amount of assistance provided by the public program is phased out. For example, a person who earns an extra $100 might find that eligibility for public assistance has been reduced by $50. Economists call this reduction in benefits as income rises a "negative income tax," and it is not unusual for studies to find that certain working poor families face negative income tax rates in the range of 50% of the marginal dollar earned, 60%, or even higher (for examples, see here and here). These high negative income tax rates diminish work incentives for those with low incomes.

There's a way out called "universal basic income." Ed Dolan explores "The Pragmatic Case for a Universal Basic Income" in the Third Quarter 2014 issue of the Milken Institute Review (free registration may be required for access).

The idea of a universal basic income is that every U.S. citizen would be entitled to a chunk of money each year. This amount would not vary based on income level, or employment, or disability, or age, or any other reason. Specifically, when a low-income person works and earns income, the universal basic income check would not be reduced in any way. The "negative income tax" rate is zero percent.

The idea of a universal basic income raises obvious questions. How much would it be per person? How would it be financed? Are the politics of such a program conceivable? Let's tackle these in turn.

Conversable Economist
Universal Basic Income: A Thought Experiment
Timothy Taylor

PhysOrg — Worldwide water shortage by 2040

Corporations like CocaCola have been buying up available private water supplies for decades.

Two new reports that focus on the global electricity water nexus have just been published. Three years of research show that by the year 2040 there will not be enough water in the world to quench the thirst of the world population and keep the current energy and power solutions going if we continue doing what we are doing today. It is a clash of competing necessities, between drinking water and energy demand. Behind the research is a group of researchers from Aarhus University in Denmark, Vermont Law School and CNA Corporation in the US.

PhysOrg
Worldwide water shortage by 2040
(h/t David Dayan at Naked Capitalism)

Bill McBride — GDP: A Few Graphs

Overall this was a solid report. Private investment rebounded in Q2, and that is the key to more growth going forward.

Calculated Risk
GDP: A Few Graphs

Bill McBride

Dr Michael Hudson interview with RT International

"It's all about oil and gas."

Dr Michael Hudson interview with RT International

Jack Rasmus — On the Causes of Investment Decline in the US Economy

Sustained recovery requires direct investment, not just a rise in consumption income that hopefully might convince capitalists to again reinvest in the US (or not convince). So the problem is not merely a lack of income growth to stimulate investment. US capitalists are investing–just not in real asset investment and not in the US. They are investing in emerging markets, and even more so in financial asset markets globally (which are now more numerous, liquid, and available than ever before due to the creation of an unregulated global shadow banking system).… 

The more fundamental problem is that finance capital has changed. Raising incomes of workers and middle class Americans will help somewhat, but not all that much. It will not result in sustained economic recovery any longer. It is therefore not the main solution to the long term economic stagnation that the US has been experiencing since 2009. Capitalist profit opportunities are simply greater offshore in EMs, and in financial asset markets, than they are from making goods and services in the US, even if US workers were able to buy those real goods and services if they had more income.…

To argue simply for wage and income growth as the solution to a chronic stagnant US economic recovery—as Krugman and colleagues do for example—is to assume that capitalist enterprise will redirect itself from more lucrative profit opportunities from financial speculation and in offshore markets, back to less profitable real production of goods and services in the US. They won’t to any significant extent, since rates of return in the latter are significantly less than in the former. 

The only real solution to a sustained US recovery is for massive public government investment, that then subsequently creates income. Investment precedes income creation, it does not necessarily follow it any longer in a world of 21sts century global finance capital. Just calling for income growth (via minimum wage hikes, more contingent job creation, tax cuts, or whatever) will not necessarily result in US-based investment if Capitalists continue to shift to more profitable financial speculation offshore; public investment must therefore occur prior to income growth in order to generate a sustained recovery.… 

In today’s world of 21st Century Global Finance Capital, don’t expect capitalists to invest in real production and thus jobs and income in the US economy as they did decades ago. They are too busy making greater profits offshore and in financial asset speculation, leveraging the trillions of dollars of free money and credit created for them by the Federal Reserve. If real investment in the US economy is ever to return, it will have to come via major public investment initiatives. And if not, expect chronic economic stagnation to continue, as has been the case since 2010.

Counterpunch
On the Causes of Investment Decline in the US Economy — A Reply to Thom Hartmann’s Interview of Richard Wolff
Jack Rasmus

Filip Spagnoli — Let’s Get Rid of Wage Labor

Post-capitalism.

Actually, as Daniel Ellerman addresses this in Does Classical Liberalism Imply Democracy? If life, liberty, and the pursuit of happiness are inalienable rights, ruling out selling oneself in to slavery, for example, how is it not a violation of an inalienable right to sell one's a portion of one's life for a wage since this is an alienation of one's liberty?

In other words, what the inalienable rights of life, liberty and pursuit of happiness means legally is that these are not property, which is a right that is alienable in that the right to exclusive or partial use of property can be exchanged, thereby alienating (excluding) the original owner from use and conferring exclusive or partial use to another through transfer of ownership.

Spagnoli's post may seem far-fetched but read in terms of Ellerman, who is a proponent of social democracy, it makes a lot more sense. No surprise there, since Ellerman is one of the smartest guys around. If you haven't yet read that article, I strongly suggest doing so as a counter to neoliberalism.

Incidentally, the irony of the phrase. "inalienable right to life, liberty, and the pursuit of happiness," as a partial enumeration of human rights, and which are also asserted as divinely endowed, is the hypocrisy of its author, a slave holder.

P.A.P.-BLOG // HUMAN RIGHTS ETC.
Let’s Get Rid of Wage Labor
Filip Spagnoli

(h/t Mark Thoma at Economist's View)

Mike the Mad Biologist — Republican Rep. Paul Ryan Wants to Create Massive Government Bureaucracy

Essentially, what Paul Ryan wants to do is create a government bureaucracy to monitor these ‘contracts’ (or, maybe monitor the Social Contract?). Conservatives have spent the last forty years railing against this very thing. Of course, people will disagree about whether they hit these ‘benchmarks’, so we’ll need to hire people to adjudicate that process. More ‘big government.’ It also opens people up to the predations and whims of ‘petty government bureaucrats.’

Republican Rep. Paul Ryan Wants to Create Massive Government Bureaucracy

Mike the Mad Biologist

(h/t Mark Thoma at Economist's View)

What Mike the Mad Biologist overlooks is what's in the back of Paul Ryan's mind. He clearly has no intention of creating a new government bureaucracy, which is against everything he stands for. What he wants would be a quasi-judicial system, privatized and run by business to discipline workers and teach them how to work.

Bill Mitchell — No fundamental shift of policy at the Bundesbank

Last week, the Chief economist at the Deutsche Bundesbank, Dr. Jens Ulbrich gave a rather extraordinary interview to the German magazine Der Spiegel. The interview was recorded in the article – Breaking a German Taboo: Bundesbank Prepared to Accept Higher Inflation. The sub-heading said that this marks a “major shift away from the Bundesbank’s hardline approach on price stability” and my profession apparently “hailed the decision as a ‘breakthrough’”. I wouldn’t be so sure. The Bank has a long track record of ignoring the plight of German workers and the workers elsewhere in Europe. The imposition of its ‘culture’ with its disdainful disregard for responsible economic policy on Eurozone political elites has created so much slack in Europe that even it cannot deny the mounting evidence that there is a deflationary problem. But this support for workers’ wage rises won’t last. As soon as the inflation rate exhibits the first uptick – the Bundesbank will be out there berating all and sundry about the dangers of profligacy! Leopards don’t change their spots. 

