This a brilliant explanation of how the British fiscal system works, and probably the American system is similar, I would have thought. Ann Petrified demolishes the myth about left wing governments 'spending other people's money'.
Governments either borrow money from their own central banks, she says, or issue bonds to borrow the money from the private sector. This money is then invested into the UK building its infrastructure and public services, etc, creating jobs which helps the private sector to flourish and grow. And with the increased GDP the government gets the money back in taxes to help pay off the loans.
Some people on the right might still see this as the government taxing too much, and yet their job, or the security of their job, or their next decent pay rise, may well depend on this government expenditure, but they don't know this as they can't see the link. Ann Pettifore's explanation of how the government's fiscal system works should be made into a video, or a short film, or even picture book so that people can understand it easier.
But this is the really good bit, pension and insurance companies really want the government bonds because of their security. The government pays interest on these bonds and the right might get concerned about government borrowing and spending, but when the pensions, or the insurance policies, pay out, people get the money back that they had paid in taxes - the profits the pension fund made came from the taxes that were paid in. In other words, the government borrowed to invest into the economy making everyone richer, and from this new wealth the government was able to collect the necessary taxes to pay off the loans, which also boosts the pensions.
So the government isn't taking your hard earned money away art all, because it actually made you a lot richer and in the end you would have made a net gain, even after taxes, while your health services, your schools, your roads, and all public services improved the quality of your lives. Win, win!
But there's more, what if the government sometimes saved people's money by issuing the bonds, because the interest paid was below the rate of inflation.
PEF Council member Ann Pettifor explains how all governments finance their spending (and its not from taxation). She deconstructs Theresa May’s address to the Conservative Party Conference with its deliberate framing of Labour governments as tax raiders.
The use of the phrase “other people’s money” was not accidental. It was first used in the title of a famous work (1973) by Donald R. Cressy about the social psychology of embezzlement. The book was later made into a movieabout a corrupt corporate raider, and starred Danny de Vito and Gregory Peck. Mrs May’s speech writer wanted to imply that Labour governments are tax raiders.
That is both a calumny, but also a lie – twice over. First because no Labour government has ever run out of money – not even Clement Attlee’s which started life with public debt at 250% of national income, and then spent enormous sums creating the NHS, affordable housing, a public education system etc. As a result of that spending, public debt as a share of GDP fell precipitously, because the Labour government increased the nation’s income, through well-paid employment. Good, well-paid employment in turn generated tax revenues – to pay for the borrowing, and pay down the public debt.
Second, no government – including today’s Conservative government – finances spending from taxation. Instead governments finance spending by borrowing from their own Bank, the Bank of England, or from capital markets. If that borrowing creates employment and increases income, then tax revenues accrue to HMRC, and is used to pay for the borrowing. To keep the public finances balanced at a time of private economic failure, it is vital for government to borrow and spend, to expand the nation’s income and thereby to generate the tax revenues needed to repay the borrowing, and keep the public finances in order.
The Progressive Economy Forum
See also, The Myth of Debt
The Herald
72 comments:
She gets this wrong "Instead governments finance spending by borrowing from their own Bank, the Bank of England, or from capital markets."
Govs dont borrow at all, and just as important to get public to understand as about taxes, if not more so.
I mean, they don't actually borrow from cap markets
That's interesting, Clint.
This is excellent by Fullwiler on this https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2194959
An early applied breakdown here by Wray (2001), especially towards end
http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.639.2447
Peter Cooper explains excellently as well
http://heteconomist.com/overt-monetary-financing-in-terms-of-simplicity-and-transparency/
And of course Bill Mitchell http://bilbo.economicoutlook.net/blog/?p=31715
Thanks, Clint, I will take a look at those links.
Pettifor is notorious for not bothering to read up on the now very copious literature on modern fiat monetary systems. This I suppose is why she's an adviser to the UK Labour Party leadership.
But this is the really good bit, pension and insurance companies really want the government bonds because of their security. Kaivey
Of course they do! The debt of a monetary sovereign debt is inherently risk-free and can even command* negative yields/interest.
The government pays interest on these bonds ibid
Thus positive** yields constitutes welfare proportional to account balance, not need. This should not be.
and the right might get concerned about government borrowing and spending, but when the pensions, or the insurance policies, pay out, people get the money back that they had paid in taxes - the profits the pension fund made came from the taxes that were paid in. ibid
Except welfare should be based on need, not proportional to wealth.
Notes:
*Except negative interest levied on bank reserves would, no doubt, be passed on to poor depositors who have no choice but to use one bank, credit union, etc. or the other or else be limited to mere physical fiat, coins and bills. This should be changed by allowing all citizens to have accounts at the Central Bank itself with individual citizen accounts negative-interest-free up to a certain balance limit of, say, $500,000. Then negative interest can be levied on all other non-government accounts at the Central Bank.
**Actually, given overhead costs, non-negative yields constitutes welfare proportional to account balance, not need.
Adding:
It's (often disguised) welfare for the rich that is the root cause of the ever increasing need for welfare for everyone else.
“Governments either borrow money from their own central banks, she says, or issue bonds to borrow the money from the private sector.”
Alas, Ms. Pettifore suffers from EBS (Ellen Brown Syndrome), the incurable brain malady which makes victims think that governments borrow their spending money in their own currency from private sources like banks.
Let’s help her out with some basic MMT…
[1] Monetarily sovereign governments do not borrow any of their spending money in their own currency. They create their spending money in their own currency by instructing banks to credit accounts.
[2] Monetarily sovereign governments may borrow money in foreign currency if they need it. The U.S. government does not need to do this, nor does the U.K., Australian, or Canadian governments, since their currencies are widely spendable in the world.
[3] Monetarily sovereign governments may issue bonds or Treasury securities in their own currency to borrow money in their own currency from the private sector, but this money is not used for spending. The money stays in central bank savings accounts as reserves, which stabilize financial systems.
[4] Governments that are not monetarily sovereign may borrow their spending money in foreign currencies from private sources like banks, especially if the nation has a trade deficit. The Greek government, for instance, borrows all its euros.
“And with the increased GDP the government gets the money back in taxes to help pay off the loans.”
No. The U.K. government does not take any loans for spending purposes, and therefore has no need for tax revenue. Indeed the UK government destroys tax revenue upon receipt.
--- Ms. Pettifore’s entire commentary is distorted by EBS. ---
Regarding the article titled The Myth of Debt, its author suffers from EBS, since he or she thinks that all money is created by banks as loans.
“If money is to be created by a middleman or intermediary, then it should be either the central bank or the Treasury itself.”
The Treasury already creates money. It’s called government spending. If the central bank were allowed to create all the money, then all the money would be loans.
The author thinks that the UK national debt is a myth, since it is an asset, not a debt. This is incorrect. The UK national debt is real, but it has nothing to do with the UK government’s ability to create and spend money. The national debt is money that has been deposited in Bank of England savings accounts. As such it is on loan to the Bank. Since the money just sits there, and acts as reserves, it is a debt and an asset.
When a regular bank has $100 million in deposits, that $100 million is a debt, since it is on loan from depositors, but it is also an asset for the bank while it sits in the bank.
