By J. D. Alt, author of The Architect Who Couldn’t Sing, available at Amazon.com or iBooks. Originally published at www.realprogressivesusa.com
In recent essays I’ve made reference to a new framing of what is actually happening when the U.S. Treasury issues a bond. It seems to me, this new framing goes to the heart of MMT and might well hold the key to a practical implementation of MMT principles in real world applications. The framing is this:
A U.S. Treasury bond is a certificate of issuance of future dollars.
I will expand on this in a moment, but first it is important to say what this framing says a Treasury bond is NOT:
A Treasury bond is NOT a promissory note promising to pay the bearer a certain number of dollars at some future date—with interest payments along the way or at the date of maturity. Such a promise, obviously, encumbers the federal government with the obligation to “come up with” the stated number of dollars when the future date arrives—to say nothing of the additional dollars to cover the interest. It is the perceived need to come up with these future dollars to make good on the “promissory note” that is precisely the fear and understanding that makes it politically difficult (if not impossible) to propose paying for public goods, services, and pressing social needs by issuing Treasury bonds. This perceived need to come up with future dollars is also what makes the “national debt clock” in NYC such a politically fraught (but fraudulent) tabulation—as if it represents future taxdollars that will have to be collected from American citizens.
But the new framing, simple as it is, makes clear this is NOT what a Treasury bond is. Part of the confusion is that there are other kinds of “bonds”—corporate bonds, municipal bonds, etc.—which are, in fact, promissory notes. Everyone knows these other kinds of bonds do, in fact, require their issuer to come up with future dollars to make good on the promissory note and its associated interest payments. How could a U.S. Treasury bond be any different?
In fact, a U.S.Treasury bond actually is quite different. The difference lies in the unique reality that, unlike a corporation or municipality, the U.S. Treasury, in concert with the Federal Reserve, has the legal authority and mandate to createU.S. dollars, as necessary, to meet the obligations of the U.S. sovereign government. And the way these necessary dollars are “created” is by the operation of issuing Treasury bonds, an operation which proceeds as follows:
When Congress tasks the Treasury with an obligation to spend, and there are not enough dollars in the Treasury’s tax receipt accounts to meet the spending obligation, the Treasury and Federal Reserve operate in concert to have the necessary dollars deposited in the Treasury’s spending account. In the first step of this operation, the Treasury issues a tranche of future dollars—dollars which become spendable at a specified future date. This tranche of future dollars is the Treasury bond. The Federal Reserve arranges for its system of federal reserve banks to trade existing bank reserves for the Treasury bond at a discount (e.g. the banks trade, say, 0.9 existing reserve dollars for 1.0 future reserve dollars). The Treasury then uses the existing reserve dollars it has received in exchange for the tranche of future dollars to meet the spending obligation it’s been tasked with by Congress. When the specified date associated with the tranche of future dollars (the bond) arrives, the future dollars are automatically “activated” as present dollars in the Federal Reserve banking system.
A crucial appendix to this operation is this: If, when the Treasury bonds are issued, there are not enough existing bank reserves available in the federal banking system to make the trade, the Federal Reserve, itself, is authorized to issue newdollars, trade them for the bonds, and hold the bonds on its own balance sheet. The upshot, in other words, is that the Treasury can never issue a bond that it is unable to trade for current spendable dollars.
Why This Could be Existentially Important
Understanding a U.S. Treasury bond as a tranche of future dollars which are issued by a concerted operation of the Treasury and the Fed may seem like a “chicken and egg” exercise. What difference does it make if a Treasury bond is viewed as the issuing of future dollars, or viewed as a promissory note for dollars to be paid to the bond-holder at some future date? If, so long as the U.S. sovereign government is alive and kicking, there’s no doubt the promissory note will alwaysbe fulfilled, what difference is there between the two perspectives?
The answer is, “all the difference in the world”—and all the difference in the future world we hope, as a collective society, we can bring into being.
Fundamentally, the difference lies in what each perspective makes it politically possible for Congress to undertake and accomplish with federal funding.
If we hold to the “promissory note” narrative, when the Treasury bond matures, the federal government must collect tax dollars to redeem it—or (if that is not politically feasible, which, inevitably, it is not) it must then issue a secondbond to obtain the dollars necessary to redeem the first, ad-infinitum. Lot’s of people believe this “ad-infinitum” part is what has been happening for a long time (hence the running, blinking “national debt” clock in NYC). This makes federal government finance seem like a Ponzi-scheme. And we all know what happens, inevitably, with Ponzi-schemes: they collapse. Therefore, paying for federal spending with Treasury bonds—instead of tax collections—willlead to collapse. And proposing something that will lead to collapse is not anything a politician can hang his hat on.