The Bundesbank has a long history of being willing to sacrifice economic growth and live with persistent mass unemployment in return for low inflation.

Bill Mitchell – billy blog
No fundamental shift of policy at the Bundesbank
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Marshall Auerback — Central Banks Are Trying To Do Too Much, Not Too Little

As the Fed winds down its asset buying program in the form of QE, it is worth considering this recent comment by economist Michael Woodford at the St Louis Fed:

“It’s obviously a very complex situation. In general, I wish the Fed were speaking more about the need for fiscal policy to take on more of the burden of trying to get the economy moving. 

I’m afraid that, to some extent, the Fed’s desire to stress the fact that we still have tools, we haven’t used all of our ammunition, has had unfortunate effects. Of course, the intention of that is to reassure the public. The feeling is that letting people be scared that maybe we’re out of ideas would itself create uncertainty about the future that would be undesirable for the economy. And that’s understandable. 

But I worry that it’s had the undesirable effect of letting Congress off the hook a little too easily by letting them say, “The Fed still has lots of things they can do to take care of the situation, so we can play other games.” 

And I think maybe the Fed would have helped the public debate if it had pushed back a little more on the view that everybody should be assuming the Fed will save everything.”

Classic case of using the wrong tool for the job.

Macrobits by Marshall Auerback
Central Banks Are Trying To Do Too Much, Not Too Little
Marshall Auerback

Is another generational "silly season" reaching its peak? The two contestants are the GOP & DEM parties. That's the bad part.

   (Commentary posted by Roger Erickson)

The good part? There's another generation coming, which grew up watching this one self destruct. Let me know if you find evidence that our next crop will be less silly.

In the meantime, here's some commentary by Chuck Spinney, and an opinion piece by Pat Buchanan - who finally sounds more pragmatic and less knee-jerk conservative.

Which of the following would logic dictate you employ, in different contexts? Say, Domestic Politics vs International Relations? The only thing riding on this is how our electorate will spend the fiat it's told we're low on and running out of.  Of course there are other options to explore, but few seem to be able to see them, and certainly not fast enough.

(Note that feedback significance includes tempo!)

From: Chuck Spinney (by permission)

"A nation’s foreign policy is a reflection of its domestic politics.

Today, it is an undeniable fact that US foreign policy is now, like its domestic politics, a shambles of non-cooperative centers of gravity.

One need only consider Afghanistan, Iraq, Iran, Syria, Palestine, Egypt, Libya, Africa, Yeman, spying on our closest allies (esp. Germany), the perpetual drone war, Ukraine, etc. US leaders flit from one crisis to another in what has become a Whack-a-Mole game. The chaos abroad mirrors the chaos and reactiveness in our broken domestic politics at home, where special interests are running amok. 

Lest you think the chaos cannot get worse, think again. Patrick Buchanan's powerfully argued essay will get you started in this direction. Among other things, Pat shows how the foreign policy shambles is directly linked to 2014 election politics via fueling the rise of anti-Russian right-wing militarism (and, while unstated, the 'requirement' to protect the MICC from the mild budgetary implications of the now forgotten Sequester).

Lest you think this desire to protect the MICC during an election is a right-wing Republican phenomenon, President Obama is fighting back in a last minute effort to buy off the defense contractor wing of the MICC with a doubling down of foreign sales of high tech US weapons, as part of a larger Clintonesqe triangulation strategy that includes privatizing infrastructure to keep the senate from going Republican. (H/T Pierre Sprey for this observation).

And of course, looming in the offing, is the inevitable ‘bipartisan' competition to see who can take the most political credit for increasing the weapons and aid flowing to the Israel’s to compensate Israelis using up US-provided weapons to massacre Palestinians in Gaza — an operation that is clearly inimical to the long-term national interest and security, not to mention what little is left of our moral stature in the world."

A GOP Ultimatum to Vlad

Mark Gongloff — 'Patriotic' Big Banks Profit Helping U.S. Companies Dodge Taxes

Goldman in the lead doing more of God's work.

The Huffington Post
'Patriotic' Big Banks Profit Helping U.S. Companies Dodge Taxes
Mark Gongloff

AP — Iran's Ayatollah Khamenei Calls For Arming Gaza To Fight Israel

Ominous. John Kerry is calling for disarmament of Hamas as necessary condition for a negotiated settlement. Is this a clash of civilizations in the making?

Iran's supreme leader on Tuesday called on Muslims from around the world to help arm Gaza Palestinians in their fight against Israel. 

The call by Ayatollah Ali Khamenei was his latest such message during the ongoing war between Gaza's Hamas rulers and Israel.

Khamenei claims that while Israel and America seek to disarm Hamas, Iran says "the opposite ... the Muslim World has a duty to arm the Palestinian nation by all means."

This puts US vassal states in the region at odds with popular sentiment. It's an indirect attack on the Saudi rulership, and it represents a further division of Sunnis and Shi'ites as to who is representative of Islam.

The World Post
Iran's Ayatollah Khamenei Calls For Arming Gaza To Fight Israel
AP

See also Sabrina Siddiqul, Americans' Attitudes Toward Muslims And Arabs Are Getting Worse, Poll Finds

Josh Boak — Americans In Debt: 35 Percent Have Unpaid Bills Reported To Collection Agencies

Over a third of US adults are "deadbeats."

Huffington Post
Americans In Debt: 35 Percent Have Unpaid Bills Reported To Collection Agencies
Josh Boak | AP

Why Isn't There A Committee Reporting That Our "Corporate Welfare Trust Fund" Is Insolvent?

   (Commentary posted by Roger Erickson - in memory of the writings of Robert Eisner.)





[Committee for Frozen Fiat] REPORT:

ANALYSIS OF THE 2014 SOCIAL SECURITY TRUSTEES' REPORT

According to these geniuses, the Trustees show that The Social Security Disability Insurance (DI) trust fund is (as they already pre-decided):

* on the brink of insolvency (it wouldn't have mattered WHAT the report said)  

* projected to be exhausted in 2033 (assuming borrowing of more fiat - don't ask how, or why, that occurs either). 

* "Imbalanced" over 75 years -  to the tune of 2.88 percent of taxable payroll, or 1.02 percent of GDP.  (Heck - it's probably out of balance with Ayn Rand and the cosmic background radiation too, and a great many other anomalies, but who's counting?)

* facing a gap between Social Security spending and revenues that will grow from 1.3 percent of payroll (0.45 percent of GDP) this year to 3.9 percent of payroll (1.4 percent of GDP) by 2035 and 4.9 percent of payroll (1.7 percent of GDP) by the end of the 75-year window.

