THE MOST DESTRUCTIVE MONETARY MYTH IN THE USA…

There’s a myth in the USA that just won’t go away. It’s this idea that a household balance sheet is somehow comparable to that of the federal government’s. Few myths are more destructive and lead to greater confusion and/or misguided government policy. In recent months this has become a particularly public subject as the debt ceiling debates have raged and the European debt crisis continues. The problem is, the analogy between a sovereign government’s balance sheet and a household’s balance sheet is never accurate. The reason this analogy always fails is due to the difference between being a currency issuer and a currency user.

In the following video I explain briefly why this is such a destructive myth and why this country desperately needs to learn that the burden we leave our children is not a debt burden, but a certain living standard. It’s true that spending money at the government level could reduce this living standard and we could certainly leave our children with a standard of living that is below our own, but what we won’t leave them with is a bill that they need to pay off in the form of some debt burden.

See the following video for more and read the following links if you’re still confused:

Understanding the burden we leave our grandchildren: http://pragcap.com/the-burden-we-leave-our-grandchildren

Why government debt matters: http://pragcap.com/debt-matters

Understanding the modern monetary system:http://pragcap.com/resources/understanding-modern-monetary-system

 

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:
TwitterLinkedIn

Comments

    • I agree – we haven’t talked much about this yet, but MR will have video. Probably podcasts too. A friend who is in radio gave me shockingly high numbers on how many people downloaded their podcasts.

  1. Yeah…….says you.

    It’s a great analogy.

    Suck it chaps….we ain’t going anywhere.

  2. Saw the same thing posted on facebook with numerous likes and positive comments. I simply replied “Houses can’t create money”.
    :) That shut them up.

  3. “the government’s debt is the non-government’s savings” should read “the government’s debt is the Chinese government’s savings”

    • lol – that’s good. I know for a fact some PE firms have a significant amount of CiC money in them.

    • China only owns 8% of US public debt. The Chinese government has no choice but to buy US debt because of the need to influence the Chinese yuan at a lower rate to boost their competitiveness

  4. I know I’ll get slammed for this but…

    The video was OK. I’ve now watched/listened to videos from or including Roche, Mosler, Wray, Norman, Auerback, Mitchell, and Kelton. I have yet to see an MMT/MR proponent who has the speaking style, clarity, and personal gravitas needed to motivate the public at large. I think William Black may have “it” but his focus is not MMT, at least not in public.

    With the likely exception of Mosler, I realize that was not the aim of their various presentations, i.e., to be the international spokesperson for MMT/MR (with the possible exception of Mosler). I’m just hoping such a person emerges.

    • If you can figure out a way to make discussions about the monetary system sexy then just let me know. Unfortunately, what we’re dealing with here is a pretty mundane topic. And honestly, I am not sure if sexing it up in any way will help spread the message.

      • Maybe we could find some way to incorporate naked people in the MR discussion… Naked people are sexy!

      • It’s not sexiness. It’s explaining the financial system and monetary system, and the special role of monetarily sovereign governments within that system, to ordinary people of reasonable intelligence who are neither economists nor financial experts.

        I’ll bet I could do it. I’d love to have a job like that.

        • Dan,
          I really like your stuff, but you’re a bit dry too. But the important part is to keep spreading the word. Keep it up!

          • That’s when I’m talking to you guys! I used to be a college professor doing a 4/4 undergraduate teaching schedule, and have also had to do lots of public presentation in my current job. I know how to boil ideas down and organize them to meet the needs of the average undergraduate when necessary. I can also make some decent jokes when I’m not being all serious fighting the war for the future on the internet.

      • That’s a good point Cullen. It’s not sexy enough. The international spokeperson for MMT/MR needs to be a beautiful intelligent woman with big boobs.

        Depending on your body and “package” perhaps you could “work it’ for the ladies and gay men out there. Grab you crotch every so often and flex your muscles while you talk.

        But seriously, I realize economics is a dry subject. But haven’t we all known people (teachers, mentors, leaders. etc.) who could make almost anything sound interesting? And MMT could be made much more interesting, if pitched the right way. I can think of many ways how I would present it if given an hour on TV. But the way I think would work best would be to present it almost like a mystery/conspiracy drama, explaining the mystery (and history) of money while debunking the conspiracy of myths and fraud that are undermining of economy and society.

        The most “moving” thing about MMT/MR is that, when you get it, it comes at you like an epiphany, when you realize that many of the most fundamental things you believed about the economy are lies. That should be part of the commercial. Imagine a Carl Sagan, Richard Attenborough, or Laurence Fishburne (chenneling Morpheus) asking, “what if I told you that everything you believed about money was a lie?”

        Another approach that could work is not to put the focus on money/MMT/MR per se but on something like the collapse of the Euro or corrupt crony capitalism and introduce MMT/MR like a Trojan horse. We need a good documentary worthy of PBS’s Frontline to take that on.

      • King Jeremy of Vividavia is an issuer of porn. The rest of us are users of porn. In order to live in King Jeremy’s country you have to give up 35% of your porn collection every year, otherwise you go to jail. The King buys all the stuff he needs to keep the country of Vividavia serene and secure from all of it’s hard working citizens. He pays his bills in porn. All of the citizens also buy goods and services in exchange for porn. This way everyone accumulates enough porn to pay their porn tax every year.
        Can King Jeremy run out of porn?

        • That’s a good though Beo. Scott Adams could use Elbonia as an example. Let’s get him on board. Dilbert could use another road trip.

      • that’s exactly what needs to be done though. funny, sexy, entertaining, and simple. nothing is impossible.

      • You need to have a catchy name like Dr. Doom ala Mark Faber or Roubini. And write a NY times Bestseller. And teach at an Ivy league school. Unfortunately. How about “Roche the Realist”……or segment called “Get Real with Roche”. etc. etc….. also some shameless self-promotion on your home page…e.g. links to interviews on CNBC and Bloomberg…etc….

    • I agree it needs more spice…. fire. Watch Peter Schiff talk about the economy. He gets people fired up. You need to be similarly dramatic and bold. Make GIANT claims. After all, doesn’t MR have what sound like outrageous claims to so many? Lead with those, pepper them throughout. Even call others names… like “Peter Schiff and his inflationist chronies are a joke. How many years do they have to be wrong before they take the microphone away from them?” Say that loudly and boldly in a Peter Schiff style.

      Of course the answer to that microphone question is the issue here…. they will always have the microphone as long as they are interesting to listen to, and since fear mongering sells. Right now MR is too boring…. but there is no reason MR can’t have a litte fear built into it “if we don’t get this our government is going to destroy the little that is left of the middle class.” “We’re in this mess because our delusional politicians think we’re broke”

      Making someone else a bogey man too – like the Tea Party.

      Or use humor…. having a tea party crowd screaming and yelling, and then all of a sudden shutting up and looking shocked. Cut to the “debt clock” having its name changed to the “wealth clock”.

      I’m making this up as I go along, but you get the picture.