The consequence of the “promissory note” narrative—and the political squeeze it puts on Congress—is that new federal spending programs of consequence are virtually impossible to put forward. And if they are put forward, they must be packaged in a subterfuge of tax-investment-cost-sharing-projected-economic-growth hoodwinking that makes it appearthat present tax-rates will somehow produce the dollars necessary to pay for the program.
The “future dollar” narrative, in contrast, has a profoundly different political energy: When the Treasury bond matures, the dollars which it already containssimply become active, spendable dollars in the federal banking system. The bond-holders immediately make a profit because the number of dollars activated are greater than the number of dollars originally traded for the bond. There are ZERO tax-collected dollars involved—or required—whatsoever to “make good” on the bond or its premium. The only consequence is that something of great benefit to collective society is undertaken and accomplished.
Given this simple perspective, a politician might propose, for example, a federal spending program that pays for the creation and staffing of early childhood education and day-care facilities in every neighborhood, ward, and borough in the country—enough facilities and enough teacher-care-givers to ensure that every American family has a convenient choice for the day care of their pre-school kids. Let’s say the projected federal spending necessary to set up and staff these facilities is $30 billion a year. Instead of “subterfuging” about how higher tobacco taxes and decreased “crime costs” will offset the new spending (as president Obama did in 2015) our new politician has only to propose that “Early Childhood Care” (ECC) treasury bonds—in the amount of $30 billion (future dollars)—will be issued each year. No new taxes are necessary. No increase in the “national debt” is threatened. Just a lot of American citizens and small, care-provider businesses getting paid to teach and nurture pre-school kids—instead ofleaving those kids sitting in front of TVs (or worse) for hours on end during the formative days and months of their early brain and personality development. (And, of course, not a small number of financial investors will have, as well, added guaranteed future dollar profits to their portfolios.)
Treasury bonds, then—understood as certificates of the issuance of future dollars—become the primary vehicles of MMT economic policy. There is no need to change anything in the existing Treasury-Federal Reserve operations. There is no need to modify the rules allowing the Treasury or the Federal Reserve to do anything different than what they already do every day of the year. The only thing necessary is to change our understanding of what a U.S. Treasury bond is, and what is actually happening when it is issued—and when it matures. Doing so will not only help resolve a wide range of pressing political and social struggles, it will prepare us to confront, as a collective society, the staggering challenges that are coming with climate-change. We’re never going to collect enough tax-dollars to pay for the public goods and services those challenges will entail, so we’d better start thinking—now—about a new macroeconomic framework.“Treasury bonds are future dollars” might well be a significant part of that framework.
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This “no practical constraints on deficit spending” is great and all, but given that for at least the past half-century successive US administrations and congresses have shown no qualms about deficit-spending to fund imperial mayhem and slaughter while bickering about domestic “entitlement programs” (i.e. stuff that actually has a chance to benefit the proles), why would anyone assume that an MMT-enlightened government lacking any pretense of spending restraints choose to put the resulting deficit-spending bonanza to socially good uses rather than a further expansion of the permawars, the military/indsutrial/surveillance complex and enriching the Elite Looter donor class beyond even its wildest dreams of avarice? IOW, what if the real problem is not with the choice of monetary paradigm but with the money-whoring political class operating within said paradigm? These people will find a way to pervert any financing scheme and put it to evil ends – you want we should encourage them to do even more of it?
Military spending already runs on MMT principles. No one worries about where the money for the next $1 billion Middle East expenditure comes from. Recall that in 2006, the DoD had $3 trillion in spending it couldn’t account for. One study suggests that number is now up to $21 trillion. It appears to be at least $6.5 trillion:
MSU scholars find $21 trillion in unauthorized government spending; Defense Department to conduct first-ever audit
More to the point, I can’t recall anyone considered legitimate by the officialdom ever saying the US can’t afford its military expenditures, while we are told all the time we can’t afford single payer, Social Security, fixing our crap infrastructure, and so on.