Oh ... my ... gosh! Liars & Innocent Frauds and Perma-DTs, Oh My! Can you visualize these dweebs trying to generate some fiat, and then imagine the semantic difficulties they're saddling future generations with?

They just drone on & on, with endless, invented data irrelevant to context.

How can fiat be exhausted? Don't ask. They have no answer, so they conveniently avoid asking themselves to face reality. They're lost in a crusade to balance what must evolve.

What does an "imbalance" in the fiat mean? Maybe only yodeling political Yoda's can sense that particular disturbance, since a politician's strength flows from the Farce? Curiously, there is no mention of what % of GDP goes to Corporate Welfare, aka "Policy."

Riddle me this Blather Man: why is Social Security the ONLY component of fiat that is [supposedly] funded by a tax on fiat?

So why AREN'T there formal Committees:

a) reporting that Our Corporate Welfare Trust Fund is insolvent?

b) reporting something equally implausible - that our nation's trusty Public Initiative Fund is insolvent?

c) reporting on the mythical gap between fiat "revenue" and fiat itself? [If you have to ask where fiat comes from ... you can't afford it? :( ]

d) explaining how, exactly, a nation generates the fiat revenue that fuels fiat? [Public Initiative?]

You'll never hear the Committee for Frozen Fiat (CFF) commenting on any of those basic sanity checks. Actual thinking does not seem to be in their repertoire, so it's no surprise that they display no sign of Logic-101 either. They have one campaign, and a one-track mind.

At this point any reasonable human should be wondering: "Why don't we just send clowns to Congress, and to staff all federal agencies too?" [Don't answer that unless you're ready to face the answer - it may not reflect well on the voters.]

Meanwhile, this CFF choir seems to have unstoppable momentum - irregardless of reality, or desired outcomes.

An old saying holds that "People will do anything in their power to avoid thinking."

Apparently, shameless politicians will do even more than that, and invoke negative-thinking or straw-concepts, not just lack of thinking. Worse, our foolish electorate will let them! The outcome? If we don't do anything about the real FUDeral Deficit, we might scare ourselves to death with complete nonsense.

Warren Mosler — Pending home sales and why housing matters

So why does housing matter? 

Can’t spending simply go elsewhere? 

The problem is the oldest of all macro constraints- 

If any agent spends less than his income, another must spend more than his income for all of the output to get sold. 

It’s also been expressed as ‘the paradox of thrift’- decisions to not spend income and to instead ‘save’ cause sales and income to fall with no increase in net savings.… 

So housing matters a lot as it looks to be the only available avenue for the economy to spend more than its income in sufficient quantities to overcome the demand leakages [with no one else stepping up].

The elegant simplicity of the sectoral balance approach to macro.

The Center of the Universe

Pending home sales and why housing matters

Warren Mosler

Lambert Strether — Money vs. Mission: How Generic MBAs vs. Physicians Think about Health Care

Lambert here: Many of us still think of the medical system as a source of health care enabled by MDs, much as many of us still think of the university system as a source of education enabled by professors. That is, both institutions have considerable “good will” on what we might call society’s balance sheet (were society to have such a thing). In health care, as in education, MBAs trained in the ways of neo-liberalism are busy transforming that good will into institutional power for themselves and profits for their masters. Of course, neither institution will be able to function well for long with a degraded product and without “good will” (we might also use the word “trust”) but by the time society comes to that realization “I’ll be gone; you’ll be gone.” This post explains how MBAs are crapifying health care in detail from a physician’s perspective. 

By Roy M. Poses, MD. Originally published at Health Care Renewal.

This has been in the works since the Eighties, concurrent with Reaganism. I wonder if there is some connection with neoliberalism? Again, another example of money and machines over people and the environment, and why neoliberal capitalism is antithetical to popular democracy.

Naked Capitalism

Money vs. Mission: How Generic MBAs vs. Physicians Think about Health Care
Lambert Strether

House markup of Regulation D (reserve requirements) Study Act set for tomorrow

The House Financial Services Committee will begin a markup of the Regulation D Study Act (H.R. 3240) Tuesday. Full disclosure, this bill is supported by my employer. 

If the bill passes, (imagine, something remotely sane coming out of the House!)  it would require the GAO, in consultation with credit unions and community banks, to study the Federal Reserve's Regulation D minimum reserve requirements.

  
The bill calls for the study to report: 

• A review of how the Fed has used reserve requirements to conduct U.S. monetary policy;


• The impact of the maintenance of reserves on depository institutions;


• The impact upon consumers in managing their accounts; and


• Alternatives available to the Federal Reserve Board to maintain reserves to effect monetary policy

It will be interesting to see what might come of this. It would be nice to have the Fed admit openly to what is has already implicitly admitted through establishment of the new Excess Balance Accounts (IOER) and Term Deposit Facility- namely, that reserve requirements are an old vestige of the gold standard era and should be eliminated. The current structure of Reg D prevents consumers from making savings account withdrawals more than 6 times a month, which in the era of "soft currency" is no longer a necessary protection to a bank and annoying/costly for consumers. If this happens, maybe we can finally catch up to what Canada, the UK, New Zealand, Australia and Sweden have already acknowledged. 

The markup is scheduled to begin at 10 a.m. (ET) Tuesday in the Rayburn House Office Building, and I'll try to attend. 

Dylan Matthews — A guaranteed income for every American would eliminate poverty — and it wouldn't destroy the economy

…going from the federal government being 21.1 percent of GDP to 22.6 percent or thereabouts is hardly a sea change. And yet that's, roughly, all it would take to eliminate poverty in America. 

So here's my takeaway: a negative income tax or basic income of sufficient size would, by definition, eliminate poverty. We still don't know if there'd be much of a cost in terms of people working and earning less. If there is, the effect is almost certainly small enough that a negative income tax can offset the lost earnings and remain affordable. The worst case scenario is that we eliminate poverty but see a modest decline in employment. The best case scenario is we eliminate poverty at even lower cost and don't see much of an effect on employment. That's a gamble I'm willing to take.

VOX
A guaranteed income for every American would eliminate poverty — and it wouldn't destroy the economy
Dylan Matthews

Matt Bruenig — How Reform Conservatives Like Reihan Salam and Paul Ryan Misunderstand Poverty

Oh boy. Reihan Salam has a piece riddled with confusions, some conceptual, some technical, and some just downright strange. It is so confused that I will eschew the normal narrative type reaction and just go line-by-line.

"Confusions" might not be the right word. Inexcusable ignorance or intentional lying?

Demos Policy Shop
How Reform Conservatives Like Reihan Salam and Paul Ryan Misunderstand Poverty
Matt Bruenig

Joe Conason — Here's What Happened to One State After its Republican Governor Implemented an Extreme Tax Cutting "Experiment"

Déjà vu. Soon to be known as Laffer's Folly.

AlterNet 

Here's What Happened to One State After its Republican Governor Implemented an Extreme Tax Cutting "Experiment"
Joe Conason

Phil Mattera — Wealth in America Is Getting Increasingly Dynastic

Data from Forbes, where else? The future Piketty foresees is already here.