      • We need a commercial like the scientologists used to have, you know the one with the lava rocks crashing together, then the deep voice saying, “Dianetics, by L Ron Hubbard”. All your video’s now need to start with that as an intro, “Monetary Realism – etics, by Cullen Roche”. Oh, and we need a Super-PAC! Also, we need to get Cullen interviewed on the Colbert Report! If we can get all that taken care of in the next six months or so, maybe we can throw a branding party next year at Davos! Oh, wait… you guys have real goals?

        • HERE’S A THOUGHT!

          Anyone here got a net worth in the hundreds of millions and wants to throw $3 million or so into a sexy super bowl commercial???

          Better hurry up.

          • Can you picture it? That deep voice that does the talking for big movie trailers? Someone start a simple, ONE PAGE website called MonetaryRealism.com. List all the monetary realities that seem important, and THAT’s IT and a section called LINKS… with links to ALL OF THE MMT, MR, Monetary Sovereignty, websites… so visitors can freely choose to browse them all etc etc

            (dramatic music)

            “A lie has been told for too long…”

            (pause) (some visuals)

            “The U.S. government CAN NOT run out of money…”

            (pause) (more visuals)

            “The National Debt is nothing more than U.S. Dollar World Savings….”

            (pause)

            “Visit MonetaryRealism.com, our future depends on it…”

  5. This is like saying people should understand quantum mechanics. It’s a different framework for a system we can’t interact with. Naturally, this is worse, because money means more to people than science does.

    I haven’t seen the video (can’t at work), but like AWK said, no party to MMT is exceptionally cogent. There is no Richard Feynman of MMT, if you will. The rhetoric works for the wonky types who actively pursue this knowledge, but it’s not digestible enough for normal people.

    I’ve recently decided to start my own website, and this is something I aim to address, but I’m a nobody who will only be regurgitating what I read here (links will be used liberally).

  6. Karl Denninger disagrees with you, and argues for your death for promoting this idea.

    I think that may be illegal, better check with your lawyer though.

    http://market-ticker.org/akcs-www?post=201254

    Denninger wrote: In fact, The Coinage Act of 1792 specified that this sort of debasement game was to be punished by death.

    Our nation desperately needs to bring back this penalty so that people who promote and execute such schemes get their just “reward.”

    Disclaimer: Long stout timbers, sharpened steel plates and finished guillotines.

    • Denninger always reminds me of that quote, “Truth never triumphs but its opponents eventually die.”

      His ramblings are so obviously from a man mentally stuck in his ways. He is one of ‘defenders of the status quo.’ Those people who will defend to the death the ideas that have always governed their understanding of the world around them so they don’t have to go through the uncomfortable process of accepting those ideas may be flawed and having to starting over.

    • Also, you should research companies that supply long stout timbers and sharpened steel plates as well as the companies they sell to that manufacture finished guillotines ;)

    • In fact, The Coinage Act of 1792 specified that this sort of debasement game was to be punished by death.
      Our nation desperately needs to bring back this penalty so that people who promote and execute such schemes get their just “reward.”

      Considering that dollars are printed and coins minted (“execute such schemes”) at the direction of the Secretary of the Treasury, it could be construed as a terroristic threat against a federal official.

      Since its Tim Geithner and not Tim Tebow, nobody at the FBI will care. I just hope he didn’t put this up on twitter!
      http://www.dailymail.co.uk/news/article-2093796/British-tourists-arrested-America-terror-charges-Twitter-jokes.html

  7. Karl Denninger’s whole existence depends on the idea that the USA can and will go bankrupt. He has peddled this fiction for some four years now, with an array of silly redundant charts in a never ending stream of obtuse Tickers that would even put a speed freak to sleep.

    Apparently Denninger really does think the U.S. is Greece. I guess that is the point in which any bright person would delete Market Ticker from their bookmark list. I know I did just that some three years ago and counting. If you want to make money I suggest you do the same. The man is literally an anal obsessive freak. He uses the most vile language known to man in an attempt to argue his points. He even encourages others to do violence, and I’m not joking (I know of one blog that catalogues his transgressions in this regard). I hope the authorities are on to him and his schtick. I know that I alone have supplied them with enough Denninger fodder to have him at a minimum locked up and evaluated.

  8. How about refuting his math.

    You are welcome to think what you want of him. I support that.

    But I notice the posts against Denninger avoid accurately attacking his math….

    In fact they avoid math altogether.

    • Denninger uses math? Really? Then why does he ignore the math contained within a currency issuer country as opposed to a currency user country? The math of the former says that the USA CANNOT go bankrupt, which directly contradicts the scaremongering tactics contained in Denninger’s math. Denninger starts out with a false premise and the conclusion that follow, national insolvency, is likewise false. He might not like the printing press and the math therein, but that’s not the issue, is it? Next.

    • Denninger’s argument is the 95% collapse in the dollar since 1913 argument. Except he’s revised it to run the MSM’s myth that American living standards have collapsed since 1970. Except, that’s totally wrong. http://pragcap.com/the-mythical-collapse-in-american-living-standards

      This whole idea that a 95% decline in the dollar has ruined our living standards is totally wrong. It ignores the fact that the decline in the USD has been far outpaced by productivity and the increase in living standards. I don’t think anyone has any clue how hard life was back in 1913. We live extraordinary lives compared to 100 years ago. I’d love to see the evidence for this collapse in living standards….

      • Cullen,

        Denninger is now attempting to alter the playing field constructed wholly by himself by arguing debasement instead of outright insolvency. In other words he obviously realizes he was dead wrong on the sovereign currency issuer going bankrupt front (he won’t admit it though) and thus he tries to shift the argument to the moral sphere vis a vis dollar debasement robbing us of our living standard. He thus wont acknowledge any productivity gains that accrued from “borrowed” money over the pat 40 years, calling it phantom wealth/growth, even with the obvious tangible benefits starring us in the eyeballs. Good luck arguing with one harboring those types of ideological blinders.

        • He builds examples and paradigms to fit his conclusion instead of the other way around. He continues to discredit himself.

          (I also replied to TV but I think its in the spam filter, basically said what Cullen did but with the example of a TV from 1967 and today).

        • He’s just moving the goal posts now. Here’s his piece on Greece from a few years ago where he basically guarantees the USA is the next Greece:

          So the government stepped in and replaced 11% of private final demand with more borrowing as the only able and willing borrower. But that cannot continue forever. Eventually those who lend us capital will discern that we’re not going to pay, as that actual private final demand will not recover.

          This is in fact precisely the same recognition that led to Greece’s problems, and it will come here.

          http://market-ticker.org/akcs-www?singlepost=2139527

          He’s basically become a hyperinflationist and he doesn’t even know it yet. This is a prediction that will haunt him forever. He doesn’t know the difference between a currency user and issuer. And I don’t think he’s intellectually honest enough to care. He’s just trying to scare people into believing a political agenda. Ignore that guy.

          • How come guys like this never bother to point out that people get paid a lot more now-a-days?

            • Because guys like Denninger don’t know how living standards, wages, inflation and productivity are interconnected.

              I am dying to see a cogent argument that proves living standards are lower today than they were in 1913 despite the 95% decline in the dollar.

              • “Because guys like Denninger don’t know how living standards, wages, inflation and productivity are interconnected.”

                That is exactly it though, for these guys the only wealth is gold. There is clearly nothing better to do with wealth/capital than bury it in your backyard and marvel at how many slips of paper it will fetch 90 years later.