I knew it wasn't very MMT, but to those that hate taxes I thought it showed things in a much better light. MMT is even better still.
It also showed how government spending can help the economy to grow so it's an investment, whereas the Conservatives keep saying we're out of money.
It's a good article, if flawed from an MMT point of view.
Clint Ballinger: Yes, but Bill Mitchell makes distinctions without differences, misleading himself with bad terminology in that blog. To start with, fiat money is public debt. Can't abolish public debt without abolishing public money. Period.
The government could create a National Savings Fund, fully guaranteed by the currency-issuing capacity of the government, which could provide competitive returns on savings lodged with the fund.
There would be no public debt issuance
is worse. Changing the name of something doesn't change what it is. The National Savings Fund, if the workers can freely withdraw their savings is negotiable public debt, just like treasury bonds. If there are limitations on it, then it is just like US Savings Bonds, which nobody ever said was "not public debt".
The idea of "competitive returns" here is also bad. The National Savings Fund rate here is a risk-free government controlled interest rate that would affect all others- it is a dog that wags the "competitive" "market" tail, not vice versa.
“To start with, fiat money is public debt. Can't abolish public debt without abolishing public money.”
All money is both a credit and a debt.
However credits and debts do not necessarily involve loans of any kind.
A dollar bill is a token that represents one dollar’s worth of full faith and credit of the USA. If you have a dollar, then you are a creditor for one dollar’s worth. You have a claim to one dollar’s worth.
QUESTION: Who owes you? Who is in debt to you? Who is bound to honor your claim? Who acknowledges you as a creditor?
ANSWER: Everyone who acknowledges that your dollar is worth a dollar. No loans are involved.
Konrad: A more exact answer is that when you have a US government dollar, the government owes you, when you have a bank dollar, the bank owes you. Any other relation is more indirect, not so binding.
More study of MMT and economics yields the understanding that taxes (or any fee paid to the government) does, practically tautologically, drive money. The view that it is solely "on trust" of what the government says, rather than does is called legal tender chartalism - and that's not really how things work.
A printed dollar bill is a debt and a (tax) credit - it is not stretching the word "loan" beyond recognition to call it (evidence of) a loan to the government. For instance, when somebody works for the government, say a JG worker, they are subsidizing the government, NOT vice versa. What they receive is money, a recognition that they have loaned their labor to the government, in the expectation that they will get something of "equal" value back, for instance a roughly equal amount of labor done for them.
“EBS” is funny literature but it’s still a figure of speech and not explanatory...
“A more exact answer is that when you have a US government dollar, the government owes you, when you have a bank dollar, the bank owes you.”
When we agree to owe someone, we agree to acknowledge their claim to something. We agree to recognize them as creditors. When I have a dollar in my hand, the government agrees to acknowledge my claim, and so does everyone else in the world that acknowledges my claim to one dollar’s worth of credit.
By the way, what is a "bank dollar"?
Regarding the “taxes drive money” nonsense, we have been over this many times before. Just because Randy Wray says something does not automatically make it gospel.
What does “drive” mean?
Does it mean that if taxes are reduced, the value of money falls? (Obviously not.)
Does it mean that if taxes were zero, the value of money would be zero? (Obviously not.)
Does it mean that cryptocurrencies, which are not supported by taxes, have no value? (Obviously not.)
“A printed dollar bill is a debt and a (tax) credit - it is not stretching the word ‘loan’ beyond recognition to call it (evidence of) a loan to the government.”
Strange. If the government prints a dollar, or creates a dollar out of thin air, the dollar becomes a “loan to the government”?
My apologies, but from this point, the rest of your assertions are unintelligible to me – but thanks for reading and commenting.
“'EBS' is funny literature but it’s still a figure of speech and not explanatory..."
Just once I wish you would actually read a comment before you attack it.
I clearly defined EBS as “The incurable brain malady which makes victims think that governments borrow their spending money in their own currency from private sources like banks.”
Governments create their spending money in their own currency out of thin air. They do not borrow it.
If you do not understand what this means, then you are beyond help.
Konrad:When I have a dollar in my hand, the government agrees to acknowledge my claim,
Yes.
and so does everyone else in the world that acknowledges my claim to one dollar’s worth of credit.
As written, this is a tautology, just a repetition. You just wrote that people who acknowledge your claim - acknowledge your claim. What is not necessarily true, what is more indirect is that "other people" don't have to acknowledge your claim. They will in an well-run monetary system. They won't in a badly run one, say where taxes are zero and spending remains large.
By the way, what is a "bank dollar"?
A dollar in a bank account, a bank note, bank-issued dollar.
Regarding the “taxes drive money” nonsense, we have been over this many times before. Just because Randy Wray says something does not automatically make it gospel.
It is not nonsense, but as I said, a near-tautology, something obvious once one takes the time to understand it. Wray is right because his logic is correct and empirically established. Legal tender chartalism fails on both counts - defective logic, empirically invalid.
Does it mean that if taxes were zero, the value of money would be zero? (Obviously not.)
No, "obviously correct" should be in the parentheses: If taxes are zero, and spending is significantly nonzero, that the value of money approaches zero. People won't acknowledge and accept it. This is perfectly logical and shown by historical evidence. I was writing a post a while ago for another thread with many examples - one of them is as close to a scientifically controlled experiment as imaginable. See if I can dig it up, or I will rewrite it.
I suggest you quit while you’re behind. Struggling makes you sink deeper.
“As written, this is a tautology, just a repetition.”
Wrong again. When I say everyone, I mean everyone in the world, not just the U.S. government. Everyone from the north pole to the south pole who agrees that your collar is worth a dollar agrees to honor your claim to a dollar’s worth of credit.
“When you have a bank dollar, the bank owes you.”
If you have a dollar bill in your hand, than a bank may agree to acknowledge your claim to a dollar’s worth of credit, but the bank does not owe you in terms of any kind of loan.
Regarding the “taxes drive money” idiocy, we will never agree on this. You think that if federal taxes fell to zero, no one would want or use dollars anymore. If that nonsense was true, then a reduction in taxes would cause a reduction in the value of money.
Continue worshipping your cult guru (Wray) if it makes you happy.
Konrad: Everyone from the north pole to the south pole who agrees that your dollar is worth a dollar agrees to honor your claim to a dollar’s worth of credit.
Yes, that is the tautology. I do not disagree with tautologies! The non-tautological point is that the US government or anyone else merely SAYING that something - a dollar - is worth something else, perhaps something real, doesn't make it so. The US government or anybody else has to DO something to make money valuable in any real way. Taxes are the main "doing", which is what "taxes drive money" means.
“When you have a bank dollar, the bank owes you.”
If you have a dollar bill in your hand, than a bank may agree to acknowledge your claim to a dollar’s worth of credit, but the bank does not owe you in terms of any kind of loan.
These are just points of English, not economics. I'm saying that roughly, loan, credit, debt, owe etc are basically synonyms. They can always be used in the same context, sometimes you have to reverse the direction - A has a credit on B means B has a debt to A. Accountants and economists agree that a bank account of one dollar means the bank owes you. Do you disagree?