The fly in the ointment here is: who creates the wealth required for implementing single payer, a decent level of Social Security, fixing our crap infrastructure, and so on. Yves’ point about War (“Defense”-SIC) Department budgets – to which she could have added tax cuts for the obscenely rich – is indisputable. But the rest of the world is getting tired of US abuse of its “exorbitant privilege” of creating the global economy’s money. National treasuries around the world are loaded with more US government debt than they could ever spend.
For the last half century or more the US has increasingly paid its way in the world by just creating ever more debt – euphemized as ‘efficient finance’, ‘financial engineering’, etc. Who knows? The global economy might be more willing to support an aging population, help repair its ‘crap infrastructure’, etc if the country’s political leadership would stop trying to throw its weight around by stirring up trouble and peddling weapons.
But trying to sustain the thoroughly corrupt status quo by just printing more “future dollars” IMHO is not going to cut it.
P.S. spent wisely I am all for MMT. There is no justification for letting a few computer keystrokes stand between support the right to a decent life and a sustainable future.
“Debt” we owe to ourselves denominated in dollars we create with a keystroke.
Guess again:
The Nation’s Fiscal Health Action is Needed to Address the Federal Government’s Fiscal Future – January 2017 | GAO-17-237SP
And that “relative attractiveness of U.S. assets” is losing its appeal for a growing number of countries – particularly those targeted with US sanctions.
The US does not need anyone to buy Treasuries. They are a convention that is a holdover from the gold standard days. The Fed can simply credit the Treasury’s account, which is what it does now, to spend.
And any country that runs a trade surplus with the US winds up holding dollars. Most prefer to hold those dollars as Treasuries to get some yield.
What is DOES need is for the world to accept the money its bankers and politicians are creating. (I believe in the world of finance those Treasuries are called ‘near money’.) The US and other Western nations are exporting debt in exchange for the rest of the world’s wealth. This is such an “exorbitant privilege” you’d think it would be treated with more respect rather than exploited to the hilt.
Um, if foreigners prefer our paper to their real resources, who are we to argue?
Its contracts and FYI all trade is grounded in it at onset – even if under barter conditions.
The status as Global Reserve currency has no effect on the domestic ability of the US Federal Government to fund itself. You need US dollars to pay US taxes, or else you go to prison.
As for the rest of the world, um…why would they not accept dollars? The US has a population of 325 million. It’s a massive market, even in its current deprived and unequal state. Why *wouldn’t* you want to sell to it?
And I’m not sure how other Western nations fit this. None of them run a trade deficit like the US does.
That study showed the Pentagon spent trillions it did not get from the US Treasury which utterly repudiates MMT principles that fundamentally hold the US government (“in concert with the Fed” according to the OP) create money, as if money creation is being held to account by some kind of democratic process. The bankers, accountable to no one, are obviously printing money directly into Pentagon shadow bank accounts.
Agnotology, or making shit up, is against our written site Policies. There is nothing in the paper that shows that banks lent money. This is clearly about unaccounted-for spending. For instance, from an article by the author in Forbes:
The way the government spends is that the Fed credits the Treasury’s account. All government spending goes through the Treasury. The imbalances would never have shown up in a way the researchers could have found them otherwise.
And in case you didn’t know it, and apparently you don’t, the DoD has two black budgets: one it accounts for and approved by Congress (it’s in addition to the official defense budget usually mentioned in the press) and one it doesn’t. A colleague who is an expert on tax discusses it regularly in lectures at conferences; it’s existence not a secret, at least to people on this beat. But the amounts aren’t disclosed. The study likely found what it cost in total since 1998.
I always find this sort of remark amusing…
“These people will find a way to pervert any financing scheme and put it to evil ends – you want we should encourage them to do even more of it?”
This is exactly how the authorities have been operating for at least 70 years. Federal Deficit constraints were tested in WWII. External balance of payments were tested when Nixon closed the gold window and just let took off the last remaining constraints. It’s been de facto MMT since then. It’s just that lots of other people pretend otherwise for various reasons.
“When Congress tasks the Treasury with an obligation to spend, and there are not enough dollars in the Treasury’s tax receipt accounts to meet the spending obligation, the Treasury and Federal Reserve operate in concert to have the necessary dollars deposited in the Treasury’s spending account.”
My understanding was not just that federal taxes don’t drive federal spending, but that they literally cant. That there is no mechanism for storing tax dollars somewhere and respending them as part of a budget.