Alternet
Wealth in America Is Getting Increasingly Dynastic
Phil Mattera | Dirt Diggers Digest

Branko Milanovic — The origins of the Second Cold War: an essay in interpretation

It is a truism that the origins of the Second World War are to be found in the way the First World War ended. The same is true for the Second Cold War whose beginnings we are witnessing these days. The way the First Cold War ended was sufficiently ambiguous that it gave rise to two narratives which are incompatible and have led to the current impasse. That they would eventually do so was, I think, clear to many people for years although some (like myself) thought that it was bound to happen later, with a post-Putin rise of Russian nationalism.

What are the two narratives? …

globalinequality
The origins of the Second Cold War: an essay in interpretation
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at LIS

See also Pepe Escobar, A chessboard drenched in blood, July 23, Asia Times Online.

Sandwichman — A Neglected Point in Connection with Crises -- N. A. L. J. Johannsen

Must read for those interested in history of economics.

[Johannsen's] major work, A Neglected Point in the Theory of Crises, (1908) with its clear presentation of the multiplier and of the inability of unlimited saving to find investment has been hailed as one of the earliest successful formulations of what has become known as Keynesian economics.

EconoSpeak

A Neglected Point in Connection with Crises -- N. A. L. J. Johannsen
Sandwichman

Merijn Knibbe — Estimating capital. Robert Gallman edition

In economics, there is an unfortunate rift between academics and the economists who actually measure the economy. Which means that academic economists give little attention to the extremely important question how economic concepts relate to actual measurements – one reason why so much of their work is naïve (‘Ricardian’ households which spend more when taxes go up and the like). Fortunately, economic historians, who often have to do the measurements themselves, often bridge part of the gap. Robert Gallman has some highly relevant remarks about different ways to measure (nineteenth century USA) capital – and how these relate to the future, the past, uncertainty, savings, consumption foregone and replacement costs. This still leaves out important parts of the concept of capital like liquidity, ownership and the ‘overlapping generations’ problem – which however does not make these remarks less valuable.

"Naïve" or BS?

Real-World Economics Review Blog
Estimating capital. Robert Gallman edition
Merijn Knibbe

Neil Wilson — Does QE 'finance' Government Spending? Of course it does. Get over it.

The Law School at the University of Sheffield as come up with an interesting paper about the legalities of QE - primarily in the context of the Eurozone. 

Clearly QE is the central bank buying Treasury bonds by proxy. You can wave hands and make arguments as much as you like, but ultimately that is what is happening. The central bank's new money helps replenish Treasury's buffers and reduces the relative amount of interest that Treasury is paying into the wider economy.…

3spoken
Does QE 'finance' Government Spending? Of course it does. Get over it.
Neil Wilson

Brad DeLong — Karl Polanyi, Classical Liberalism, and the Varieties of "Neoliberalism"

Karl Polanyi's The Great Transformation is certainly the right place to start in thinking about "neoliberalism" and its global spread. But you are right to notice and do need to keep thinking that Polanyi is talking about pre-World War II classical liberalism, and that modern post-1980 neoliberalism is somewhat different.  

First, as I, at least, see it, there are three strands of thought that together make up the current of ideas and policies that people call "neoliberalism":

1. The revived and restored classical liberals, via the Mont Pelerin society and so forth—-and they do indeed have an attachment to the gold standard. 
2. The Milton Friedman neoliberals—-who believe that the gold standard was a disaster and the government needed to guarantee full employment (and low inflation) via activist monetary policy. But, they go on, attempts by the government to do more than simply maintain full employment and price stability would inevitably come to grief. Government policies would be turned to enrich the politically powerful rather than to enhance social welfare, and so almost always do more harm than good. (Why he thought that activist monetary policy was different—-why Milton Friedman believed government could be successful there while it could not be successful anywhere else—-was never something that he could explain very well.)
3. The Washington Monthly neoliberals, who argued that 1945-1980 had demonstrated that central planning of all kinds had grave deficiencies, and the governments that wanted to achieve social democratic ends were more often than not better off doing so through market means and market incentives than with bureaucracy. 

There are also differences with respect to the value put on democracy and liberty. The classical liberals wanted limited and representative government, which is a very different thing than modern political democracy, and were as likely or not to approve of traditional deference traditional social authority structures. Washington Monthly neoliberals are social liberals, and are democrats first and neoliberals second. Milton Friedman neoliberals tend to be true libertarians--social liberals--and want democracy constrained to preserve both social and economic liberties. Mont Pelerin neoliberals tend to be social conservatives, and to at least play with endorsing fascist and authoritarian dictators like Mussolini and Pinochet.…

You probably want to read the rest, too.

I have always thought of myself as a Washington Monthly neoliberal, and I am trying to resist the transformation into a Milton Friedman neoliberal.…

Grasping Reality

Karl Polanyi, Classical Liberalism, and the Varieties of "Neoliberalism"
J. Bradford DeLong | Pofessor of Economics and chair of the Political Economy major at the University of California, Berkeley

When A "Surplus" Of Fiat ... Is A Negative, ...... aka, ....... N-tuple Entry, Indirect Semantics

   (Commentary posted by Roger Erickson)




From the Mad Hatter department, this just glossed over too lightly, even at MNE.

Labour says it wants budget surplus if it wins next UK election

In a seemingly unprecedented mix of broken semantics, the only loser is the sectoral balance between sense and nonsense in public discourse.

In the great fiat debate, if anyone simply asks "what does that mean" - or spends 10 seconds doing a google search on a term - then they might quickly note the following. In the parallel universe of Double Entry Accounting as applied to sovereign fiscal policy, a "surplus of fiat" involves a net drain or a "negative" flow of net private financial savings. Exactly which "deficit" matters, to whom, when?

Some could be excused for concluding that Labour is threatening to "cut" it's citizens, i.e., make them "bleed" if they DO elect them.

Or, is that a very sick punk politician's circuitous way of asking for institutional help?

And to think that some wag just accused me of using inscrutable jargon, i.e., twisted semantics! :)

Sometimes even "yes" isn't an adequate response, when people say you're trying diverse jargon to get them to notice their own broken semantics. When enough different options are introduced, someone in the audience at a Kabuki play will eventually accuse you of indirection, while STILL not seeing their own. Fine. Should we just bribe a politician to formally name the next government Fiscal Spending measure as the "Word Games Bill?" Based on past experience, even that might not work.

If that doesn't work, what's a teacher to do? Start blaming the parents? (And if they blame the storks? What then?)

To explain net creation, innovation or return-on-coordination to some Control Frauds, it may be expedient to invoke Dark Blather, but that won’t work on everyone, all the time.

Dr. Housing Bubble — The inflection point has arrived in Southern California real estate

As it turns out, investor buying does have a massive impact on local real estate. Big money is slowly starting to pull away from the real estate market. We are seeing this in dramatic fashion in Arizona and Nevada. It is also happening here in the sunny Golden State. What is interesting in the last housing correction is that prices and sales fell on the outskirts first and slowly made their way inward. The marginal buyer is pushed out first before making its way up the economic food chain. We are seeing similar action happening in places like the Inland Empire and Central Valley where inventory is certainly up and prices are hitting plateaus. The momentum from 2013 is now running on fumes. We also have certain cities being dominated by investors and in many cases money is coming directly from China. Hot money is finding a home in the oddest of places. Yet one thing is certain and that is SoCal real estate is now entering into an inflection point. As this turn unfolds we are going to find out what areas are truly prime and what other areas are all hat with no cattle.