              • It takes two incomes to provide that standard of living we see today. This comes also at the “expense” of lack of savings. The savings rate and net assets for retirement are so low that in fact most Americans have virtually nothing to live on after retirement other than social security. Thus there is an incredible transfer of responsibility to federal and state programs to support the unproductive elderly. Medicare and Medicare have unfunded liabilities in the 30+ trillion. So to answer your question, the standard of living we see today, despite the 95% drop in the value of the dollar, is due to borrowing and false assets.

                • It only takes two incomes because we demand much more. Two cars, mcmansion, granite countertops. I am sure you could live a 1913 style lifestyle on one income. But people don’t choose that. They want the higher living std. Overall, I think it’s a real stretch to argue that we live worse lives than people in 1913 did.

                  • People do not argue it because it is not the case. To argue it would be preposterous.

      • In 1913 people live a lot better than in 1813 also.
        They had electricity an never before in history had so many inventions came about in about in the world History.

        With all due respect to think that with out the FED and MMT we would be in worst economic situation is wrong.

        • “With all due respect to think that with out the FED and MMT we would be in worst economic situation is wrong.”

          I DO think that we would not be in as beneficial an economic place without the Fed. Just knowing what it took to prevent total collapse during the panic of 1907, the individuals and their actions, their levelheadedness and abilities to control a room full of (other) bankers so that there was not a collapse- hell, it wouldn’t happen in today’s world. Having a the lender of last resort is a vital part of the system today.

          Imagine if September 2008 had rolled around without the Fed (yeah I don’t agree with everything the gov’t did and did not do, but its better than total collapse). You think the bankers running the worlds largest financial institutions and Paulson & Geithner would have acted as deftly and properly as JP Morgan, Rothschild, Rockefeller, Stillman & Cortelyou?

    • TV,

      His math is fine. Why he’s doing that math and what it represents is something else entirely.

      What he doesn’t spell out is that over the periods of time he’s using, he’s assuming no growth, no increase in productivity or change in what a dollar can get you.

      Take the cost of a TV from today and the cost of a TV 45 years ago, even after you adjust for inflation the cost has risen drastically and by Denniger’s math this would mean the value of the dollar has plummeted. But how can you not see that setting a TV from 1967 as equal in value to a TV from 2012 is a logical fallacy?

      To put it back in Denniger’s example, he says that over 45 years, the value of the dollar decreases from 1 to 0.2724. He does not include what $1 can get you in year one and what $0.2724 can get you in year 45.

      Best regards,

      DCA

      • DC Aficianado; $1 in 1913 would buy a very good meal. 27 cents today pays for the Ketchup. But in 1913 $2,000 a year was a middle class income, life expectancy was about 39, and it could cost $10,000 to by an impressive but primitive car. Today with a middle class income of $100,000, a life expectancy of 79, you can buy a car beyond the dreams of 1913 for $19,000.

        • You are leaving out so many things that go into producing the 1913 meal vs the meal today! Supply of gas to the kitchen that cooks it and all the infrastructure behind that. The delivery of fresher and better quality supplies to make the meal! Companies that do NOTHING except deliver your weekly order (which you can specify at your leisure to them online) along with so many other improvements!

          Hell, you’re even wrong about te ketchup! That’s included free with your meal!

    • It is very hard for those of us that understand inflation to get word out to the public about why it can be good for the economy. Because our opponents have a simple statement that resonates in the non-economically inclined.

      “In 1913 $1 was worth $22 today”.

      This makes people feel like they are being robbed. If they make $10,000, they think they should have $220,000.

      It’s very hard to convince them that they would not be making what they are making now had there not been inflation.

  9. Does anyone have any points I can borrow? I’m working as a scorekeeper in a local basketball league… and, well, I’m afraid we might run out of points. If you’re interested in loaning me some points maybe we could implement some sort of inter-sport swap line… You know, just to ensure in game point liquidity. Don’t worry, If I die at half time, my kids will repay all the points with interest… What’s that you say? Just print my own points? But I wouldn’t want to devalue the home team’s score; the whole standard of play will plummet! We’ll have hyper score-flation!!! Teams will need thousands of points just to win a game!

    • Hahaha, well put!

      There has to be an opportunity for some idiot-scorekeeper-arbitrage out there “Oh sure, I’ll loan you some points to keep score in your game, I have plenty.”

    • Actually (I’m not joking), this is how my family used to play Monopoly. None of us felt very good starting with only $1500. So we’d start doleing out more.. $2000, $3000, $5000… Of course then the rents and everything seemed puny so they had to be multiplied, etc etc. Unless the winner ended up with $50k in cash and assets it just didn’t seem right.

      As I recall, it was very hard to win or lose because we also stretched the rules to keep everybody in the game. People would be tendered loans they’d obviously never be able to repay just to get dibs on a railroad monopoly. And don’t make me discuss all the crony capitalism we practiced with the backer or in ganging up on each other.

      Thank God our real economy isn’t like how we used to play Monopoly. Or is it?

      • Monopoly is yet another good analogy to explain MR. One thing I don’t see enough of, or at all, are simplistic explanations about money supply. For example, in Monopoly, one person gets all of the money in the end because he/she is the most productive and lucky. The game ends. Or the game could go on if the winner loaned money to the losers, but the losers can tell they have no chance of beating the winner, so they don’t bother to play. The solution is to reward work, and pay them with NEW money. Sure that debases the “winners” money, but he’s either got so much he doesn’t care, or the debasement is so slow he is long dead before he cares, or he goes back to work and makes new money, or he invests and keeps up with inflation.

        Another simple thing about the need for new money is population growth….. in monopoly what happens when your door bell rings and the number of players doubles. In 1970 we had 200 million people. Today we have 310 million. Don’t we need more monopoly money so those people can play too? Of course – and where does new money come from?

        • Yes, there is more money in the game today — more population, technological advances, etc. create a higher standard of living — as you mention, so more dollars are circulating because there is more wealth out there.
          But that is not the same as more government debt, unless there is a chart that shows government debt rising one to one with the money supply.
          You cannot create sustainable economic activity by showering borrowed or printed money on people, right? You could have given Bill Gates $1 trillion but that wouldn’t have the same impact as the business he and his partners created. The economic activity must come first.

          • right, population growth and/or productivity must come first…. and it has…. look at any chart showing growth in both. Now add savings, meaning dollars that are not in circulation. Then add the money destruction as households pay down debt. What you get is a massive need for new money, and it appears the new money wasn’t created fast enough to keep up over the past 40 years – hence the demand for debt when credit was so easy.

            Or if you believe there is enough money out there – then it means it needs to be coaxed from its hiding places…. the bank accounts of the wealthy, of larger corporations, and trade deficit dollars.

            The answer is probably a combination of both – the need for new money, and the need to coax out saved dollars…. the first one is easiest to fix…. lower taxes for the people who would spend what they get back and/or hire them for things like infrastructure. The second – no so easy. How do you get that money back into circulation? And does it matter – because a rich person or corporation would only spend their money if they saw an opportunity to make more money – no? So if they succeed, it will result in even less money in circulation, which brings us back to needing more money in the economy.

            I’m curious what others think of my thoughts here.