“A crucial appendix to this operation is this: If, when the Treasury bonds are issued, there are not enough existing bank reserves available in the federal banking system to make the trade, the Federal Reserve, itself, is authorized to issue newdollars, trade them for the bonds, and hold the bonds on its own balance sheet.”
My understanding, that I’ve learned from NC, is that there are always enough reserves because the Federal Reserve debits them to member banks accounts before the auction.
Also, I can’t be the only one who thinks this entire, convoluted system is simply stupid. Wouldn’t be far simpler to just roll the Fed into the Treasury, have the Treasury directly issue new money as ordered by Congress, and abandon the bond aspect entirely?
Thank you, Plenue.
But, then the Fed would no longer make any money on the trade, eh?
The fed turns every penny it “earns” less expenses over to Treasury, so what does it mean to “make money” on a trade?
The banks get their 6% on reserves…
Or did they lower it?
Its the bond holders that come out smelling like roses.
Why pay taxes when you can lend the money to your government and get it back plus interest.
If I were a Congress-critter, just to call the bluff of all the so-called deficit hawks yammering about the national debt, I would introduce a bill to modify existing law, to no longer make it mandatory for the government to issue treasuries in order to “finance” budget deficits. It seems like such an obvious solution to such a bullshirt problem. If government “debt” is such a problem, then maybe the government should just stop issuing it.
this is precisely what has already been proposed to be done with the “NEED” act that rep. Kucinich proposed to congress in 2011 and 2012 in house bill 2990 . This is the most reasonable approach to funding what needs funding, in a transparent way, that doesn’t go thru the books (as assets) in all those insider fed reserve banks who pervert wall st and the world with these ” near free” dollars.
the bill is there for all to read and see how it is proposed.
then let the debate begin.
It’s only a question of what and how to do. It is beyond annoying to be stonewalled by a confused and ignorant congress of “representatives”. All of whom are willing to pour trillions into military spending which now is reaching an absurdity. Instead of throwing baby out with bathwater, we should retrofit the military to our new purposes – social progress and climate mitigation. But the thing about just spending the money is pacing ourselves. If we just print it up and blow it into the air without good mechanisms to get the wealth into society and the environment then we’ll crash the economy – such as it is. Unless we go full “mobilization” which suspends the economy in ways to keep things from going ponzi. So the pace of the money entering the economy needs to fit the urgency of the situation – we want progress and we want society and the environment to benefit, not the banks and the PE raiders and etc. We want planed, controlled progress toward our goals. No?
I always appreciate your comments. One quibble I have with the author: he correctly notes that the U.S. Treasury creates dollars. But so do commercial banks when they make loans. As Professor Werner so marvelously explains:
https://www.youtube.com/watch?v=EC0G7pY4wRE&t=548s
Commercial banks don’t create net $, the transaction nets to zero.
Every $ created by the banking system is accompanied by a $ liability. Over time as loans amortize those $ cease to exist.
Only the Federal Government creates net or persistent $.
I completely agree that we need a reasoned approach. After all , someone has to be the adults in the room. Most of those in congress, don’t fit that description. There are a few who may hold promise.
I would also consider that as of now they are trained by the never ending flow of campaign dollars that are created by this arrangement with the federal reserve and the financial services sector, to “feed the beast”. Maybe the newbies who are born unto a world where the treasury creates non-indebted dollars, will no longer be forced to think that way. When healthcare and schooling and infrastructure renewal and sane energy creation and the like become the tour de force of what drives peoples votes, and this unbridled nationalistic military spending are seen for what it is, a waste of money. People will again want to champion life, liberty, and the pursuit of happiness; instead.
As usual, I’m learning just as much from the comments as from the original post. Heartfelt thanks to the NC Commentariat.
Thank you JD. Stuffs up the benefactors of the current model, eh bro?
Also needs a strong government to freeze prices, otherwise additional spending by govt gets hoovered up by ykn.
History shows, that pretty much all government attempts to freeze prices ended up badly. Even in war-times, when the govt had quite large powers to do so, all it meant was booming black market.
Attempts at price-freezes in former Soviet bloc countries were also pretty bad.
A call for price-freezes also shows misunderstanding of MMT. Prices are a signal. You may or may not like the markets, but the reality is that no amount of government action short of wiping the whole mankind will stop supply and demand. Price stability are an indicator how how well those two match.
MMT recognizes this, and actually uses it as a safety-indicator, rather than the infamous interest rates, or debt-loading or whatever.