Dr. Housing Bubble
The inflection point has arrived in Southern California real estate: Investors make up smallest percentage of buyers in three years. Inventory continues to grow.

See also, The drought of young California home buyers: Unaffordable housing reigns supreme as first time home buyers squeezed out of market. Of 7,000,000 completed foreclosures since 2005, 1 million occurred in California

It is safe to say that the momentum of 2013 has fizzled out in the housing market. Sales are down and prices are reaching a plateau. Part of this has come from the slowdown of investors purchasing homes in the state. An interesting end of the year study by the California Association of Realtors (CAR) found that 82 percent of investors that bought in 2013 had the intention of turning the home into a rental. The other 18 percent were giving the old flipper lottery a try. This helps to explain why inventory continues to remain lowbecause in more typical markets, a person selling the home would usually also buy another home in the ragtime favorite trend of property laddering your way into a bigger home. In other words, two transactions with one move. Today, you have many investors buying foreclosures from banks with a one and done deal (buy the home from bank and then put it on the market for rent). Yet from contacts in the housing industry, the lack of first time home buyers is dramatic. In 2013 the argument was that pent up demand for young buyers was going to give housing another dramatic run higher. In reality, 2013 gave us a massive run from investors and with them slowly pulling back, the market is already entering into a tipping point. Flippers buy for appreciation so what happens when prices stagnant or turn lower which is typical in these boom and bust cycles? In reality, first time buyers are absent because they can’t afford to buy in California.

Andrew Gelman — Meritocracy won’t happen: the problem’s with the ‘ocracy’

In a meritocracy, the whole point of having “merit” is that you can run things (“ocracy”), and one of the points of running things is that you can get nice things for your family and friends. 

So I think Reich’s argument would be stronger if he would go directly to the social, economic, and political consequences of inherited wealth and skip the bit where he idealizes meritocracy.

The Washington Post
Meritocracy won’t happen: the problem’s with the ‘ocracy’
Andrew Gelman | Professor of statistics and political science and director of the Applied Statistics Center at Columbia University

(h/t Mark Thoma at Economist's View)

Jonathan Larson — The real costs of sanctions on Russia

The biggest issue is that Russia supplies the energy that powers much of Europe. If this crises gets bad enough so that energy shipments are disrupted, that $5 Billion will soon seem like a rounding error. Worse, because the energy markets are global, everyone will be hurt. As anyone in the Producer Classes can tell you, there is simply no better way to crash the global economy than to raise the price of energy.

real economics
The real costs of sanctions on Russia
Jonathan Larson

Philip Pilkington — Financial Markets in Keynesian Macroeconomic Theory 101

Yesterday when I published my post on Krugman and the vulgar Keynesians not understanding the meaning to the term ‘liquidity trap’ I came to realise that many readers — both sympathetic and hostile — do not really understand the Keynesian theory of financial markets. I then realised that this was actually quite understandable given that it is not much discussed today (with some notable exceptions such as Jan Kregel and Minskyians like Randall Wray).

Some years ago the financial markets were very much so discussed and understood. Key references in this regard are the works of Keynes himself (particularly the Treatise on Money), GLS Shackle, Roy Harrod’s book Money and Joan Robinson’s essay ‘The Rate of Interest’. There are also some more minor works but I will not here provide a bibliography. (From a purely theoretical point-of-view I have found Shackle’s work the best while from an institutional point-of-view I have found Harrod’s work best).

Fixing the Economists
Financial Markets in Keynesian Macroeconomic Theory 101
Philip Pilkington

Unlearning Economics — The Crisis & Economics, Part 5: “Shhh! We’re Working On It”

This is part 5 in my series on how the financial crisis is relevant for economics (parts 1, 2, 3 & 4 are here). Each part explores an argument economists have made against the charge that the crisis exposed fundamental failings of their discipline. This post explores the possibility that macroeconomics, even if it failed before the crisis, has responded to its critics and is moving forward.

The Crisis & Economics, Part 5: “Shhh! We’re Working On It”
Unlearning Economics

Bill Mitchell — When you’ve got friends like this – Part 11

I received two E-mails yesterday informing me that at the upcoming NSW State Labor Conference (this weekend) the delegates would be asked to vote for the inclusion of a Federal Job Guarantee, along the lines that I have been working on since 1978 (more or less), in Labor Party policy. For readers abroad, the Labor Party is the major federal opposition party at present having lost government in 2013. It began life as the political arm of the trade union movement. Anyway, that was a pleasing development I thought. A little later, I received an E-mail and a follow up telephone call telling me that the same conference, the delegates would be asked to vote on a motion put forward by the Australian Manufacturing Workers’ Union, which is the strongest ‘left-wing’ union in Australia, that says that the ALP “should be focused on maintaining government solvency” and maintaining “low and stable Deficit to GDP ratios” and ensure the “tax base is adequate to fund Labor’s priorities”. Then I read a news report from the UK from earlier in the year about the Labour Party’s commitment in the upcoming election to shore up its “fiscal credibility” by eliminating the fiscal deficit with the leader Ed Miliband claiming that “When we come to office … there won’t be lots of real money to spend, things will be difficult”. Bloody hell! This is progressive politics – neo-liberal Groupthink style. At least there are a few truly progressive people who see that a federal Job Guarantee is the way forward as a first step.

Bill Mitchell – billy blog
When you’ve got friends like this – Part 11
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Sainsbury’s store running entirely on electricity that is generated from refuse.

Another disturbing tweet below from a right libertarian source applauding a UK supermarket's ability to go "off the grid" by recycling waste food from its retail operation.

I guess these libertarians think that the food products originally just appear on the store shelves like magic (sorry you fantasy world libertarians, the store name is not Hogwarts...) and then the store is "off the grid" by using the leftovers of this magically appearing food... completely ignorant of all the work the farmers and transportation workers are doing to get this produce to the store in the first place.

This is just another example of the typical incomplete view of closed systems that comprises the dominant paradigm of economics at this time.

Supermarket Goes Off The Grid By Recycling Its Own Rotting Food | The Libertarian Republic http://t.co/d1hBNHkxuW
— Libertarian Republic (@TheLibRepublic) July 23, 2014

Chris Mayer — The US Debt Crisis that Will Never Happen

Epstein doesn’t seem to understand that the U.S. government doesn’t need to borrow what it creates. The U.S. government creates dollars. The U.S. government doesn’t need to borrow them to spend them. This seems so simple to me it’s hard to believe anyone would believe otherwise.

There is zero chance that the U.S. has a fiscal crisis like Greece, for example.
Greece collects taxes in euros, spends in euros and borrows in euros. Greece, however, does not create euros. Only the European Central Bank can do that. So Greece actually does have to get euros before it can spend them. It can have (and did have) a genuine fiscal crisis.