    • I don’t sell basketball points, but I do lease them. The cost is $1/point per day. You must buy in 50 point packages, and if you go over your daily allowance the charge is $2/point. I also offer pints for other sports. Football costs $5/point in 10-point increments, and $10/point for anything over your purchased allowance.

      I’m also working to securitize point income. Stay tuned, investors.

  10. “somehow comparable”…”analogy never holds”…pretty broad strokes, particularly for social science. Maybe the video was making a slightly different point and it went over your head.

    There are reasons other than short term headline inflation and interest rates to be concerned with a sovereign’s monetary activities.

    • You’re better than that. Leave that sess pool to the real masochits like me.

    • This one was my favorite:

      “This article shows the liberal bias of businessinsider.”

      • Yeah, that one made me laugh. On the one side I am getting blasted by MMTers for being some sort of far right hack. And on BI I am getting slammed for being too liberal. Pretty funny.

        • That’s a good thing, right?

          Jesus didn’t have a lot of support from the powers that be (whether liberal or conservative), but his writings and philosophies (however altered, depending on your viewpoint) had a significant impact on the way we live today.

          I think the problem with “sexing up MMT”, is that there are only two reasonable ways to do it, appeal to fear, or appeal to greed. You seem to avoid both(to yo:r credit, I may add), but someone eventually will.

          • I’d like to avoid ending up nailed to a cross or inside a woodchipper as Karl Denninger calls for (what a deranged comment that was btw). We’ve made a lot of progress in the last few years. Honestly, I think eliminating the JG is a huge step in pushing these ideas forward because it’s such a nasty political hurdle. Now, if I could get MMTers to stop attacking me then we can push forward with the message. Instead, I’ve got people like Joe Firestone writing 20 part rebuttals and commenters who are intent on attacking me personally. Talk about counterproductive.

            • Denninger is just confused. It seems like just yesterday he was declaring his love for Dennis Kucinich and his 100% reserve banking bill…

              Dennis Kucinich, which many people have (properly) labeled as one step removed from a communist in the past, and who has a reputation as having a hard-core left slant in his politics, has just written up and introduced a bill that will fundamentally restore the free market – for real – to banking and credit… Treasury would issue and spend into circulation United States Notes.
              http://market-ticker.org/akcs-www?post=175557

    • Lol!! Whenever you talk about this issue, you get all the crazies to come out. My favorite comment….

      “We don’t need economists to tell us what’s up. We need shrinks. Where’s Fat Mike Moore when you need him. He shamed Nike’s evil Phil Knight into making working conditions better overseas. Why isn’t he on Apple’s case? Because he probably thought Steve Jobs was a god and he probably tweets from his iPad.”

      I don’t even know where he was going with this, hahaha!!

      Like Winston Churchill said… “The greatest argument against democracy is a five minute conversation with the average voter”.

    • Oy- wish the pragcap army could come to your defense over there, but the work that needs to be done is a bit overwhelming…

    • The comments at BI are exactly why MR/MMT is in desperate need of alternate terminology when communicating with the public. Telling the (rather ignorant) commentors there that debt is not debt just confuses them and provokes pushback. When I talk to people about this sort of thing I always use “bonds” in place of “debt”. but if anyone can think of something better I’m all for it.

  11. Wow Cullen, I read the comments you linked to and that was the hardest I’ve laughed in a while. It makes one dismay, that people can listen to a well reasoned arguement, but if it goes against there pre-conceived notions it’s like they didn’t absorb a single word.

    Debt is Debt!!! Cullen Roche couldn’t park a bicycle!!

    • After watching Cullen’s video I’m convinced almost none of the commentors did. Looks to me like they poured in from some whacked out libertarian/austrian site, judging by the attempted snark factor.

  12. I think your new MMT write up is a hugh improvement. I had your old write up on my laptop and have read that many times. I didn’t realize you had made so many changes until yesterday. I have one suggestion however that goes to the question you have highlighted here. The MMT/MR concepts are extremely important to the world (you say the most important!) The section about why people don’t get it needs more. Here is my idea:

    Add to PDF page 8:

    Fourth, deficit spending by the government (in particular spending that benefits cities, counties and states), without a corresponding “loan” from the banking system deprives the banking system of an important source capital generation, e.g. interest on bonds. The Banking system keeps track of Federal deficit spending calling it the “National Debt”, something that can be used to keep the status quo, and constrain the Government from providing funds to the States, providing funds for infrastructure projects, health care for the aged, research, education etc. Thus government deficit spending into the economy is in competition with our banking system that wishes to provide interest-bearing loans (horizontally created debt dollars), for this funding. Many non-bank entities also participate in horizontal money creation. “Nationalization” of the Banks (making bankers government employees with the interest going back to the government minus expenses), would end this competition. However, ideas such as this are politically impossible because of the total misunderstanding of Monetary Realism and where fiat currency (e.g. “money”), comes from. Monetary Realism provides an understanding of where money comes from and thus is a foundation from which changes can be suggested. What the actual changes should or should not be are beyond the scope of Monetary Realism, however it can provide a prediction as to what might happen in the economy if a suggested change were implemented and the power of our monetary system to make lives better for all were fully utilized.

    Add a footnote on PDF page 5 since Y=C+I+G+NX appears different than page 20.
    For example: (Y means GDP, C means consumption, I means investment, G means government spending, NX means exports-imports.) Is this right?

  13. My last post above about how my family used to play Monopoly actually gave me an idea. We should come out with a game (online or board game) called “Fiat Money” that is funny and fun to play. Heaven forbid you should roll the dice and land on “Return to Gold Standard”.

  14. In an article entitled the GDP Deception posted recenty on financialsense, it stated a simple formula for calculating GDP.
    It is money supply times money velocity.
    The velocity 10 years ago was 2.0. Today, it is 1.6. Without an increase in the money supply (government debt), we would be in a steep recession.
    While the asset part of the government debt is calculated in increasing GDP, where does the liability of the increased government debt get calculated?
    Don Levit

    • Don

      Just curious, who do you believe is liable for the public (government) debt, the government or non-government sector?

  15. Doesn’t US bond issuance also serve the purpose of propping up the dollar and holding down the value of foreign currencies? China buys US debt so as to stop the dollar from depreciating and the yuan from appreciating. If the US deficit spent without issuing bonds the dollar could weaken significantly and the yuan would appreciate rapidly vs the dollar. This could lead to high inflation in the US due to oil prices and other import costs, as well as threatening the dollar’s international reserve currency status. So govt debt also serves to control inflation and maintain the exorbitant privilege of the dollar.

  16. Cullen:

    Gotta give the video a pretty low grade, sorry!

    First, it’s reasonably effective for an existing convert, and mildly OK at refuting the inaccurate video.

    Suggestions:

    1. Don’t leave the opponent’s chart(and argument) on the screen while you are attempting to explain a contrary concept. Put up your own charts, or put up visual diagrams that support the argument, rather than contradict it. The brain has a way of wandering. and when it tries to process two or three concepts simultaneously, it may choose the wrong one, or tune out altogether.

    2. Your speaking voice is decently effective, but a video image image of you, at least for a portion of it, would be better.