Very simplified, MMT says that in situation as we are right now, with deficient demand, you’d stoke the demand up till the point where prices do start rising. Because that is the indicator that the real resources used to meet the demand are getting scarce – not the money.
Money is “just” a virtual transition mechanism here. Important to undestand, but not constraining (unless we make it so artificially).
In other words, MMT says that the economy is limited by real resources, not money, and thus money measures are irrelevant, and inflation is a measure of real-resource strain.
Attempts to control prices is then like an attempt to nail your pressure gauge in hope of avoiding explosion of your steam engine.
thanks Vlade. And, I understand your take.
Yet, aren’t you just saying we are bad at regulating business, corporations and those with property… so that their concessions or licenses benefit all of the community, eh?
That (regulating business) is an entirely different proposition to price-freeze proposition.
Price-freeze can in fact work against regulation, in number of ways (for example, if you priece-freeze petrol costs, you could get a nice popularity boost, but it’s pretty bad long term, and does nothign to more efficient cars etc.).
TBH, what we really need is not “more regulation to align the business interest with community”. Regulation will get gamed, lobbied, and what have you.
What we need is what we lost over quite some time (and it’s arguable how much it really ever was there), which is that the managers of the business stop feeling responsibility to temselves, and maybe the board (meaning few large shareholders, if any), and start having some responsibilties to all their stakeholders (technically, the boards, at least in the UK, still has responsibility to all stakeholders, but enforcing it is pretty much impossible).
But that means much more engagement by the public, across the spectrum.
It’s really the same as with politics. What you get back, depends on what you put in. If you rely purely on others to put something in, don’t be surprised if what you get back is not what you wanted.
Yes, thanks! Nice tie in of where real resources come in.
I sometimes imagine to myself that the author (of an article or comment) is trying to convince the commentariat over at http://www.jonathanturley.org‘s comment section (and Professor Turley himself when it comes to anything economic). A seemingly hopeless task, but one so critical when extrapolating to a very large public it represents, that one must discipline themselves to reject the hopeless qualifier – no matter how close to bedrock reality the impossibility of success might be.
Anyway, it may be more than just musing that between you and J.D. Alt, you might actually pick up a few die hard deficit hawks (hard-core by virtue -mostly- of ideology and it’s by-product: pride of ignorance) under such circumstances which (if it had to have some practical value) might be an excellent test for a response an enlightened politician might use when confronted face on with the heavy artillery of (woooo) The deficit and our poor poor future grand children.
Not that we haven’t had excellent articles on the subject here at NC (such as the above) where such clarity is rife – but it’s fun to muse and strikes me as an interesting, if somewhat extreme, way of qualifying “compelling” arguments.
Also, I don’t mean to unduly pick on Turley or his blog (I probably should have skipped names – but it occurred to me someone might like to actually try…). I’m sure there are dozens or more like it as far as conventional wisdom added to a densely conservative bent in the commentariat go. But Turely’s blog is the only such that I’m familiar with.
Can anyone please explain what the potential (and limitations) of MMT are for a “sovereign” currency issuer that doesn’t issue USD but nonetheless has outward spending obligations and BOP considerations denominated in hard currency. Here in South Africa deficit hysteria has de facto hegemony over state budget discourse and I often wonder whether, hard currency denominated expenses aside, bogus fiscal constraints aren’t being placed in the way of socially beneficial government spending by the deficit hawks. I imagine for instance that a school build program would, all things being equal, be entirely funded in ZAR but we hear endlessly of a tax collection shortfall that makes such public spending impossible until we can run a surplus (or God forbid, “borrow” more money). I understand the inflationary effects of money printing gone wild but this aside, what potential does MMT hold for fiscal policy in a country like SA?
And I also understand the potential for currency devaluation if this is done irresponsibly, are there any other considerations I might be missing?
If you are willing to wade through the preliminary posts of the “MMT Primer”,
http://neweconomicperspectives.org/modern-monetary-theory-primer.html
the question of the constraints faced by “small open economies” is addressed in one or two of the later posts. There definitely are more constraints on a small sovereign currency issuer than on a large one, particularly a large one whose currency is wanted by the external sector (as the US’s is). That said, there is nevertheless more policy freedom, even in the small, open case, than the austerian balanced budget insisters admit.