Not so for the U.S

There is an economist, Scott Fullwiler, who explained this in a post at the New Economic Perspectives blog site:

Daily Reckoning
The US Debt Crisis that Will Never Happen
Chris Mayer

(h/t Charles Hayden)

Polly Cleveland — Piketty’s Model of Inequality and Growth in Historical Context, Pt 2

Neoclassical economics was designed for the purpose of eliminating economic rent from consideration.

Mason Gaffney has shown how many individuals helped construct neoclassical economics, often with financial support from the robber barons and their successors. I will focus on two: in the United States, John Bates Clark (1847-1938), and in Europe, Vilfredo Pareto (1848 to 1923). 

Recall from Part I that the classical economists divided society into three classes: Owners of land and other natural resources received unearned income or “rent” from their holdings—often derived from conquest or inheritance. Capitalists (who often overlapped with landowners) owned physical capital (like factories or ships) and received interest or profit from investing. Workers received wages. Also recall that the classical economists favored taxing “rent” by taxing land values; Henry George crusaded for this tax. 

John Bates Clark of Columbia University, for whom is named the prestigious John Bates Clark Medal, transformed economics into an inequality-free abstraction.Writing in the 1890’s, Clark merged land into physical capital, thus obliterating the classical understanding of land. In the new neoclassical world, capital (including land) originates solely from productive investment. There is no unearned “rent”, only legitimate “profit.” (Ironically, Marx merged rent into profit because he considered both illegitimate.)

Power rules.

In my view, Piketty’s and Solow’s models are both fundamentally flawed in that they rest on the same ahistorical, apolitical, two-factor neoclassical foundation. As the classical economists understood, inequality derives from power, ultimately the power of conquerors to extract tribute from the conquered. And as the Progressives, the New Dealers, and the civil rights activists have demonstrated, democratic societies can counter that power with well-designed tax and regulatory policies supported by an aroused public. We are not prisoners of a mathematical model.

Dollars & Sense
Piketty’s Model of Inequality and Growth in Historical Context, Pt 2
Polly Cleveland | Executive Director of the Association for Georgist Studies

Andrea Terzi — Europe Must Escape A Savings Trap, Not A Liquidity Trap

A better explanation for the prolonged stagnation in Europe puts at the center of the problem European fiscal policy aimed at reducing public debt. Although there is a growing literature on this, it is not immediately obvious why cutting public debt should harm growth and jobs. In the 1980s, when fiscal retrenchment became popular as a tool to reduce public borrowing, Josef Steindl explained the situation brilliantly. This, in a nutshell, is Steindl’s argument applied to the Eurozone: 

1) In every monetary economy there is a demand for savings.
2) For every euro saved, there must be a euro of debt in the system.
3) When some are attempting to increase their savings while others are attempting to deleverage and reduce debt, an inevitable inconsistency develops that drives the economy into a recession.
4) The public purpose of government policy should be that of providing the economy with sufficient funding to make the volume of debt coherent with the demand for savings.
5) This policy tool does not yet exist in the Eurozone. 

There was no inconsistency in Europe between savings and debt until 2006, as long as the desired savings of some matched the desired indebtedness of others. When private debt became unsustainable, however, an accounting counterpart of Europeans’ savings evaporated, domestic demand collapsed, and unemployment rose sharply. Initially (2008-2009), public debt automatically took the place of private debt. But, when government deficits exceeded official ceilings and full austerity began, a rising demand for savings and a falling demand for private and public indebtedness were forced to collide. 

When people feel they cannot save enough while at the same time private and public debt is being cut, a recession and its consequent huge waste of human and material resources simply cannot be avoided.

Social Europe Journal

Europe Must Escape A Savings Trap, Not A Liquidity Trap

Andrea Terzi | Professor of Economics at Franklin College, Lugano, Switzerland

C. J. Polychroniou — Predatory Capitalism and Where to Go from Here

Contemporary capitalism is characterized by a political economy that revolves around finance capital, is based on a savage form of free market fundamentalism, and thrives on a wave of globalizing processes and global financial networks that have produced global economic oligarchies with the capacity to influence the shaping of policymaking across nations.[1] As such, the landscape of contemporary capitalism is shaped by three interrelated forces: financialization, neoliberalism, and globalization. All three of these elements constitute part of a coherent whole which has given rise to an entity called predatory capitalism.[2]

Multiplier Effect

Predatory Capitalism and Where to Go from Here
C. J. Polychroniou

Krugman Hits "Deficit Scolds"

Paul Krugman writing at his blog today:

"I got some correspondence from people telling me to read Rob Portman’s op-ed in the WSJ, intended to refute the growing evidence that the budget deficit has been grossly overrated as an issue. And it is an interesting piece — it’s a very good illustration both of the desperate desire to see a debt crisis, and what happens when someone (Portman, or more likely the staffer who wrote it) tries to be a Very Serious Person without actually understanding the numbers or having followed any of the analysis...
Finally, whenever someone warns about the supposedly unsupportable costs of entitlements decades into the future, you should ask why, exactly, it’s urgent that we solve that conjectural future problem now — and why it has any bearing at all on current fiscal issues. Don’t say that it’s obvious; it isn’t, and in fact deficit scolds bob and weave when confronted with that question.
But the deficit scolds do love their looming disaster, and they love making tough proposals that someone always involve sacrifices by the little people."

Debt Disaster Dead-Enders, by Paul Krugman, NY Times

Steven Pressman — Picketing Wealth Inequality

Review of Capital in the Twenty-First Century

Dollars & Sense
Picketing Wealth Inequality
Steven Pressman

Reasons To Turn Away From The MICC & Other Enemies of Peace. We Must Once Again Save Them From Themselves.

   (Commentary posted by Roger Erickson.)





The MICC and the usual enemies of peace have become a too perfect instrument, possessing their own institutional momentum. We may hate the outcome, but we have to honestly embrace the components of the MICC as well as our other Innocent Frauds, as a part of ourselves, and reform it and them, while not falling prey to the useless frictions of hating a part of ourselves.

  “We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.
  They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.
  Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.”
― Franklin D. Roosevelt

“I have seen war. I have seen war on land and sea. I have seen blood running from the wounded. I have seen men coughing out their gassed lungs. I have seen the dead in the mud. I have seen cities destroyed. I have seen 200 limping, exhausted men come out of line—the survivors of a regiment of 1,000 that went forward 48 hours before. I have seen children starving. I have seen the agony of mothers and wives. I hate war.”
― Franklin D. Roosevelt

War? Monopoly? Speculation? Reckless banking? Profiteering? This all sounds so drearily familiar. We can put these demons back in their box, and this time make it a coffin, firmly nailed shut. We just need the courage - and honesty - to act as our grandparents did. 

Just as a child going through a growth spurt, our cultural growth spurt has rendered us temporarily clumsier, before we can become agile again in our new condition. Yet we can regain cultural and policy agility, by the simple application of distributed cultural practice, thereby retraining our growing numbers to adaptive rather than divisive Public Purpose.

Randy Wray — Mission-Oriented Finance for Innovation, London 22-24 July

Conference announcement and presentation.