Regarding the “taxes drive money” idiocy, we will never agree on this.
Would you change your mind if you looked at history, at real world examples?
I am not saying that if taxes fell to zero that immediately dollars will not be used. There are examples of sort of that. But if spending didn't fall to about zero at the same time, that is what would happen. Practically speaking, in the modern world, with the size of modern government spending, the fall to zero would be very rapid.
Konrad wrote "a reduction in taxes would cause a reduction in the value of money"
That is precisely right.
And yes, no taxes, currency would fall to zero.
Calgacus - you don't seem to like the term “debt free money” (like Wray and others, they hate it!)
The whole “money is debt” thing is a red herring.
Great, saying all money is debt means a person gets credit-money. That is indeed a deep insight. The horizontal system is based on debt.
But to insist on this with government money is misleading and even harmful.
A group of people (country) expand a balance sheet; they can do so with no interest paid and the holders of the resulting tokens hold what to them are pure assets, with the whole vertical system netting to zero.
The proper accounting unit of a country is.... the country.
Hence the logic of sectoral balances
Hence a focus on real resources
Proper accounting for the $ (or Pound, Yen etc) is, of course, as equity on the liability side, and as an asset to citizens holding it, netting to zero.
It can be “debt free” in the sense of no interest being paid on it (ZIRP) and it is definitely “debt-free” under proper double-entry accounting if you use the only rational lens for the economy, which is the whole country.
The moment you cede your accounting from the whole country to “government” you have already fallen into the neoliberal mindset that government is something separate from the people and is something that can spend more than it provides to the people.
So yes, government money is debt-free, already really (except for the silly voluntary annuity payments we make to tax-credit savers) and will be completely “debt free” when we go to ZIRP (which we will). Citizens save assets which net to zero with government equity; a country's vertical money system is debt-free.
"Just because Randy Wray says something does not automatically make it gospel."
Randy Wray, Warren Mosler, Bill Mitchell, Alfred Mitchell-Innes, Pavlina R Tcherneva, Scott Fullwiller, Stefanie Kelton and many others. Don't know why you refer to Wray as if he was alone.
But no matter how smart and experienced those people are. At the end of the thay, what matters is empirical evidence. And evidence supports the taxes drive money thesis.
The government uses it authority and monopoly of force to oblige people to pay taxes and fees (the exact taxes and fees verys widly along time and space). The government enforces such rule by somehow punishing those who do not pay (and, in the past, it included physical violence and prison).
People than demand currency to be able to pay taxes and avoid punishment. Currency is an IOU with liberation power (liberating the holder from tax liabilities and respective sanctions). People will supply labor, goods and services to the government.
The value of the currency is much more influenced by the price the government demands from labor, goods and services, and much less influenced by the amount of taxes itself. The amount of taxes imposed define much more how much the private sector will work for the government, and much less the value of the currency itself. But it may have it influence thought.
"I suggest you quit while you’re behind. Struggling makes you sink deeper."
"Regarding the 'taxes drive money' idiocy"
Instead of acting in a random agressive, disrespectful and unpolite manner to people that never treat you wrong, you should substantiate your claims with some kind of evidence.
I don't know why Calgacus keeps trying to discuss things with you if all you can give is disrespect. I would have stopped talking much earlier, but each one chooses what he/she wants.
Calcagus: I'm agnostic on this issue, but let me play devil's advocate for a moment...here is a question for you: What is the zero tax deficit level of full employment? Let's say, for a moment, that the federal government suddenly decided to stop taxing. Furthermore, they decree that all transactions within its borders must occur in US dollars under penalty of law. Finally, they will spend only enough US dollars each year to maintain full employment by guaranteeing each US citizen a job at some pre-determined wage. Would the value of the a dollar then fall to zero?
Dave, the theory is that yes, the value of the dollar would fall to zero (I cannot speak for Calcagus thought).
I don't think that we have any record in history of something happening exactly the controlled way you laid out, so I think it is hard to know how exactly things would follow.
I guess things would follow more or less like this: people would still use the dollar for some time (some weeks, maybe some months) and then the value of the dollar would quickly get extreme volatile - probably a volatile but fast growing inflation rate. Then people would start adopting another currency, even if it means breaking the law...
A group of people (country) expand a balance sheet; they can do so with no interest paid and the holders of the resulting tokens hold what to them are pure assets, ... Clint Ballinger
So fiat is essentially shares in equity, i.e. common stock.
Makes sense.
Also, deficit spending would, in the short term, dilute existing shares in equity (fiat) but if spent (or distributed) properly would increase equity in the longer term.
This idea deserves greater investigation, imo.
Clint Ballinger,
"Proper accounting for the $ (or Pound, Yen etc) is, of course, as equity on the liability side, and as an asset to citizens holding it, netting to zero."
Why do you propose that standard? Currency today is a liability, not equity.
For a single entity called "the government", I guess it make sense to put currency at the liability side but not as equity.
I don't know, the accounting seems straightforward. Take vehicle taxes, for example. Every year, single private agents (companies, for example) who own vehicles will have to account for a vehicle tax liability (either in a single lump or maybe a little bit each month) against equity. That makes a lot of sense. By having vehicles, those companies are obliged to have a debt to the tax authority, decreasing their equity.
The government, on the other hand, should recognize an asset, from the right it has to collect vehicle taxes, against its equity. (But, probably because of operational reasons, governments do no account for tax assets that way I'm describing – they employ cash basis and not accrual basis). Taxes to collect are an asset (against equity) to the government, which also makes sense, I think.
Then the company supplies some services to the government, and, because of that, the government issues currency and pays the company. The currency represents a liability to the government (against equity), because currency is an IOU. The government is obliged to settle the tax credit (reducing its asset) if a person redeems the IOU (transfer currency to the government). Can't see what is wrong to the standard...
"Why do you propose that standard? Currency today is a liability, not equity."
Andre - I am not proposing - I am describing. That's how it already is.
And equity sits on the liability side.
OMF would just make it more straightforward. It wouldn't change the accounting.
"Andre - I am not proposing - I am describing. That's how it already is."
Describing? I guess I didn't understand. I am sure that today most (all?) central banks register currency in the liability side, sure, but no in equity. Actually, for each $1 you have in currency liabilities, you have $1 less in central bank equity. So it seems to me that you are not describing things how they are today...
Calgacus - you don't seem to like the term “debt free money” (like Wray and others, they hate it!)
The whole “money is debt” thing is a red herring.
No, it is the heart of the matter, the most fundamental insight of MMT. The triviality that everything flows from, that makes understanding everything else easy, once one exercises the patience to grasp it. To not understand how and that all money is credit/debt, is to not understand MMT. And is making things so much more complicated than they really are, for no reason at all.
"Debt-free money" is a contradiction in terms. It is like talking about plant-free vegetables. If either phrase has meaning, it cannot be logically derived from its component words.
As too many do, the secondary, unimportant, derived meaning of "debt" involved with interest or whatever is used exclusively, but the primary dictionary meaning is ignored. What MMT means and uses is the primary meaning - social, moral obligation - an asymmetric social relation. The words liability, debt, credit, financial asset, IOU, obligation, bond, brownie point etc are all synonyms. Every human language has such terms. Distinguishing between them here is crazy and wrong.