In future, when sovereign bond markets have embraced MMT, there will be even more freedom for small, open economies. At the moment, it appears to me, they tend to be held hostage by deficit hawks among the bond and currency traders. A larger and more socially useful deficit level that is still consistent with low inflation might nonetheless spook “unwoke” bond sellers into driving up a government’s “future money” discount (to put it in J.D.’s framing) or (if the CB is employed to directly monetize the “future money”) “unwoke” currency traders into driving down the exchange rate. IIRC, smaller economies may need to employ capital flow controls to limit the damage caused by these actors.
Thank you Samuel for your response and the link. I’m definitely willing to wade through it as I believe the widespread ignorance of alternative, socially beneficial fiscal policy tools is harmful to small and large economies alike. I hope the capital controls regime we have in place (a regime facing assault on multiple fronts) will hold out long enough to see that glorious future where sovereign bond markets have embraced MMT. Thanks again
This is very helpful.
An austerian meme that may need to be dealt with in response to this framing might be that “if that is true, then Treasury bonds are future inflation.”
That’s not true per se (resource and productive capacity constraints are what are relevant to the inflation concern), but as it is practically a mental reflex among most people that “money creation entails inflation,” this come-back needs to be kept in view.
A final nuance is that from a practical standpoint, T-bonds and -bills (future “vertical money” in J.D.’s proposed framing) are very nearly “present money” because they can be repo-ed with small haircuts for temporary horizontal money from institutions (banks and shadow banks), which have the power to create horizontal money. This is why there is no “crowding out” effect when Treasury sells bonds to private actors. Private purchasers can always “spend” their T-bills by borrowing against them.
And, that being the case, there is not really that much difference between T-bill/-bond issuance and direct money creation by the Central Bank. Treasury notes could be the central vehicle of MMT-based fiscal policy, but they don’t have to be. Direct money creation by the central bank serves equally well. This brings into view other functions of T-Note issuance, which have been thoroughly discussed by the MMT academic community, such as provision of secure income to individuals (retirees, for example) and institutions (insurers, for example) who cannot tolerate the risks of the equities markets. Also important is that, under present legal constraints (the kinds of assets the Fed is allowed to hold on its balance sheet), the existence of a large stock of T-Notes is required for the implementation of short-term interest rate control policy.
It seems to me that we are trying very hard to ignore the intent of our masters.
The whole point of the debt myth is to produce an excuse for enforced austerity for the masses, with the effect of creating wage slaves.
There is no other logical reason that the Fed would, on the one hand, enact QE, and purchase $Trillions of Bonds, including MBS of questionable value (for face value) to make the banks whole, but on the other hand, they are telling us they can’t afford to pay the SS trust fund for the treasuries it holds.
I don’t see a useful purpose in being so polite to the folks pedaling this BS.
The reason SS was enacted as an insurance plan, was to immunize it against predation by the rich, by making us pay into the plan, it was assumed that we would never allow the clever, and greedy to take it from us.
The entire subject of MMT is documentation of the fact that ‘We the People‘ have begun to understand how our country’s monetary system really works;
The 1% get anything, and everything they desire, and pronto, while the rest of us wait endless decades for pie in the sky, and in the end, the 1% lecture us about our unrealistic expectations, and refuse to give us even the things we’ve paid for.
It’s called theft by swindle.
+1, one’s debt is another’s profit. And as alluded to here and elsewhere in the post, we’ve had mmt for the rich for a long long time.
I think J.D. Alt’s take on this is creates more confusion than clarity. Currency and government bonds are both evidence of debt. It’s just that the currency does not bear interest and the bonds do. As Randy Wray and Scott Fullwiler point out, a treasury bill/note/bond is more like a time or savings account while currency, whether in bank deposit or paper form, is more like a checking account. That analysis is particularly apt now, given the dominance of bank deposits relative to currency as the preferred form of money chosen by the government. Presenting the process in the way J.D. Alt does sets up a false distinction between the two.
Secondly, what taxes and debt have in common in our system is that neither can be paid/issued before the currency necessary to satisfy/buy them has been issued. I.e., you can’t open up a savings account unless you have the cash to do so first and you can’t satisfy a debt obligation to the government until the money to do so has been issued.
The overall concept underlying domestic money in this system is that there are two obligations or debts. One runs from the government to the holders of currency/bonds and the other runs from those who owe taxes or fees to the government. The latter can only be satisfied in the manner specified by the government, i.e. via the currency chosen by the government.