    3. You’ve probably heard “They don’t care what you know, until they know that you care”. Put another way, the casual viewer has no idea of whether to believe you, or to pay any attention, until they understand (or think they understand) where it is that you come from, and what is YOUR angle. Display the passion that you have to save this country from unnecessary ruin and suffering from these misguided myths. Explain that you have successfully invested by understanding that these are myths.

    That’s my two cents…from a guy who is arguably a better marketer than investor. Thanks for at least trying!

    • I made it on Saturday afternoon in about 15 minutes. I guess it showed. :-)

      Thanks for the tips. Next time I’ll put more effort into it and try to spice it up.

      • Be careful Cullen. The next thing you know you’re going to be on camera with charts and graphs crying like Glen Beck.

        • Haha!!! With a pair of black-rimmed glasses on, shouting, “Don’t you understand it’s the productivity! Oh how I fear for America”.

          Now that’s entertainment.

  17. Paulie 46:
    Excellent question regarding who is responsible for the public debt.
    From what I understand about MMT, it is 2 entities: everybody and nobody.
    Don Levit

    • Don

      I would say nobody because it is created out of nothing and it capitalizes a growing economy. It was never intended to be paid back, since every dollar has been earned in spades by the American worker. New money has to start from somewhere.

      Since 1980 we have created ~$14 Tn and produced $266 Tn in GDP

  18. I think a better analogy is a household that has a printing press in the basement and the only thing that constrains them from printing too much is getting caught.

    The problem I have with MMT as I understand it is this: It seems as if MMT’ers are assuming that: as money and debt are issued by the government (currency issuers)that: it then generates economic activity by the currency users. Eventually the money is paid back in the form of taxes. In that sense currency and debt can be viewed of as a form of a loan. But suppose all this money and debt doesn’t get paid back? Suppose you have an economy that is so hamstrung by overregulation, zombie banks and corporations, a dysfunctional school system, corruption etc., such that you don’t generate enough economic activity to pay off the government debt (loan) in the form of tax revenue? Suppose the government spends all this money on ventures that have little economic value, bridges to nowhere, welfare queens, exorbitant pensions, etc.? Suppose you have such little economic activity that you cannot even ignite enough inflation that could then monetize the debt? Then what?

    • Wise guy – MR or MMT does need to be much, much clearer in its presentation to avoid getting bogged down in your very real concern…. real that is until it is more clearly explained.

      Printing money doesn’t create wealth or productivity. It greases the wheels.

      I read recently that the Constitional Congress, against the law of the Crown, printed $200 million in U.S. notes. During the war the Crown attempted to debase the currency and ruin the U.S. economy so they counterfeited another $800 million. It backfired…. it greased the wheels of people who wanted to be productive and transact. More money meant more people could see or obtain a physical reward for their efforts.

      In the U.S. there has been a massive new need for more money (or debt as we like to call it). In 1970 we had 200 million people. Today 310 million. We have also made huge productivity gains…. just women entering the workforce alone created more need for money, but so does innovation that leads to higher productivity.

      Finally, when a population desires to save – what if they save too much. What if we have 400 billionaires, and a number of large corporations, sitting on a combined multi-trillions of dollars? How does everyone else transact unless new money is introduced? Like the Crown counterfeiting, more money will grease the wheels.

      • Thanks for the claification. I think MMT is well suited for Scandinavian style economies and even say Germany and Canada that are constantly vigilant of both sound fiscal policy and productivity. Wether we in US get to that level remains to be seen. While not an MMT’er, I love your website. Very intellectually stimulating.

        • Well, the most important takeaway is to understand that we live in a world where Monetary Realism (not MMT) is already in place. We live in a fiat world where autonomous currency issuers can’t “run out” of money. Where the govt’s deficit is the non-govt’s surplus. These are just facts of life in a fiat monetary system. Don’t confuse MMT (which is in large part a policy theory) with Monetary Realism, which is just a focus on the descriptive aspects of the monetary system using components of the MMT approach (and eliminating the prescriptive elements). For instance, MMTers want a job guarantee for all Americans. MR focuses on the operational realities and clarifies that any prescriptive component is periphery to the core aspects of the monetary system.

    • It’s paid back the same way it is created. It’s just a revolving loan that is created out of thin air. Picture it as you borrowing money from a bank and whenever you owe it back, they simply just give you another loan. So you never have to pay it back and the bank never runs out of the ability to create another loan.

    • As an armchair economist of a classical liberal bent, I actually do not have a lot of problems with a fiat currency even though that may sound like heresy. The function of backing fiat currency with gold is to keep governments honest, to prevent governments from issuing too much paper. While the problem of the lack of supply of gold relative to the increasing demand for money in the 19th century was a problem, I think it was largely overblown. That problem could be solved by backing money with say a basket of assets. Bimetallism (backing money with both gold and silver) after the Civil War in the US was a step in that direction. My real problem with asset backed currency is this: up until the 20th century gold was primarily used for monetary exchange and jewelery. While an economy could function well with less conspicuous consumption, gold on the other has a tremendous amount of industrial uses in a modern economy. The same goes for almost all other assets you can think of. You in effect tie up a tremendous amount of assets that have productive purposes, indefinitely and ad infinitum, just to keep up with the demand for money. Without getting into a lot of academic arguments, you can quickly see how that is a little ridiculous.

      • WG The central problem with backing our fiat currency with anything is: hey it’s way way too late. The currency is already out there. US dollars are 60% or more of the currency in the world. Where in the world could Uncle Sam come up with the required “backing”. In order to all of sudden decide to back the currency makes no sense and is in reality totally impossible. To go back to a so-called “gold standard”, or anything other type of backing for that matter, is in reality impossible. Fiat currency gets is “value” as a medium of exchange from the “law” and nowhere else. When Nixon took us off the gold standard, “backing” was in reality already gone! Let’s say over the years you gave people ten million dollars in IOUs backed by your promise to pay them back with more IOUs some day. Then you decided to “back up” your IOUs with gold. Hello???

        • Dennis, the way you could handle backing currency with a basket of assets is not to do it “all of a sudden”. Instead of the Fed capriciously issuing currency, it would begin to buy assets, much the way we buy oil for the Strategic Oil Reserve with issued currency. Over time that would restrict the supply of assets, driving up the cost until paper currency finally reflected the cost of those assets. My problem with asset backed currency, though: is that as you can see it would eventually make everything more expensive. Prior to the 20th century, a government could back its currency with large warehouses of say gold, silver and even diamonds; because outside of a medium for monetary exchange, those assets were primarily only used for conspicuous consumption in society. But in the 21st century all those assets are used extensively in industry and manufacturing.

  19. …”Eventually the money is paid back in the form of taxes”…

    No. Eventually the money becomes accumulated wealth in the non-government sector. Taxes disappear into the ether.

    • I can’t believe how disingenuous that man is. He’s used that comment in 4 or 5 parts of his 50 part personal vendetta against me. His lack of evidence has forced him to misrepresent comments. He’s still claiming that I am against full employment. Even though yesterday’s post makes that pretty clear where I stand on employment. Does it get much more intellectually dishonest than this? The JG argument is literally devolving into a lie about my personal positions on politics and economics.