But to insist on this with government money is misleading and even harmful.
In this sense, to insist that (government) money is not debt = credit etc is to not speak English, or any other language in an intelligible fashion. So, to NOT insist or use it with government money is misleading and harmful. As history shows, it is even "neoliberal". What MMTers don't say often enough is that this is the second time around for MMT. Basically, when people understood Keynes's or institutional economics = MMT, say from 1930 to the 50s (and somewhat to the 70s), they understood finance, understood that government money was credit/debt one way or another. Usually obscuring the essence with mounds of boring, extraneous details. But they did understand.
However, the very success of Keynes etc led to a large public debt / financially stable condition - the unique case where as Minsky observed, that finance can be safely ignored as the "old Keynesians" did. This ignoring caused the amnesia and ignorance that led to thinking of money as magically different from credit, which became monetarism and the revival of long-refuted zombie neoclassical ideas.
The moment you cede your accounting from the whole country to “government” you have already fallen into the neoliberal mindset that government is something separate from the people and is something that can spend more than it provides to the people.
Quite false and self-contradictory. When one talks about "government money", as you do, one is thereby separating "the government" & "the people". You are "ceding your accounting . . .", you are NOT using the whole country as an accounting unit yourself! But this is not in the least neoliberal. The neoliberal mindset is more to deny the existence of money.
The question is not whether to separate or not - as you certainly do - but to test whether the term used- "government money" falls under the dictionary definition of "debt"/"credit"/"liability" etc etc. It does. So to disagree with government money being credit etc is as crazy and strange as insisting that green is not a color.
Reply to Konrad et al later.
"but to test whether the term used- "government money" falls under the dictionary definition of "debt"/"credit"/"liability" etc etc. It does. "
W ZIRP, will properly be equity(liability).
And government money actually falls under "pure asset" ...to its holders :)
Calgacus - Where would the 100 Trillion Dollar Platinum Coin sit on the National Accounts? ;)
Andre- non-interest paying perpetual treasury issue already is "equity" (coin, greenbacks previously); Yes, you are correct that we haven't made the final rational step to ZIRP, but when we do, all vertical(hpm) "money" will also fall under equity. Whether the government chooses to issue from the Fed or Treasury, however, will make it appear different. I imagine you can see that in practice it makes zero difference who issues our ZIRP OMF tokens, "fed" or treasury. It only matters that we are taxed in them, that they are tax-credits.
Clint Ballinger,
"non-interest paying perpetual treasury issue already is "equity" (coin, greenbacks previously)"
Well, I'm confused. They clearly are not. Look, for example, at Fed's consolidate balance sheet:
https://www.federalreserve.gov/aboutthefed/audited-annual-financial-statements.htm
I guess you are using some specific meaning for the word "equity" that I am not understanding right. "Equity" (sometimes called "capital") is an accounting concept.
Equity could also mean "the quality of being fair and impartial", but then I don't think it would make any sense at all...
Yes, you are correct that we haven't made the final rational step to ZIRP ... Clint Ballinger
ZIRP should be reserved for individual citizens (at accounts of their own at the Central Bank, up to a maximum account limit); NEGATIVE interest might be applied to all other non-government accounts at the Central Bank.
Why? Because individual citizens have an inherent right (within reasonable limits) to use their Nation's fiat; others, including the banks, DO NOT.
I think that discussion has two parts: 1) In current accounting standards, is currency accounted as equity? (the answer is a clear "no") and 2) Are current accounting standards good in the sense that they best reflect the real world as it is for the interested stakeholders? (If not, they should be changed and currency should be accounted as equity, which I think is not the case).
I say that the answer to the first question is a clear "no" because, in that particular case, there is plenty and easy accessible evidence. You just need to go to the site of many central banks around the world and get their accounting reports. You will see with your own eyes that currency is not accounted in equity (or capital)
The second question is more complex, but here is what I think.
First, currency clearly does not comply with the equity definition. Equity is the residual claim on assets after debts/liabilities have been paid. Currency is obviously not a residual claim on anything (it is a tax credit IOU). Equity actually is just, by definition, the gap between assets and liabilities. Maybe we could discuss that this gap is unimportant for institutions like central banks or government treasuries and could be ignored in all relevant analysis, but I find it difficult to believe that currency should be accounted as equity.
Second, I guess we agree that currency is clearly an asset to the individual or company holding it, because it gives them the right to settle taxes anytime they chose to redeem it. So it makes perfect sense for currency being an asset in companies' balance sheets, for example. I don't think that "pure asset" is defined in any accounting standard. If you invented that concept, I guess it is interesting for you to explain it. If not, maybe you could provide the source of the definition. Maybe "financial asset" is the term you are looking for, I don't know.
To the government, on the other hand, it seems to me that it is clearly a liability (not equity) because the issuer has the obligation to settle taxes if the currencyholder decides to redeem it. That is the nature of the fiat currency. It is not a residual claim on anything. It gives an obligation to the issuer and a right to the holder.
Third, I don't seem to me that accounting currency to equity would respect double entry accounting. You would credit the equity and would debt what? Why?
We have to be a little more technical (but not too much) if we desire to communicate more cleary, because maybe we are claiming the samethings and are not even aware of that. And we should avoid redefining the meaning of words (if that is the case) if possible, and, when redefining, we should be clear we are doing it...
Andre wrote "Well, I'm confused. They clearly are not. Look, for example, at Fed's consolidate balance sheet..."
and
"You just need to go to the site of many central banks around the world and get their accounting reports"
Andre- the proper accounting for a gov is not their central bank/the Fed. The Fed/Central banks are but a part of the gov. You have to look at the National Accounts.
The USA one is here:
https://www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/fr_index.htm
And of course, this is the government; the proper way to THINK of the economy is the whole country, hence sectoral balances, hence real resources etc.
At any rate, the Fed is subsumed under a much larger accounting system at the link I listed.
cheers,
Clint
BTW Calgacus - good point I used the term government :)
Just replace my use of "government money" with "vertical money" and everything I wrote is true.
And yes, neoliberal POV to think of gov as something separate from the people and as something that can spend more than it provides to the people.
The proper accounting unit of a country is.... the country.
Hence the logic of sectoral balances
Hence a focus on real resources
Clint Ballinger,
If you consolidate the government (central bank + treasury) my comments continue the same. Currency is a lability (but not equity) to the consolidated government.
The site you gave do not consolidate the Fed, so it is partial. It is the Treasury balance sheet with some other institutions. In the US, the Treasury issue treasuries, which are liabilities but not equity (you can see it in the balance sheet at page 55, or the details in Note 11, page 93). Part of the treasuries are held by the Fed, so, when you consolidate, they cancel out and disappear, but part is held by the private sector and do not disappear when consolidating. Bank reserves are in the Fed balance sheet (at the liabilities side, but not equity). Bank reserves held by the private sector (financial institutions) do not cancel out and disappear when consolidating. They are a liability at the consolidate government balance sheet.
As you can see, currency isn't equity in today's accounting standards...
