Stephanie Kelton — MMT

"MMT is the body of scholarship that developed around @wbmosler's Soft Currency Economics."

— Stephanie Kelton at Twitter, Facebook

Dirk Ehnts — The “natural” government debt ceiling – fact or fiction?

In the US the debt ceiling is a legal construct that requires majority in both chambers to allow government to allow taking on more debt. Whether this makes sense is the subject of an ongoing debate, but a related question often comes up. If there would not be a debt ceiling, how much money could government spend or, how high could government debt be?

The question has been answered by Warren Mosler in his book Soft currency economics II in such a way that I find it unnecessary to come up with my own version. Here are the two paragraphs that address this question:

econoblog101
The “natural” government debt ceiling – fact or fiction?
Dirk Ehnts | Berlin School for Economics and Law

Dirk Ehnts on board soft currency-MMT train. Welcome aboard.

He adds, "Let me just add that since the liabilities in the global economy denominated is US dollars are very large it is unlikely that people stop accepting the US dollar, in both the US and the world at large." As I have said many times, anyone can send me all their "worthless dollars" for proper disposal, and I'll even foot the postage worldwide. The offer still stands.

Saving Fiat In Order To Have Fiat?

Commentary by Roger Erickson

That's the same as forgoing public initiative, in order to get some? [See excerpt below, from Warren Mosler's 1993 essay.]

How was such a preposterous proposition EVER taken seriously? Only because people will do anything in their power to avoid thinking?

The lunacy of applying gold-std thinking to a fiat currency regime was pretty much implied - and even explicitly explained AND DEMONSTRATED - by Marriner Eccles post 1933.  Not to mention Beardsley Ruml in 1946, and Abba Lerner and Michael Kalecki - 1940-1950. Actually, even by John Law, ~1700 and Benjamin Franklin, 1723!

What does the Middle Class have to do? Storm the Bastille-Ivory-Towers? Must ideology be guillotined, to draw even semi-equal attention to operational reality?

All credit to Warren Mosler for many further clarifications about fiat currency operations (see below), but he just wasn't born with a silver spoon in his mouth. Nor has he (like Greenspan, Geithner, Larry Summers & Obama) sold his soul to Charles Keating & Robert Rubin et al, and his country down the river.

Also, wider dissemination of Warren's clear, operational views would be helped by cross-discipline translation of specific, semantic terms into consistent forms that Jane and Joe Sixpack can easily follow.

  Savings today:      largely means hoarding of fiat currency.
  Investment today: largely means investment of fiat currency.

  Personal income today: local acquisition of fiat currency by currency users.

  Federal spending today: Currency creation by a fiat currency issuer.

  Federal income today:   Federal claw-back of previously issued fiat currency.

  Fiat: has always been another word for initiative, individual or public.

  Fiat currency: one expression of public initiative, or public fiat.

Once the semantics are defined, of course it's clear that investing fiat (public initiative) does not depend upon prior saving of public initiative (fiat). In fact, that proposed sequence constitutes a nonsensical oxymoron. Our simple task is to right-size our national currency supply AND ITS DISTRIBUTION, by both avoiding either inflation or deflation AND simultaneously, constantly improving the quality of distributed decision-making. 

PT Barnum wouldn't be proud of the intelligence or morals of our current electorate and the the politicians they select - but he would applaud the brazen audacity with which they bamboozle themselves through lack of thinking.

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From: Warren Mosler

Taken from 'Soft Currency Economics', Originally Published 1993.

That was 20 years ago and the same error persists!!! :(

How the Government Spends and Borrows as Much as it Does Without Causing Hyperinflation

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Plus, also see Freedom from National Debt, recommended by Warren Mosler

Warren Mosler — Soft Currency Economics 20th Anniversary Presentation – The Final Analysis

Presentation.

The Center of the Universe
Soft Currency Economics 20th Anniversary Presentation – The Final Analysis
Warren Mosler

To Be Able To Do a Drain You First Have to Do an Add

This older baby knows that to be able to help with the other baby's bath, she must first fill the cup with water before she is able to pour any water out of the cup and on to her little brother's head.

I surmise that no one ever "taught" her how to do this.  She perhaps saw her mother do this act of first filling the cup and then pouring it out and picked  up this concept in about 5 seconds at age 2 1/2.

For this concept (ie Add : Drain) you cannot "dumb it down".  You cannot make this concept "easier to understand".  This little baby in the photo above is empirical evidence that normal humans are able to understand this concept in a foundational way.

In "Soft Currency Economics", Warren Mosler writes:

The imperative behind federal borrowing is to drain excess reserves from the banking system, to support the overnight interest rate. It is not to fund untaxed spending. Untaxed government spending (deficit spending) as a matter of course creates an equal amount of excess reserves in the banking system. Government borrowing is a reserve drain, which functions to support the fed funds rate mandated by the Federal Reserve Board of Governors.

I believe that I have read that Warren has sometimes quipped: "To be able to do a reserve drain you first have to have done a reserve add", this should be simple enough.  This is a concept that 3 year old babies can and often do exhibit knowledge of, yet, many morons in economic policymaking positions, some with advanced degrees, cannot understand this concept.

To these economic imbeciles, when the US Treasury issues securities, the US government is "borrowing from grandchildren" or "borrowing from China" or my favorite: "borrowing from the future"; and there is the potential that the US "can become the next Greece"; completely blind to the fact that to be able to settle all transactions for US Treasury securities, the US government first has to provide the USD balances required for this said settlement and is in no way restrained from doing so.

This is the mental equivalent of the little baby in the above picture, trying to pour from an empty cup onto her little brother's head, not realizing that the cup had to be filled first.  But she is not stupid.  Perhaps this little baby can teach these morons who have current charge of economic policy some basic concepts of logical procedure in between her nappy-time.  Maybe she would agree to put a seminar together for them; or chair a conference in Europe.  We could get her a teenie-tiny podium.

A concept that is easily understood by babies at bath-time cannot be made simpler to understand.  Indeed, it may be a bit of a fools errand to think that we can do so.

"Lord Keynes" — The History of Modern Monetary Theory

"Lord Keynes" concludes with:

The leading proponents of MMT hold that it is now an independent macroeconomic theory (by contrast, the Cambridge Post Keynesian Mark Hayes regards MMT as a sub-branch of Post Keynesianism). At the very least, Post Keynesianism can be regarded as the important macro-theory that stands behind MMT as one of its intellectual fathers, so to speak.

Perhaps it is even possible to think of MMT economists as a new generation of Post Keynesians - that is, as a younger generation that has developed Post Keynesian theory in new ways.

Read it at Social Democracy For The 21St Century: A Post Keynesian Perspective
The History of Modern Monetary Theory

by Lord Keynes

What do biology and soft currency economics have in common? A lot!

This post by Roger Erickson (a contributor to this blog) appeared at Global Economic Intersection.

Here he talks about how a cell creates the energy it needs to survive.

What PRIMARY internal currency system do amoebas, and all known cells use? A molecule called adenosine. Adenosine can be loaded with energy value by attaching one, two or three phosphate bonds, making adenosine mono-, di- or tri-phosphate, respectively AMP, ADP or ATP. The question most orthodox economists would ask is, "how much adenosine does every cell make?" The answer is, "as much as it needs." What's the mystery? Does any cell "borrow" adenosine? What a silly question. No system borrows its internal bookkeeping methodology.

The analogy Roger is making is, does a fiat currency system have to "borrow" its own fiat in order to spend?? Of course not, yet that's the thinking.