      • It’s weird how some people take things personally. His 50 part series lost it at part 3.

      • He desperately wants you to respond. It’s so obvious. Your site is a lot bigger than his so he’s like a bull dog who won’t stop biting your leg until you kick him off. Instead, let him wear himself out. At some point he’ll realize that no one is paying attention.

        • I’m done with this whole thing. It’s beyond absurd. Joe Firestone can continue his petty personal vendetta over at his site. I am tired of the JG fighting and the links here back to JG debates. I’m just going to start moderating comments on the JG. They’ve become entirely counterproductive.

  20. Yes, but . . .

    The individual state governments in these United States are currency consumers, not consumer issuers. They can get shared revenue, bailouts, etc., etc. from the Federal government, but they have to balance their budgets out of what they raise in tax revenue.

    It is not quite as dire as Greece, but . . .

      • Hey Cullen… Not to beat a dead horse (I know you’re engulfed in your new favorite past time of dodging petty JG insults), but I’m still wondering about the Triffin Dilemma and any additional thoughts on how a typical currency issuer differs from the current US Role of global reserve currency issuer. If the CAD is problematic, how does it get reduced without reducing the flow of dollars being injected into the global (ex US) economy? Musn’t the dollar abdicate it’s role as global reserve currency? Does it matter to MR if the Dollar is the GRC? Does it matter if it’s not? In my own mind I think I’m coming close to concluding that the US MUST abdicate it’s role as GRC… am I off base in thinking that MR will eventually come to that conclusion as well? Also, if MR is truly an attempt to explain the current system as it exists today, then aren’t we a little short cited in simply discussing the US as though it were any other sovereign currency issuer; as opposed to discussing the US as the unparalleled monopoly issuer of GRC?

        • The Fed swap lines proved that you can increase dollar supply without increasing the CAD. The Fed swap lines, while not ideal, might be the necessary evil involved in being the GRC. I think we can go a great distance to reduce the CAD issue by by reducing our need on the financial sector for all things growth oriented. The other policies we discussed are probably political non-starters. Also, these are secular developments that will take years to implement, but I think they’re crucial and would help alleviate the CAD imbalance. Some of the ideas we’ve thrown around might also promote that process more quickly. I’m not holding my breath on the above developments to unfold and unfortunately, it means we’re at risk of experiencing deterioration and continuation of many of the negative trends that have become apparent in recent decades.

          The USA clearly, is a unique example and it’s not fair for MMTers to constantly use it as the shining light of all things MMT. It’s a unique country in many regards. I think it’s unfair to paint with a broad brush as many MMTers do. We have to approach each country based on its own unique status in the world. There’s no one size fits all. The USA is the case I tend to focus on for selfish reasons…being an American and all. :-) But I will try not to extrapolate out too much to other countries as specific cases require specific approaches. So, in short, for the USA and its status as GRC issuer, I conclude that the swap lines are a necessary evil until we can resolve our own domestic imbalances which will subsequently help with the CAD issue.

          • If the Fed swaps dollars, for say Euros, this would make dollars available (while if the Fed charged a premium over the exchange rate, actually decreasing the US CAD).

            Does this then make the Eurosystem effectively an issuer of dollars? (Since it can issue Euros, which the ECB can swap for dollars. This also raises the question of how/by whom Euros are issued, about which I am still unclear.)

            More generally, could this ultimately lead to a situation where it would make sense to view the Fed and the other central bank participants as a single entity managing a supranational currency system?

              • Understood, but if the foreign CB’s can create their own currencies and then trade them for dollars (newly created by the Fed for this purpose), does that not have something of this effect?

                What I am trying to understand is how the USD/GRC might evolve in an increasingly globalized financial system.

  21. dont know where to put this but was in a bit of a row with some austrians and a couple of goldbugs last night but anyway cut a long story short it seems the India are going to be paying Iran for oil in gold…. not sure what to think of that, sounded like just a way of dodging sanctions but sounds dangerous to me
    any thoughts?

    • I saw this thrown around too. At best it will be used as ‘proof’ that the US is losing its reserve currency status.

      I don’t see how it affects the US economy in any way.

      • where they sent me was frankly just a load of people saying its the end of the dollar then complaining it was too high which seemed a bit silly if its the end hardly going to be too high is it
        Mind you seemed to show it was the Indians decision not the Iranians which was even more curious… the Indians who historically love gold think the price has topped i dunno…. but a strange one anyway..not something i was prepared for

        • apologies as i know its way off topic but the forum doesnt seem to be used that much and no open topic

          • Gold for oil is just an asset swap, the sort of thing which happens every day. There’s absolutely nothing new there. I’d suggest peppering your auatrian pals with lots of “whys” and wathc their heads explode once they realize they can’t articulate their argument in a coherent fashion. I guarantee you their ideas are assumption based: they won’t be able to tell you why what they think is correct.

  22. - I have no doubt this is technically true, but in reality we are passing on a lower standard of living to our children, which is another way of saying they will *pay* the price for our profligacy.
    - Someone made the point that the federal debt is comparable to family debt only if the family had a printing press in the basement to print money. So let me ask: What if we all had a printing press? What would happen then? How long would it take before the grocer stopped taking your money.
    - OK, we’re not Greece because we have a printing press. Then a better analogy would be Japan, whose young people are paying for the profligacy of their elders with lower living standards.
    - Another argument against endless deficits — who gets the money? Right now we are printing money to send to Wall Street bankers … but not homeowners. And, we are sending money to unproductive people who do not work (Medicaid is what I am thinking) rather than productive people who have worked (consider college students who are financing the retirement packages of their boomer instructors instead of being able to save or invest in their own retirement packages.)
    – End game: Mr. Roche is technically right (he has explained the rules of the game very well) but the game is ultimately self-destructive.

    • The game is only self destructive to the extent that spending outstrips productive capacity and reduces living standards. Remember, the USA has run deficit since its inception. Here’s a brief snapshot of that history:

      You can very clearly see what I touch on in the video. The govt’s deficit is the pvt sector’s surplus. Now, living standards are different things to different people, but I don’t think any rational person would argue that our living standards have declined since 1776 or 1913 or even 1950. But we’ve run deficits since then.

      LIving standards are a function of using govt for some public purpose while also empowering productivity, innovation and growth. Ultimately, it is productivity and innovation that offers us a better living standard over a multi-generational period. We live much better lives than our great great grandfathers did because we have far more time to do the things that we appreciate. That’s the result of productivity and innovation. As a society, we have to agree on the size of govt that we feel best maximizes public purpose without sacrificing productivity and innovation. Saying that govt spending always does that is just flat out wrong. History proves this.

      • Cullen – I’d like to know more about “size of government”. Does Gov spending mean “big government”? How can we have small government, but maintain the necessary spending to keep up with our growth in population, productivity, and private sector savings rate.

        • I guess what I’m asking is…. how does a small gov spend enough to support a large private sector? Or, how can you have a small gov and still spend enough to support a large private sector?