Right, when we go to ZIRP they will properly be equity.
Like I asked above: where would the Trillion Dollar Platinum Coin sit on the USA Financial Report? Although yes, we don't have one, the concept made clear where vertical money actually comes from.
(Hint on where it would sit...it's a coin.)
…
Also, as far as fed accounting v the USA Financial Report - draw some T tables and see how the Fed fits in with the overall US Government.
Clint Ballinger,
"Right, when we go to ZIRP they will properly be equity."
No, they won't - unless they change the accounting standards (which, in my opinion, wouldn't make sense, as I explained... but who knows what the accounting community thinks?).
"Like I asked above: where would the Trillion Dollar Platinum Coin sit on the USA Financial Report?"
I don't know many details about the Platinum Coin, and since the concept was rejected, I never researched much. But if I could understand it right, the Platinum Coin would be an asset to the Treasury and a liability (not equity) to Fed. When consolidating, it would be cancelled out and disappear. But the thing is that, as a consequence of various laws (some of them quite bizarre), some people claimed it would supposedly allow Treasury to circumvent the debt limit.
"Also, as far as fed accounting v the USA Financial Report - draw some T tables and see how the Fed fits in with the overall US Government."
Yes, I already did and explained to you in the last answer. Bank reserves (and treasuries) held by the private sector are accounted as liabilities (not equity) in the consolidated government balance sheet. Also, many of this stuff is detailed in Randall Wray's book (MMT primer), which is a great source
Andre, coin is counted as equity. Any 0 interest perps by treasury would also be.
Th platinum coin comment is merely to highlight this
Clint Ballinger,
"coin is counted as equity. Any 0 interest perps by treasury would also be.
Th platinum coin comment is merely to highlight this"
No, coin is never counted as equity, and 0 interest (or negative interest) bank reserves or treasuries are not counted as equity. Interest rates level has nothing to do with the liability/equity thing. And my claim is supported by evidence: balance sheet reports from central banks. In that particular case, there is plenty and easy evidence out of there, which is rare in other cases/claims.
Your claim, on the other hand, comes from your own interpretation, without any reason, any source or any evidence. You are just saying it out of the blue.
I gave to you a report from Fed where it explicity and clearly counts currency as liability, not equity. You gave me a Treasury report where currency wasn't even accounted, because it excluded the Fed.
I can also send you links of balance sheet reports of many central banks, and you will see that all of them count currency as liability, not equity - even those countries where interest rates are zero or negative. You can do it on your own, however, because it is easy to find them on the internet.
I don't know why you are so commited to your claim.
It seems to me that you are choosing to ignore the obvious. I can't understand why. There is no way that things can get as clear as they do in that matter (like a report telling "liabilities: currency")
I mean, it is like I'm showing many photos of a round Earth as evidence but you keep claiming "no, Earth is flat, Eath is flat". Actually, it is even worse, because the photos could be fake, but the reports are the ones presented by the central banks themselves with the accounting standard stamped on their faces...
I have nothing more to do except giving up and longing that you may someday give importantance to evidence...
anyway, the accounting is just a thought experiment
For the domestic economy as a whole, the Gov's expanded balance sheet nets to zero. In other words, to expand, unlike the horizontal sector, no individuals go into debt. Spending-in (tax-credit creation) by the gov ALWAYS = taxes + savings. Budget is ALWAYS "balanced" (barring foreign sector). Get the public to understand this and everything else follows.
It makes no difference what part of the gov issues the tax-credit (vertical money) nor does it make any difference whatsoever – none at all - how that is placed in any accounting. It is the "scoreboard" with endless digits we always talk about, the most useless residual of all that the neoliberals currently get the public to fret over.
The vertical money supply creates the tax-credit token that allows the government to spend. Now we needlessly make savers convert it to a different flavor gov token if they want to save. This vestigial practice can be done away with, and savers allowed to save and transact in tax-credits directly themselves (they can't now, they can only have real tax-credits as cash, or have banks convert saved credits to the other type of government token “bonds”. Or buy postal stamps :) lol).
Under the current system, things are more complicated but at base the same. Many think not worth bothering to rationalize the system and get rid of the vestigial practices since at bottom the accounting works out the same. (Wray 2001 has a nice applied example of showing the four ways to fund something and how all at base are the same) .
However, a good argument can be made that the public and politicians will never “get” MMT and how to manage the economy better as long as we have the vestigial practices now (those being – no direct access by savers to their tax-credits digitally, the charade of bond sales, etc, and a failure of the public to understand that as a country, the vertical money supply nets to zero (there is no debt).
Wray 2001 (see page 6 for great little summary) http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.639.2447
Ps on coins, you have to look at further breakdown of liabilities. In us have been listed as equity. Anyway,makes zero difference. Vertical money nets to zero. No debt 😊 just a residual number
"In us have been listed as equity"
Where? Show me. It hasn't.
It does make some difference in the sense that currency cannot be interpreted as a residual claim on government assets, whatever it may mean. For example, if you claim that currency is equity, some people will reach conclusions like "So fiat is essentially shares in equity, i.e. common stock", which is not true.
For some people, currency is currency no matter how you account it, so for them our discussion here is useless. For others, the accounting standards may make things easier to see, and accounting things wrongly prevents them for understanding things quickly or clearly. For those, our discussion here could be valuable.
(I agree with most of those parts about horizontal and vertical accounting, although I wouldn't use the same wording - I found it a little bit confusing. However, I don’t think those things have anything to do with the equity/currency issue...)
Has to. No time to find now 😊
Andre, not trying to agree or disagree here, just suggesting a read through of Peter Cooper's excellent work here
http://heteconomist.com/exercising-currency-sovereignty-under-self-imposed-constraints/
good stuff, and again, not challenging you, just saying Peter's post is worth a close look no matter what.
Cheers,
Clint
He follows it with this
http://heteconomist.com/overt-monetary-financing-in-terms-of-simplicity-and-transparency/
Both links are just basic MMT... Not anything new there... what exactly should I look for?
Will have to get back to here later (working).
Overall, more important to keep fact that government money nets to zero just like bank money, you just have to look at whole country to see it (and we should).
On equity (although see above, not really important what the scoreboard residual is called) - I should probably have mentioned - the US Gov does not use the term in national accounts, only referring to changes in the gov's "net position."
Clint Ballinger,
"government money nets to zero just like bank money, you just have to look at whole country to see it (and we should)"
I agree that every financial instrument gives rise to an asset at one entity (like a private company) and a liability to another (like the government). And when you consolidate both entities into a single one, they cancel out and disappear (that is basic accounting). It is true for currency, loans, bank deposits and many other financial instruments. I don't agree that it is useful to consolidate the entire country (public and private sector into a single entiry) if someone wants to conduct monetary analysis. However, whatever is the case, I believe that topic has absolutely nothing to do with the equity issue.
"On equity (although see above, not really important what the scoreboard residual is called) - I should probably have mentioned - the US Gov does not use the term in national accounts, only referring to changes in the gov's 'net position.' "
All balance sheet necessary has something that is, by definition, the gap between assets and liabilities, and it is usually called equity, capital or net worth. Doesn't matter how you call it, it still a residual claim - what remains after you pay liabilities.
