Do We Borrow Money From China? (asked for the umpteenth time)

commentary by Roger Erickson

On the surface, this unfortunately common question is so illogical that it immediately supplies it's own - negative - answer, yet it remains a disturbingly frequent assumption - not even questioned - precisely because so many people question so few of the everyday assumptions they are conditioned to utilize.

Why is the assumption illogical from the outset?

1) Nearly every one of the ~196 countries in the world uses it's own, fiat currency; fiat meaning created "at will."

2) Given that we can create as much fiat currency as we want, to satisfy the liquidity needs of all people wishing to denominate real transactions using $US, why would we ever need to borrow OUR fiat currency from someone else?

3) Since we grant the US Treasury the monopoly right to issue $US, how, operationally, could China lend us our own $US anyway?

4) Given that China issues only it's own fiat currency, Yuan (also called renmimbi), what good would it do even if they did try to lend ours, theirs or anyone else's fiat currency to us?

5) Even if China could and did want to lend us fiat currency, what is it that would they lend to us? THEIR fiat currency?

Case closed. Yet if this expose alone is not sufficient, please try the following historical treatises, in the following order.

fiat currency in ancient Greece (nomisma) and China (Jiaozi)
http://en.wikipedia.org/wiki/Nomisma
http://en.wikipedia.org/wiki/Jiaozi_(currency)

Colonial fiat currencies preceding the formation of America
http://www.dictionaryofeconomics.com/article?id=pde2008_M000418&edition=current&q=farley%20grubb&topicid=&result_number=3

Farley Grubb - Public Purpose lecture
http://www.modernmoneyandpublicpurpose.com/seminar-5-constitutional-history.html

Benjamin Franklin and the Birth of a Paper Money Economy
http://www.philadelphiafed.org/publications/economic-education/ben-franklin-and-paper-money-economy.pdf

1716 - national fiat currency formally re-invented - John Law
http://en.wikipedia.org/wiki/John_Law_(economist)

Government Equity and Money: John Law’s System
http://www.heraldica.org/econ/law.pdf
"The problem is [that] those who studied and reported on John Law didn't understand how a currency actually works, and reported accordingly." Warren Mosler

A Modest Enquiry into the Nature and Necessity of a Paper-Currency - Ben Franklin (1729)
http://etext.lib.virginia.edu/users/brock/webdoc6.html

Bishop George Berkeley's 1735 QUERIST
http://www.ecn.bris.ac.uk/het/berkeley/index.htm

"A prince, who should enact that a certain proportion of his taxes should be paid in a paper money of a certain kind, might thereby give a certain value to this paper money." (Smith, 1776, p. 312)

THE NATURAL RATE OF INTEREST IS ZERO
http://www.cfeps.org/pubs/wp/wp37.html

Abe Lincoln's Greenback Dollar
http://en.wikipedia.org/wiki/Greenback_(money)

Marriner Eccle's 1933 Testimony to the US Senate
http://fraser.stlouisfed.org/docs/meltzer/ecctes33.pdf

1946 - Taxes for Revenue Are Obsolete
By Beardsley Ruml, Chairman of the Federal Reserve Bank of Newhttp://mises.org/journals/aa/AA1946_VIII_1.pdf p.35
also see http://www.curiousevidence.com/(S(tarpfp5v5brjr5mwjwwhpllo))/samples.aspx?id=21

We Need a Bigger Budget "Deficit" by Nobel Laureate William Vickrey, 1993
http://wfhummel.cnchost.com/vickrey.html

7 Deadly Innocent Frauds of Economic Policy - Warren Mosler
http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/

Soft Currency Economics - Warren Mosler
see also http://www.gate.net/~mosler/frame001.htm

Operational details of Reserve Accounting. Do taxes and bonds really finance public spending? Of course not! What does a national “budget deficit” mean, and what are the operating consequences? Math proof:
http://128.118.178.162/eps/mac/papers/9808/9808008.pdf

Fiat Currency Issuer "deficits" = Fiat Currency User "savings"

[to the penny]

"The laws of double-entry bookkeeping dictate that the public sector’s deficit is always and everywhere equal to the private sector’s surplus. Thus, policies that aim to cut the RED INK in the public sector’s position are no different from policies that aim to cut BLACK INK from the private sector."

Robert Eisner's Common Sense Commitment to Full Employment and Activist Fiscal Policy
http://cas.umkc.edu/econ/economics/faculty/Forstater/papers/Forstater1999/RobertEisnersCommonSenseCommitment.pdf

PBS Frontline video “The Warning”: http://www.pbs.org/wgbh/pages/frontline/warning/view/

Debt "Burden"?

Read it at Multiplier Effect
In What Sense Does Government Debt “Burden”?
by Michael Stephens

Nick Rowe had a post a couple weeks back on this same topic that might be of interest to some MMTers and Abba Lernerites.  Rowe lays out four different positions on the question of whether or in what sense the national debt imposes a burden on future generations, the first of which (it’s labeled “Abba Lerner”) sounds like it’s supposed to represent functional finance.  Rowe is ultimately dismissive of the functional finance approach, but you’ll find quite a bit of lively discussion in comments and a number of links to the ongoing debate.