          • Thanks Cullen – I’m not purposely leading to a point, but rather being led by your answers…. and the next logical question is…. is it possible to eliminate a massive Gov institution – or cut one or two in half… and not replace it with another Gov institution, without destroying the economy? The Gov cancels the transfer payments, say to military, and then cuts taxes so it nets to zero. But what of the lost military jobs, and the lost military production at Boeing, etc? It seems really hard to go back from where we are today. Some could clearly be replaced by the private sector doing what the public sector had been doing. But than that requires paying customers – say killing off all free public education. But that is equally, if not even more destructive.

            This seems like a terribly difficult subject with no easy answers.

            • Your intuition serves you well. If the government lays off an entire department, it will no longer pay wages to some substantial quantity of individuals. Instead it’ll pay out unemployment benefits. There will be a change in the income of the group once unemployed, and this difference will not be in their favor. This reduction in paid wages is all money the government employees would’ve used to transact trade in the economy. Sure they might’ve saved some (have you seen the savings rate of most Americans???) or paid some taxes or whatever, but by and large people would’ve created demand with it by spending it. There is a net loss of money being supplied into the system by the government in an effort to reduce its commitments, and therefore there is a net loss in trade the former gov employees can transact in the private economy.

              You see, there is enough desire for transactions to occur, there is only not enough money in the system to transact the trade given current prices. More money in the system in the hands of those who will spend it, the more transactions/demand creation they can generate, which means more jobs, and a healthier, happier economy.

              So the solution and answer to your question is yes, the government can eliminate one of its branches without hurting the economy by making sure the same amount of money is being given to those it laid off, or if not to them, then the same quantity of money to other private individuals who will generally spend it. Of course that wouldn’t reduce the government’s expenditures, but it is how to eliminate a government branch without harming the economy.

            • Sure, if we eliminate the military for instance, then everyone else can afford lower taxes. As Robert mentioned, we probably end up paying out UE benefits for a while until all of these people can find a pvt sector job. The key is that the govt has to supply the net financial assets to make sure they can all be hired. So, instead of paying these people to be in the military, we cut taxes for everyone thereby affording the pvt sector the ability to hire the unemployed. Obviously it doesn’t work out that smoothly, but your example is rather extreme.

    • “- I have no doubt this is technically true, but in reality we are passing on a lower standard of living to our children, which is another way of saying they will *pay* the price for our profligacy.”

      You have not explained how we are passing on a lower standard of living, you have simply stated that it is true.

      “- Someone made the point that the federal debt is comparable to family debt only if the family had a printing press in the basement to print money. So let me ask: What if we all had a printing press? What would happen then? How long would it take before the grocer stopped taking your money”

      That question shows you don’t understand MR/MMT. The fact that the Governemnt is the Monopoly Supplier of the currency direly important.

      “- OK, we’re not Greece because we have a printing press. Then a better analogy would be Japan, whose young people are paying for the profligacy of their elders with lower living standards.”

      They would be far better off if they had performed greater fiscal stimulus.

      “- Another argument against endless deficits — who gets the money? Right now we are printing money to send to Wall Street bankers … but not homeowners. And, we are sending money to unproductive people who do not work (Medicaid is what I am thinking) rather than productive people who have worked (consider college students who are financing the retirement packages of their boomer instructors instead of being able to save or invest in their own retirement packages.)”

      Again showing you haven’t done your homework. Mr. Roche and those who understand the operational realities of the system advocate stimulus that will directly affect the middle class (like massive tax cuts).

      “– End game: Mr. Roche is technically right (he has explained the rules of the game very well) but the game is ultimately self-destructive.”

      Again, you make declarative statements without showing a shred of evidence.

      • “…Then a better analogy would be Japan, whose young people are paying for the profligacy of their elders with lower living standards.”

        You mean their elders who founded and grew Toyota and Honda. Who built roads and schools. Who innovated, produced, farmed, fed and clothed them?

        When the debt load gets too big – since clearly 200+% isn’t too big yet – the poor youngsters who are saddled with it will just have to man up and create some points on their keyboards to pay off their parents “profligate” ways. And then similarly produce great new technologies and new companies and new children so that there is a need for and a demand for new points (er, um, Yen).

  23. Oh yes, the US can “”print”"/issue as much money as they want. But that’s (potentially) very (Hyper-)inflationary. NOT in the current situation. And Hugh Hendry and Robert Prechter share the same view. They both say that issueing money is a politcal decision. That’s not the problem. The problem is that this rising debtload needs to be serviced. Somewhere in the future interest rates will rise and the servicing that debt will become impossible. And falling interest rates prepare the ground for (much)higher rates in the future.
    Yes, the US could issue as much currency as they want but the mere fact of rising rates makes investors flee the T-bond market. (Greece anyone ??).

    Future generations won’t need to pay down that debt. They will simply default on the debt.

    • “servicing that debt will become impossible”. Why? Will we be running out of points sometime soon?

      Why is everyone so worked up about inflation and not equally worked up about deflation????? Yes, there is a too much money problem, but there is also a too little money problem. The debt is meaningless if the need for that debt is far greater than the debt itself.

      • 1. Who said that I was currently an (Hyper-)inflationista ? (Worldwide) Deflation has been in force since US home prices started to fall in late 2005. Then it was a matter of time before the whole system would blow sky high. I am surprised that it took until 2008 before that became apparent.
        2. Deflation is destruction of credit/debt. And somewhere in the future that will include government debt as well.

    • Of course if you default on the debt, then the guy who owns Treasuries in his retirement account will see a reduced standard of living.
      Unless the government steps in to pay for his retirement, meaning it will then cut spending for someone else.
      Either way, future generations pay for our spending today. … And we’re not even leaving them something tangible, like a bridge or a school, as previous generations did for us.

      • We are our grandparents “future generation”. What burden do you feel from them? How is the debt-clock weighing down on your shoulders? Are those piling up digital points hurting you? If not, how are they going to hurt your grandkids?

        We only place a burden on our grandkids if we prove not to be productive. Right now we are proving to not be as productive as we could be because we refuse to issue more points to reward willing and able bodied people who are fully capable of scoring touchdowns and kicking field goals if we’d let them. Instead, with not enough points available to them, they are sitting in the stands, or protesting in the parking lot screaming that they want in the game.

    • You’ve been a commenter here as long as I can remember, and yet you haven’t learned one single solitary gawddamned thing about anything in all that time.

      • Oh yes, by visiting this website I have learned a lot. But some notions trotted out here simply don’t jive with reality. Like the FED controling interest rates. And that becomes apparent when one visits other (US) websites as well. Then one is forced to dig even deeper before one – step by step – can resolve the contradictions and then one starts to understand how the financial system REALLY works. I visit at least 6 financial websites (the majority of them are US websites) EVERY day. I don’t limit myself to this website only.

        And I can recommend everyone to buy and read Robert Prechter’s book “”Conquer the Crash”" that was published in early 2001(2002 ??) and/or the 2.0 version from 2009. Keep in mind, he is a deflationist like one Mr. Roche.

        • So you know the truth, that I control interest rates. You pesky kids and your dog just had to put your noses where they didn’t belong, huh? I’m afraid I can’t let this information become public, which means you’ve become a liability . . .

    • “Future generations won’t need to pay down that debt. They will simply default on the debt.”