I don't think that this residual has much importance in Treasury, Central Bank or Consolidate Gov balances.
However, when you claim that currency is equity (or net worth or capital) you are claiming that it is a residual, which simply isn't true. I believe this sort of thing brings unecessary confusion and desinformation to the discussion.
Andre – you are missing the point. On looking at the whole country – the reason to do so is to make clear that there is no real national debt – just savings (bonds).
...
On the equity issue – the importance is conceptual. Yes, currently the structure makes government money seem like a normal liability.
What I am saying is that (as per the Peter Cooper articles, for example) at the end of the day directly emitting government tokens with no bond sales is the same as the current system after proper accounting. You can follow his accounting (and Fullwiler's, and Wray's) and see that.
Interestingly, we have still to this day a tiny case where the government does indeed just emit government money with no bond sales (coin).
So looking at how the government does the accounting for coin is particularly interesting.
So how does it do it?
The government says “this is not a liability but just an increase in the Gov net position (government speak for equity)” which it can do as a sovereign currency issuer.
So, if we decided to just let the treasury directly issue all dollars, then by current accounting standards (as demonstrated by coin), the same would apply – the government is just increasing its net position (equity), providing an asset for the non-government (the value driven by taxes, of course)
We could, of course, continue to have the Fed issue Fed Notes (“reserves”) instead with no bond issue. Doesn't change the underlying accounting for the government however.
…
Coin is of course not important amount-wise currently. But how the gov treats it is important: It demonstrates the logical accounting procedure for directly emitted government money (tax-credits) with no bond sales. And that procedure is already to treat it as simply an increase in net position of the government. If we go to ZIRP it becomes obvious that the gov just emits money; the accounting would be obvious as well. At any rate, what I am calling a residual is the "national debt" number (currently) or any measure of liability against government money held by the non-government. That number is a residual of what the government does to properly use real resources; proper accounting of the economy is about real resources, unemployment, etc. We hold unemployment at zero and spend for the maximum desired public expenditure that doesn't create inflation, and let that liability number float where it may. That is what I meant by "residual" - it is the least important accounting measure of the government and economy of all.
"What I am saying is that (as per the Peter Cooper articles, for example) at the end of the day directly emitting government tokens with no bond sales is the same as the current system after proper accounting."
Yes, I never disputed that.
It seems to me that you are just reciting the basic MMT. I have already read ot many times along this past 6 years I guess, you don't need to explain again. However, I guess what you are saying may be useful for other readers. Except when you claim that currency is equity or odd things like that...
"Interestingly, we have still to this day a tiny case where the government does indeed just emit government money with no bond sales"
It is not tiny. And it doesn't apply to coin only.
"The government says 'this is not a liability but just an increase in the Gov net position (government speak for equity)' which it can do as a sovereign currency issuer."
No, the consolidated government issues liabilities (bank reserves, notes and coins) against equity. Equity actually decreases. That's how things work today.
Accounting of coins in the consolidate government is not different from notes and bank reserves.
When you separate the Treasury from the Central Bank, things get a little more complex, but coins, notes and bank reserves are, at the end of the day, liabilities against equity.
The own sources you cite do no support your claims about how currency accounting works
Andre writes “It is not tiny. And it doesn't apply to coin only.”
US money in coin is a very small part of the money supply. This is part of the reason finding the official accounting of it is not easy.
Andre goes on “And it doesn't apply to coin only.. Accounting of coins in the consolidate government is not different from notes and bank reserves.”
The US Federal Accounting Standards Advisory Board (FASAB) states this about Treasury creation of coin:
Government creation of coin “results from the sovereign power of the Government to directly create money and, although not an inflow of resources from the public, does increase the Government’s net position in the same manner as an inflow of resources.”
It then goes on:
“Because it is not demanded, earned, or donated, it is an other financing source rather than revenue. It should be recognized as an other financing source"
FASAB 2014, Page 89
(Statement of Federal Financial Accounting Standards 7: Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting
FASAB Handbook, Version 13 (06/14))
There is, of course, nothing but a self-imposed constraint that stop all government money creation to happen in this way.
Link: http://www.fasab.gov/pdffiles/2014_fasab_handbook.pdf
___________
Accounting refresher:
Net Position = “The value of the position subtracting the initial cost of setting up the position”
Equity = “the difference between the value of the assets and the value of the liabilities of something owned”
__________________
Let's continue...
Andre writes “No, the consolidated government issues liabilities (bank reserves, notes and coins) against equity. Equity actually decreases. That's how things work today.
Accounting of coins in the consolidate government is not different from notes and bank reserves...coins... are, at the end of the day, liabilities against equity.”
FASAB states:
coins “increase the Government’s net position in the same manner as an inflow of resources.”
In other words, coins increase what would be considered equity (the US Government calculates this as an increase in Net Position).
This is the proper accounting for any emission of “money” by the gov not from bond sales.
Note, interestingly, that although I am not sure how they are usually recorded, in the recent (and absurd) “debt-ceiling” discussions, the US Gov did not count directly emitted Treasury Money (US Notes) towards the debt-ceiling. (this, incidentally, strongly supports the logic of the platinum coin idea, which at the end of the day is just another way to carry out OMF with ZIRP).
Every US Government issue of “Monthly Statement of the Public Debt (MSPD)” States this about US Notes:
“Not Subject to the Statutory Debt Limit:
United States Notes...................................................”
That is from “TABLE III - DETAIL OF TREASURY SECURITIES OUTSTANDING, SEPTEMBER 30, 2018”
https://www.treasurydirect.gov/govt/reports/pd/mspd/2018/opdm092018.pdf
Straight from the US Treasury.
So no, Andre, when you say the US government doesn't treat coin as equity, (or more recently, treat other treasury issued money differently), you are wrong.
The US Gov uses special accounting for direct issued money. And it is the proper accounting for any future expansion of the money supply using OMF with ZIRP, rather from the Fed or Treasury.
Cheers, Clint
"whether" not "rather" on that least sentence
Finally some concrete thing on what we can work on.
Reading the FASAB document you gave, it was explained (if I could understand it right) that coins specifically are accounted as if they were gold (while bank reserves and notes are not even considered because the Fed is excluded).
It is as if the Treasury mined gold out of the ground and registered it as an asset against a rise in equity. Never saw it before in balance sheets usually because the value is small and usually grouped together in an account like "financial asset holdings".
Also, I believe when Treasury spends the coins, they exit the balance sheet against equity (coin assets and equity are both reduced), as it would happen if Treasury was spending gold.
So you were right about how coins are registered in the US Treasury balance sheet. Although the standard excludes Fed, I imagine that the same rule would be applied to a consolidate government balance sheet, because that would make sense for gold holdings.
I found that standard extremely troubling. It is a residual accounting rule from the gold standard times that we don't have anymore. Notes, coins and bank reserves are today the exactly same thing but they are accounted in distinct manners, and coins are treated as if they were gold, which they clearly aren't today.
Most central banks around the world do not differ coins, notes and bank reserves when accounting them. US is very late - it needs to update its accounting rules.