Economonitor — Great Leap Forward
Mission-Oriented Finance for Innovation, London 22-24 July

L. Randall Wray | Professor of Economics, University of Missouri at Kansas City

Translating Aggregate Laws to Some Specific Laws of Sovereign Currency

   (Commentary posted by Roger Erickson.)





FDR said something similar, about 10 years after after Shewhart, although in a narrow context.

So let's turn our attention to observing some of the many, emerging "Aggregate's Laws" empirically documented in the course of evolution.

It is much easier to understand Aggregate Laws if one keeps in mind one reference Aggregate Rule, or rule of autocatalysis:

"The whole point of aggregation is to VOLUNTARILY [and doggedly] swap SOME local degrees of freedom, for SOME uniquely aggregate degrees of freedom, exactly because of the net BENEFIT of that exchange. That's what we call a SOCIAL species."

Rigorous selection is required, of course, and the corollary trick of adaptive aggregation is to slowly figure out context-specific methods which make it harder for potential aggregate members to work at cross purposes. Building up the requisite array of feedback loops that shepherd more coordination and less friction is the secret hiding in plain sight.

Any aggregate must - to be an aggregate - attend to an unpredictably large & diverse set of hard-learned coordination lessons, and hence to the rules-of-thumb that result. The beginning of these rules predate the dawn of human culture, and hence are even more ancient than homo sapiens. The following 10, trivial rules & points of logic just happen to be some that comically bedevil the ~320 million supposedly intelligent humans in the USA, in the year +200,000 of homo sapiens history - not to mention multiple billions elsewhere on planet Earth.

Yet don't laugh. It's actually not funny.

"We sent men to the moon 40 years ago, cram mind boggling technology into
cell phones, do robotic surgery, and don't understand how a simple
spreadsheet called the monetary system works."  Warren Mosler

Currency Law 1) Sovereign currency "comes from" the distributed IOUs inherent in dynamic Public Initiative. Sovereign currency denominates the constantly increasing volume of social credit, and all forms of “money” represent inter-person IOUs. (a)

Currency Law 2) Aggregate austerity obviously can't work. The more that aggregate initiative - e.g., "Public" initiative, aka, currency budget - is constrained, then the lower the aggregate capabilities, options and outcomes are. (b)

Currency Law 3) There is a fundamental difference between a Currency Issuer, and the distributed Currency Users, so that a "balanced budget" for a currency issuer is an absolute oxymoron, unless an aggregate has "achieved" zero aggregate growth. (c)

Currency Law 4) The unit of social credit - and also a given currency unit - naturally & constantly depreciates in evolving real terms. (d)

Currency Law 5) The purpose of right-sizing & right-distributing currency supply is to constantly grow cultural agility and policy agility. 

  The concept of a "deficit" in fiat currency, fiat or Public Initiative is simply arbitrary & misleading use of variable semantics, and a logical oxymoron if any meaning outside the narrow jargon of accounting is applied. (e)

Currency Law 6) To constantly enlarge national National Policy Space and increase Policy Agility, inter-national currency Exchange Rates absolutely must float. (f)

Currency Law 7) There is no national challenge which is not optimally addressed through collective policy, aggregate mobilization and distributed adjustments in coordination, invariably involving an increase in Public Initiative and it's corollary, public spending. (g)

Currency Law 8) The core purpose of National Monetary Policy is Banking Regulation, not trying to manage patterns within aggregate demand by micromanaging interest rates. (h)

Currency Law 9) Foreign Currency Reserve policy is always politics by any other name. (i)

Currency Law 10) Fiscal Policy is the final arbiter of National Adaptive Rate.
  To both grow and adaptively tune aggregate degrees of freedom, any aggregate population is required to manage distribution, in real time, of enough sovereign currency - through agile combinations of public spending, taxing and regulation – to do 2 things.

One) grow the nation's Adaptive Rate as our primary Desired Outcome,
(by enforcing and self regulating aggregate policies, specifically by allowing residents to pay all enacted taxes enforced in that currency,) 

AND ... 

Two) protect & grow the distributed Adaptive Rates of all citizens, as our key methodology (By constantly providing enough extra currency - i.e. purely nominal "deficit" spending - to allow residents to adequately explore all distributed options which also help coordinate evolving aggregate policy). That requires allowing ALL citizens to:

i) efficiently transact all necessary exchanges of goods & services (i.e., full involvement and employment);

ii) maintain SHORT TERM buffer currency savings adequate for exploring & selecting novel, adaptive innovations and transaction patterns.

###

a) While it is theoretically possible for aggregates to be highly organized WITHOUT some tax-based or penalty-based currency system, none that I know of seem to exist in nature. The very process of being organized indicates that some aggregate scoring method to "trust but verify" is in use. Failure to meet the measurable level of trust standard set by the aggregate triggers a statistical range of vetting processes, ranging by uncorrected decay & attrition to active auto-immune rejection of a component by the aggregate. It seems that only the form of currency systems vary, their function is always to mediate information AND accurately denominate levels of coordination demanded by the aggregate. In the case of modern humans in the USA, public currency is distributed ONLY via public initiative, as public spending. Some is returned as public taxes, and residents use the excess (nominal “deficit” spending in accounting jargon) for nominal private financial savings or multi-step liquidity allowing highly agile and distributed transaction chains to be easily interleaved. Modern currency is simply bookkeeping, tracking individual responsibility for social credit within a nation. Given a prepared electorate, there is always room for more, and never any sense for less.

b) Why? The whole reason for being an aggregate, i.e., a social species, is because the highest return of all is always the return-on-coordination. Said inversely, the cost of coordination is always the highest cost, and the return-on-coordination is the only return that outstrips the coordination cost. Our path is clear, though littered with obstacles.
  To visualize this, compare the different methods employed by less capable versus more capable aggregates. All branches of organization tuning boil down to "staging, linking and sequencing" disparate actions coordinated across aggregate subparts.

Staging requires consensus desired outcomes, plus preparation of static & dynamic assets.

Linking requires understanding of interdependencies, & reliance upon feedback and timing.

Sequencing, the last & devastatingly effective step of aggregate agility, specifically requires differentially timed actions by all aggregate parts, whether cells in muscle groups, or humans in cultural groups. To take increasing advantage of sequential actions, the parts of an aggregate must extend & rely upon increasingly extensive inter-component credit, in order for all to reap the return on group coordination. If you can picture the range and frequency of credits extended and received, then you can understand sovereign currency and the method for denominating, tracking and managing social credit. If persons A, B & C each agree to perform distinct actions on days 1, 2 and 3, in order for all to participate in the outcome generated - say on day 5 - then they have all extended credit to one another, and expressed it in the form of their cooperation and shared return. Rather than only repeating their actions, if they all want to take their cooperative spirits elsewhere, or just simultaneously participate in distinct & interleaved transaction chains, then they may utilize a group-backed credit-scoring or credit-denomination system, often called a Sovereign Currency. Simplistic currency systems may take the form of distributed IOUs, while more sophisticated currencies allow more agility, by replacing all IOUs as multiple units of some standard unit of social credit.