I think it is better in the long run to emphasize these fundamental aspects of the system when explaining why federal debt is different from other forms of debt. J.D. Alt’s method, by making a false distinction between cash and treasuries, only reinforces the idea of cash being “real money” and bonds “only” being some kind of promise to pay, when in fact they are both evidence of debt, i.e. promises to pay.
Ever read the wording on any FRN banknote?
“This note is legal tender for all debts, public and private”
That’s right, they’re all instruments of debt.
Wrong parsing
Legal tender…
I can use my dollars to satisfy debts
The dollars themselves are not debt
Every dollar is recorded as a liability on the Federal Reserve’s or a private bank’s balance sheet.
The easy above contradicts Wray’a definition of Treasury Bonds. Wray asserts they are current, not figure dollars, in an interest bearing account.
IIRC, Wray’s analogy was “savings/time deposit” account versus “checking/demand deposit” account as the correlates of “Treasury Note” money creation versus “CB direct money creation.” Private savings accounts balances may not be immediately spendable (having a maturity or a minimum hold period — correct me if this is mistaken; I don’t pay attention to these), whereas demand/checking accounts are.
“essay”? “future”?
I think it contradicts most definitions of Treasury Bonds. Commercial bonds too. He wants to draw a red line between the two types by defining Treasury Bonds as promises to create money to give to me in the future, and commercial bonds as promises to grub around and get money from others to give to me in the future. I think he’s trying to put the FED+Treasury’s ability to create money beyond any question. To enshrine the ability in his definitions.
I imagine Alt as working terrifically hard to find a formulation to convince the unconvinced. If he succeeds, that will be great. He doesn’t have to worry what I think; I’m already convinced.
Congress gives money to those people that give money back to congress. Same as it ever was. Congress orders more money printed. Treasury prints more. A smaller portion of this inflated number of credits goes to the people whose lives are affected every minute of every day by price inflation made law by congress. New money goes to uprooting and destroying natural resources which become ever more scarce. Those resources are hoovered by the ones printing money fasterest. The environment is destroyed by extraction now, lets feed extraction like it was going out of style. Then it will be out of style.
There is no control mechanism set before the MMT god and there will be no constraint placed upon it. The monetary system now only rewards those mentioned in the first sentence; Congress. It will only ever benefit those blessed by a friend in congress. The profilgration will be brief and burn out like a supernova and leave space uninhabitale for centuries in its wake.
Some people may want a monetary system where those that do all the thermodynamic work are the first to be taken care of. MMT as described will give them no opportunity.
I can’t see the consequences considered before the fact and addressed with these proposals. Don’t the likely consequences scare hell out of the rest of you? Environmental concerns will be abandoned first in a time where we have only a limited time remaining to solve problems that have to limit growth or we as a planet will lose that which maintains life.
I can’t see the moon when it is on the other side of the earth.
Why not cut out Treasury and have Congress just direct dollars into federal accounts? Why issue bonds at all. Doesn’t Congress create and destroy money through appropriations and taxation?
Also, what then is the role of the Federal Reserve? Isn’t it superfluous and liable to create mischief?
As I understand it, the sovereign no longer issues debt to fund its operations, but rather as a favour to non-currency issuers who have the desire and propensity to save.
I already understand MMT, so I don’t need any convincing. For those who do not accept the truth off MMT, I fear that they will just think this essay is an attempt to convince them that the naked emperor really is fully clothed if only they looked at him from the proper viewpoint.
I don’t mean to Maynard-Keynesian-splain, but… I see heterodox fiscal policy here, where the value of the social expenditure dollar is de-coupled from the value of military expenditure dollar. Tradition, superstition, and widespread OCD seek symmetry where spending and revenue are in harmony, thus pleasing the god Pluto, who unleashes the HI-NRG of Capitalism from deep within the earth for a good harvest. But ONLY if government is modest and humble. — Of course, yes, if the books aren’t balanced, the sun will still rise tomorrow. We COULD do this, MMT says it’s ok, but the trick is convincing people we SHOULD do this.
Imagine a counterpart from the dark side using MMT to buttress the opposite argument: US Gov continues to collect tax revenue, but Congress ceases all spending. [“The buck stops here, and now!”] – This is about the socially acceptable amount of disaffection. “Why can’t I have more disposable income? Because the gov’t says it can’t? Or it won’t?” Both. But most prefer to believe society “can’t” afford it.
I’ve lately started just referring to bonds as dollars that pay interest. Future dollars still invokes the ‘we’re going to have to pay for it eventually’ concept.