As I see it, accounting currency as asset against rise in equity is a wrong concept arising from the gold standard that doesn't exist anymore. Currency is not gold and that commodity money view is the opposite of the chartalist money view support by MMT.
Coins should be accounted as bank reserves and notes to best reflect the real world...
Just a comment: the documents tell us that coin is asset, like gold, but not equity. Equity instruments are company shares or contracts that give to the holder the right on residual claim (of assets less liabilities).
me:"but to test whether the term used- "government money" falls under the dictionary definition of "debt"/"credit"/"liability" etc etc. It does. "
Clint Ballinger: W ZIRP, will properly be equity (liability).
ZIRP has absolutely nothing to do with it. That is a basic MMT point. Bonds and currency are the same thing. Distinguishing between them is close to Friedmannian monetarism, commodity theory, neoclassical, what have you. It is wrong, making a distinction without a difference.
Liability=asset=credit=debt. They are all words for the same thing. Pretty much the function of money is to be very unlike equity, which is also a liability of course.
And government money actually falls under "pure asset" ...to its holders :)
Where would the 100 Trillion Dollar Platinum Coin sit on the National Accounts?
It is an asset/credit to its holders. A liability/debt to the government. This is a tautology.
Clint: I am stating basic MMT. Read more and you will see that. You are disagreeing with MMT. In a vague and not irreparable manner, but still, disagreeing. The idea that separating the government and the governed in accounting is wrong or neoliberal is very untrue. MMT does it. All other schools of economics do it, but often incorrectly. You do it many times in your comments, but appear to be saying you are not doing it, a flat self-contradiction.
By not speaking English, this way of thinking makes things so much more complicated than they really are. It leads and has led to specific and major economic errors. Were the National Accounts, accounting standards and accounting systems created by gods? Referring to them and leaving it at that is an anti-scientific procedure. Thinking about the concepts that were used to create such systems is the correct way. That is what MMT does.
unlike equity, which is also a liability of course. Calgacus
No it isn't. Equity is a residual of Assets - Liabilities. It's exactly what the equity owner DOESN'T OWE - given non-negative Equity.
In other words, given non-negative Equity, it's what the Equity owner(s) OWN.
Calgacus...“ZIRP has absolutely nothing to do with it. “
Calgacus –
you didn't follow the shorthand. ZIRP = ) Interest Bonds, which is of course nonsense, so really say ZIRP might as well say “non bond issue at all” , which we agree on ;)
“It is an asset/credit to its holders. A liability/debt to the government. “
I showed how under even current accounting rules, a platinum coin would be, like all US coins, counted as a brute increase in net position, government accounting for “equity”.
The US Gov gets it right here, it is just little known ;)
“The idea that separating the government and the governed in accounting is wrong or neoliberal is very untrue. MMT does it. “
MMT had enough on its hands emerging from the 1990s. Mosler etc still use the term deficit etc.
I am simply saying, time to move on. Kelton's got it. She tweeted today
Stephanie Kelton @StephanieKelton 6h
Democrats, do yourselves a favor and learn to talk about the public debt without using the word “debt.” It’s misleading at best. It is nothing more than the dollars spent by government but not taxed back, currently being *saved* in the form of Treasuries.
This applies to the word deficit as well.
Say debt or deficit at all and you cede too much.
Say the truth – untaxed tax-credits and saved tax-credits.
We only have untaxed-tax credits and saved tax-credits. (and there is no reason to pay interest on saved tax credits :)
Had this disagreement with Stephen Hail as well.
The way I say it (and Kelton above) has the double good of being 1) much more accurate and 2) MUCH more politically useful.
I wrote a blog post criticizing Kelton for debating the term “deficit” with Noah Opinion – you can't even start a conversation that way … it cedes to much to the neoliberals.
______
“By not speaking English”
Again, I showed you that the US Gov itself, using basically CLASSICAL accounting, treats direct treasury issued $ as equity. I am the one speaking proper English. We do not have a deficit, and we do not have a national debt, and the equity/liability we have uses the term “liability” in a way that has nothing to do with the way any non-accountant would use the term liability; and it doesn't even mean what accountants think it does if they are not using the US Gov detail that it is a brute increase in net position. Unfortunately, few accountants understand the difference between a currency user and issuer (as we all sadly know. Just look at the EMU).
Anyway, I am pretty clear here on relation of vertical and horizontal money...
Not sure where I get it wrong here if you want more detail
http://clintballinger.edublogs.org/2017/11/02/omfg-mmtpm-get-along/
ZIRP = non interest bearing bonds - was rushing
Clint Ballinger,
"I showed how under even current accounting rules, a platinum coin would be, like all US coins, counted as a brute increase in net position, government accounting for 'equity'."
Well, don't know if the platinum coin would be accounted like an usual coin. What you showed was that coins are accounted in the US as assets (against equity). When you claim that something is equity you are implying that it is something like shares or similar claims against residual assets, which is not the case. You cannot say that gold is equity. Gold is asset. Of course, if you find a gold bar in the streets out of nowhere, you would account it in your balance as follows: a raise of $X in assets against a rise in $X in equity, but that means that gold is asset (not equity)... “coin is equity” is a very misleading sentence
"Unfortunately, few accountants understand the difference between a currency user and issuer"
Agreed. And I would also add more: few accountants would understand that money is not gold anymore.
But, you now, in many countries, coins, notes and bank reserves are accounted as they should be: liabilities at the consolidated government balance sheet.
(1/2)
Clint, again, the ideas you are proposing are not MMT. Not chartalism. I know what ZIRP means.
You need to do more MMT reading. Using the word "debt" is not conceding anything. If you don't think money is debt = etc, you don't really understand MMT or English. "Deficit" is not really an ordinary word, so I don't really care about its usage one way or the other.
Again, NOT using the word "debt/credit etc" is conceding something to neoliberals.
You seem to be saying money is a tax credit, but not a debt. This is lunacy. Saying that something is a credit but not a debt is not English. That is not how any language uses the words, which are an inseparable pair that describes the same concept from different viewpoints. For economists historically making this point, usually the MMT-ish ones, see Mitchell-Innes, Frank Graham (in a book he edited with Abba Lerner), Lerner, Keynes or many others. The idea of money, including government money, not being credit/debt is the neoclassical/neoliberal/commodity theory view. The creditary nature of money is the MMT (Keynesian, circuitist etc etc) view.
the equity/liability we have [the National Debt] uses the term “liability” in a way that has nothing to do with the way any non-accountant would use the term liability
This is the exact reverse of the truth. The problem is that people become so accustomed to using the word "liability" in a "sophisticated" accounting sense that they wrongly insist that this specialist definition is "the way any non-accountant would use the term liability" (or credit/debt/asset...) Then they completely ignore the the basic human universal dictionary definition, which in reality is "the way any non-accountant would use" it, once the point has been explained. I would appreciate it if you would try to come to grips with what I am (or Mitchell-Innes, or Wray, Ingham, Gardiner, Henry, Hudson, Kelton, Fullwiler etc etc are) actually saying.