      Future generations will not pay for anything because taxes pay for nothing as it is. The problem is the lack of transparency. Today we “issue” debt/bonds and then spend; or at least that’s what people observe and think. But it is false. When the US Treasury “borrows” money it reduces the supply of reserves in the banking system. In order for the FED to have and TO HOLD a target interest rate it must ensure there are sufficient reserves in existence BEFORE the Treasury can sell those bonds. If it does not then the FED cannot maintain its target interest rate. Since the FED can infinitely produce reserves it NEVER has to surrender its ability to hold its target interest rate.

      It would be far more transparent if the FED directly gave the Treasury the needed reserves and then later had the Treasury issue bonds for excess reserve holders to park them in.

  24. Sorry to do this Cullen, but I just had a thought on the JG. Isn’t the financial industry the very worst evidence about the potential ramifications of the JG? The financial industry is basically this massive industry subsidized by neoliberal policies. Their growth over the last 30 years has been largely driven by government policies. And where has it gotten us? It’s produced millions of unproductive overpaid jobs that produce little and take a lot from society. Granted, bankers can’t be compared to JG workers, but it’s the same sort of unproductive idealism. The JGers are just at the opposite end of the spectrum from the neoliberals.

    • I am going to write this day down as the first time I mostly agreed with something FDO15 said!!

      “Isn’t the financial industry the very worst evidence about the potential ramifications of the JG? The financial industry is basically this massive industry subsidized by neoliberal policies. Their growth over the last 30 years has been largely driven by government policies. And where has it gotten us? It’s produced millions of unproductive overpaid jobs that produce little and take a lot from society. Granted, bankers can’t be compared to JG workers, but it’s the same sort of unproductive idealism. The JGers are just at the opposite end of the spectrum from the neoliberals.”

      Very good points! However…………(.you knew there had to be a however didnt you?)…. what this really shows is that neoliberals are disingenuous about their criticisms of the JG policy. They ARENT against large govt intervention in markets or “picking winners” they just want to pick their own winners….. and losers. So to argue that spending literally trillions on rich financial companies versus hundreds of billions on middle and lower class potential consumers is less disruptive or less inflationary (what drives up prices more, little guys going to walmart or trust fundies buying their second house and third masserati) is absurd. The truth is that everyone knows (even neo liberals)that the govt can spend on whatever it wants to….. its all about the wants!

  25. – The two facts that living standards are higher than they were in 1950 and we have run government deficits since then does not imply that the latter led to the former. You could put hem lines on that chart, too, but it wouldn’t mean that rising helm lines equaled higher living standards.
    – Living standards are higher now because technology and productivity and immigration and population growth have created economic benefits — which have increased the money supply. Increasing the money supply in itself does not increase the standard of living.
    – You are saying that Japan needs *more* stimulus (more debt)?! At what point would you forsee that Japan’s currency becomes debased. 400 pct debt to GDP? 800 percent?
    – Tax cuts? The people who need the most help in this economy do not even pay federal taxes. How do you send your printed money to them? You put them on welfare, I guess, but that does not lead to any economy activity or productivity.
    – Government should not be in the business of sending money to those it deems worthy. Certinaly government should increase the money supply to correspond to increased econmic activity.
    – You say government provides the money supply. Yes, until it abuses that power.
    – How are we passing on a lower standard of living? Well, I see it all the time in my profession. My retired clients have a higher standard of living than their children because government is electing to use borrowed money to benefit older people rather than their children and because government provided cheap interest rates to divert investment into wasteful economic activity (the real estate boom.)

    • I never said printing money increases living standards. I said printing money in excess of productive capacity will reduce living standards. We have a huge amount of idle resources in the USA today. We could put them to work without much inflation at all and it would almost certainly result in increased innovation, productivity, and higher living standards. This is what the hyperinflationists got so wrong a few years ago. They misunderstood the fact that our productive capacity did not collapse in the 2008 recession and remained quite robust. We just needed to fill the demand gap.

      FX traders have been betting on the Yen’s debasement for 20 years. Why hasn’t all the printing ruined them? Because they haven’t printed enough to generate stable demand. So inflation has remained low and deflation has ruled the day. Likewise, Japan, with high potential output, has not filled the gap or seen a subsequent collapse in productivity.

      I am all for efficient spending and cracking down of govt corruption.

      Have you read my primer? I discuss all of this in detail….

      http://pragcap.com/resources/understanding-modern-monetary-system

      • Re: Japan — there was a kid in my college dorm who drank like a fish. We all thought he’d be dead at 40. Boy were we wrong. He was dead at 50! Meanwhile, his standard of living declined every year!
        I guess I disagree that in a practical sense that putting more gas in the car will make it go faster.
        You are stating that we have productive capacity, but that is an opionion. We could be producing 50 million cars if we wanted. Would that raise the standard of living if everybody had a cheap, new car? We could put 20 million people to work sweeping the streets, but would that raise the standard of living?

        • The data refutes these points. Capacity utilization is at what, 78%? Unemployment is 8.5%. Are you saying we’re maximizing our potential production right now? Granted, I don’t think 20 million people sweeping streets is productive, but there’s a lot of work out there to be done right now that could really get this economy back up and running. Work that would be very productive. Do you disagree with that? Or do you think we’re tapped out?

          • I don’t know. I suspect we might be entering a time in history when we can — and are — producing all we need and traditional ways of boosting production (make more cars! build more houses! sell more mortgages!) are not helpful because we already have enough houses and most of us can do with our cars for another year. Then the qustion becomes — does the system and the society spread that production around, and does it reward people for doing the right kind of work.
            As for employment, practically speaking anybody who really, really wants a job goes out and finds one. Those that can’t are, sadly, people who don’t have skills to do produtive work. They could get jobs in plants in China, but not here. And with the breakdown in the family structure, those people don’t have a support system like they used to do, back 50 years ago when the aunt who couldn’t work could still live upstairs and take care of the children.
            I have no answers, just thinking out loud — great discussion. Love the board.

            • “Teach man to enjoy his benefits, and not injure his fellows”. Sounds like a pretty open-ended doctrine to me. It could appeal to left, right, JG’er, anti-JGer, JG Lover and JG Hater (and “I want to kill all JGers”) equally. Wisdom of the ages, accessible to all.

        • “We could be producing 50 million cars if we wanted. Would that raise the standard of living if everybody had a cheap, new car?”

          If there is demand for fifty million cars then the answer is yes.

  26. TPC, re:productivity measurement … a concrete example … social security etc. (and I’m not talking about future liabilities). If we’re paying a senior (today) to sit around and read alternative financial blogs all day, that doesn’t sound very productive. They could argue that their sitting around now was the natural outcome of having paid taxes in the past or they “paid an equivalent tax” indirectly by increasing national productivity over their lifetime (to 25 years into the future), far and above the wages they received. Now, we know the first isn’t true (i.e. SS is pay as you go). How do we know the second is true?

    • Seniors spending money via their SS checks creates demand, which generates jobs and elevates productivity. People who can’t get work but have money to spend is better than people out of work and dead broke.

      • BTW I’m not making a policy statement or judgement, but trying to explore a concrete example of how we can address the debt/productivity issue raised by TPC.

        • I get your point. All I’m saying is if you’ve got people who are for whatever reason not working (producing) they can at least be useful by spending and spurring greater productivity in others.