c) An organized aggregate cannot run out of sovereign currency any more than it's citizens can run out of IOUs to exchange with one another. All they can run out of is the memory of how they once organized & created their currency system, or the practiced capability & intelligence to keep the currency system organized. Arbitrarily railing against increasing currency supply is like railing against increasing blood volume as a child grows. Growth, blood supply, sovereign currency and what an aggregate DOES with it's growing "limbs" are orthogonal issues. The only solution is tuning, and NEVER arbitrarily limiting any of the above. National currency supply balances must float automatically, as a function of distributed citizen transaction rates. Currency Issuer and Currency User currency budgets are completely different. Populations distribute currency in order to efficiently denominate and manage distributed social-credit contributions to public purpose. National budgets are formally denominated terms of public initiative, and “balance” only when nations achieve zero net growth rates. Sub-national budgets are formal judgments of sub-population use to a nation, as measured by currency throughput. Subcomponents seeking budget portability between nations are, like stockholders, risking citizen benefits and responsibilities for commodity measures. Nominal, national currency budgets have no relevance to sub-groups accounting for local responsibility. National populations are NOT COLLECTIVELY ACCOUNTABLE to one another for how much currency each circulates (see corollary A).
  The ONLY thing a modern currency is guaranteed "convertible" to upon demand (collectively, not even personally) .... is national initiative. $US international exchange value is based entirely upon confidence in US initiative.

d) Why? It's a simple function of dynamic system logic. Currency supply must expand as some function of the net amount and rate of social credit being expressed, as Public Initiative. With any combination of changing aggregate numbers, changing individual & group capabilities, changing transaction rates, and changing complexity of interleaved transaction chains .... the net flow of the linked social credit & sovereign currency must constantly grow, just to satisfy the demand for increasing liquidity. Since the aggregate is evolving new capabilities, the very form, number and unit of 1 instantaneous social credit is constantly depreciating - as new aggregate capabilities diversify beyond the relevance of old aggregate capabilities and old social credits.
  Simply put, while adaptive rate is non-zero, the return on future coordination swamps the return on simple hoarding of static assets, and neither social credit nor Public Initiative can be saved at all, only invested. Hoarding current fiat only reduces future options.

e) How good would an Army remain if weapons sat in warehouses while soldiers were under-equipped, or if the officers and especially generals hoarded all the weapons? Ditto for an electorate and it's currency supply.
  And the semantics? Humans use dynamic semantics in order to maintain a small linguistic base applicable across multiple contexts. As a result, many if not most words mean different things in different contexts. For Jane & Joe Sixpack, the typical meaning of a "deficit" is that something they require is missing. However, in the formal practice of Double Entry Accounting used for currency tracking, every new social credit or currency unit created is labeled as a "+" or source, and must be matched by an equal and opposite numeral in a matching column, labeled as a "-" or sink ... or, in accounting jargon, as a "deficit" - even though nothing at all is missing, except the logical capability of those people who are alarmed by semantic diversity. If you ran around a track 5 times, and entered a "5" in your exercise chart ... and used Double Entry Bookkeeping ... you'd have to enter a -5 in an opposite column, and declare a "lap deficit." Heck, to accountants, you'd even end up with an accumulating personal exercise debt. Some slow thinkers would even conclude that you're passing on that exercise debt to your grandchildren, thereby condemning them to be couch potatoes. Sheesh! You call this an informed electorate?
  After removing maladaptive constraints, then national budget balances for a purely NOMINAL currency matter no more than how many points are used during a hockey league season. Do leagues worry much about the # of points scored or taken away? No. During play, does it matter how points are awarded and/or penalized? Yes. Overall, stakeholders track individual, team and league initiative - the plus/minus transaction ratings of players and teams throughout games & seasons - as indicators. However it doesn't matter whether a league balances nominal "hockey point" budgets. Nor does it matter whether a nation balances a purely nominal currency budget which - like hockey points - is used only to instrument transactions. [It would matter, if hockey-points & currency were made of or guaranteed convertible to gold at FIXED rather than floating rates.]
  Can either access to hockey points (tickets) or national currency be traded for, say football tickets? Certainly. Do leagues compete to create demand for their as opposed to other league's points & tickets? Certainly. Yet they do so through initiative, not by manipulating interest rates on storage or trading of league points .
  Neither a league or a nation, however, can function if there are not enough hockey points or currency to allow "transactions" to occur. If a league lets the supply of hockey points get too low, or arbitrarily restricts their use too much, then aggregate demand from stakeholders may melt away and take years to rebuild - if it recovers at all. Ditto for modern currency.

f) Modern currency reserves can be used to affect currency exchange rates, but cannot guarantee stable buying power of ANY commodity, goods or services. In contrast, public initiative, like a hockey league's initiative, sets the value of a national currency. International exchange value of the $US is most efficiently managed via collective initiative, which does more to inflate $US value than any interest rate set by bankers.

g) Solvency and Deficit Terrorists. For modern or nominal currency, supposed fiat currency "deficits" have become exactly that, NOMINAL - just as with hockey leagues. Modern currency is simply less cumbersome than attaching spreadsheets to every citizen. We needn't run out of spreadsheet columns, leagues needn't run out of hockey-points, and we needn't ever run out of our own, monopoly currency. Granted, international exchange rates can fluctuate, based upon demand by international traders. IF that ratio matters to enough co-citizens it is best managed via national initiative, not by constraining use of either hockey points or sovereign currency.

h) In the USA, the purpose of "Monetary" policy is to preserve the sovereignty and trustworthiness of the national currency and our banking system. Attempting to do that by manipulating the cost of currency generates more complications than it can possibly solve. Therefore the core purpose of Banking Policy is regulation, so that banks meet the terms of behavior dictated by local and national banking licenses. Correspondingly, the purpose of collective, civil government is to protect REAL net aggregate demand as the sum of adequately distributed demand. No part of our economy should ever be allowed to hinder net aggregate demand simply for fear of not balancing purely nominal currency budgets. Manage public initiative & aggregate demand, not "hockey point" balances.
  Exactly how much money we do or don't print matters little, other than that we should never have so little circulating that people can't easily transact business (deflation), nor so much that it becomes a nuisance (inflation) - nor confuse buyers & sellers with frequent & swings which they cannot easily anticipate. It would be better to track only too-little/too-much ratings, like plus/minus ratings in sports leagues.

i) Given that the purpose of Government Policy is to serve national interests, it is impossible to separate Foreign Currency Reserves from other policy processes. The immediate corollary of this reality is that "Free Trade" is a complete oxymoron, as much as "Free Crime," "Free Patents," "Free Citizenship" and "Free War." Every inter-nation interaction, not just war, is an extension of politics by any other name.
  We needn't much care how much of our currency other countries hold, since reserves only affect exchange rates, and we have adequate policy options in response to ANY moves by any other country to increase or dump their foreign currency reserves. It is only a question of exercising policy agility. If a population desires different Fx rates, the best tool is national initiative, not confusion about whether to express more allegiance to international traders or to our nation. Modern currency does NOT store intrinsic value. If robbers instantly stole all cash throughout the USA - leaving behind only empty ATM machines, a barrel of oil, and toys with lead paint & melamine - citizens could simply distribute a new currency and take the initiative to find alternatives to imported oil, lead & melamine.