Stephanie Kelton:Democrats, do yourselves a favor and learn to talk about the public debt without using the word “debt.” It’s misleading at best. It is nothing more than the dollars spent by government but not taxed back, currently being *saved* in the form of Treasuries.
Kelton is talking nonsense here - in a mere tweet that is in violent contradiction to her and all MMT academic work. It is neither "more politically useful", as history shows, "Noble lies" are not a path to truth or success or justice. Nor is it "much more accurate". It is flatly, crazily untrue - and that is why it is not "politically useful". Truth wins.
Defining things in a consistent, coherent and comprehensible way close to ordinary dictionary meaning wins. Kelton fails here, This oft-proposed but meaningless and anti-rational debtphobic Newspeak fails.
(2/2)
Look, I have seen all this before, personally and in history. Five or six years ago, Dan Kervick was a respected MMT voice, the first non UMKC academic writing at the NEP blog. He started talking like you (and too many others) do. Saying mysticism like US cash being a liability but not a debt. I wrote some against this, should have written more. But his philosophical understanding (was a student of Gettier) led him to expressing these errors in a particularly lucid and enlightening way. ("Truth emerges more readily from error than from confusion.") The same Kelton noted in response back then- aren't "liability" and "debt" synonyms? They are.
Again read some history. The MMT academics should all do this more (Marshall Auerback and Mathew Forstater are exceptions to this need, as is Geoffrey Gardiner, who lived it - he rues just having missed meeting Keynes.) This precise language redefinition and confusion was one of the things that brought down the postwar Keynesian consensus. For instance, everyone believed in Lerner's Functional Finance until James Buchanan (along with some other BS artists later) came up with a book of wordplay and word misuse that managed to revive the then-dead classical views on debt in a Keynesian / national accounting garb; too few read Lerner pointing out the wordplay.
Forget about US "current accounting rules", "CLASSICAL accounting", "vertical and horizontal money" (which I neither mentioned nor criticized) FASAB etc etc. Burn that soporific crap. Read Mitchell-Innes, who makes the same point. If a legislature or a standards board passed a law that said 1 + 1 is now equal to 1, would that make it so? This discussion is not on some particular law or standard or convention, but what is behind them. The concepts and how they are understood. The reasons WHY there are such accounting rules.
“The idea that separating the government and the governed in accounting is wrong or neoliberal is very untrue.
My real point is that YOU are doing it repeatedly, constantly but claim that you aren't - as you criticize others for doing exactly what you constantly do - what everybody MUST do, what is logically impossible to avoid. Don't you see how weird this critique is? How you are blithely and constantly contradicting yourself in urging people to perform logical impossibilities?
Unfortunately, few accountants understand the difference between a currency user and issuer
Yes, but what sort of difference is it? The mistake is to wrongly consider it a conceptual difference. NO, it is merely an empirical, behavioral, institutional difference. Government debt, government credit, currency, bank money, the mortgage note a person signs are all instance of the same (not)-thing, the same concept, a credit-debt relationship.
Once you assert that government money is "something different" - something pooped out of the behind of a unicorn I guess - you are saying it is A THING - not a relationship. That is the commodity theory and you might as well become an Austrian/neoclassical or whatever.
Calgacus
So you say that tax-credits created(spent in to economy by gov) by the people are (non net-position-increasing) liabilities.
Then that would place “taxes owed to the government” on the Government Balance Sheet as an "Asset",
i.e., “Revenue”.
That's not very MMT at all ;)
Andre- forget about gold! ;)
Money is vertical (tax credits) or bank credit (horizontal).
. If you don't think money is debt = etc, you don't really understand MMT or English. Calgacus
In the case of one form of private money, common stock, money is most certainly NOT debt (liabilities) but shares in Equity which is not, as you say, a liability - unless you wish to destroy plain English and basic accounting.
Thus debt-free money IS possible, at least as far as private money goes.
John: “Hey Calgacus, here's 5 pieces of paper. If you don't give me 3 of them back, I will punch you in the face.”
Calgacus: "OK, here's your three pieces of paper"
[John is satisfied, starts to leave and..}
Calgacus: “Hey, John, wait!!!! I still have 2 pieces of paper. You still owe me!...”
__________________
Calgacus writes: “The creditary nature of money is the MMT (Keynesian, circuitist etc etc) view.”
It is the view for private credit-money, yes. And a great insight it is. But it is only half the story. Government money completes the macro understanding of the economy, and must be merged with private credit-money. You are hung up halfway. It is common for those who “get” credit money to have trouble integrating government money into their understanding, and it is common for those who “get” government money to integrate credit-money into their understanding. It is precisely this unified integration that Mosler etc. achieved, and what makes MMT the correct description of the economy.
____________
On government tax-credits....
Flow = government money creation (spending) and destruction (taxation)
Stock = saved tax credits {government net position = self-made tax credits – taxes = change in net position, usually positive}
Countrywide: Government token creation = taxes + savings. (Nets to zero every year).
---------------------------
“Once you assert that government money is "something different" ...you are saying... the commodity theory and you might as well become an Austrian/neoclassical or whatever.” CALGACUS
“once a token is declared necessary for the payment of taxes it can be analyzed like any other commodity.”
WARREN MOSLER AND MATHEW FORSTATER
http://moslereconomics.com/mandatory-readings/a-general-analytical-framework-for-the-analysis-of-currencies-and-other-commodities/
Clint Ballinger,
"So you say that tax-credits created(spent in to economy by gov) by the people are (non net-position-increasing) liabilities.
Then that would place “taxes owed to the government” on the Government Balance Sheet as an "Asset",
i.e., “Revenue”.
That's not very MMT at all ;)"
You seem to be confused. The sentence "So you say that tax-credits created(spent in to economy by gov) by the people" doesn't make sense. Either the tax-credits were created by the government or by the people.
Also, yes, if someone owns a house in a country that enforces property, then such person should recognize a liability called "property tax payables" at his/her balance sheet, probably accruing a little day by day. And that is MMT.
The government should, on the other hand, register in its balance sheet an asset called "property tax receivables", and it is also MMT. For practical reasons, this kind of thing is extremely complex and difficult to account for, so most governments don't do that and prefer a cash based accounting.
But that accounting that I explained is about tax credits/liabilities. The currency, a token that, by law, has the power to settle tax liabilities/credits, is another separate thing.
I suggest you read the MMT Primer book by Randall Wray. He explains this kind of stuff there, with T ledgers and all.
When government issues and spends $100 in currency to pay, for example, public employees, it issues currency out of thin air and pays them. In the consolidate government balance sheet, (currency) liabilities increase $100 and equity decreases $100. In the public employees balance sheet, (currency) assets increase $100 and equity increases $100.
If you consolidate both government and public employees into a single big balance sheet, then the currency issuance and spending simply doesn't affect that big single balance sheet.
That is MMT.
Then you showed that, in the US, for some unexplainable reason, accountants decided to account coins in a very distinct manner from notes and banks reserves, which doesn't make sense at all - but sometimes accountants do that. Coins are accounted as if they were gold (which they clearly are not) and unspent coins are assets (against equity) in the consolidate government balance sheet, as if they were real assets. This way of seeing things is simply wrong. But even by that standard, you can't say that "coin is equity".
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